Goldman Sachs Tattled To Regulators About Morgan Stanley’s Block Trading Business

Many of Morgan Stanley’s Wall Street rivals had coveted the bank’s lucrative block-trading business for years, despite the fact that the business thrived even as many of the bank’s clients suspected it of front-running its trades. But after the disastrous collapse of Archegos, many of Morgan Stanley’s rivals had finally had enough. Roughly a year after Credit Suisse had been saddled with billions of dollars in losses during the Archegos collapse, reports emerged that the Swiss bank had ‘cooperated’ with the SEC and DoJ in their investigation of Morgan Stanley’s block-trading business. 

Of course, there’s another, less kind, way to describe that type of behavior, as we pointed out here. 

We also noted at the time that CS wasn’t alone, as many of Morgan’s clients (and many of its rivals as well) were all too eager to share their suspicions – and any proof they might have had – with the SEC. 

Now, the FT reports that the list of cooperators included Morgan Stanley’s biggest rival in the block-trading business (and many of its other businesses): Goldman Sachs. 

Of course, Goldman isn’t exactly a paragon of moral rectitude on Wall Street (see the 1MDB scandal for more on that). But we digress. 

According to the report, Goldman complained to Hong Kong’s markets regulator, the Securities and Futures Commission, after witnessing suspicious movements in Hong Kong-listed stocks prior to Morgan bringing block trades to market. These suspicious trades involved the Chinese pharmaceutical firm WuXi Biologics. 

The FT couldn’t say whether Hong Kong authorities had launched an investigation in response to Goldman’s claims. Nevertheless, the fact that they had been made shows that Morgan could face pressure from foreign regulators as the SEC and DoJ continue with their block trading probe. 

The Goldman tip-off is the latest sign that the practices being investigated in New York could also affect Morgan Stanley in Asia. In February, the Chinese securities regulator ordered Morgan Stanley to provide information relating to the US block trades probe. Hong Kong’s financial regulator has also started asking banks about their block-trading practices since the US investigations were made public, according to two people close to the matter.

Bloomberg data show Morgan Stanley executed 9 block trades involving shares of WuXi biologics between 2020 and 2021. Morgan Stanley has done little more than acknowledge the investigation in the US, with CEO James Gorman saying during a recent earnings call that the bank’s equities business and its performance speaks for itself. 

Still, the investigation has reflected poorly on the bank’s block-trading franchise, which earned more money than any of its rivals between 2018 and 2021, when the US investigation began.