Morgan Stanley announces prop trading spin out

Morgan Stanley is to carve out its in-house quantitative proprietary trading unit, Process Driven Trading, in 2012.
By None

Morgan Stanley is to carve out its in-house quantitative proprietary trading unit, Process Driven Trading (PDT), in 2012. It has become the latest investment bank to lay out its plans for dealing with the Volcker Rule, which banned principal trading activity for bank holding companies and was incorporated in the Dodd-Frank Act signed into US law last summer.

The specific rules are currently being drawn up by the Financial Stability Oversight Council, also created by Dodd-Frank to monitor the financial system in the US, and are expected to be made public in the coming weeks.

Morgan Stanley says employees of PDT have agreed to purchase certain assets from the firm and set up an independent advisory firm, called PDT Advisors, at the end of 2012.

During the two-year transition period, during which PDT will remain a part of Morgan Stanley, the division plans to develop its infrastructure and third-party investment business. The investment bank expects all 60 of the unit's current employees to join PDT Advisors.

“We are excited about the opportunity to build a premier independent investment firm while continuing our great partnership with Morgan Stanley,” said Peter Muller, founder and head of PDT.

“PDT has generated an enviable track record within Morgan Stanley since its inception in 1993,” said James Gorman, president and chief executive officer of Morgan Stanley.

“We are delighted to continue our partnership with PDT as it looks to expand its business by taking on third-party investors.”

Morgan Stanley's announcement follows that of other large investment banks, which have also been making plans in preparation for the Volcker Rule.

In September 2010, J.P. Morgan confirmed that it plans to transfer its prop trading teams within its equity, emerging markets and structured credit businesses to a new alternative investment management group for clients of J.P. Morgan Asset Management. Goldman Sachs is reported to be considering options for its principal strategies equities unit, which may include incorporating it within its asset management group or winding it down, while Bank of America Merrill Lynch is said to be cutting staff from its proprietary trading division.

+44 (0)20 7400 7105