Morgan Stanley's CEO says successful equities trading businesses have 9 boxes

Ted Pick, CEO of Morgan Stanley, knows things about equities sales and trading. Long before he was CEO, Pick was an equities trader and then head of equities for the investment bank. Morgan Stanley's equities sales and trading business, which generated $4.1bn of revenues in the second quarter, was once Pick's baby.

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If you too want to grow a lanky global teenage equities business like Morgan Stanley's, Pick said yesterday that you'll need nine "boxes." - Prime broking, equity derivatives, cash equities and then "three regions." These are only six boxes, but presumably Pick means that the three business boxes need to be multiplied by the three regional boxes (APAC, EMEA, the Americas). 

Only if you have these nine boxes will you have a "global, fully laid out equities business," said Pick, thereby explaining why Citi and European banks like Barclays and BNP Paribas are so keen to expand in prime broking. This may also be why HSBC - which is not known for its equities prime broking offering - has struggled in the equities trading space. 

As banks struggle to compete against electronic market makers like Citadel Securities and Jane Street in the equities market, Pick's nine boxes can be taken as an indicator of a bank's commitment. Smaller players are being edged out of equities: the cost to run the business in terms of "dollars in the ground" is increasing, said Pick. Citadel Securities is offering its platform on an outsourced basis to banks that are prevaricating.      

As the chart below shows, Morgan Stanley's nine boxes are serving it well. Equities sales and trading revenues at the bank were second only to Goldman Sachs' in the second quarter and rose by 34% year-on-year.

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Photo by Luke Heibert on Unsplash