Bitcoin swap trading
Citing anonymous sources, Bloomberg reported last week that Morgan Stanley (MS) is following in the footsteps of its peers and plans to offer bitcoin swap trading to its clients. The digital currency trading business plan is in a nascent stage and still awaits some internal approvals. The company’s move is said to be mainly driven by its clients’ strong demand for cryptocurrency derivatives.
Citing people familiar with Morgan Stanley’s move, Bloomberg stated that investors would be allowed to go long or short by using the so-called price return swap. The bank will benefit by charging a spread for each transaction.
If Morgan Stanley’s initiative to launch bitcoin derivative trading is successful, it will give the bank’s trading revenues a further boost. In the second quarter, it reported a ~12% year-over-year increase in trading revenues. Its equity sales and trading revenues increased ~14%, while fixed income sales and trading revenues soared ~17%.
Bitcoin has always been controversial and involved in uncertainty, increasing regulators’ concerns over security risks and scams. Cryptocurrency is so highly volatile that banks have restrained themselves from making a forceful entry into the space, preferring instead to opt for the safer regulated derivative market.
Similar efforts by other banks
Morgan Stanley’s recent move comes at a time when other top peers are also making similar attempts to launch cryptocurrency derivative trading. Citigroup (C) is reportedly developing a mechanism for cryptocurrency trade by issuing digital asset receipts (or DARs). The mechanism will allow investors to make proxy trades without directly owning the underlying coins.
Goldman Sachs (GS) has been considering cryptocurrency options for the past 12 months. Another competitor, JPMorgan Chase (JPM), whose CEO earlier stated that bitcoin is a fraud asset, has started to take digital currency more seriously. In May, the bank appointed Oliver Harris as head of its crypto-assets strategy.
The iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI) has allocated ~9.1% of its total fund to Morgan Stanley stock.