Morgan Stanley Mulls Quant Desk Spinoff

Nov 15 2010 | 4:20am ET

Morgan Stanley may spin-off its quantitative proprietary trading desk as a separate hedge fund as it moves to comply with the new Volcker rule.

The bank and the process-driven trading group have been in talks for more than a year about a split. But the discussions, motivated last year by the fears of the PDT team, led by Peter Muller, about pay restrictions imposed on banks that took government bailout money, have been accelerated by the passage of the Volcker rule, which bars banks from proprietary trading.

Morgan Stanley's CEO said last week that the bank had shuttered all but one of its prop. trading desks, and that the last desk—PDT—would follow the others. The firm is also in the process of spinning off its top hedge fund unit, FrontPoint Partners.

Morgan Stanley had considered moving PDT into its asset management unit and opening it to outside investment. But that option appears to be off the table as a result of the Volcker rule.

News of the PDT talks were first reported by The New York Times.

As with the FrontPoint spinoff, Morgan Stanley may retain a stake in an independent PDT. Over the past two decades, the group has earned billions for Morgan Stanley, including some $4 billion in profits—after fees paid to the group—over the past decade, which included an awful 2007, in which PDT lost some $500 million in just one month.

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