Morgan Stanley has said that hedge fund clients will be able to place assets into a trust bank, in an attempt to reinstate faith in its prime brokerage unit after losing clients in 2008.
Assets will be held by Morgan Stanly Trust National Association, a separate subsidiary from the US and UK broker dealers.
This development mirrors the recent move by BNY Mellon, mentioned in Global Custodian Spring 2009 (pp70-71). According to a conversation with Art Certosimo, Senior Executive Vice President, BNY Mellon, hedge fund managers are starting to put place cash collateral with BNY Mellon, for use by prime brokers as initial margin, through a tri-party structure.
Under this situation, assets are no longer kept by the prime broker, but placed in custody with BNY Mellon.
The move towards strengthening prime brokers risk management was triggered by collapse of Lehman Brothers, where even unencumbered securities were at risk of being caught up in the insolvency process.