(Bloomberg) — Morgan Stanley is shuttering a unit focused on electronic market-making for US equity options, retreating from a corner of the derivatives landscape that’s grown increasingly popular with retail investors, even as trading volumes boom.
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The business, known internally as automated market-making, is being closed, according to two people familiar with the matter, who asked not to be identified because the information is confidential.
While US derivatives activity has surged, the space has come to be dominated by proprietary firms like Citadel Securities and IMC Trading BV. The exit underscores how traditional players have struggled to keep pace with businesses natively built for speed and scale, aided by specialized technology and fewer regulatory constraints.
A spokesperson for Morgan Stanley declined to comment.
The firm has been the last major bank still in the business of paying retail brokers for options order flow, something that’s now largely the preserve of high-frequency trading institutions. In one indication of its share of that market, Morgan Stanley accounted for 6.4% of such payments among market makers in the first quarter, Bloomberg Intelligence’s analysis of regulatory filings show. The top four firms, led by Citadel Securities, were all principally proprietary firms.
Morgan Stanley is working to place some employees from the unit in other roles at the firm, people familiar with the matter said.
–With assistance from Alexandra Semenova.
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