Morgan Stanley will shut down its U.S. stock options "automated market-making" business
Morgan Stanley is shutting down its electronic market-making division for U.S. stock options, despite the growing trading volume in this area. This decision reflects the disadvantages traditional financial institutions face when competing with proprietary trading firms. Morgan Stanley was one of the few large banks that paid retail brokers for options order flow services, but this business is now dominated by high-frequency trading firms
According to Zhitong Finance APP, Morgan Stanley (MS.US) is shutting down a department dedicated to electronic market-making for U.S. stock options, exiting a derivatives field that has become increasingly popular among retail investors, despite a significant increase in trading volume. According to two informed sources, this internally referred to as "automated market-making" business is set to close. Morgan Stanley is reportedly planning to reassign some employees from this department to other positions within the company.
Despite a substantial increase in derivatives trading activity in the U.S., this sector has gradually been dominated by proprietary trading firms such as Citadel Securities and IMC Trading. This exit highlights the clear disadvantages traditional participants face when competing against those built from the ground up for speed and scale, leveraging specialized technology and fewer regulatory constraints.
The bank has been one of the few large banks still paying retail brokers for options order flow services, a business that is now largely dominated by high-frequency trading firms. In the first quarter, fees earned by Morgan Stanley as a market maker accounted for 6.4% of such fees. The top four companies, led by Citadel Securities, are all major proprietary trading firms
