Morgan Stanley Plans to Launch Bitcoin Swap Trading

Amid rising number of Wall Street banks expressing their interest in cryptocurrencies and launching a variety of services around cryptocurrency trading, the leading investment firm Morgan Stanley (MS) is planning to offer trading through a complex version of derivatives that will be tied to bitcoin, according to Bloomberg.

MS Working on Swap-like Bitcoin Product

Citing a person familiar with the matter, Bloomberg reports that the leading American investment bank will facilitate deals in derivatives contracts that will allow traders and investors a synthetic exposure to the performance of Bitcoin, the most popular cryptocurrency. The proposed products will work as “price return swaps,” and will allow market participants to take long or short positions. Morgan Stanley will benefit by charging a spread for each transaction. A swap is a derivative contract that allows the two transacting parties to exchange financial instruments. While any instruments can fit the bill, most swaps involve the exchange of cash flows based on a notional principal amount that both parties agree to. (See also, Different Types of Swaps.)

The precise detail about the working of bitcoin-based swaps is not known at the moment. The unnamed source further added that the bank is technically ready to launch the Bitcoin swap trading. However, the firm is waiting on the assessment for sufficient market demand at the institutional level, and on the completion of an internal approval process. The swaps will not be based on the Bitcoin tokens but will be linked to the Bitcoin futures contracts. The development goes in sync with an earlier statement made by the chief executive officer (CEO) James Gorman who denied offering services to customers for directly buying and selling cryptocurrencies, and instead “build a trading desk to support various derivatives tied to digital assets.”

Morgan Stanley joins the list of other prominent investment banks which are actively working on cryptocurrency-linked offerings. Goldman Sachs Group Inc. (GS) is exploring the launch of non-deliverable forwards, a derivatives product based on Bitcoin, and is also considering a plan to launch a dedicated custody service for safe storage of crypto funds for institutional clients. (For more, see Goldman Sachs Is Planning a Crypto Custody Service.)

Earlier this week, another Wall Street major Citigroup Inc. (C) was reported to be developing a new mechanism for trading cryptocurrencies known as digital asset receipts (DAR). (For more, see Citigroup Planning Innovative Crypto Trading Mechanism.)

JP Morgan Chase & Co. (JPM) has also initiated exploring the potential of digital money at its corporate and investment bank in May. (See also, JPMorgan Dives Into Crypto Space.)

Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns no cryptocurrencies.

Take the Next Step to Invest
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.