Securities Law & Instruments


Decision pursuant to section 10.1 of OntarioSecurities Commission Rule 35-502 (the Rule) exempting applicantfrom the requirement under section 3.7 of the Rule.

Statutes Cited

Securities Act, R.S.O. 1990, c. S. 5, as am.

Rules Cited

Ontario Securities Commission Rule 35-502 (2000)23 O.S.C.B. 7989, ss. 3.7, 10.1.



C. S.5, AS AMENDED (the Act)






(Rule 35-502)

UPON the application of Morgan Stanley& Co. Incorporated (MS & Co.) of May 30, 2003,pursuant to Section 10.1 of Ontario Securities Commission Rule35-502 Non-Resident Advisers (Rule 35-502) foran exemption from the requirement under clause 3.7(1)(b)(ii)of Rule 35-502 that MS & Co. be subject to the agreementannounced by the Bank for International Settlements on July1, 1988 concerning international convergence of capital measurementand capital standards (BIS Agreement) for it to act ascustodian for its Ontario clients (Application);

AND UPON considering the Application;

AND UPON MS & Co. having representedto the Director that:

1. MS & Co. is a corporation formed underthe laws of the State of Delaware and is a wholly owned subsidiaryof Morgan Stanley (Morgan Stanley). The head officeof MS & Co. is located in New York, New York.

2. MS & Co. is registered under the SecuritiesAct (Ontario) as an international dealer and an internationaladviser. MS & Co. is also registered as a broker-dealerand an investment adviser with the United States Securitiesand Exchange Commission.

3. MS & Co. provides investment, financing,and related services to individuals and institutions on aglobal basis. Services provided to clients include securitiesbrokerage, trading, and underwriting; investment banking,strategic services, including mergers and acquisitions, andother corporate finance advisory activities; origination,dealer and related activities; securities clearance and settlementservices and investment advisory and related record keepingservices.

4. Morgan Stanley had shareholders' equityas at November 30, 2002 of US$21.885 billion. MS & Co.,as at November 30, 2002 had regulatory net capital of US$4.996billion as determined under Rule 15c3-1 under the United StatesSecurities Exchange Act of 1934 and had shareholders' equityof US$4.665 billion.

5. MS & Co. has five principal affiliatedfinancial institutions: Morgan Stanley Bank (shareholders'equity: U.S.$2.1 billion, as at December 31, 2002), DiscoverBank (shareholders' equity: U.S.$3.188 billion as at December31, 2002), Morgan Stanley Dean Witter Bank Limited (shareholders'equity: GBP 211 million as at December 31, 2002), Morgan StanleyBank Zurich (shareholders' equity: US$176.436 million as atDecember 31, 2002) and Morgan Stanley Bank AG Germany (shareholders'equity: Eur 138,898,221.14 as at December 31, 2002). MorganStanley Bank, Discover Bank, Morgan Stanley Dean Witter BankLimited, Morgan Stanley Bank Zurich and Morgan Stanley BankAG Germany are collectively referred to as the Morgan StanleyBanks.

6. MS & Co. acts as custodian for itsclients in the United States and throughout the world. Itcurrently has custody of approximately U.S.$685 billion ofclient assets. MS & Co. proposes to act as a custodianfor its clients in Ontario.

7. Section 3.7 of Rule 35-502 provides thatsecurities and money of an Ontario client of an internationaladviser must be held by (a) the Ontario client; or (b) a custodianor sub-custodian that meets the requirements for acting asa custodian or sub-custodian of a mutual fund in NationalInstrument 81-102 - Mutual Funds (NI 81-102),and that is subject to the BIS Agreement.

8. MS & Co. meets the requirements foracting as a custodian or sub-custodian of a mutual fund inNI 81-102.

9. The BIS Agreement is a framework for measuringcapital adequacy that was designed to strengthen the soundnessand stability of the international banking system. The BISAgreement provides minimum levels of capital that are intendedto be applied to banks on a consolidated basis, includingsubsidiaries undertaking banking and financial business.

10. MS & Co. is an affiliate of the MorganStanley Banks, but is not a subsidiary of any of the MorganStanley Banks. Accordingly, because of MS & Co.'s corporatestructure and because MS & Co. is not a bank, the BISAgreement does not apply to it.

11. There are no apparent concerns as to thecapital adequacy of MS&Co. given its capital resourcesnoted above.

IT IS ORDERED, pursuant to section 10.1of the Rule, that MS & Co. is exempt from the requirementof clause 3.7(1)(b)(ii) of the Rule that it be subject to theBIS Agreement in order for it to act as custodian for its Ontarioclients, provided that there is no material adverse change inthe ownership or capitalization of MS & Co.

June 27, 2003.

"David M. Gilkes"