Goldman Sachs called out Morgan Stanley's block trading to the Hong Kong securities regulator: report

• Goldman Sachs alerted the Hong Kong securities regulator about Morgan Stanley's block trades, the FT reported.
• It flagged Morgan Stanley regarding stock price drops shortly before its rival put shares on the market, the FT said.

Wall Street giant Goldman Sachs flagged banking rival Morgan Stanley's block trading to Hong Kong's financial regulator, the Financial Times reported Thursday, citing people familiar with the matter.

Goldman Sachs alerted Hong Kong's Securities and Futures Commission three years ago during an "informal" discussion about share price drops in a few Hong Kong-listed companies, the FT said. These price drops happened a short while before Morgan Stanley brought blocks of shares to the market.

Whether the Hong Kong regulator investigated the report by Goldman Sachs' representatives is not known, according to the FT.

Goldman Sachs declined to comment when contacted by Insider. Morgan Stanley and Hong Kong's SFC did not immediately respond to a request for comment.

Block trading refers to the practice of a bank selling a large number of shares in one go to institutional clients, off the open market.

Holders who want to sell a lot of shares may find selling in parts takes longer and can reduce the price. Banks tend to bid for all of them, usually at a discounted price to the market.

The successful banks then offer these shares to clients at a premium to the agreed price, and seek to gain a profit in this way.

In February, US regulators opened a probe into block trading on Wall Street, looking at whether banks gave hedge fund clients advance notice about big share sales before they were made public. The Securities and Exchange Commission and the Department of Justice subpoenaed Goldman Sachs and Morgan Stanley, among others, as part of the probe.

Reports of the US investigations prompted Asian regulators to start asking their own questions, the FT said. China's Securities Regulatory Commission told Morgan Stanley to provide information relating to the SEC probe in February, while the Hong Kong authority started asking banks about their block-trading practices.

Block trading boomed in 2021 and was at a five-year high of $70 billion last year, according to a Wall Street Journal report citing data from Dealogic. Morgan Stanley was the biggest player in the market in 2021, while Goldman Sachs was also an active player, based on that data.

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