Summary of the Bank Deposit Program
References to "Morgan Stanley," "E*TRADE from Morgan Stanley," "we," "us" or "our" refer to Morgan Stanley Smith Barney LLC. The words "you," "your," and "client" refer to the account owner(s).
Through the Bank Deposit Program (“BDP” or the “Program”), free credit balances are automatically deposited, or “swept” into interest-bearing FDIC-insured deposit accounts (“Deposit Accounts”) established for you by, and in the name of, Morgan Stanley Smith Barney LLC as agent and custodian, at one or more sweep banks: Morgan Stanley Bank, N.A. (“MSBNA”) and Morgan Stanley Private Bank, National Association (“MSPBNA” and, together with MSBNA, the “Sweep Banks”). Under certain circumstances you may have funds sent to nonaffiliated Program Banks (collectively with the Morgan Stanley Sweep Banks, the "Sweep Banks"). Free credit balances above $20,000,000 (the "Deposit Maximum") are automatically swept into a money market mutual fund (the "Sweep Fund"), as further described below. The Deposit Accounts at each Sweep Bank consist of a demand deposit (“DDA”) account. Your monthly Account statement will reflect your balances in each Sweep Bank and if applicable, the Sweep Fund. Currently E*TRADE from Morgan Stanley accounts are not eligible to have funds sent to the Program Banks. However, effective Juna 2024, such accounts will be eligible to have funds sent to the Program Banks.
Each Morgan Stanley Sweep Bank has a Deposit Limit of $498,000 for joint accounts and $249,000 for all other accounts. The Deposit Limit will be computed on a daily basis to be the lesser of $249,000 or the difference of $249,000 and the total of any other deposits held in the same FDIC account ownership category at the respective Sweep Bank for all accounts except jointly held accounts. Any other deposits include positions in the Morgan Stanley savings programs, GlobalCurrency, CDs, checking accounts and savings accounts at MSPBNA. The Deposit Limit will continue to be $498,000 for Accounts held jointly by two or more persons or entities. Deposit Limits are set slightly below the FDIC insurance thresholds to allow for accrued interest on the Deposit Accounts.
The Primary Sweep Bank is the Sweep Bank where your deposits will first be made. Either MSBNA or MSPBNA will be your Primary Sweep Bank, and you will receive notice of the then-current order of the Sweep Bank upon the first deposit into the Program. Morgan Stanley may change which of your Sweep Banks is Primary versus Secondary Sweep Bank. If a change is made, we may transfer funds between the Sweep Banks in order to reallocate your deposits. Your monthly account statement will reflect your balance in each Sweep Bank. Morgan Stanley will notify you with a written notice at least 30 calendar days prior to any material change to the Program such as changes to the Deposit Maximum or the Sweep Fund.
Deposits will first be made to your Deposit Accounts at the Primary Sweep Bank up to the Deposit Limit, then to the other Sweep Bank (“Secondary Sweep Bank”) up to the Deposit Limit. If your funds exceed the Deposit Limit at both the Primary and Secondary Sweep Banks, on any given day, your deposits that exceed the Deposit Limit at the Secondary Sweep Bank will sweep to the Primary Sweep Bank, up to the Deposit Maximum, even if the amounts in the Deposit Accounts at the Primary Sweep Bank exceed the Maximum Applicable Insurance Limit.
Once the deposited funds reach the Deposit Maximum, any additional free credit balances will be swept, without limit, to the Sweep Fund. The Sweep Fund available for your Account is the Morgan Stanley Institutional Liquidity Funds Government Securities Portfolio (symbol MGPXX). The Deposit Maximum and the Sweep Fund are subject to change with prior notice to you from Morgan Stanley.
Withdrawals from your Deposit Accounts will be made on a “last in, first out” basis, which means that funds will be withdrawn first from your Sweep Fund and then from the Sweep Banks in the reverse order from which the funds were deposited.
Notwithstanding the above, for accounts with a Sweep Fund, all withdrawals necessary to satisfy debits from your Account will be made by Morgan Stanley, as your agent, first from your Sweep Fund. If there are not enough funds in your Sweep Fund to satisfy debits or charges in your Account, Morgan Stanley, as your agent, will then make the necessary withdrawals from your DDA account at a Sweep Bank as described above.
You may contact us to exclude your deposits from being swept to any of the Sweep Banks, or the Sweep Fund.
Interest Rates Generally
Interest rates on the Deposit Accounts are variable. Morgan Stanley and the Sweep Banks reserve the right to change the methodology used to determine the interest rates in their sole discretion and without prior notice to you. The Sweep Banks generally set the rates on a weekly basis, but may set the rates more or less frequently. The rate is generally based on a variety of factors including, but not limited to, prevailing economic and market conditions. Our ability to influence the rate on your Deposit Accounts presents a conflict of interest, as described below.
Interest rates on Deposit Accounts will be tiered (“Tiered Rates”) based upon the value of Total Deposit Balances in your Deposit Account.
To review current interest rates and tiers, please visit etrade.com/rates and for the BDP Disclosure Statement, please visit etrade.com/bdpdisclosure. The current yield paid by the Sweep Fund will be among the factors used to determine the rate for the highest interest rate tier.
Fee to Morgan Stanley
The Sweep Banks will pay Morgan Stanley an annual account-based flat fee for the services performed by Morgan Stanley with respect to the Program. The amount of the fee received by Morgan Stanley may affect the interest rate paid by the Sweep Banks on your Deposit Accounts. Affiliates of Morgan Stanley may also receive a financial benefit in the form of credit allocations made for financial reporting purposes. No other charges, fees or commissions will be imposed on your account as a result of or otherwise in connection with the Program.
Our affiliate, Morgan Stanley Investment Management (“MSIM”), serves and receives compensation as the investment adviser to the money market funds that are available as an alternative if you are not eligible for BDP. We also receive compensation from these funds at rates that are set by the funds’ prospectuses and currently range, depending on the program in which you invest, from 0.10% per year ($10 per $10,000 of assets) to 0.25% per year ($25 per $10,000 of assets) of the total money market sweep fund assets held by our clients. Please review your sweep money market fund’s prospectus to learn more about the compensation we receive from such funds.
Conflicts of Interest and Other Benefits
Morgan Stanley, the Sweep Banks and their affiliates may receive other financial benefits in connection with the BDP. The Sweep Banks may use the cash balances in their Deposit Accounts to fund certain lending activity. As with other depository institutions, the profitability of the Sweep Banks is determined in large part by the difference between the interest paid and other costs incurred by them on the Deposit Accounts, and the interest or other income earned on their loans, investments and other assets. Deposits in Deposit Accounts provide the Sweep Banks with a stable, cost-effective source of lendable funds.
We have a conflict of interest to only utilize affiliated money market funds as an alternative for clients that are not eligible for BDP, and those affiliated funds and share classes that pay us more compensation than other funds and share classes. You should understand these costs because they decrease the return on your investment. In addition, we intend to receive revenue sharing payments from MSIM in the event a sweep fund waives its fees in a manner that reduces the compensation that we would otherwise receive.
Under certain circumstances, all or a portion of the compensation we receive from MSIM and/or the sweep funds is paid to your Financial Advisor/Private Wealth Advisor based upon Morgan Stanley’s standard compensation formulas. Morgan Stanley either rebates to clients or does not receive compensation on sweep money market fund positions held by clients in our fee-based advisory account programs. Please ask your Morgan Stanley Team if you have additional questions.
FDIC Coverage
Funds in the Deposit Accounts (principal and accrued interest) at each Sweep Bank are eligible for FDIC insurance up to a specified amount per depositor (the “Maximum Applicable Insurance Limit”) in each FDIC account ownership category (e.g., individual or joint). The Maximum Applicable Insurance Limit is $250,000. Please keep in mind, however, that the Maximum Applicable Insurance Limit is established per depositor.
Any deposits that you maintain in the same capacity directly with a Sweep Bank (including CDs), or through an intermediary (such as Morgan Stanley, another broker or depository network), will be aggregated with deposits in your Deposit Accounts at that Sweep Bank for purposes of the Maximum Applicable Insurance Limit. You are responsible for monitoring the total amount of deposits that you have with each Sweep Bank, in order to determine the extent of FDIC deposit insurance coverage available to you. We are not responsible for any insured or uninsured portion of a Deposit Account at a Sweep Bank.
Please visit www.fdic.gov for more information. Balances maintained in the Deposit Accounts at each Sweep Bank are not protected by SIPC or any excess coverage purchased by Morgan Stanley.
SIPC Coverage
Money market funds and uninvested cash are covered by the Securities Investor Protection Corporation (SIPC). SIPC is a federal mandated US nonprofit corporation that protects customer assets from financial loss in the event a broker-dealer becomes insolvent.
SIPC covers securities that we hold in custody (stocks, bonds, notes) up to $500,000 per client capacity (e.g., individual, joint) of which $250,000 may be cash. Money market funds receive SIPC coverage as securities, not as cash. Funds in the BDP are covered by FDIC insurance, not SIPC. Additional information about SIPC is available at www.sipc.org.
In addition to this SIPC protection, Morgan Stanley has purchased, at no cost to clients, a supplemental insurance policy through certain underwriters at Lloyd’s of London and various insurance companies. In the unlikely event that client assets are not fully recovered and SIPC protection limits have been paid, this additional coverage would be available to provide protection above the SIPC limits. This coverage is subject to an aggregate firmwide cap of $1 billion, with no per-client limit for securities and a $1.9 million per client limit for the cash portion of any remaining shortfall.
SIPC and Excess of SIPC protection do not insure against losses due to market fluctuations or other losses that are not related to claims due to the insolvency of Morgan Stanley. SIPC and Excess of SIPC protection are applied per customer for all Accounts designated in the same capacity. Clients may obtain a more complete and definitive description of SIPC protection by visiting www.sipc.org.
You could lose money by investing in a money market fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. A fee may be imposed upon the sale of your shares as determined by the fund. Any redemption or liquidity fees will be described in your money market fund's prospectus. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time. You may also obtain a prospectus from us or from Morgan Stanley Investment Management at https://www.morganstanley.com/im/en-us/financial-advisor/product-and-performance/liquidity-funds/liquidity/government-securities.shareClass.PT.html. Please read the prospectus carefully before investing or sending money.