Morgan Stanley
1221 Avenue of the Americas
New York, NY 10020

August 7, 2002

Mr. Jonathan G. Katz
Secretary
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Proposed Rule Amendments to Rule 15c3-3 (File No. S7-20-02)

Dear Mr. Katz:

Morgan Stanley & Co. Incorporated welcomes the opportunity to comment on the amendments to Rule 15c3-3 under the Securities Exchange Act of 1934 proposed by the Securities and Exchange Commission.¹ As a global financial services firm that provides securities products and advisory services to a diversified group of clients and that actively participates in securities lending and borrowing transactions in the U.S. and international markets, Morgan Stanley has a significant interest in the collateral requirements of Rule 15c3-3.

We greatly appreciate the efforts of the Commission and its staff to address a topic of such importance to the efficient operation of the securities markets and to the ability of U.S. broker-dealers to conduct their business activities on a competitive basis.

We strongly support the proposed amendments to Rule 15c3-3 and urge the Commission to adopt them without delay. Specifically, we agree with the Commission's proposal to amend the Rule by permitting new categories of collateral to be approved through the issuance of orders from time to time. The criteria proposed by the Commission for evaluating new categories of collateral will, moreover, strike an appropriate balance between protecting customers and enhancing the efficiency and liquidity of the securities markets. In addition, we encourage adoption of the Commission's proposal to delegate authority to issue these orders to the staff of the Division of Market Regulation, which is most closely involved in overseeing the day-to-day operations of broker-dealers. This approach will enable the Commission to be more responsive to short-term market conditions - including liquidity crises and settlement failures - as well as longer-term developments, such as evolving approaches to risk management and tightening settlement periods.

Morgan Stanley also supports prompt issuance of the Commission's proposed order. Permitting the assets described in the order to be used as collateral for securities borrowing transactions would not, in our view, undermine in any way the Commission's customer protection objectives. Moreover, the ability to use these new types of collateral will provide substantially greater flexibility and reduced borrowing costs for U.S. broker-dealers, as well as increased liquidity in the securities markets. The inclusion of non-U.S. securities and currencies will be particularly helpful in allowing U.S. broker-dealers to participate and compete more effectively in international securities markets. In addition, as the securities industry moves towards straight-through processing and shorter settlement periods (which, during the transitional period, may increase fails), expanding broker-dealers' securities borrowing capabilities in the manner proposed by the Commission should help protect against settlement failures and related systemic risks.²

Again, we applaud the efforts by the Commission and its staff to address this important topic, and we appreciate this opportunity to comment on the Commission's proposals. Should you have any questions or require additional information, please feel free to contact the undersigned at (212) 762-9723.

cc: Annette L. Nazareth, Director, Division of Market Regulation
Michael A. Macchiaroli, Associate Director, Division of Market Regulation
Thomas K. McGowan, Assistant Director, Division of Market Regulation
Randall W. Roy, Special Counsel, Division of Market Regulation
       Securities and Exchange Commission

Martin R. Tell, Managing Director
Jane D. Carlin, Managing Director and Counsel
Charles F. Vadala, Managing Director
Andrew Amstutz, Executive Director
Georgia Bullitt, Executive Director
Darilyn T. Olidge, Executive Director
Scott Rockoff, Vice President
       Morgan Stanley & Co. Incorporated

Robert W. Cook
       Cleary, Gottlieb, Steen & Hamilton

¹ Exchange Act Release No. 46,019 (May 31, 2002), 67 Fed. Reg. 39,642 (June 10, 2002).

² See Joint Task Force of the Committee on Payment and Settlement Systems and the IOSCO Technical Committee, Recommendations for Securities Settlement Systems (Jan. 2001) (emphasizing importance of securities lending markets in settling securities transactions and encouraging jurisdictions to promote securities lending and economically equivalent transactions to facilitate settlement and reduce fails).