MS Morgan Stanley

Regulators are asking big banks to provide investors with more-detailed disclosures about their trading businesses, a push that could peel back the curtain on a huge and volatile source of Wall Street revenue, according to people familiar with the matter.

Communications between Securities and Exchange Commission officials and executives from some of the largest U.S. banks have been informal and preliminary, the people said. But the SEC may send comment letters to the biggest trading firms—J.P. Morgan Chase & Co., Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley—in the coming months, asking them to give investors more details in the future, some of the people said.

That could include requests to break out revenue from individual products such as bonds, stocks, commodities and other, more-exotic instruments. Currently, trading revenues are lumped together, making it difficult for investors to figure out what is driving a particular firm's results.

This is especially the case when it comes to FICC revenues. These encompass fixed-income, commodities and currency products and are the biggest source of fees on Wall Street.

In 2015, FICC revenues for the 12 largest global investment banks came to $69.9 billion, or 9% of overall revenue, according to data firm Coalition. For some firms, the contribution is even higher: At Goldman, it was equal to about 22% of total revenue last year.

"Everyone just wants to keep it close to the vest," said Steven Chubak, a banking analyst with Nomura Holdings Inc. In quarterly and annual filings, there is some disclosure around how banks make markets for clients, but firms still don't divulge much information around specific contributors to FICC-related revenues, he added.

For investors, additional details could be telling. Knowing which bank had good performance in, say, energy trading could help steer an investment based on a view about the future direction of oil prices. Or it could push banks to get out of businesses where it becomes clear they are underperforming.

It isn't clear whether the SEC ultimately will ask for specific disclosure items or leave it up to the banks to individually decide what to share. A spokesman for the SEC declined to comment.

Some big banks may broadly address or acknowledge the SEC's requests in future securities filings, some of the people familiar with the matter said. In the more-stringent, post-financial-crisis regulatory environment, banks typically take regulatory questions, even informal ones, seriously and often try to be proactive.

Investors do get a sense of the overall market for particular FICC-related products. Coalition, for instance, breaks down market revenue by product for interest rates, credit, foreign exchange, securitization, emerging markets and commodities.

But investors know little about the breakdown bank by bank. Updates about underlying products are typically directional but vague. While the SEC's push could prompt banks to disclose more information, many in the past have resisted doing so. James D. Cox, a professor of corporate and securities law at Duke University School of Law, said information about particular product lines is "highly sensitive" in part because companies don't want to attract competition or regulatory scrutiny.

For example, Daniel Pinto, head of corporate and investment banking at J.P. Morgan, told investors in June that interest-rate trading in the past 12 months had been strong, while credit had been "a bit sluggish." Goldman Sachs finance chief Harvey Schwartz said last month that currency and commodity trading were slower in the second quarter.

In the last 18 months, some banks have published more details in investor presentations. For instance, J.P. Morgan at its investor-day presentation in February provided more product-specific details on a percentage basis. A year earlier, it just disclosed its ranking versus the market rather than percentages. Goldman Sachs disclosed in February 2015 the range of percentage revenue contribution for individual products on a long-term basis.

On the other hand, Mr. Cox of Duke added, "Investors would like to have crisper knowledge about what the revenue streams are for every company they think about investing in or are invested in."

Write to Liz Hoffman at liz.hoffman@wsj.com and Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

August 02, 2016 21:05 ET (01:05 GMT)

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