Morgan Stanley - still playing On Wall Street's playground in the third quarter, bond trading ruled. A furious rally in fixed income has underpinned results at all the large banks and Morgan Stanley is no exception. Net revenue from fixed income and commodities rose 33 per cent to $1.5bn in the quarter versus the period a year ago. This and all calculations strip out an accounting adjustment that requires banks to take gains and losses based on the market movements of their own debt. Morgan Stanley's revenue pop lagged that of rival Goldman Sachs, for instance, but was a good sign. Moody's downgrade during the second quarter has not stopped clients from playing with them altogether. Even so, securities trading fluctuates. In the second quarter, when markets faltered and the ratings cut occurred, Morgan Stanley's revenue from fixed income and commodities slumped to just $770m, down from $1.9bn a year earlier. That seesawing helps to explain why Morgan Stanley wanted to plunk a weight down in its business with the purchase of Smith Barney, to try to balance volatile trading operations with a heftier global wealth management business. Meanwhile, James Gorman, chief executive, has been more than outspoken about the industry being "overpaid." For the past nine months, Morgan Stanley's ratio of compensation and benefits expenses to net revenues fell to 52 per cent from 54 per cent a year ago. The pay ratio at the institutional securities business went from 48 per cent to 45 per cent. That looks to be a move in the right direction. But banks estimate pay during the year, making the big decisions and accounting for them in the fourth quarter. The true test of how much Morgan Stanley and its peers are scaling back will not come until then. With return on equity at just 3.5 per cent at Morgan Stanley, the pressure is on.