Goldman was initially in talks with Tiga Pilar last year and had completed due diligence, a deal structure and valuation for the Jakarta-based securities firm.
However, a lack of progress with Goldman led Tiga Pilar's owners to start discussions with Morgan Stanley, according to three sources.
The deal is almost done and the regulator is looking at it now, said one of the sources, adding the process could be completed before the end of the first quarter.
The sources declined to comment on the financial value of the deal and did not want to be identified because the talks were private. Tiga Pilar, Morgan Stanley and Goldman declined to comment.
Morgan's move to expand in Indonesia, recently lifted to a sovereign investment grade status, follows Nomura Holdings <8604.T> and Citigroup
A full broking licence from the deal, which still requires regulatory approval, would allow Morgan Stanley to cover the secondary side of sales and trading as well as research, in a country that saw a record high stock market <.JKSE> last year and which is expected to see new fund inflows after the rating upgrade.
Graphic on top deal underwriters in Indonesia: http://link.reuters.com/qyz36s
The Tiga Pilar deal size is likely to be small as Morgan is only seeking to buy the brokerage licence that the deal will provide. It will need to at least inject the 50 billion rupiah ($6 million) in licence costs and required brokerage capital.
Tiga Pilar, partly owned by the family of Tan Pia Sioe, traded 178 billion rupiah by stock value in the first nine months of 2011, ranking it 114 out of 117 active brokerages, according to stock exchange data.
Morgan Stanley has hired James Brewis, former head of sales at UBS's
Morgan Stanley secured an underwriting licence in 2008, but is seeking a bigger presence through a full-fledged broker licence, while Goldman does not have an underwriting or broking licence in Indonesia.
James Gorman, Morgan's chief executive officer, said in a statement in November that the U.S. bank plans to establish an onshore presence in Indonesia this year, with a new equity brokerage operation in mid-2012, as it sees the country as a strategic priority.
This follows the path of Citigroup, which bought Indonesian brokerage Republik in 2010 and then added bankers and analysts, including veteran Ferry Wong from Macquarie
Citi has since surged ahead in the league table for underwriting equity deals to rank second among global banks, behind Deutsche, while topping the debt underwriters table last year.
(Additional reporting by Andjarsari Paramaditha in JAKARTA; Editing by Neil Chatterjee and Muralikumar Anantharaman)