Morgan Stanley (MS) chief James Gorman is making a full-court press with regulators to expedite the purchase of the remaining piece of the Smith Barney brokerage firm from Citigroup (C), moving up the buyout date as much as two years ahead of schedule, the FOX Business Network has learned.

Under the agreement with Citigroup, Morgan Stanley could buy the remaining 35% of the brokerage firm by 2015, but people inside Morgan Stanley say Gorman and his brokerage chief, Greg Fleming, are locked in negotiations with the Federal Reserve, the firm’s primary regulator, to give the green light to complete the purchase either by the end of this year, or sometime in early 2013.

A Morgan Stanley spokesman declined to comment. A spokesman for the Fed had no comment.

One concern the Fed has is whether Morgan Stanley, the smallest of the big financial firms, has a large enough capital cushion to snap up the remaining piece of Smith Barney and remain compliant with new banking regulations such as Dodd Frank and the Basel agreement. Both Gorman and Fleming are arguing that the firm’s capital would continue to remain strong even with expedited buyout schedule; the firm is arguing that the additional capital would be “an incremental cost of around $500 million,” a person with direct knowledge of the matter told FBN.

It’s unclear if the Fed will approve the plan.

Morgan Stanley agreed to purchase Citigroup’s Smith Barney brokerage firm during the height of the financial crisis four years ago and at a time when Citigroup was looking to shed assets to remain solvent. Under the terms of the complex deal, Morgan Stanley would purchase Smith Barney in increments, and earlier this month, it closed on another 14% chunk of the deal, bringing its ownership level to 65%.

But Gorman and Fleming want to ramp up the buyout schedule in order to fully implement their strategy of retooling Morgan Stanley from a firm that specialized in capital markets activities such as trading and underwriting to one that dispenses advice to investors through the largest brokerage force in banking; Morgan Stanley employs more than 17,000 brokers in offices across the country, more than any other company.

The new business model has gotten off to a rocky start, including cost overruns and lack of profitability. A new technology system has had so many glitches that brokers have a difficult time signing up new clients.

Earlier in the month, the firm won a victory when an independent firm valued the brokerage firm at just $13.5 billion – far less than what Citigroup said it was worth, meaning Morgan Stanley would have to pay less to buy the rest of the unit.

With that victory, Gorman and Fleming set out to convince regulators at the Fed that the firm is strong enough to buy the remaining piece.

Charles Gasparino joined FOX Business Network (FBN) in February 2010 as Senior Correspondent.