Haim Bodek, Decimus Capital Markets – A Flash Course on Market Structure
“In the market there are edges that are permissible, and edges that are impermissible. It is the impermissible ones that you should care about. If it doesn’t smell right, leave.”
The 2014 publication of Michael Lewis’ Flash Boys ignited a firestorm of accusations and lawsuits regarding the tactics used by certain trading firms. It has also led to a robust national debate on market structure. Haim Bodek, a former algorithmic trader who now assists the Securities and Exchange Commission in whistleblower cases, frames this debate by explaining the regulation that created the current market structure. He goes on to explain how the market structure crisis is impacting market participants, as certain widespread industry practices are challenged. He says employees need to have an ethical compass, and be vigilant about practices in and around the firm.
Watch the video »
Don’t Blame Uncertainty for the Slow Recovery
By Noah Smith – Bloomberg
A few years ago, when the economic recovery had not yet begun, a lot of people were asking why growth wasn’t picking up. One explanation was that the Federal Reserve wasn’t doing enough monetary easing. Another idea was that Congress needed to spend more. But free-marketers and conservatives, who are generally against government intervention, were very reluctant to embrace these explanations.
***** Blame the financial industry? Yes, we had things too good. “What goes up, must come down, Spinning wheel got to go round, Talkin’ ’bout your troubles, it’s a cryin’ sin, Ride a painted pony, let the spinning wheel spin….” to quote Blood, Sweat & Tears.
Spoof Me Once, Shame on You: Spoof Me Twice, Shame on Me
I’ve often written that HFT firms are the best able to detect spoofers, and to take preventative measures (which reduce the profitability of spoofing, and hence its prevalence). The whole business of HFT is extracting signals from orders and order flow, and trading accordingly. Spoofing is based on manipulating the order flow – in essence, injecting noise into it. HFT firms evaluate their executions, and attempt to identify patterns that predict both winning and losing trades. If spoofers systematically impose losses on HFT firms, eventually the latter will figure it out.
***** The best medicine for spoofers is to destroy them in the markets.
Twitter clarifies rules on banned content, abusive behavior
BY JIM FINKLE AND DUSTIN VOLZ – Reuters
Twitter Inc has clarified its definition of abusive behavior that will prompt it to delete accounts, banning “hateful conduct” that promotes violence against specific groups.
***** One has to wonder what would happen to a certain hater’s U.S. Presidential campaign if he was banned from Twitter.
London’s taxis get a makeover
By Jay Ramey – MarketWatch
The London taxi cab is about to get its biggest makeover in decades, and it will lose its signature smell of diesel exhaust.
****** London cabs have always been the best in the world, and now they are even better.
A farewell to The Washington Post
By Walter Pincus – The Washington Post
For more than 40 years I have been lucky enough to be part of The Washington Post.
****** Journalism has changed, writes Walter Pincus, stating the obvious with elegance and class.
FXCM Has Tripled in December, Still Down Nearly 90% This Year
By KEVIN KINGSBURY – WSJ
Retail forex broker FXCM Inc.FXCM +25.79% sure seems to be a market plaything at the moment.Trading in the stock has been volatile the past two weeks. Starting on Dec. 14th, when shares bounced 52%, it’s posted four daily gains of 35% or more, interrupted by a 16% decline and a few other down days. Still, the stock is up another 23% in afternoon trading to $19.35 Tuesday, and FXCM has now nearly tripled for December.
China Said to Suspend Foreign Banks’ Cross-Border Yuan Business
At least two banks given three-month bans, people familiar say
Offshore yuan erases 0.5% daily loss on suspected intervention
China has suspended at least two foreign banks from conducting some cross-border yuan business until late March, limiting their scope to profit from a widening gap between the currency’s exchange rates at home and abroad, according to people with direct knowledge of the matter.
Private Tax System That Saves Them Billions; The very richest are able to quietly shape tax policy that will allow them to shield billions in income.
By NOAM SCHEIBER and PATRICIA COHEN – NY Times
The hedge fund magnates Daniel S. Loeb, Louis Moore Bacon and Steven A. Cohen have much in common. They have managed billions of dollars in capital, earning vast fortunes. They have invested large sums in art — and millions more in political candidates.
China is taking aim at high-frequency traders
DAVID SCUTT – Business Insider
Once the realm of individual investors, financial markets are becoming increasingly automated.
Barclays in $13.75 million U.S. settlement over mutual funds
BY JONATHAN STEMPEL – Reuters
Barclays Plc will pay more than $13.75 million to settle U.S. regulatory charges that it let retail brokerage customers make unsuitable mutual fund transactions, including more than 6,100 fund switches, over a five-year period.
Julius Baer reaches agreement in U.S. tax case with extra $200 mln in provisions
Julius Baer has set aside nearly $200 million in additional provisions to settle a U.S. criminal investigation that it helped wealthy American clients dodge taxes, the Swiss private bank said on Wednesday.
Outperformance and Manipulation
By Matt Levine – Bloomberg
Who had a good year? Today there are a lot of articles looking back at the best-performing asset managers in 2015, and it is an illuminating and bewildering experience to read them all at once. How did they do it?
How Amazon Has Clouded Wall Street’s Vision; Thanks to Amazon Web Services, analysts see Amazon’s thin bottom line fattening up quickly. But that is far from a sure thing.
By DAN GALLAGHER And MIRIAM GOTTFRIED – WSJ
Amazon.com’s day as a profit machine has finally arrived, or so many on Wall Street seem to believe.
At Many Big Companies, New Blood Refreshes Finance Teams
By JOHN KESTER and MAXWELL MURPHY – WSJ
From Walt Disney Co. to Comcast Corp., some of the nation’s largest companies installed new finance chiefs this year.
SEC focuses on ETP role in volatility
By Nicole Bullock – FT
US regulators examining the sources of the wild price moves that hit Wall Street one day last August are taking a hard look at thinly traded exchange traded products and market controls aimed at protecting investors against big swings.
Spoofed: one way in which Dodd-Frank has worked
On March 17, 2016, commodities trader Michael Coscia is scheduled to be sentenced in a Chicago courtroom, having been convicted last month on six counts of commodities fraud and six counts of “spoofing.” The etymology of spoofing in this application proves elusive, but the practice is easy enough to explain. As defined by the U.S. Commodity Exchange Act, spoofing is a technique where orders — bids to buy and offers to sell — are placed with the intent of cancelling the trade before execution. So the markets get spoofed. Fooled. Manipulated.
How To Mend Britain’s Public Finances: Bring Back Miscreant Bankers
In November of 2014, the Financial Conduct Authority, which regulates securities firms, pocketed $1.6 billion in fines from a large number of banks, the penalty for failures in foreign exchange operations. That one-off levy dramatically flattered borrowing numbers in the 2014/15 fiscal year, making a difficult comparative for results in the current fiscal year.
Changing Financial Regulators’ Tribal Thinking
Financial reform emerged as a talking point in policy discussions after the stock market crash this summer. But we must not fixate on the immediate pain because the real problem with this type of oversight goes deeper and reflects institutional design flaws.
Exchanges & Trading Facilities
Exchange dealmaking to focus on new markets
Philip Stafford – Financial Times
Investors are anticipating a new round of dealmaking among some of the world’s biggest stock exchanges next year as they look to boost their revenue streams by accessing new markets and products.
Fuelled by buoyant share prices and regulatory amendments, a cadre of new, young chief executives at top bourses are exploring fresh areas for growth including assets traded away from exchanges, such as currency trading, and showing increasing confidence in making deals.
Exchanges ask brokers to be vigilant against SMS tipsters
To prevent investors from falling prey to scamsters promising huge stock market returns, leading stock exchanges BSE and NSE have asked their trading members to exercise caution with respect to tips circulated through popular social media platforms and mobile messaging services.
China and Clinton Agree: Traders Should Pay for Canceled Orders
Eduard Gismatullin, Sam Mamudi – Bloomberg
CSRC rule proposals seen taking effect in as early as 2016
Proposal to levy fees on high cancel rates echoes Clinton plan
Chinese securities regulators are preparing some of the world’s strictest regulations on a trading practice at the heart of the global debate over high-speed computerized markets.
Hedge Funds & Managed Futures
Divergence Between Fed, Other Central Banks to Test Global Economy; U.S. prepares to keep raising interest rates while Europe, Japan are still easing; currencies and trade could face turbulence
By JOSH ZUMBRUN – WSJ
The global economy will be tested by an unusual divergence among the world’s leading central banks in the year ahead: The Federal Reserve is poised to continue raising interest rates while its counterparts in Europe and Japan engage in full-throttle monetary easing.
Warren Buffett faces worst year on stock market since 2009
Stephen Foley in New York – FT
Investment guru Warren Buffett is headed for his worst year relative to the rest of the US stock market since 2009, with shares in his conglomerate Berkshire Hathaway down 11 per cent with two more trading days to go.
Wall Street Didn’t See 2015’s ‘Earnings Recession’ Coming
By KEVIN KINGSBURY – WSJ
As investors sort through the flurry of predictions about where the markets are headed in 2016, it may pay to keep in mind just how wrong some prognostications turn out to be.
Pimco’s Main Fund Climbs Back Near Top in Year After Gross Exit
John Gittelsohn – Bloomberg
Clients pulled $52.7 billion as Total Return beat 89% of peers
Fund outperformed by dodging energy and emerging-market debt
Investors who pulled an estimated $52.7 billion from the Pimco Total Return Fund this year may feel like freeway drivers who changed lanes only to see themselves falling behind traffic.
Banks & Brokers
Bank of America to Book Charge on Securities Redemption; Move to reduce fourth-quarter net interest income by $600 million
By TESS STYNES – WSJ
Bank of America Corp. expects to post a pretax write-down of roughly $600 million in the fourth quarter related to the redemption of $2 billion of trust preferred securities.
Are Britain’s banks fixed yet?; Seven years on from the financial crisis and regulators are still working on Britain’s big banks
By Tim Wallace – Telegraph
If the credit crunch struck again tomorrow, Britain’s banks would be strong enough to survive.
Indexes & Products
How the Aim market managed to outperform the FTSE 100; Small cap stocks outperformed London’s main market over the past 12 months
By Tara Cunningham, Business Reporter – Telegraph
It was an interesting year for the UK’s Alternative Investment Market (Aim), as small-cap stocks outperformed large caps despite an almost 50pc drop in new equity issues.
ETFs tracking China’s onshore markets struggle to find an audience
BY TREVOR HUNNICUTT – Reuters
The lopsided performance of exchange-traded funds tracking China’s turbulent domestic markets is stanching the flow of new money into a market that once excited investors.
Luxembourg Stock Exchange: Annual Revision Of The LuxX Index
In accordance with the rules governing the LuxX index, the management board of the Luxembourg Stock Exchange has decided to rebalance the LuxX index (base 1,000 as at 04/01/1999
The Top 15 Most Important Fintech Stories of 2015
Zack Miller – Forbes
By all accounts, 2015 was a big year for fintech.
According to Pitchbook, it looks like 2015 will close with close to $8 billion worth of venture capital invested in financial technology startups. To put that into perspective, there was $4.7 billion worth of fintech investments in 2014. With the recent announcement that Global Payments would acquire competitor, Heartland Payments, it looks like there will be close to $10 billion of M&A done in 2015, as well. New York was the top destination for investment capital, with 93 local companies landing investments throughout the year.
Is JPMorgan Chase & Co the Real Winner in FinTech Chase?
Business Finance News
JPMorgan Chase and Co. (NYSE:JPM) and Goldman Sachs Group Inc. will be the biggest gainers from the recent boom in financial technology. The startups from financial technology space will pose a threat to all major financial institutions but the aforementioned two banks are expected to remain safe. Owing to the latest trends, the financial sector is now fiercely competing to provide more technologically-oriented services to customers. They realize that if they don’t act soon competition will steal their customers.
Abu Dhabi Securities Exchange To Upgrade SMARTS Market Surveillance Technology
Abu Dhabi Securities Exchange (ADX) and Nasdaq (Nasdaq:NDAQ) have officially agreed on the implementation of an enhanced SMARTS Market Surveillance solution. ADX will leverage the industry-leading SMARTS Market Surveillance onsite solution for real-time market surveillance efforts. The upgraded solution will enhance both performance and flexibility of monitoring activities. ADX has been a SMARTS customer since 2008.
Top Japanese Bank Looks to Make Fintech Deals
Atsuko Fukase – WSJ
Japan’s second-largest bank, Sumitomo Mitsui Financial Group Inc., is keen to make investments in financial-technology ventures once the nation’s rules change to permit it, the bank’s president said.
How China Is Innovating FinTech Online Finance
As the FinTech industry heats up in the U.S., there’s one particular country that’s setting the pace for the financial tech world: China and its Internet companies.
As profiled in a Wall Street Journal article, the Chinese tech scene has transformed the digital payment space in a way that has made smartphones the mainstream way to pay for electronic transactions. What China’s market has formed is an innovative online financial scene that could be a good indication about how the rest of world will soon transact.
Fintech Spotlight: IPOs are Broken, but That’s an Opportunity
Ron Finberg – Finance Magnates
Often cited as one of the worst IPO processes ever, Facebook shares went public in May 2012. The most anticipated IPO in years, the big question was whether Facebook would surpass the $100 billion valuation barrier with its IPO. After initially being priced at $28 to $35 for a maximum valuation of $96 billion prior to the IPO, demand led to shares eventually being priced at $38 for a $104 billion valuation.
FINRA Sanctions Barclays Capital, Inc. $13.75 Million for Unsuitable Mutual Fund Transactions and Related Supervisory Failures
The Financial Industry Regulatory Authority (FINRA) announced today that it has ordered Barclays Capital, Inc. to pay more than $10 million in restitution, including interest, to affected customers for mutual fund-related suitability violations. These suitability violations relate to an array of mutual fund transactions including mutual fund switches. Additionally, the firm failed to provide applicable breakpoint discounts to certain customers. Barclays was also censured and fined $3.75 million.
Environmental & Energy
In World With Too Much Crude Oil, 1,100-Foot Steel Monsters Rule
Manisha Jha – Bloomberg
Glut that’s crushing oil markets is helping tanker owners
Oil price slump from plentiful cargoes also means cheap fuel
The most destructive oil crash in a generation is giving ship owners a billion-dollar windfall.
Alpine Ski Resorts Hope Petting Zoos Will Make Up for Lack of Snow
Andrea Rothman, Rudy Ruitenberg, Giles Broom – Bloomberg
Animal parks, paragliding, mountain hikes replace schussing
More of the same in coming years as temperatures keep rising
The town of Chamonix, France, opened a petting zoo to entertain children deprived of skiing. In Laax, Switzerland, operators raised lift prices, to keep out skiers from lower altitudes. Helicopters are carrying snow to Meribel, and in Saint-Martin-de-Belleville, the mayor asked locals to eschew the slopes.
Strongest El Nino weather cycle on record set to bring hunger and disease to millions in 2016
BY ELLE GRIFFITHS – Mirror
Africa will be worst hit but regions including the Caribbean, Central and South America will also be effected in the next six months
South Korea takes aim at Hyundai cross-shareholdings
Song Jung-a in Seoul – FT
South Korea’s antitrust watchdog has ordered Hyundai Motor and sister company Kia Motors to sell part of their stakes in affiliate Hyundai Steel by Thursday to comply with the country’s law against newly formed or expanded cross-shareholdings.
China company blames thief for delaying annual results
A troubled Chinese company has found a novel excuse for continuing to delay publishing its annual results, telling investors that a thief stole all its financial records for the last four years. Hong Kong-listed China Animal Healthcare, which makes vaccinations and other drugs for livestock and poultry, said a truck carrying all its original financial documents for the period was stolen while the driver took a lunch break.
What Happens When Japan’s Central Bank Runs Out of Bonds to Buy?; The Bank of Japan’s massive easing program could hit a wall of its own making
By AARON BACK – WSJ
For the past three years, the Bank of Japan has been the world’s most hyperactive central bank. Now, investors are starting to ask how long it can keep going.
Taiwanese Party Crowd-Funds the Old Way – via Piggy Banks
Adela Lin – Bloomberg
In era of online giving, Tsai seeks coins from `pig farmers’
Opposition chief leading polls in effort to unseat ruling KMT
As small, digital donations propel insurgent candidates from Ted Cruz to Bernie Sanders in the U.S., one opposition party an ocean away is relying on old-fashioned pocket change to fuel its rise.
Hong Kong and Chinese stock markets: technology stocks lead winners but gaming stocks headline losers in 2015
South China Morning Post
It was a turbulent year on Hong Kong and China stock markets as slowing mainland growth and global trade combined with tumbling commodity prices to buffet equities, although some sectors such as technology emerged stronger.
Frontier markets down? Blame the index
Leslie Shaffer – CNBC
Frontier markets tumbled this year, but don’t point the finger at the usual suspects, such as weak currencies or oil, investors said. Instead, blame the benchmark index.
How one fund manager avoided carnage in emerging markets
Charles Stein – The Globe and Mail
The past few years were a terrible time to be the manager of an emerging-market stock fund – unless you were Anindya Chatterjee.
Since Mr. Chatterjee started the City National Rochdale Emerging Markets Fund on Dec. 14, 2011, he returned 53 per cent for investors, even as emerging-market stocks declined 0.5 per cent. This year, with the MSCI emerging-markets index slumping 14 per cent, Mr. Chatterjee’s $827-million (U.S.) fund is down 3.1 per cent, beating 90 per cent of peers for the fourth straight year.
Cargill to Sell Crop-Insurance Unit to Silveus; Deal is part of agricultural conglomerate’s effort to revamp its businesses
By JACOB BUNGE – WSJ
Cargill Inc. struck a deal to sell its crop-insurance business to Silveus Insurance Group, the agricultural conglomerate’s latest step to realign its portfolio and exit some financial functions.