The MSRB Re-Writes History
(Mar 2014)
Kyle Glazier and Lynn Hume's story in the Bond Buyer last week, "Brokers Violate Puerto Rico OS, MSRB Rules with Retail Trades", about small denomination trades in the recent Puerto Rico bond offering in contravention of the offering document set off a firestorm. The Wall Street Journal's "Finra Examining Trading in Puerto Rico Bonds" and Bloomberg's "Finra Says It's Examining Trading in New Puerto Rico Bonds" both reported on Friday that FINRA was looking into the suspect trades.
What did...
Municipal Bond Markups are Still Excessive
(Mar 2014)
Monday's Wall Street Journal article, Muni Bond Costs Hit Investors in Wallet: Investors Pay Twice as Much for Municipal Debt as for Corporate Bonds, points out yet again that investors pay far more to buy and sell municipal bonds than they pay to buy and sell similar quantities of corporate bonds or common stocks. The article cites a recent S&P study that finds investors buying a $100,000 municipal bond pays an average spread of 1.73% or $1,730 - twice as much as the 0.87% average spread...
Fidelity to Launch Mutual Fund Based on Hedge Fund Strategy
(Oct 2013)
We see it again and again: complex investment strategies packaged into traditionally conservative investments. We have seen corporate debt linked to exotic derivatives positions (structured products), exchange-traded products linked tocomplex futures positions (commodities and volatility ETPs), variable annuities linked to options strategies (structured product based variable annuities), and even certificates of deposit with complex payoff structures (structured CDs). Now, we are seeing more...
Regulators Impose Record Fine for Brokerage Firm's Supervisory Failures
(Jul 2013)
Yesterday evening, the Wall Street Journal reported that FINRA and several US exchanges fined the brokerage firm Newedge USA, LLC $9.5 million over alleged failures to adequately restrict automated client trading activity that "sought to manipulate U.S. markets for nearly four years." The trading activity took place on several exchanges including NYSE Euronext, NASDAQ OMX, and BATS Global Markets according to the WSJ article. FINRA's press release can be found on the FINRA website.
Newedge...
Foreign Exchange Rate Fixing
(Jun 2013)
Bloomberg News recently reported that traders at some of the world's largest banks have been in the business of rigging foriegn exchange (FX) rates. An FX rate essentially tells you how much of one currency you can buy with another currency: for example, currently you can buy about 100 Japanese yen for each US dollar. The rates affect "trillions of dollars of investments" according to Bloomberg, since they are used for the valuation of portfolios, derivatives, and even equity and fixed...
Missouri Action Against Morgan Keegan Over Municipal Bond Issue Also Illustrates Markup Abuse
(May 2013)
On April 3, 2013 Missouri's Secretary of State of the State submitted a Petition for an Order to Cease and Desist and to Show Cause against Morgan Keegan over taxable municipal bonds Morgan underwrote for the City of Moberly in July 2010. The petition and the Offering Circular for the bonds are available to view online. The story has been picked up by The Bond Buyer and Law360.
Setting aside the Petition's allegations, the trading in this set of bonds highlights markup abuse we have found is...
Goldman Sachs Uses JOBS Act to Sidestep Volcker Rule
(Apr 2013)
Evan Weinberger at Law360 is reporting that Goldman Sachs may have found a way around the Volcker Rule--the ban on proprietary trading by banks, which also prohibits sponsoring hedge funds and private equity funds--by using another controversial regulatory measure, the 2012 JOBS Act (of which we have spoken before):
By setting up an independent business development company in which it will hold a minority stake and limited leverage exposures, Goldman will be able to engage in at least limited...
Stockton California May Proceed with Chapter 9 Bankruptcy
(Apr 2013)
Yesterday a federal judge in California ruled that, despite the objections of bondholders and bond insurers, the city of Stockton could proceed in the process of Chapter 9 bankruptcy. Stockton is a city of almost 300,000 located about 90 minutes east of SanFrancisco Stockton was hard hit by the housing bubble and saw a 16% decline (page 345 of the PDF) in general fund revenue from FY 2008-2009 to FY 2009-2010.
After facing "an immediate and severe fiscal crisis" in early 2012, Stockton became...
Do ETF Flows Move the Market?
(Oct 2012)
As exchange-traded fund (ETF) flows have grown over the past few years, the question of whether those fund flows influence the prices of ETF holdings has become a perennial issue. Matt Jarzemsky and Chris Dieterich of the Wall Street Journal recently posted what is perhaps the highest profile discussion of this issue to date, in which they provide interesting evidence that the ETF 'tail' might be wagging the market 'dog.'
They note that in early October, mid-cap indexes saw...
