SEC Examination Priorities 2013
(Feb 2013)
Last week, the Securities and Exchange Commission announced their examination priorities for 2013 "to communicate with investors and registrants about areas that are perceived by the staff to have heightened risk, and to support the SEC's mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."
For those that are unfamiliar, SEC staff conducts examinations of SEC registrants through their regional offices and headquarters
to determine...
SEC Litigation Releases: Week in Review - February 22nd, 2013
(Feb 2013)
SEC Charges Fund Manager in Scheme Involving Risky Mortgage-Related Investment
February 20, 2013, (Litigation Release No. 22622)
According to the complaint, George Charles Cody Price "raised $18 million for three investment funds through his firm ABS Manager LLC" promising investors that their investments were "secured by government-backed bonds yielding extraordinary double-digit returns as high as 18 percent per year." In reality, Price was allegedly "investing in one the riskiest tranches...
How Big of an Effect Does Securities Lending Have on ETF Returns?
(Feb 2013)
We earlier posted an analysis that compared ETF returns to their stated index net of fees for funds that lend securities and those that do not. IndexUniverse subsequently suggested an approach with methodological differences from our original work and we wanted to address some of those differences here.
For our sample, we used Bloomberg's ETF function to collect all US-domiciled, USD-denominated exchange-traded funds and removed any with active trading strategies, leverage, or inception dates...
Securities Lending by ETFs
(Feb 2013)
One of the most contentious but least understood aspects of the stock market is short selling. Short selling refers to selling a stock that you do not own at current market prices, with the hopes that the stock will go down in price. The stock can be purchased in the market at any time to close out the position and, if the stock has decreased in price, the short-seller will realize a profit. Obviously, the only way to accomplish this is by borrowing that stock from someone else.
Typically,...
Chinese Markets are Closed--So What Happens to China-based ETFs in the US?
(Feb 2013)
Happy Chinese New Year! Markets were closed in many Asian countries last week, while US markets remained open. As noted by several commentators, this means that while US ETFs that hold Chinese equities were actively traded, their underlying assets were not. So what does this mean for China-based ETFs traded in the US?
First, it's important to note how ETFs relate to their underlying assets. Essentially, ETF shares can be created by certain traders (called authorized participants) by buying...
Structured CDs: The Big Picture
(Feb 2013)
This week we have reviewed some of the issues surrounding structured certificates of deposit, giving an introduction, example offering documents (both simple and complex), the basics of FDIC insurance of these products, and a description of some of the tax implications investors should be aware of. We hope we have conveyed our reasons for thinking that structured CDs are complex and risky investments that, like structured products, are rarely suitable for retail investors.
But there is a...
Tax Consequences of Market-Linked CD Investing
(Feb 2013)
On this last day of structured CDs week here on the SLCG blog, we're going to discuss the tax consequences of investing in market-linked CDs (or structured CDs). We should probably start a blog post on taxes with a general disclaimer that we are not tax professionals and you should consult a tax professional or CPA before making an investment decision based upon tax consequences.
That being said, taxes are a pretty complicated issue for structured CDs. As mentioned earlier this week,...
SEC Litigation Releases: Week in Review - February 15th, 2013
(Feb 2013)
Court Enters Final Judgments Against Former Wall Street Banker, Downstream Russian Trader and Trader's Wife in Insider Trading Scheme
February 13, 2013, (Litigation Release No. 22617)
A final judgment has been entered against Alexander Vorobiev and his wife, "relief defendant Tatiana Vorobieva," for their involvement in an insider trading scheme that resulted in over $1 million in illegal profits. Vorobiev traded using insider information regarding "numerous health care-related acquisitions,...
So How Complicated Can Structured CDs Get?
(Feb 2013)
We could tell you that the last time we went fishing we caught a fish that was THIS BIG (motions with outstretched arms), but you probably wouldn't believe us unless we showed you. We wanted to take this opportunity to show some examples of truly complex structured certificates of deposit that have been constructed in recent months and years.
Let's take a look at JP Morgan's August 2012 fifteen year "Callable Variable Rate Range Accrual CDs Linked to 6-Month USD LIBOR and the S&P 500 Index"...
FDIC Insurance and Structured CDs
(Feb 2013)
As a continuation of our structured CDs week here on the SLCG blog, today we're going to discuss one of the biggest selling points for these products: FDIC insurance. FDIC insurance mitigates most of the credit risk found in structured products, but it may not be as significant a factor as the marking materials for structured CDs may suggest.
Structured products, the debt analog of structured CDs, are often maligned because of their exposure to credit risk. If the issuer of a structured...
