High-Speed Boys Get Their Day in Congress, Sort Of: Opening Line

The outsider’s view seems to suggest that Wall Street, like the middle-schooler who’s already bigger than everyone in his class, wouldn’t be complaining about being sent to the principal’s office so much if it wasn’t constantly trying to pull stuff on the little kids.

Yet here we are on that bench again, before politicians who love making a show of things -- and few Congressional panels bring the heat like the Senate Permanent Subcommittee on Investigations, which begins hearings today on high-frequency trading. The sharp stick now held by Michigan’s Carl Levin once was held by Wisconsin Senator Joseph McCarthy.

Michael Lewis has had his say, Bill O’Brien has shot death rays at Brad Katsuyama on CNBC before having some of his more glaring misstatements corrected by Bats Global, shouts and murmurs have arisen from various corners with their various interests, and now we’re here, in front of the grown-ups.

CNBC’s Bob Pisani makes an interesting point in his preview of the hearing, which, he notes, is to be followed by another hearing tomorrow at Senator Mark Warner’s Subcommittee on Securities, Insurance, and Investments, a panel of the Senate Banking Committee. Pisani finds the list of witnesses free of high-frequency traders, dark pools, or anyone from the SEC or Nasdaq.

"Kind of light on the stakeholders in the business, right?"

Right. Maybe those parties are still to come in subsequent hearings, which you know will come. As for today, Katsuyama, IEX Group’s chief executive officer will be there, but O’Brien won’t, having already eaten his meal for the month and now sleeping it off on a warm rock.

Joseph Ratterman will represent Bats Global in his place, and NYSE Group President Thomas Farley also will testify, along with University of Notre Dame finance professor Robert Battalio.

Nick Baker will be listening for "an aspect of market structure that’s gotten relatively little attention lately: ‘payment for order flow,’" when wholesale market makers pay retail brokers for the right to execute their clients’ orders.

Baker, team leader for market structure, posits that what lies behind this arrangement is that the trades are "dumb money," coming from our moms and dads and grandparents and probably not from a sophisticated trader.

"They’re likely to be profitable trades for the market maker," he says. "The question is whether these retail orders get the best execution, i.e., best prices. Sounds like that’s going to get aired out some at the hearing."

But the lunch money has already been taken.


Today’s economic numbers include CPI and housing starts at 8:30 a.m. EDT. Adobe Systems will report earnings after the bell. Actavis and Forest Labs will hold special shareholder meetings to approve the former’s acquisition of the latter. BlackRock holds its investor day, and annual meetings are scheduled for Krispy Kreme and Expedia, among others.

The Office for National Statistics in London reported a short time ago that U.K. inflation fell to its lowest rate in 4 1/2 years, while the ZEW Center for European Economic Research said German investor confidence unexpectedly fell for a sixth month in June.


+ NYC traffic alert: Obama’s in town starting around afternoon rush hour for a fundraiser. + Rengan Rajaratnam, the former Galleon fund manager, goes on trial today after rejecting a plea agreement on allegations he conspired with his brother Raj to trade on nonpublic information. + Enbridge’s Northern Gateway pipeline, proposed to send diluted bitumen from Alberta oilsands across British Columbia, must be decided by midnight. + Chinese Premier Li Keqiang meets Britain’s Queen Elizabeth and Cameron. + The Business Roundtable CEO survey is scheduled for release at 10 a.m. EDT. + The "Mona Lisa’’ of postage stamps goes up for auction at Sotheby’s in NYC. + Zynga is working on a plan to add two directors to its board to comply with Nasdaq’s rules. + GM’s latest recall of more than 3 million cars involved faulty ignition switches overseen by the same designer who approved the defective switch design in the Cobalt recall. + Exit fees on bond funds are being considered by Fed officials, the FT reports. + As the FOMC begins its two-day policy meeting, signs the Fed’s going to move on rates more quickly than you think.


Maybe rollovers from 401(k) plans to IRAs will be next for the committee.

John Hechinger pries open the lesser-known issues with taking your 401(k) and plowing it into an individual retirement account, those issues being that with more choice and flexibility come higher fees and risks.

There’s more money in IRAs than in 401(k) accounts and it's accumulating rapidly. More than $300 billion is shifted annually to IRAs from 401(k) accounts, about a 60 percent increase in the past decade.

Hechinger speaks at length with Kathleen Tarr, who sounds like she feels feathered as well for her work convincing AT&T employees, whose trust she says she held, to move their money into IRAs while she worked for an AIG brokerage firm, not AT&T.

Average people aren’t smart about the fine print in things like these, but the people who write the fine print are, like Ira Hammerman of Sifma, which, surprise, opposes any stricter regulation.

"Let the customer decide," Hammerman tells Hechinger, sounding just a little Marie Antoinette-y.


The U.S. Supreme Court’s refusal to save Argentina from itself yesterday has left the country in a very tight spot.

Regardless of when holders of Argentina’s defaulted bonds bought them -- post-default or not -- the country’s effort to switch them out for restructured bonds looked past the clause in the bond agreement that barred it from treating the new securities more favorably than the old ones, as Greg Stohr put it yesterday.

Fernandez took the airwaves last night in a national broadcast to label the crisis "extortion" and to remind everyone that Argentina can’t pay both sets of bondholders, as it’s being expected to.

Meanwhile, the restructured bonds tanked yesterday, falling an average of 9.3 percent, Katia Porzecanski and Camila Russo report today in the Argentina Credit column. There’s a chance Fernandez will try to exchange the restructured debt for new debt governed by local law, a move that might come as soon as today.

Whatever the move, the country’s next interest payment is due June 30.


Mark Carney leads a meeting of the BOE’s Financial Policy Committee today intended to address the issues behind the rapid acceleration in housing values and the issues confronting policy remedies.

Those would be "macroprudential" policies, or "macropru."

Simon Kennedy, our chief international economics correspondent, digs the term out of its 1979-era inception to illustrate the nuance BOE policy may require to tamp down both a potential housing bubble and sluggish inflation at the same time, a paradoxical situation that the hammer of straight monetary policy may not handle adroitly.

Essentially restrictions on lending tailored to avoid just making money more expensive, period, these devices were termed a "speed limit" by the Reserve Bank of New Zealand. The RBNZ managed to shave three percentage points of housing-price inflation in the first half through actions including restricting the amount of new loans banks could issue to borrowers with less than a 20 percent down payment, Kennedy reports.

While this financial engineering isn’t always successful, it’s a movement now, Kennedy writes, and Carney’s moves will be "a test case" for the Fed and ECB.


To either come out in support of the need for the estate tax or, as U.S. president, sign legislation preserving it, you probably should be prepared to pay it when your time comes around.

But by taking steps to mitigate the tax’s effect on their personal wealth, as Richard Rubin reports today, the Clintons seem to be riding both rails.

The country needs the taxes it demands to maintain the American standard, yet so many of us will do what we can to, effectively, underfund schools, roads, bridges and the rest of the national infrastructure if we think we can get away with it.

Rubin examines how the Clintons have sheltered the value of their house in New York by placing it in a trust. The rising value of the house happens in the trust, not in their personal estate.

Perhaps it shouldn’t be so controversial, but as the standard-bearers of the Democratic Party, talking the talk should require walking the walk, no?


Take the Web today and you wonder what its creator, Tim Berners-Lee, thinks of what’s it become. Porn, Silk Road, beheading videos, Nigerian e-mail scams, TMZ, and the rest of it is Wikipedia. (Actually, we could ask him. He’s only 59.)

Want to build a bomb with household ingredients? Upload photos of the dinner you just made? Trash someone’s reputation? It’s all at your fingertips.

Want to make money selling advertising alongside videos that instruct people how to obtain stolen credit-card numbers?

Invent YouTube.


Once you read a little deeper into it, you realize that Greenpeace probably does need to trade currencies, given how globally sprawling the organization is, but, wow, the idea that it lost 3.8 million euros ($5.16 million) in forex trades is a mind-bender at first.

It just never occurred to us they’d be in that game. Or that they had income of 72.9 million euros last year, or that their annual budget was 300 million euros last year.

We got to wondering about all those other tree-hugging organizations out there -- organizations for which we are grateful and some of which we support.

Ducks Unlimited, which, basically, supports killing ducks and the maintenance of the waterways and wetlands that keep the ducks alive until you can kill them, had total assets of $159.4 million in 2013. Total revenue and donations last year amounted to $174.5 million. What the...?

Trout Unlimited, essentially the same thing with fish, which you don’t necessarily have to kill to achieve the purpose of the activity, had revenue of $44.2 million in fiscal 2012, the last annual report we could find. For fish!

Sierra Club Foundation? Total revenue of $63.7 million last year and total assets of $106.3 million. You could buy a spotted owl a spotted Corvette with that.


Good to see the U.S. soccer team finally get past Ghana. We’re not exactly soccer experts, so our cursory awareness of the sport in general leads us to assume that -- sorry, Ghana -- a nation like Ghana wouldn’t or shouldn’t pose the biggest challenge to a team from the U.S., but we learned that in fact Ghana has been the tripwire matchup for the Americans in the past two World Cups.

We’re not sure whether this says more about our ignorance of the sport or the state of the U.S. soccer team.

We learned one of the Americans continued playing with a broken nose, which warms the hockey in our hearts, so maybe there’s something to get behind after all.

Still can’t figure out the rules on offsides.


Good night Tony Gwynn, who learned what Walt Garrison didn’t tell him: Just a pinch between your cheek and gum could end your Hall of Fame golden years before you get to enjoy them.

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