Levine on Wall Street: High Speed Shouting
shouted on television
"It was the fight that stopped trading on the floor of the New York Stock Exchange," says CNBC, but fortunately trading on the actual New York Stock Exchange -- the one that trades stocks -- did not slow down even a tiny little bit. What CNBC meant is that the NYSE floor traders who provide picturesque background for television shows stopped pretending to trade and started cheering criticisms of the computers who have taken their jobs. (Here is a recap.) Meanwhile, Felix Salmon does not trust the FBI to fix market-structure problems, Michael Lewis's book has spoiled Virtu's initial public offering, and Goldman Sachs is apparently planning to sell its NYSE floor specialist business, which the Financial Times says is mostly pretty dull "apart from small telegenic huddles of activity at the start and finish of each day."
Cliff Asness is okay with high-frequency trading .
It may not have stopped trading on the NYSE, but this op-ed by Cliff Asness and Michael Mendelson of AQR Capital Management is a good thing to read if you want to get a better understanding of high-frequency trading. AQR, which is good at statistical analysis, thinks that HFT lowers trading costs for long-term institutional investors, though "We can't be 100% sure." Here is their view on institutional investors who criticize HFT:
Often when they try to trade large orders quickly, they find the trades more difficult to execute in a market that has gravitated toward more frequent trades in smaller sizes, and that the price moves away from them faster now.
We doubt that these old-school managers were truly better off in the pre-HFT world, but it's hard to prove either way. And if they're right, it may be only because HFTs have made the markets more efficient, eliminating some of the managers' edge.
Well, sorry, but prices responding quickly—and traders not being able to buy or sell a ton without the market moving—is what is supposed to happen in a well-functioning market. It happens to us too. It may be that in the old days these managers were able to take advantage of whomever was on the other side of their trade, and that nowadays they find it far more difficult to gain that advantage. A more efficient market shouldn't be mistaken for an unfair one.
Also, Asness is good at Twitter.
The TXU buyout went poorly.
"KKR & Co., TPG Capital and Goldman Sachs Capital Partners, the firms that acquired Energy Future Holdings Corp. in the biggest-ever leveraged buyout, would be all but wiped out in a reorganization plan being discussed," ending up with something like 1 percent of the post-bankruptcy equity. You could have a model where the biggest-ever leveraged buyout is destined to go poorly: As long as the boom continues, buyouts will keep getting bigger, so the biggest one is naturally the last one before the music stops. That's not a good place to be.
JPMorgan is going to war with Russia .
JPMorgan "blocked a transfer by Russia's embassy in Astana, the capital of Kazakhstan, to Sogaz, an insurance company part-owned by Bank Rossiya, one of the targets of US sanctions announced on March 20," and Russia is retaliating against U.S. diplomatic missions. Against the diplomatic missions, mind you, not against JPMorgan, which I guess is too-big-to-retaliate-against-in-international-diplomatic-disputes. Apparently "the blocked payment that triggered the fresh international incident was for less than $5,000."
How should we change the rules on activist investing?
Here is Dealpolitiker Ronald Barusch, who is probably less pro-activist than I am, with some ideas on how to fix some perceived problems with activist investing. The main problem he sees is, "why wouldn't we favor full disclosure over helping an activist acquire stock at a low price?" He asks that rhetorically but I guess you could apply it to any investor. Say Warren Buffett: Make him disclose his plans to buy any shares before he buys them. See what happens. See if he complains. Investors like to own their private information. Remember how much they complain about high frequency trading?
"I was supposed to build an email thing," says the guy who built an email thing. Investors keep being nervous about Pimco. Employees keep being nervous about SAC, or, sorry, Point72. Honestly it was always a little odd to have a leading business school named "Thunderbird."
(Matt Levine writes about Wall Street and the financial world for Bloomberg View.)
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