Levine on Wall Street: Out of the Darkness

Barclays: bad news. BNP: decent news. Argentina: bad news. Cocos: mixed news. Lottery tickets: slow news. Bitcoins: conspiracy theories.

How're things at Barclays?

Oh, you know, pretty good, pretty good. Ha no just kidding, things are bad, lots of brokers disconnected from the Barclays LX dark pool after Eric Schneiderman sued yesterday claiming that LX was falsely advertised and full of predators. At this point I bet Chief Executive Officer Antony Jenkins has a button on his computer that he can press to generate this memo: 1

“These are serious charges that allege a grave failure to live up to our values and to the culture at Barclays which we are trying to create,” Jenkins, 52, wrote in a memo to employees today. “If there has been wrongdoing we will address it quickly and decisively.”

One shareholder says Jenkins "hasn't achieved the cultural change he's talked about," and I guess a lesson is, be very careful about promising to change the culture of a bank. It'll always be a bank.

Perhaps more disturbingly, "Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co., the three largest equity traders among U.S. banks, already weren't sending orders to the dark pool before the lawsuit" (emphasis added), though it's hard to know quite how to interpret that. One of the accusations against Barclays is that it selfishly routed too many orders to its own dark pool, rather than sending them to competitors' pools, and it's not unimaginable that its competitors did the same. Elsewhere John Carney argues that any "investor persuaded by the complaint might consider cutting ties to Barclays" entirely, not just its dark pool, though he also notes that "The charges against Barclays appear to justify unease about dark pools and may trigger a broader reaction by investors."

And how about BNP Paribas?

Here the news seems fine: New York will restrict BNP Paribas's ability to do dollar clearing, but only in "specific business lines, such as oil and gas transactions, and certain offices, such as Geneva." So the ban is "likely to be invisible for end-users," says an analyst, who estimates that it will cost BNP $40 million or less in administrative costs. Given that the current guess on BNP's fine is $8.9 billion, the dollar clearing ban now seems like rounding error, not the possibly fatal penalty that it originally sounded like.

Elsewhere in crossing platforms.

Two things we've talked about recently are (1) worries about market structure for corporate bonds and (2) the difficulty of finding trades with just natural crossing between institutional investors. So anyway "asset managers hold 99 percent of bonds outstanding and can’t trade among themselves," but Tradeweb "plans to offer electronic trading between banks and their customers in bonds worth more than $1 million" per trade, and "will offer live prices prior to trading and aims to execute 95 percent of orders placed." And it's not just for customer crossing; "Dealers will be required to stream a minimum number of price quotes." This is not the first electronic bond trading platform? But it can't hurt I guess.

How are things in Argentina?

"Action by Argentina Seems to Defy Judge’s Order on Bond Payments," gulp. Specifically Argentina deposited money at Bank of New York Mellon to pay interest on its exchange bonds, without depositing money to pay the holdout bonds as ordered by the court. Things went variously pear-shaped in court after that. (“This is a brazen step in violation of the court’s orders, and it warrants a swift and decisive response,” say the holdout bondholders.) This is after the court refused to stay its order past June 30, making next Monday the big day for Argentina's debt.

Why are there no IPOs?

I mean, that is an exaggeration, GoPro's initial public offering started trading yesterday and it was up 31 percent, also its CEO seems to have eaten a camera to celebrate? Probably don't try that at home. But here venture capitalist Marc Andreessen explains why it's harder for a small company to go public than it was when he took Netscape public 19 years ago. It's a familiar list of villains: Sarbanes-Oxley, which "requires fleets of lawyers and accountants who come in and do years of work," Regulation FD, which "has really curtailed the ability of companies to communicate with shareholders," and of course short-term-oriented markets:

You've had a dramatic rise in hedge funds. Very short-term trading and dramatic rise in short-selling [investors betting that a stock's price will fall]. If you're a public company, you become the shuttlecock between warring longs and shorts. They bat your stock around like it's a chew toy.

Andreessen notes that the calmer markets of the 1990s had more individual investors, who wanted to be in growth stocks and were more supportive of small growthy internet companies. But, you know, how did that work out for them?

How would you like to be paid in cocos?

It'd be great, right?

While many on Wall Street prefer their pay in cash, traders at Credit Suisse Group AG and UBS AG are doing pretty well this year after getting part of their bonuses in contingent-capital debt.

Such securities have gained 7.5 percent in 2014, more than returns on high-yield bonds or stocks, according to Bank of America Merrill Lynch index data. The debt, which can be wiped out or converted into equity if a bank fails to maintain enough capital, has been a bright spot in a world of little volatility and near record-low yields.

It is almost suspicious how good Credit Suisse has been at paying its bankers in the instrument that will perform best over subsequent periods. Elsewhere in cocos, the Bank of England thinks they're performing too well, and said so, which I endorse; what you don't want is for investors to start thinking of cocos as safe assets and then find yourself in a position where you need to bail them out. And elsewhere in financial-industry pay, here's how not to negotiate like Deeb Salem.

Ordinary investors harmed by slow public data feeds.

This is the story of two guys who bought a lottery ticket, looked up the winning numbers on the lottery website shortly after they were announced, saw the old winning numbers on the website, thought they were the new numbers, and threw out their ticket. But it was actually a million-dollar winning ticket, as they'd have known if the website had updated faster. They're suing, obviously. The very best part of this story is that they bought their ticket in Mahwah, New Jersey, where the New York Stock Exchange's servers live. It's a market-structure parable so subtle that I can't quite figure it out.

Things happen.

Would it surprise you to learn that the U.S. government's auction of bitcoins has generated some conspiracy theories? How to Dehumanize a Terrorist: Give Him an MBA. Loaner Puppies: The Latest Elite College Perk. Your New Giant iPhone Won’t Fit in Your Pants. Hedge fund manager quits. Dumb chart updated. Perfect business journalism achieved.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
  1. Actually here's the Libor contrition memo; the words are different (as is the author!).

To contact the author on this story:
Matthew S Levine at mlevine51@bloomberg.net

To contact the editor on this story:
Toby Harshaw at tharshaw@bloomberg.net

Before it's here, it's on the Bloomberg Terminal.