The circumstances surrounding the arrest of Navinder Sarao for his actions related to the Flash Crash have been covered widely, but there is one angle that seems to be slipping through the cracks: Sarao’s intent. Or more precisely, his lack of intent.
Considering the volume of trade orders Sarao is alleged to have placed and then canceled, it seems likely his intention was to manipulate the market. And if Sarao ever stands trial and it is proven that he was “spoofing” or manipulating the market in some other way, then he should be punished accordingly.
However, I find it hard to believe Sarao woke up on the morning of May 6, 2010, and said to himself, “Today I am going to crash the market, drive shares of Accenture to one cent, raise Apple shares to more than $100,000 and then call it a day.” In fact, his actions after the Flash Crash suggest he had no idea his trades played such an allegedly large role in the day’s events. (read more…)
A collection of stories from SmartBrief publications and around the web…
JPMorgan software identifies potentially rogue workers: Bloomberg reports on a Reagan-esque initiative at JPMorgan to “trust, but verify” the actions of its employees. Sally Dewar, JPMorgan Chase’s head of regulatory affairs for Europe, is overseeing an algorithmic program that identifies employees who might go rogue. The software considers dozens of factors, including whether an employee violates trading rules or fails to attend compliance classes. “It’s very difficult for a business head to take what could be hundreds of data points and start to draw any themes about a particular desk or trader,” Dewar said. “The idea is to refine those data points to help predict patterns of behavior.”
Treasury Market Practices Group says HFT might be no bueno for Treasurys: High-frequency and other types of automated trading have increased risk to trading Treasurys, according to the Treasury Market Practices Group, which is sponsored by the Federal Reserve Bank of New York. (read more…)
We all have heard that one of the big culprits in the credit crisis was the collateralized debt obligation (CDO). CDOs are notes backed by baskets or cohorts of different types of receivables. The notes can be backed by residential mortgages, or commercial mortgages, or student loans, or credit card receivables or auto loans, etc (or a mixture of all the above). It is the cash flows from those receivables, not some end borrower, that services the CDO notes, i.e. pays interest and amortizes the principal on the notes.
I don’t want to go into the details about CDOs here or their role in the credit crisis because many other writers have gone into this exhaustively elsewhere. Suffice to say CDOs (or asset backed financing/securitizations) are actually very important and effective ways of financing certain receivables pools (of effecting what is known as ‘non-recourse’ finance). And yet there were fairly obvious issues with many CDO structures before the crisis: their excessive structural complexity (the notes were broken into too many tranches); the questionable credit quality of the underlying assets; the use of too many different types of underlying receivables; the fact that those rating the notes (the rating agencies) were effectively in bed with the originators of the notes; the overly aggressive selling methods of CDO tranches by swarms of brokers; etc. (read more…)
Welcome to Day 3 of SmartBrief’s roundup of financial news coming out of the World Economic Forum’s Annual Meeting in Davos, Switzerland.
Blankfein on the reality of regulation: Goldman Sachs chairman and CEO Lloyd Blankfein told CNBC his firm is always thinking about regulation and how it affects things like technology acquisition. On whether banks are under regulatory assault, Blankfien responded, “No choice, no problem. I don’t have to sit here and ruminate on about whether its good or its bad or I like it or not. It is what it is.”
‘Pandemic bonds’ could be a panacea for next pandemic: Gillian Tett writes in the Financial Times writes about the concept of ‘pandemic bonds’ aimed at helping finance more effective and efficient responses to global health crises. The idea, which is backed by World Bank boss Jim Kim, would see bonds issued to help governments, NGOs and other organization,. “This could help cash-strapped governments finance measures to beat disease,” Tett writes. (read more…)
APPrise Mobile’s platform for investor-relations communications is designed to help companies, whether large or small, create native applications that supply the target audience with a wealth of crucial information, said Jeff Corbin, APPrise’s founder and CEO.
“Public companies needed a communications solution to inform or ‘apprise’ their investors on their mobile phones and tablets,” Corbin said in an e-mail interview. “TheIRapp was created to solve this problem. It was developed to be a cost-effective, easy-to-implement solution that would provide public companies with their own branded app available on the Apple App Store and Google Play.”
More than 125 companies are using the company’s investor-relations app solution, while the number of investors who have downloaded one or more of APPrise customers’ apps has surpassed 75,000, he said. (read more…)