Today's Top Stories Also Noted: Spotlight On... Consumer poll: Switching banks is too difficult News From the Fierce Network: Today's Top News1. Knight Capital glitch triggers wild stock swings
While it wasn't another Flash Crash, the odd volatility that hit 150 Big Board stocks this morning was enough to get people buzzing all over again about the degree to which the market is deleteriously affected by algorithms and high frequency techniques. The culprit seems to be Knight Capital, one of the companies quick to (rightfully, as it turned out) point the figure at Nasdaq OMX for its technical glitches surrounding the Facebook IPO. Now the tables are turned, and market participants are pointing the finger at Knight Capital for some odd volatility. Knight said it indeed had a few technical issues and asked that customers re-route orders for these stocks. The nature of these difficulties remains a mystery. Bloomberg reports that "trading was halted on at least six stocks on the NYSE after they tripped so-called 'circuit breakers' designed to prevent surges and plunges linked to unusual trading. China Cord Blood Corp. soared more than 150 percent; CoreLogic Inc. fell more than 11 percent; Trinity Industries Inc. rose 17 percent; Kronos Worldwide Inc. climbed 19 percent; and Molycorp Inc. fell almost 18 percent." One issue here is whether price bands--the coming-soon vaunted limit up/limit down approach--would have worked any better in this situation. There have been enough trading anomalies the past few years that concern is definitely warranted. The case for CAT gets even stronger. For more: Related articles: Read more about: Flash Crash
2. UBS vs. Nasdaq on Facebook losses
In the aftermath of the botched Facebook IPO, the market makers-vs.-Nasdaq OMX war has receded, but ratched up on the UBS front. Knight Capital and the two others seem to be making peace with the Nasdaq's offer to provide up to $62 million for restitution, but UBS's second quarter earnings release contained a real shocker. It said its Facebook-related losses amounted to more than $350 million, a stunning figure. That compares with $30 million to $35 million in losses each at Knight Capital and Citadel Investment Group. Citigroup's losses have been pegged at $20 million. UBS would appear to be far and away the biggest loser. "We will take appropriate legal action against Nasdaq to address its gross mishandling of the offering and its substantial failures to perform its duties," UBS wrote to shareholders. "Although as in all such matters there can be no assurance as to the amount of any recovery we may obtain, we intend to pursue compensation for the full extent of our losses." That puts a lot of pressure on Nasdaq, which hiked its restitution offer to $62 million only grudgingly. So it would appear that a massive court battle is brewing. One issue here is whether the loss calculations at UBS will influence the other market makers. UBS's hardline just might prompt them to take another look. For more: Related articles: Read more about: Nasdaq, Facebook IPO 3. Silver linings in JPMorgan's results
JPMorgan has taken its lumps with analysts as of late. I noted that Deutsche Bank's Matt O'Connor, who met with JPMorgan's CFO Doug Braunstein the day JPMorgan announced its executive shuffle, promptly moved the bank from buy to hold. He wrote that, "Risks at most peers no longer seem to be outsized vs. those at JPM, liquidity and capital differences have narrowed and certain peers seem ready to be more aggressive in maintaining/gaining market share. We believe this implies additional market share gains for JPM will be less likely and may suggest some share loss in certain areas." Most of the reaction to the bank's second-quarter earnings focused on the massive $5.8 hit to the first half earnings. But KBW has discerned some silver linings. Analysts at the firm gave the New York bank their award for the "best quarter" and "best trader" of the big bank, notes Deal Journal. The analysts wrote that, "Yes, we are aware that JPM experienced an embarrassing trading loss topping $5 billion in its Chief Investment Office leading to investigations by regulators and a halting of its share repurchase program. However, despite this loss and market concerns over JPM's internal controls, we are awarding the best quarter to JPM. A factor behind our decision is the strong earnings power demonstrated in the quarter from its core businesses lines." In addition, equities and fixed income traders at JPMorgan fare relatively well compared to their peers at other banks. For more: Related articles: Read more about: earnings, traders 4. Prepare for epic interest rate swap battles
The City of Oakland's bitter battle with Goldman Sachs over interest rate swaps, which once seemed like a good idea, took a loud and angry turn this week when protestors on behalf of the city chanted in front of the bank's offices in San Francisco. "They got bailed out. We got sold out," the protesters screamed, according to Bloomberg. "One of them wore a paper top hat bearing the label 'Mr. Blank Check,' and as part of a skit ripped funds from libraries, firemen and city parks." The rhetoric has ratcheted up, to be sure, as a showdown looms. The city has voted to cease all business with Goldman Sachs if the bank does not rip up a swaps contract by end of September. This sort of rancor could easily intensify at the many other cities and municipal entities that entered into these swap payments. Back when interest rates were rising, it seemed like a no-brainer to hedge against future rates, essentially locking in a fixed rate via swaps. Unfortunately, city officials might have been naïve about the consequences should interest rates fall. Hundreds of entities are losing money. Some owe banks millions, and the banks are hardly keen about letting them out of their deals. One possible strategy by cities and municipalities might be to allege that they were somehow duped into these deals. That puts us right back in a situation in which banks argue that the buyers of these deals were sophisticated and knew what they were doing, while the other side argues they were misled. Recall the Jefferson County case, which resulted in a bankruptcy filing by the county. For more: Related articles:
Read more about: Interest Rate Swaps 5. Advisors should take advantage of Facebook moment
The Deal Professor takes a look at the many studies over the years that have documented the losing proposition that is retail stock picking. The peg he hangs this on is the Facebook IPO, which he calls "one more confirmation of studies that have shown that, on average, individual investors lose out consistently when they buy and trade individual stocks. They're better off investing in passive index funds." He also notes that two professors who have studied this issue have released a paper surveying the evidence, which is voluminous. There are lots of reasons why retail investors tend to fare poorly. Now that Facebook has imploded, there's been a continuation of the public's disaffection with the stock market. It has been many years since stock-picking was a fun public parlor game, and there are few signs that such activity will soon come back into vogue, but the fact remains that most households are in need of financial advice like never before, even if they have sworn off the stock market. For investment advisors, this is a great marketable moment, assuming you didn't stick your clients with Facebook shares. People are confused and angry and in need of solutions. If you're the answer people will listen. All in all, this should be a great time to be a financial advisor. For more: Related articles: Read more about: brokers, RIAs Also NotedSPOTLIGHT ON... Consumer poll: Switching banks is too difficult A Consumers Union poll has found that one in five consumers considered moving their checking account to another bank in the past year, mainly because of increased fees. However, more than half said they didn't switch because it was so complicated. Would it be wise for banks to make it easier to change accounts? That could open up some complications, but there may be greater complications in the form of regulatory scrutiny from the CFPB if the industry does not move in that direction. Article Company News: And Finally…Growing rich/poor divide. Article
©2012 FierceMarkets This email was sent to kumaresan.selva.blogger@gmail.com as part of the FierceFinance email list which is administered by FierceMarkets, 1900 L Street NW, Suite 400, Washington, DC 20036, (202) 628-8778. Contact Us Editor: Jim Kim Advertise Advertising: Jack Fordi or call 202.824.5040 Email Management Unsubscribe from FierceFinance Explore our network of publications: | ||||||||||||||||||||||||||||||
Thursday, August 2, 2012
| 08.02.12 | Wild stock swings: Knight Capital trading glitch cited
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment