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2. Twitter IPO chatter gets louder

In the aftermath of Knight Capital's $440 million loss in less than an hour, the company embarked on something of a Hail Mary attempt at reducing its liability due to the infamous software bug. Knight Capital sought to have exchanges simply cancel the trades. That did not fly with exchanges, sealing the firm's fate. It was soon forced into the arms of a White Knight.

In the case of Goldman Sachs, a different storyline is playing out. Options exchanges have apparently decided to cancel many of the erroneous trades that the gilded bank foisted on the market, according to media reports.

The issue now moves to specific trades. The reality is that, as always, each trade represents a zero-sum situation. Some clients may well close money from winning trades that turned out to be erroneous. One big issue for Goldman Sachs is whether it will decide to make counterparties whole on these now-broken trades. My sense is that they do not have any other choice. It's going to have to take some losses, which in the scheme of things are not massive, especially compared with Knight Capital.

The notion that erroneous trades can simply be cancelled doesn't sit well with everyone. No less that Myron Scholes has called for an end to the practice, if only to send a message to broker dealers, which seem to be increasingly bug-prone.

"If trades are not cancelled, and Goldman (and others) internalised all of the losses associated with programme errors and bad algorithms, they would be more careful," he told the Financial Times. Others in the industry will no doubt agree.

For more:
- here's the article

Read more about: Goldman Sachs, Trading Glitches
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By Jim Kim

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3. Nasdaq suffers another "glitch," trading halted

Is another social media giant on the verge of hiring underwriters?

People have been buzzing about the likelihood of Twitter going public at some point this year, preferably very soon. One has to wonder whether this has the making of another Google IPO. Recall that Google was bent on changing the IPO process, at least making a grand statement, by insisting on a Dutch auction, one that didn't necessarily pay all that well. Morgan Stanley ended up winning the lead underwriting spot, which carried some major bragging rights if not huge percentage-point fees.

This time around, however, it's much less likely that Twitter will bring anything but a "change the world" attitude to the table. The New York Post reports that the social media giant is already holding informal talks with potential underwriters. And it is apparently making it clear that it wants a "low profile" transaction, which means a Dutch auction is not even a remote possibility.

You can hardly blame it, not after Facebook's disastrous experience with its IPO, one that left the issuer, the underwriters and particularly Nasdaq OMX, with stained reputations. It would not be all that surprising if Twitter were to pick the NYSE for that reason.

All in all, this is going to be a massive deal, one with a hefty retail presence, which just might factor into the underwriter decision. One thing that seems beyond doubt is that Twitter has the heft to demand some concessions in terms of underwriting fees. Banks will have to discount to win this mandate.

For more:
- here's the article

Read more about: IPO, Social Media
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By Jim Kim

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4. Ackman contrite, expects government action on Herbalife

Systems integrity is a problem with no real solution in sight.

The SEC will not be able to ignore this much longer. Coming on the heels of a surprising---and potentially costly---errant trade incident involving Goldman Sachs' options orders, the Nasdaq has been forced to halt all stock trading, forcing other exchanges to halt trading in Nasdaq stocks as well and even cancel orders. The Nasdaq options operation has been affected as well; it has started recommending that broker-dealers route their orders elsewhere.

This is yet another stain on Nasdaq OMX's reputation. Recall the disastrous performance of the Nasdaq when Facebook went public?

Not much was known in the immediate aftermath of the service shutdown. But it will likely affect about 30 percent of the market. The big issue apparently was the data feed related to Nasdaq transactions.

It would appear that the SEC has been given yet more fodder to promote its Reg SCI concept, which has yet to win much support on Wall Street. The sad reality for the industry, however, is that it has failed to secure the collective system, leaving the entire economy vulnerable to these sorts of incidents.

Reg SCI may not be perfect, but it may be preferable to the situation we have now.

For more:
- here's a CNBC item

Read more about: Nasdaq, Trading Glitches
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By Jim Kim

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5. Report: No personal accountability in Bloomberg terminal-gate

The hedge fund confessional has become fairly standard in the industry. In the wake of bad news, the manager pens a contrite letter to limited partners and makes sure the media gets a copy. The idea is to essentially plead guilty to poor performance, convince investors that the fund is not in denial and hope that better days arrive soon.

The latest example: William Ackman.

After a much-publicized string of mishaps, he wrote clients with a brutally honest assessment in some cases. As noted by DealBook, he called his investment in JCPenney a flat-out "failure." As of mid-August, Penney's stock was trading more than 40 percent below the hedge fund's average cost basis. The letter noted that losses rival other losing bets on the likes of Borders and Target.

"Clearly, retail has not been our strong suit, and this is duly noted," Ackman wrote.

Of more news interest, however, was his strong defense of his Herbalife investment. He has been shorting the company, and has been thrashed on all sides as the stock continues to rise, to the glee of Herbalife bulls, which include Ackman's nemesis Carl Icahn.

But Ackman is sticking to his guns and has made a tantalizing suggestion.

"Over the past eight months, we have made material progress in attracting federal, state and international regulatory interest in Herbalife," Ackman wrote. "We are not at liberty to disclose the nature of these developments, but we believe that the probability of timely aggressive regulatory intervention has increased materially."

Does he know something no one else does?

Even if Ackman is right, it remains to be seen whether the company will be handed the death penalty. The stock has to drop a really long way before he makes significant money.

But he has put his credibility on the line.

For more:
- here's the article

Read more about: William Ackman
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By Jim Kim

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