PrefBlog

ZeroHedge squared its rot for a good booHooHoo about the Litvak charges mentioned on January 28:

Since for the most part, the buyside traders operated with other people’s money, they were largely indiscriminate on the fine pricing nuances of the acquisition (or disposition) of the securities at hand, and while to the “other people’s money” under management whether a given bond was bought for 55 or 55.75, or a given MBS was sold for 72-6 or 72-16 meant little (after all the trade was driven by a big picture view that the security would go up or down much more and certainly enough to cover the bid/ask spread, resulting in much larger profits upon unwind), the transaction price had a huge impact for the bank traders-cum-salesmen arranging said deals. Because when one is selling a $40 million MBS block, a 1 point price swing equals a difference of $400,000. Make 15 such deals per year, and one’s $1,000,000 bonus (assuming a ~15% cut on the profits) is in the bag.

Golly! Whoever would have thought that the sell-side exists to make money?

I once had a buy-side trader tell me he didn’t care much about the pennies – if he got the direction right, he’d do just fine. His intention was to impress me with how much of a gun he was – and to sneer at my scrabbling in the dirt for pennies – but it didn’t work out that way.

Sadly, we have not yet been informed regarding the identities grossly incompetent (or negligent. One of the two.) buy-side traders in the Litvak case; nor does it appear that action will be taken against them for their dereliction of duty. Performance, schmerformance.

The Canadian preferred share market ended the month on a downbeat, with PerpetualPremiums dipping 2bp, FixedResets down 8bp and DeemedRetractibles off 1bp. Volatility was low. Volume was very heavy.