PrefBlog

Here’s a sign of the times:

Many Wall Street traders are concerned about being replaced by machines in the future, but at one Goldman Sachs Group Inc. unit it’s already happened.

“Equity trading: 15-20 years ago we had 500 people making markets in stocks. Today we have three,” Goldman Sachs President David Solomon said Monday at the Milken Institute Global Conference in Beverly Hills, California.

Solomon said the introduction of more technology into the trading business has made it more efficient for clients, while also introducing new risks. For Goldman Sachs, it has changed the mix of its workforce, as the bank has 9,000 engineers on staff and more employees are focused on regulation.

The Toronto Schlock Exchange provided some entertainment today:

UPDATE 4 – TMX has decided to shut down all markets for the remainder of the day. Trading will not resume today, including market on close. We apologize for the inconvenience. Further updates will be provided.

UPDATE 3 – Please be aware that all TMX markets continue to experience issues. We apologize for the inconvenience. Further updates will be provided.

UPDATE 2 – Please be aware that TMX continues to experience issues on all markets. We apologize for the inconvenience. Further updates will be provided.

I can’t find the original notice or “Update 1” on their site, but they did have notices on Twitter:

UPDATE – All TMX markets, including Montreal Exchange, are experiencing issues with trading, all users are equally impacted and are unable to connect to our Exchanges. We apologize for the inconvenience and continue to investigate. Further updates will be provided.
1 reply 22 retweets 5 likes

Please be aware that TMX equity markets are experiencing issues with trading, all users are equally impacted and are unable to connect to our Exchanges. We apologize for the inconvenience and continue to investigate. Further updates will be provided.

There’s no real explanation been put forward as to why this happened. Maybe somebody unexpectedly traded a marijuana stock. Perhaps they forgot to pay the electric bill. Or maybe – given the season – somebody did spring cleaning:

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One way or another, I am advised that the Historical Prices service – where I get the closing quotes – will not be ready for several hours. So I’ll update this post with the statistics tomorrow.

Update, 2018-4-28: The Exchange has released some details. It appears their redundancy wasn’t quite as redundant as one might hope! But don’t worry, Exchange fans! I’m sure they’re still the regulators’ darlings!

TMX Group today provided further details regarding the market interruption that affected trading on Toronto Stock Exchange (TSX), TSX Venture Exchange (TSXV), TSX Alpha Exchange (TSX Alpha) and Montreal Exchange (MX), on Friday, April 27.

The outage, which began at 1:37:25 pm EDT Friday on MX and 1:39:13 pm EDT on TSX, TSXV, and TSX Alpha, was caused by a hardware failure in a central storage appliance of the trading system. This hardware failure impacted both the primary and the redundant components preventing storage failover procedures from engaging. TMX confirms that this incident was not the result of a cybersecurity attack.

TMX began remediation measures Friday afternoon, which included replacing the defective storage module, verifying the integrity of data of all impacted databases and conducting a successful start-up validation of the entire trading enterprise. Given the time of the incident, we could not engage disaster recovery systems in time to ensure an orderly market re-open and closing session.

TMX confirms that all systems are ready for the start of business on Monday, April 30, 2018.

“We apologize to all of our valued clients across Canada’s capital markets and around the world, and to all of TMX Group’s stakeholders for Friday’s interruption in trading,” said Lou Eccleston, Chief Executive Officer of TMX Group. “Our team took immediate action to diagnose the problem and communicate with all of our participants while determining the cause and impacts. Due to the timing and the nature of the issue, we made the difficult but necessary decision to shut down trading for the rest of the day. TMX is committed to applying the lessons learned from this incident to help us prevent such issues from recurring in the future.”

Update, 2018-4-28:

The recently appointed SEC Commissioner Robert J. Jackson Jr. (a Trump appointee), had some interesting things to say about The Middle-Market IPO Tax:

A lot has changed since 1999: I was humbled by the dot-com crash, advised the Treasury during the financial crisis, and became a law professor. And in the two decades since I left Wall Street, our markets have been transformed by technology. Today stocks trade with dizzying speed and our markets move faster than ever.

But some things have remained the same. You see, when I was a banker, we charged a standard fee for a middle-market IPO: seven percent. We would negotiate a reduced price for large, high-profile companies, where the client’s bargaining power produced a better deal. But for middle-market companies, our fee was always seven percent. Whatever industry the company was in, whatever its growth profile, however qualified its management team was, if they were a smaller firm, they always paid seven percent.[4]

Back in 1999, I assumed that technology and competition would eventually lead bankers to give middle-market companies better pricing on IPOs. That’s why, when I arrived at the SEC, I asked my team to dig into the data to see how middle-market IPO pricing has changed. We’ll get into what we found in a moment. But the short version is that nothing has changed: middle-market entrepreneurs still have to pay 7% of what they’ve created to access our public markets.
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As the figure below shows, from 2001 through 2016, we found that over 96% of midsized IPOs featured a spread of exactly 7%:[14]
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From 1975 to 1991, one out of two U.S. public companies were worth less than $100 million in inflation-adjusted dollars. But public companies of that size are vanishing: today that fraction is less than one in four.[20]
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Today, private markets provide a much more competitive alternative. Those markets are larger and more robust than ever—and can support a company’s growth well into the later stages of its life.[22] In short, when public markets were the only game in town, companies were more willing to pay the IPO tax. Today, that tax can lead many middle-market companies to choose to stay private—with significant implications for the broader economy.
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But for two reasons I think the middle-market IPO tax poses real risks for our economic future. First, it’s bad for smaller companies because it puts them at a significant disadvantage. Without a realistic alternative to private capital, middle-market firms can be forced to accept less favorable terms when raising money. If we reduce the 7% middle-market IPO tax, private capital providers will face increased competition from public markets—improving financing terms for middle-market businesses.

Second, the middle-market IPO tax is bad for ordinary investors. When the tax causes our most exciting young companies to raise private capital rather than go public, retail investors are left out of a significant part of the Nation’s economic growth.

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PerpetualDiscounts now yield 5.43%, equivalent to 7.06% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little over 4.0%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 305bp, a slight (and perhaps spurious) narrowing from the 310bp reported April 18.

There was a a bit of a milestone passed today in the Treasury market:

Stocks tumbled as a rout in the shares of industrial and technology companies sent indexes spiraling lower amid a raft of earnings and renewed selling in the bull market’s biggest winners. The 10-year Treasury yield pierced 3 percent for the first time in four years.

The Dow Jones Industrial Average fell for a fifth day, the longest losing streak since March 2017. The sell off accelerated after industrial bellwether Caterpillar Inc. said that the first quarter was its “high water mark” for the year. The Nasdaq 100 Index slumped 2.1 percent, with Alphabet Inc.’s rise in capital spending sending its shares lower 4.5 percent.

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