June 21, 2010

Good article in The Atlantic about algorithmic and high-frequency trading, titled Monsters in the Market. I was a little disappointed by the precious tone of their comments:

At least a few high-frequency traders have learned to make a killing by detecting the more simplistic algo strategies deployed by basic pension funds and mutual funds, buying the next stock the funds plan to buy, and then selling it to them at a higher price. This may not be illegal, but it’s almost certainly unfair to the funds’ investors. “It is increasingly clear that there are quite a number of high-frequency bandits in the high- frequency-trading community who pump up volume statistics, front-run investor orders, increase transaction costs, and hurt real liquidity,” David Weild, an adviser at Grant Thornton and a former vice chairman of Nasdaq, told me. *

I would have been much more interested in an expose of just why basic pension funds and mutual funds are using the “more simplistic algo stretegies”. My guess is that they can’t be bothered; the money is much better spent on marketting.

It should also be noted that David Weild’s use of the term “front-run” is moronic. There is no misappropriation of client information in these strategies. One wonders what Mr. Weild’s performance track record is like! Vice Chairman of NASDAQ? Big deal, Madoff was chairman.

The UK will probably be getting a bank tax:

U.K. Chancellor of the Exchequer George Osborne is pushing ahead with plans to tax banks in his first budget, according to three people with knowledge of the plans, an announcement to go along with spending cuts that may prompt forecasters to lower economic-growth estimates.

The tax, which may be imposed on assets or liabilities, could raise at least 2 billion pounds ($3 billion), one of the people said. Osborne has said the June 22 budget statement would set the stage for the deepest spending reductions since the 1980s.

There is some reporting of the dissent regarding the ECB’s bond-buying:

On May 10, just hours after the European Central Bank stepped into government bond markets for the first time, Axel Weber broke ranks with most of his colleagues on the ECB’s Governing Council — including his boss, President Jean-Claude Trichet.

“The purchase of government bonds poses significant stability risks, and that’s why I’m critical of this part of the ECB council’s decision,” said Weber, president of Germany’s Bundesbank.

“Weber’s public opposition to a policy move by the ECB that the politicians are presumably very keen on could make his appointment a bit difficult,” says David Mackie, chief European economist at JPMorgan Chase & Co. in London. “They might feel: ‘Do we really want this guy to be in charge?’”

Weber was nonetheless right to warn about the danger of buying bonds, Mackie says. By taking the helm of the world’s second-most-important central bank, Weber would face “huge” challenges, says Nouriel Roubini, the New York University economist who predicted the financial crisis.

Quite right. The sovereign debt problem (crisis?) is not one that can be solved with liquidity injections, like the banks’ crisis. The banks, to a large extent, simply needed time for the markets to reflect values and for their short-term assets to run off the books … in such a case, Bagehot’s principle of supplying liquidity to an illiquid, but solvent, bank is the correct prescription. For the sovereigns, however, the problem is of spending and structural deficits and while bond-buying may buy time, it does not even begin to address the underlying problem.

Those puzzled by the SEC’s handling of the Goldman lawsuit can rest assured that yes, sometimes the SEC does manage to make allegations of genuine wrongdoing:

ICP kept some bonds in one of AIG’s CDOs after the New York-based insurer rejected them in October 2007, the SEC said. “In late 2008, after AIG complained about unauthorized trades, ICP was compelled to stop nearly all reinvestments by the Triaxx CDOs,” the complaint said.

[ICP founder and CEO Thomas] Priore also backdated trades of mortgage-backed bonds in 2008, using prices from a year earlier, causing one of the Triaxx vehicles to overpay by about $3.5 million, the SEC said.

The Canadian preferred share market rally just kept on going today, the PerpetualDiscounts up 15bp and FixedResets up 10bp, with a slight uptick in volume. The performance highlights table is sparsely populated and the volume highlights are dominated by PerpetualDiscounts.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
(at bid)
Mod Dur
Issues Day’s Perf. Index Value
Ratchet 2.69 % 2.84 % 35,046 20.67 1 0.0000 % 2,117.3
FixedFloater 5.15 % 3.30 % 22,185 19.85 1 0.8604 % 3,105.5
Floater 2.41 % 2.78 % 77,049 20.28 3 0.0184 % 2,251.8
OpRet 4.87 % 3.19 % 92,720 0.43 11 -0.0035 % 2,330.9
SplitShare 6.31 % 6.25 % 97,734 3.49 2 -0.1086 % 2,198.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0035 % 2,131.4
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 0.1476 % 1,907.6
Perpetual-Discount 5.95 % 6.03 % 199,032 13.86 77 0.1476 % 1,805.7
FixedReset 5.41 % 3.96 % 355,554 3.47 45 0.1015 % 2,185.7
Performance Highlights
Issue Index Change Notes
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.67
Bid-YTW : 4.03 %
BMO.PR.H Perpetual-Discount 1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-06-21
Maturity Price : 22.66
Evaluated at bid price : 23.32
Bid-YTW : 5.71 %
Volume Highlights
Issue Index Shares
SLF.PR.C Perpetual-Discount 142,625 RBC crossed blocks of 90,000 and 34,700 at 18.35.
Maturity Type : Limit Maturity
Maturity Date : 2040-06-21
Maturity Price : 18.36
Evaluated at bid price : 18.36
Bid-YTW : 6.09 %
BNS.PR.T FixedReset 106,935 Scotia crossed 91,100 at 27.40.
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 27.45
Bid-YTW : 3.85 %
TD.PR.O Perpetual-Discount 37,955 Nesbitt bought 14,900 from RBC at 21.25.
Maturity Type : Limit Maturity
Maturity Date : 2040-06-21
Maturity Price : 21.14
Evaluated at bid price : 21.14
Bid-YTW : 5.84 %
POW.PR.D Perpetual-Discount 26,139 CIBC crossed 20,000 at 20.70.
Maturity Type : Limit Maturity
Maturity Date : 2040-06-21
Maturity Price : 20.70
Evaluated at bid price : 20.70
Bid-YTW : 6.05 %
CM.PR.I Perpetual-Discount 25,660 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-06-21
Maturity Price : 19.90
Evaluated at bid price : 19.90
Bid-YTW : 6.01 %
SLF.PR.D Perpetual-Discount 25,180 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-06-21
Maturity Price : 18.34
Evaluated at bid price : 18.34
Bid-YTW : 6.10 %
There were 32 other index-included issues trading in excess of 10,000 shares.

One Response to “June 21, 2010”

  1. […] collateral (see, for example the ECB and Greek bonds, as well as the outright buying highlighted on June 21). And, of course, the banks will have a huge incentive to pledge the lowest grade of eligible […]

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