Cliff Asness on HFT.
Asness and his crew at AQR Capital Management have a very interesting and thorough defense of high frequency trading. The main point is that if you think HFT is bad, you need to figure out what is better -- and the old system of low-frequency market making was definitely not better:
HFTs' profits are often held up as prima facie evidence of their guilt. As we have said before, many HFTs serve as market makers, and we believe it is a near certainty that HFTs make far less money in aggregate than market makers did in the lower-tech market structure of years past (you know, the structure the anti-HFT crowd writes elegies about). You would expect this as HFTs are viciously competitive with each other and don't enjoy monopolies like the specialists in the prior single-exchange market structure did. HFTs also face lower business costs (burled walnut reception desks and classy portraits on the wall cost more than computing power these days unless the computing power is also burled) than did the market makers of the old days.
Still, HFTs are often accused of "front running." Let's be clear, HFTs indeed try to do something like this, but all, or almost all (remember we make no claim to have checked every HFT's trading!), of it is legal, ethical, and only uses public information. It's also what traders of all types have always done since before computers, electronics, and the steam engine: guess at the direction of the market or a particular security and position themselves accordingly.
Elsewhere in high frequency trading.
Goldman Sachs is selling its New York Stock Exchange floor trading business -- that's just a euphemism, it's HFT! -- to Dutch electronic trading firm IMC Financial Markets. Bank of America "is dismantling an electronic market-making unit" -- another HFT euphemism -- "created last year to serve the lender’s Merrill Lynch wealth-management division," basically because everyone hates HFT now. (Also "two executives hired to run it, Jonathan Wang and Steven Sadoff, were told to seek new jobs within the firm," which is rough.) Dark pools are getting more transparent, with KCG Holdings and Liquidnet planning to make public their Form ATS market rules. And there's a thriller about high-frequency trading called "Rogue Code," which I hope is half as funny as Robert Harris's loony "The Fear Index," in which -- spoiler alert! -- some rogue trading code rises up to kill its humans. Maybe that's what Goldman and BofA were worried about.
Wall Street greed and suicide.
Here Federal Housing Finance Agency acting inspector general Michael Stephens says that originators and issuers acted improperly in "almost every" mortgage-backed security issuance leading up to the financial crisis. Then he enacts some thuggish-prosecutor stereotypes:
“They were more concerned about their bonuses than what was going in these pools,” Stephens said today at a Mortgage Bankers Association conference in New York. “At the core of it is greed.”
And then there's this:
His organization has indicted about 82 people in the past six months, including three who committed suicide, he said. “When they do get caught, it’s a little bit more difficult for them to take it than a street criminal,” he said.
He sounds like a charmer!
Elsewhere in crime and punishment.
Here's a Florida ponzi scheme that promised investors returns ranging from 7 percent to 30+ percent, and I hope the 7 percent people get more of their money back; that just seems unfair. Here's a Florida physical-metals scam that ... I mean, look, don't buy leveraged physical gold (or palladium!) over the internet. If you want to flush your money down the toilet in a vaguely techno-libertarian way, there are millions of Bitcoin scams to choose from. Here's JPMorgan being fined a comically small amount of money for Finra Trace violations, which as a guy who sometimes uses Trace data I find more offensive than the gold scam thing. And did you think Credit Suisse's criminal conviction would prevent it from being a New York Fed primary dealer? Hahaha come on.
The German best price rule.
When McKesson bought German drug company Celesio, it paid Elliott Management a higher per-share price for its convertible bonds than it paid other shareholders' shares (30.95 euros vs. 23.50), so it could get enough shares to get the deal. This rubs Magnetar, another former Celesio shareholder, the wrong way, so it's suing to get the same price. As a former connoisseur of convertible bonds, this rubs me the wrong way, because a convertible should be worth more than the underlying stock, though you also get the sense that McKesson was paying up a bit for the vote, not the bond floor.
"Entitlement is a straight line pointing heavenward."
The great Jessica Pressler writes about internet laundry:
The competition, as they saw it, was negligible. “We kind of thought it was low-hanging fruit,” Dulanto recalls. Sure, plenty of people had their own laundry machines. But you know what people are like.
“It’s really kind of amazing the amount of anxiety laundry causes,” says Nadler, who came back from MIT to join Washio full-time and is completing his coursework remotely. “Like, it’s Sunday, and they just want to hang out on the couch, and they are looking at this big pile of laundry they have to tackle or else they aren’t going to have any clothes. I was talking to a classmate who said he and his wife were fighting because someone had to go to the dingy basement, and he felt bad because he didn’t want to send her to the dingy basement, but he was tired, and then someone needs to get quarters, and it just was a whole thing.”
In urban centers like New York and Chicago, many places offer delivery already. But: “The laundry and dry-cleaning industry, it’s all, like, old people,” says Dulanto in the nose-wrinkling manner of someone for whom aging is still an abstract concept. “They’re not tech savvy, and they still put up those really ugly stickers with that ’90s clip art.”
Jesse Eisinger on Tim Geithner. "I view tax inversions as motivated by existential tax despair." "We’ll also be honoured by Bank of England Executive Director Andrew Haldane, who has agreed to take part in a panel discussion titled 'Is this nuts?'" Janet Yellen talked about sea slugs. "The nine-seat Cessna seaplanes take off and land in the relatively depopulated water." "It's as if you bought a Ferrari and when you come to park it in your garage you realize your garage isn't exactly the right size for a Ferrari because you didn't have a Ferrari before."
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Matt Levine at email@example.com