The Great Debate UK

Who’s to blame for market glitches?


–Tanuja Randery is the CEO of trading services firm MarketPrizm. The opinions expressed are her own.–

A recent spate of high profile trading glitches at NASDAQ, Goldman Sachs and China-based brokerage Everbright, have once again put the spotlight on electronic trading technology and in particular, high frequency trading (HFT), which uses complex algorithms to analyze multiple markets and execute orders based on market conditions.

Since its inception, electronic trading has raised transparency, lowered costs, ensured a better audit trail and dramatically expanded global trading levels.  However, as trading gets faster and faster, the pressure to keep up with quickly moving market needs can lead to using technology before the right controls or audits are in place.

Over the last several months, regulators have been proposing measures to rein in HFT.  In July, the Business, Innovation and Skills Select Committee of MPs released a statement urging the government to assess the potential impact and feasibility of implementing a financial transaction tax (FTT) on high frequency trading.

from The Great Debate:

Goldman’s capitalistic monoculture

Greg Smith doesn’t have any new criticism of Goldman Sachs in his New York Times op-ed today. Nor are his points as detailed and documented as the SEC’s allegations in the ABACUS case.

Instead, Smith is selling a warm, self-congratulatory glow to anyone who thinks that Wall Street used to be great. In some halcyon era, according to this view, Wall Street’s success was great news for employees, for customers and of course for the economy as a whole. And it was great because it was built of great things: “teamwork, integrity, a spirit of humility, and always doing right by our clients ... It wasn’t just about making money.”

from Breakingviews:

Wall Street may get temporary stay of execution

Wall Street is once again aflutter with talk of impending job cuts. But jittery traders may have a few months more grace before the knives come out. With trading revenue falling, the pressure is growing for investment banks to lay off staff. But executives are still debating whether the current slump is a blip. Nobody wants to slash ranks right before a turnaround. The summer could be safer than many think.

It has happened before. Morgan Stanley scaled back its fixed-income operations after the 2008 crisis, leaving an already-damaged franchise unprepared for the bailout-fueled market recovery the following year. The firm has since hired 400 or so people in interest rates and other more liquid markets, but has not yet made much progress toward its goal of increasing revenue by around a third to 8 percent of the top 10 players' share.

from Breakingviews:

Goldman Sachs in danger of looking average

By Jeffrey Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Goldman Sachs has lost its luster. The firm earned a best-in-class reputation for its history of profitability and navigating upheaval. But it seems less assured lately. In fact, Goldman is in danger of looking downright average.

from Breakingviews:

Insider trading scandal rattles trust at the top

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Jeffrey Goldfarb

The insider trading scandal that began in the dark underbelly of the hedge fund world just burst through the doors of blue-chip America. The Securities and Exchange Commission accused Rajat Gupta, whose résumé stood out even in a crowd of financial luminaries, of passing along confidential information he gained as a non-executive director at Goldman Sachs.

from Davos Notebook:

Will Goldman’s new BRICwork stand up?

RTXWLHHJim O'Neill, the Goldman Sachs economist who coined the term BRICs back in 2001, is adding four new countries to the elite club of emerging market economies. But does his new edifice have the same solid foundations?

In future, the BRIC economies of Brazil, Russia, China and India will be merged with those of Mexico, Indonesia, Turkey and South Korea under the banner “growth markets,” O'Neill told the Financial Times.

from Breakingviews:

Goldman’s old-school Facebook deal sets new tests

Goldman Sachs' old-school Facebook deal brings a new set of challenges. The bank is raising up to $1.5 billion from clients to invest in the social network while putting in $450 million itself. Like Morgan Stanley's reported deal with online coupon service Groupon, it looks like classic merchant banking. With hot firms in the driver's seat, however, the banks could find themselves in for a wild ride.

Internet darlings, with their growth, profitability and cash, face little pressure to go public yet still have some use for what a fundraising can provide. So instead of an IPO, they rely on so-called D-rounds. This allows them to raise money at favorable valuations for internal use, while buying stock back from employees or early-round investors who want to cash out.

from Breakingviews:

Goldman controversy deserves right questions

Goldman Sachs will be in the dock on Tuesday. Not in court, but in front of a U.S. Senate committee, where seven current and former employees, including boss Lloyd Blankfein and the self-styled Fabulous Fabrice Tourre, will appear. The danger is that the hearing becomes consumed with grandstanding and headline-grabbing hectoring. For past missteps to be avoided, more thoughtful probing is called for. Here are three possible icebreakers.

1. Would you do the Abacus deal again? The Securities and Exchange Commission has sued Goldman and Tourre for securities fraud, a charge the firm vigorously disputes. The deal in question is a synthetic collateralized debt obligation sold in early 2007, one of a series called Abacus. This complex beast was created primarily to allow Paulson & Co, a now-famous hedge fund, to bet against U.S. subprime mortgages. In hindsight the whole structure looks sketchy. Even Blankfein, in written testimony prepared for Tuesday's hearing, concedes that Goldman needs to strike a better balance between clients' trading desires and "what the public believes is overly complex and risky."

from The Great Debate:

SEC’s case against Goldman highlights need for Wall Street reform

-- Ed Mierzwinski is the longtime consumer program director of U.S. PIRG, the federation of state Public Interest Research Groups. U.S. PIRG is a founding member of Americans for Financial Reform, an unprecedented coalition of over 250 labor, senior, civil rights, community and consumer organizations. --

Over 18 months ago, U.S. taxpayers bailed out the reckless Wall Street banks. Yet, despite widespread and overwhelmingly public support for Wall Street reform and dramatic House action in December, efforts to move a Wall Street bill through the Senate have been stalled for months by a phalanx of powerful Wall Street lobbyists. While we cannot count them out, because they’ve increased their lobby and campaign spending as we move toward the endgame, Banking Committee Chairman Chris Dodd’s (D-CT) coup in moving a strong bill closer to floor action gave us some wind in our sails.

Tight UK election is bad news for bankers


– Peter Thal Larsen is aBRITAIN/ Reuters Breakingviews columnist. The opinions expressed are his own –

Britain’s bankers were already braced for an uncomfortable election. But the U.S. fraud allegations against Goldman Sachs, combined with the rise of the Liberal Democrats, have given bank-bashing renewed impetus. The popularity of the attacks means they could resonate well beyond the current campaign.