The sprouting of privately-held alternative trading venues has seriously mucked up the trading landscapes in the United States and elsewhere, or so says Thomas Caldwell, chairman and chief executive of Caldwell Financial.
    Caldwell, founder of a major exchange investment firm, sees a world that has quickly evolved into one of nimble, electronic players coupled with more and more trading venues with the proliferation of alternative trading systems, or ATSs.
    (They’re also called electronic communications networks (ECNs) in the United States and multilateral trading facilities (MTFs) in Europe).
    These new venues, which can include the ominously-named dark pools, or alternative venues, where they can secretly match buy and sell orders, leads to, among other things, “deeply flawed” pricing for market participants, in Caldwell’s view.
    The idea of bank-backed stock trading venues is also suspect, says Caldwell.
    “Publicly-owned exchanges, open and visible trading, an auction market environment,” he said during the Reuters Exchanges and Trading Summit in New York.
    “These are centerpieces if you really want an economy to grow and you want to encourage entrepreneurs with access to capital. The more we get into gamesmanship and side products and all this other stuff it depletes from this.”
    (Posted by Jennifer Kwan)

It’s a puzzle M&A bankers and corporate executives have been trying to solve for years: how far from your home market can an acquisition take place and ultimately stumble over cultural differences? It’s a question that looms large as quintessentially Italian automaker Fiat prepares to swallow up Chrysler – inventor of the K-car and the minivan – and which reportedly haunts St Louis-based employees of Anheuser Busch in the aftermath of their company’s takeover by the penny pinching Belgians and Brazilians at InBev.

Gary Katz, CEO of Deutsche Boerse unit International Securities Exchange, insisted during his appearance at the Reuters Exchanges and Trading Summit that all has been sweetness and light since the Germans assumed control of the upstart American options exchange and that there has been “nearly zero turnover” since the takeover.

But Thomas Kloet, Chief Executive of Canadian exchange powerhouse TMX, was one of several executives at the summit who insisted that cross border mergers can often be a recipe for disaster and that the ideal mergers are “domestic roll-ups” like CME Group’s takeover of Nymex and the Chicago Board of Trade or indeed TSX Group’s takeover of the Montreal Exchange, which created TMX.

Implicitly criticizing some of the first-ever cross border deals in the sector like NYSE’s merger with Euronext, Kloet said: “there are significant regulatory differences that make cross border mergers pretty difficult to do, especially when they start passing over salt water, so to speak.”

Listen to the attached recording to hear the former ABN AMRO senior managing director’s ruminations on exchange M&A in full.

A fertile planting ground for tech, biotech and even some energy offerings, Nasdaq OMX has historically struggled to lure listings in some other areas, notably financial services.

Now, that could be about to change, Nasdaq OMX President Magnus Bocker said at the Reuters Exchanges and Trading Summit. As Nasdaq looks for ways to attract new listings and end a virtual drought in IPOs, it sees financial services firms as one of the most promising areas.

That Nasdaq would at least be hoping to narrow the gap in financial services listings with NYSE, the traditional ruler of the space, is not as out of left field as it might sound.

The exchange has already made some inroads and can point to some recent conquests like CME Group, which moved from a dual listing on Nasdaq and NYSE to a sole Nasdaq listing. Northern Trust, the fund administrator which has weathered the financial crisis with relative ease compared with some larger rivals, is another bright point.

And looking forward, such longtime NYSE stalwarts as Morgan Stanley and Citigroup have both recently been reportedly eyeing spinoffs of high risk units — like Morgan Stanley’s trading desk and Citigroup’s Phibro energy unit. And there’s even talk that Bank of America could eventually spin off Merrill Lynch.

Despite a widespread movement in the world of stock, options and commodities exchanges to replace floor traders and specialists with computers, that won’t be happening anytime soon with the floor of The Chicago Board of Options Exchange, says William Brodsky, its chairman and chief executive.

Brodsky (pictured at left with U.S. Treasury Secretary Hank Paulson) told the Reuters Exchanges and Trading Summit that the business the exchange does through floor brokers has been stable at about 4 percent in recent years even as total volume has grown.

“It doesn’t mean we’re doing less to automate what we can automate,” he notes.

Brodsky, who says that he expects the exchange to have a physical trading floor “for the foreseeable future,” notes that a special “pit” with 40 or 50 people, most of whom are market makers, accounts for about half of the activity in one of its newest products. Trading in VIX options, which didn’t even exist two years ago, is an example of how  ”we’ve married the best of both worlds,” he says.

Terry Duffy, the chairman of CME Group, which owns the world’s largest derivatives exchange, says he realizes the Merc can be an easy scapegoat at a time when food prices are soaring. When politicians start to talk about the evils of “speculators”, criticism of the main venue where they make their bets on wheat and other crops can’t be far behind.

But Duffy, a long-time livestock futures trader, told the Reuters Exchanges and Trading Summit that he’s used to the exchange being a “political football” and that this is far from the worst case of that happening.

“I remember seeing tractors on LaSalle Street,” which runs through the heart of Chicago’s financial district, when farmers were protesting against excessively low prices in other years, he says. ”I mean, that’s a bad day. That’s when you know people are upset because that gets everybody’s attention.”

The mistake, Duffy says, is to say that the speculator, or the hedge fund, are the root of the problem of the run-up in food prices.  Investors want exposure to agricultural commodities and they are intent on getting it, whether through the CME or elsewhere, he says.

Marathon Asset Management, an $11 billion hedge fund and private equity group, is snapping up banks’ assets “across the spectrum” at a big discount, from residential mortgages to commercial real estate loans to leveraged loans, Chief Executive Bruce Richards tells the Reuters Hedge Funds and Private Equity Summit.

Richards seems to have a keen sense of how badly the banks want to unload such distressed assets, giving him a strong negotiating position to push for the lowest possible price.

“They’re sitting behind closed doors and figuring out right now with regulators and with their own internal risk committees and treasury departments how they fund themselves in today’s market environment and how they get risk down,” he says.

Going forward — and given the generous funding terms the Federal Reserve is now offering them – banks actually have a great opportunity to make money on new loans, he says.

But to do that, it’s crucial that they free up space on their balance sheets. That’s why Citigroup’s agreement to sell $12 billion in loans is likely to be just one of many such deals by a variety of banks.

“Right now, they have to get through the problem assets that are on their balance sheet to get that more manageable and get their leverage down,” Richards says. 

Amazon.com’s Kindle “wireless reading device” is an example of both the threat and opportunity that new media platforms pose for the newspaper industry, according to Quadrangle Group’s Josh Steiner.

Steiner owns one of the hard-to-find devices, which have been consistently sold-out on Amazon . He said its wireless features are particularly promising — you don’t have to plug into a PC or look for a WiFi hotspot. It’s also searchable and allows you to customize the type of news you want to read.

“That’s the threat and the opportunity because it’s not just the question now of (newspaper) content being divided and repackaged,” he told the Reuters Global Hedge Fund and Private Equity Summit. Quadrangle, the private equity firm founded by former reporter Steve Rattner, is an advisor to the New York Times Co.

He admitted that the Kindle is very far from a complete package, but said it’s still worth a close look “if you want a sense of where I think the world is going…where technological evolution has the ability to disrupt existing business models and in some cases enhance them.”

Richard Baker, who recently resigned his House seat to become president and CEO of the hedge fund industry’s main lobbying group, the Managed Funds Association, says he’ll be making a big push for fund companies to bolster the election year campaign kitties of influential legislators.

“I am going to be aggressive in asking our members to make contributions,” the former Louisiana congressman says, claiming that the MFA actually punches below its economic weight compared with other big lobby groups.

A major effort by the Treasury to overhaul financial regulations make it all the more crucial for the industry to try to wield influence in the way that tends to get the most traction in Washington, he says.

Baker says it would practically be a dereliction of hedge funds’ duty not to write big checks to their congressmen “given the political environment which we’re in going into a competitive election cycle.”

Markets are still anxious following the financial implosion of Bear Stearns but the situation has vastly improved since the Fed stepped in, Pacific Alternative Asset Management CEO Jane Buchan told the Reuters Hedge Fund and Private Equity Summit on Tuesday.

“Two weeks ago, it was clear people were trying to take Lehman down,” she said, which was one of the main reasons the Fed got heavily involved in arranging for JPMorgan to buy Bear Stearns, and lending directly to Lehman Brothers and other Wall Street brokerages.
“Everyone was talking about Bear Stearns, but I think the bigger issue is, who was next,” said Buchan, whose company runs a $10 billion hedge fund of funds. But the Fed’s moves at the time “really calmed the market.”

“I think the market’s come to the conclusion that the Fed’s going to backstop this and no one else is going down,” she concluded.

PequotVentures, the venture capital arm of hedge fund Pequot Capital Management, has shut down its Silicon Valley office and now operates only out of New York. Managing general partner Lawrence Lenihan said the contrarian move made sense because the plethora of venture capital operators in Silicon Valley forced PequotVentures to compete on price.

That’s not so true in New York, where there’s less competition on the fund side but lots of promising media and finance businesses, he told the Reuters Hedge Fund and Private Equity Summit on Tuesday.

New York is also looking like increasingly fertile ground relative to Boston’s once booming Route 128 corridor. Lenihan, who admits that as a New Yorker he may carry a certain bias, said that shuttle flights which once were packed with New York investors going to Boston to check out companies are now carrying many more Boston investors in the opposite direction.

“If you look at the deal flow and you look at the amount of companies that are being built, I think there’s been a noticeable slowdown in technology innovation in the Route 128 corridor,” he said.