Tagged: Risk Transfer

Window Dressing

Here’s a riddle:

Name a four-letter word that describes why currencies fluctuate and why money in equities modulates around options expirations and the ends of months and quarters.

While you’re thinking about it, I’ll tell you a story. I was in freshman college speech one morning many long years ago when a guy in class began his address by picking up a piece of chalk and announcing: “I am going to write on the board a four-letter word meaning intercourse.” We all cringed (it was a Christian college). He turned, scratched on the board, and then stepped out of the way.

He had written “talk.”

So the word we’re after is “risk.”

Occupants of the IR chair: We’re coming to the end of a quarter, and money is transferring risk now. It transferred risk with options expirations June 15 and June 20 and with Russell rebalances June 22. (more…)

When Investors Buy and Sell

When investors buy and sell shares, what happens?

The logical answer is “stocks go up and down.” Let’s get more specific. Among the 20 largest asset managers at the end of 2009, ten were bank-owned, says consulting firm Towers Watson. The five largest – Blackrock, State Street, Allianz, Fidelity and Vanguard – are independents that pass the preponderance of their buying and selling through the biggest sellside firms on passive equity and ETF trading programs.

The banks behind ten of the twenty largest asset managers include BNP Paribas, Deutsche Bank, JP Morgan, BNY Mellon, Credit Agricole, UBS, Goldman Sachs, HSBC and Bank of America.

The top ten futures brokers for 2009 were Newedge (Societe General/Credit Agricole joint venture), Goldman Sachs, JP Morgan, Deutsche Bank, Citigroup, UBS, BofA, MF Global, Morgan Stanley and Barclays. (more…)

Explosive Growth in the OTC Market

You might think “OTC” stands for “off the charts,” which is how we’d rate both the skiing in Winter Park last week and the 70-degree temperatures in Denver Sunday that allowed me to get a post-skiing tan on the back deck.

Actually, OTC stands for “over the counter.” It describes brokers doing business directly with each other, and it’s a big reason why NYSE Euronext and the Deutsche Bourse (everybody spells it differently) are merging.

Our friend David Weild, former vice-chair at the Nasdaq and current market-structure expert at Grant Thornton said of the impending deal: “Scale, scale, scale.” Duncan Niederauer, expected to lead the combined entity, said today: “This is an industry that lends itself to scale.” It seems that what began here in 1792 under the Buttonwood Tree at the foot of Wall Street is at an end of sorts. Why?

Businesses need scale when markets are commoditized and currencies debased. But beyond that, it’s the result of monumental revitalization of the over-the-counter market. Big brokers are trading with each other, avoiding exchanges. And because they are experts at managing risk, institutions choose them not just for execution but as counterparties for transferring risk from asset class to asset class. This is fast becoming the main reason that natural liquidity – trading lingua franca for shares not driven by high-speed intermediaries – moves around. (more…)

Facing the Book Facts

My flight today to Cincinnati through Atlanta froze in the blizzard of lost travel dreams. Which proved fortuitous, as I was able to skip Atlanta and flight straight to Cincinnati, saving me five hours. I love blizzards.

Speaking of sharing personal details, Facebook is the biggest entrepreneurial deal of the current day. It’s also a focal point for the widening divide between public markets and growth enterprises. Facebook may or may not go public. If it does, much of its prodigious progress will already have been funded, and the public markets will serve more as a wealth-transfer device than a capital-raising tool.

It’s a microcosm for investor relations. Speaking of speaking, I’m at the NIRI Tri-State Chapter tomorrow for what I have assured my hosts will be a riveting exploration of how to be cool in an IR seat heated to silliness by transient trading. Hope to see you locals there, by sled, snowmobile or telemark!

Anyway, according to the stock-market newsletter Crosscurrents, the average holding time for institutional positions is now 2.8 months. “The theory that buy-and-hold was the superior way to ensure gains over the long term, has been ditched completely in favor of technology,” writes Alan Newman, its author. (more…)