All posts by MarketsMuse Curator

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Remembering D-Day, June 6, 1944

We pay tribute to all WWII Veterans, those who landed on the beaches of Normandy, France to repel Nazi Germany’s forces and those who made the ultimate sacrifice on D-Day, June 6, 1944, to defend the values that we hold so dear.

MarketsMuse Curators extend a warm salute to Mischler Financial Group, the industry’s oldest investment bank owned and operated by Service-Disabled Veterans for providing additional color to this post.

The Normandy landings were the landing operations on Tuesday, 6 June 1944 of the Allied invasion of Normandy in Operation Overlord during World War II. Codenamed Operation Neptune and often referred to as D-Day, it was the largest seaborne invasion in history. The operation began the liberation of German-occupied France (and later western Europe) from Nazi control, and laid the foundations of the Allied victory on the Western Front.

Planning for the operation began in 1943. In the months leading up to the invasion, the Allies conducted a substantial military deception, codenamed Operation Bodyguard, to mislead the Germans as to the date and location of the main Allied landings. The weather on D-Day was far from ideal and the operation had to be delayed 24 hours; a further postponement would have meant a delay of at least two weeks as the invasion planners had requirements for the phase of the moon, the tides, and the time of day that meant only a few days each month were deemed suitable. Adolf Hitler placed German Field Marshal Erwin Rommel in command of German forces and of developing fortifications along the Atlantic Wall in anticipation of an Allied invasion.

The amphibious landings were preceded by extensive aerial and naval bombardment and an airborne assault—the landing of 24,000 US, British, and Canadian airborne troops shortly after midnight. Allied infantry and armored divisions began landing on the coast of France at 06:30. The target 50-mile (80 km) stretch of the Normandy coast was divided into five sectors: Utah, OmahaGoldJuno, and Sword. Strong winds blew the landing craft east of their intended positions, particularly at Utah and Omaha. The men landed under heavy fire from gun emplacements overlooking the beaches, and the shore was mined and covered with obstacles such as wooden stakes, metal tripods, and barbed wire, making the work of the beach-clearing teams difficult and dangerous. Casualties were heaviest at Omaha, with its high cliffs. At Gold, Juno, and Sword, several fortified towns were cleared in house-to-house fighting, and two major gun emplacements at Gold were disabled using specialized tanks.

The Allies failed to achieve any of their goals on the first day. CarentanSt. Lô, and Bayeux remained in German hands, and Caen, a major objective, was not captured until 21 July. Only two of the beaches (Juno and Gold) were linked on the first day, and all five beachheads were not connected until 12 June; however, the operation gained a foothold which the Allies gradually expanded over the coming months. German casualties on D-Day have been estimated at 4,000 to 9,000 men. Allied casualties were at least 10,000, with 4,414 confirmed dead.

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GTS and Mischler Financial Group Hold First Annual Fleet Week ‘Veterans in the Workplace’ Luncheon at the NYSE


Working Luncheon will celebrate veterans in the workplace with attendees from notable publicly traded companies

May 16, 2019 10:00 AM Eastern Daylight Time

NEW YORK–(BUSINESS WIRE)–GTS, a leading electronic market maker across global financial instruments and the largest designated market maker at the New York Stock Exchange (“NYSE”), in partnership with veteran-owned broker dealer Mischler Financial Group, will hold the first annual ‘Veterans in the Workplace’ luncheon at the NYSE on May 21, 2019.

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The luncheon will kick off the 31st annual Fleet Week New York, which will take place from May 22-28. Attendees will include veteran C-level executives and employees of publicly listed companies, high-ranking military officials, and student veterans from local New York colleges.

The event is being organized by Mark Otto, Global Markets Commentator for GTS and U.S. Marine Corps combat veteran. Otto also serves as Executive Director of the United War Veterans Council (“UWVC”), which is the organization that produces the New York City Veterans Day Parade.

“I am thrilled to organize the first-ever ‘Veterans in the Workplace’ luncheon at the NYSE to kick off Fleet Week in New York,” Otto said. “This event will be a great opportunity to honor both those who are actively serving as well as veterans who, after serving our country, have rejoined the workforce to serve our capital markets.”

The event will feature three keynote speakers:

  • Dean Chamberlain, CEO of Mischler Financial, West Point graduate and former U.S. Army Officer;
  • Rear Admiral John Mustin, Deputy Commander of the U.S. Second Fleet and Naval Surface Force Atlantic;
  • Jon Scholl, President of the Health Group at Leidos, U.S. Naval Academy graduate and 5-year U.S. Navy veteran; and
  • Diego Rubio, U.S. Army Veteran and Co-founder of Women Veterans on Wall Street (“wVOWS”)

“It is an honor to deliver a keynote address for a unique program that includes fellow military veterans in the workforce,” Chamberlain said. “As the CEO of the industry’s oldest service-disabled veteran-owned business, it is always inspiring to work alongside corporations that provide veterans with opportunities to leverage the skills acquired in the course of their service and provide focused programs to help them successfully transition to new careers.”

In addition to the keynote speakers, the luncheon will provide attendees with a networking opportunity, and will highlight topics including veteran-hiring retention and the different initiatives companies are taking to help veterans.

Approximately forty C-level executives and employees from publicly listed companies such as Wabash National (NSYE: WNC), DHI Group (NYSE: DHX), Leidos (NYSE: LDOS) and Samsung will be in attendance.

Fleet Week is a weeklong celebration of the U.S. military’s sea services and gives the citizens of New York the opportunity to meet and interact with members of the U.S. Navy, U.S. Marine Corps and U.S. Coast Guard. This year, the U.S. Navy expects about 2,600 Sailors, Marines and Coast Guardsmen will be on hand.

About GTS

GTS is a global electronic market maker, powered by combining market expertise with innovative, proprietary technology. As a quantitative trading firm continually building for the future, GTS leverages the latest in artificial intelligence systems and sophisticated pricing models to bring consistency, efficiency, and transparency to today’s financial markets. GTS accounts for 3-6% of daily cash equities volume in the U.S. and trades over 10,000 different instruments globally. GTS is the largest Designated Market Maker (DMM) at the New York Stock Exchange, responsible for nearly $12.5 trillion of market capitalization.

For more information on GTS, please visit www.gtsx.com.

About Mischler Financial Group

Established in 1994, Mischler Financial Group (“Mischler”) is the financial industry’s oldest diversity-certified investment bank and institutional brokerage owned and operated by service-disabled veterans, the firm was the first FINRA member to be designated as a Service-Disabled-Veteran-Business Enterprise (SDVBE). Mischler is recognized for its role as a leading capital markets boutique operating across the primary and secondary financial market ecosystem. The firm serves Fortune corporate treasurers in the course of their issuing new debt and equity offerings and administering their respective corporate share repurchase aka 10b-18 programs. In many initiatives, Mischler is viewed as a pure complement to the role played by issuers’ lead underwriters and also assists state and local governments in selling tax-exempt and taxable municipal securities. Investment management clients of the firm’s secondary market execution platform include a broad spectrum of public plan sponsors and investment fund managers. Mischler also provides cash management for government entities and corporations, and asset management programs for liquid and alternative investment strategies. Mischler maintains offices in 8 major cities and is staffed by more than 50 securities industry veterans.

Visit https://www.mischlerfinancial.com for more information.

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Trump & Co Enable Shareholder Lawsuits Against Cuba; Libertad Act 3.0

Long Live the Libertad Act! Taking aim at the Cuban Government, US President Donald Trump and his Board of Directors, led by Secretary of Treasury Steve Mnuchin and Secretary of State Mike Pompeo. announced that US shareholders of companies that were seized and nationalized by Fidel Castro when the now-deceased Cuban ruler first took control of Cuba in 1959 can now sue the Cuban government for losses they sustained. Of the several dozen US companies nationalized by Castro in 1959, shareholders of Vicana Sugar Co., also known as Compania Azucarera Vicana, lost the entirety of their investments and can now seek recourse.

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Secretary of State Mike Pompeo

Secretary of State Mike Pompeo announced that the US will enforce a controversial provision of the decades-old trade embargo on Cuba that will allow US citizens to file lawsuits in US federal court against businesses that operate on property seized by the Cuban government during the revolution — the first administration to do so since the law’s creation in 1996. Pompeo said Title III of the Helms-Burton Act, also known as the Libertad Act, would be implemented in full effective May 2.

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Treasury Secretary Mnuchin and Wife Displaying Enlarged Version of Vicana Sugar Co. stock certificate

According to at least two White House sources speaking off the record, Treasury Secretary Mnuchin was influential in guiding President Trump to implement this new tactic after Mnuchin’s wife had purportedly acquired a large cache of stock certificates from an estate that owned the shares and were issued by Vicana Sugar Company months before Fidel Castro nationalized that company in November 1959. The extent of Mnuchin’s holdings is not known, but include many 1000 share certificates with an original ‘par value’ of $3.00 per share.

Formed in 1935, shares in Vicana Sugar Co. were listed on the New York Stock Exchange and traded as high as $6 per share before Castro’s seizure forced the NYSE to de-list the company’s shares. In January 15, 1959, a large block of stock was purchased by a private investor, whose estate is rumored to have since sold most of those share certificates to a trust controlled by Mnunchin. As reported here previously, Mnuchin had also purportedly acquired a cache Estonia Government bonds issued in the 1940’s that became worthless after Russia’s annexation of Estonia. Those Estonia bond certificates soared in value on eBay last year after rumors of US government efforts to coerce Russia to make good on that defaulted debt and outstanding interest owed to bond holders.

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Vicana Sugar Co 100 Share certificate-Vicana Sugar Co. aka Compania Azucarera Vicana-

A small number of Vicana Sugar Co share certificates, in both 100 share and 1000 share denominations are listed on eBay and offered at upwards of $700 for each certificate. As evidenced by stamp on share certificate in amount of 1000 shares and par value $3.00 each share (see photo).

In November 1959, the company, along with its land assets, was nationalized by the Cuban Government and shareholders suffered a complete loss, as did investors holding shares in other Cuba-based US companies whose assets were nationalized by the new Cuban regime. In the ensuing years, multiple legal claims were brought in US courts—and affirmed in favor of plaintiffs, yet those court judgments provided for no recourse against the Cuban Government. As reported in April 2019, US President Donald Trump approved the lifting of limits on Americans ability to sue over property confiscated by the Fidel Castro government—opening the door to a prospective new round of legal action that can be brought against Cuban government.

If you’ve got a hot insider tip, a bright idea, or if you’d like to get visibility for your brand through MarketsMuse via subliminal content marketing, advertorial, blatant shout-out, spotlight article, news release etc., please reach out to our Senior Editor via cmo@marketsmuse.com

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Quant-Centric ETF Market-Maker Jane Street Adds Corporate Bond Axe

Jane Street Capital, the quant-centric proprietary trading firm best known for its dominant role in the ETF marketplace–including its role as a liquidity provider for stocks and options as well as exchange-traded funds to buy-side accounts– has a new arrow in its quiver; making markets in corporate bonds.  The firm disclosed that it is lifted its anonymous veil and is now a ‘disclosed dealer’ on electronic bond trading platform MarketAxess (NASDAQ: MKTX).

jane-street-capitalShall we guess whether the 6-pack banks and their first cousins–the industry’s legacy source of liquidity to buy-side managers navigating the corporate bond market landscape are (i) happy to have a new competitor, (ii) happy not to have to make markets and tie up balance sheets with inventory of hard-to-move corporate bonds or (iii) f–king pissed that tech-focused prop trading firms are now invading a secondary market product area that banks have viewed as their exclusive territory since time began?  Jay Berkman, a ‘bond-tech’ pioneer given his co-founding role of BondNet, the corporate bond markets’ first electronic exchange platform when it launched in 1995 (and later acquired by BNY) answered the MarketsMuse editor’s question with: “Is that a rhetorical question?!”

As noted by WSJ reporter, Matt Wirz, investment banks and brokerages are the main go-betweens for money managers looking to buy and sell corporate bonds, about $25 billion of which trade daily in the U.S. Now, Jane Street Capital LLC, has begun offering the same service to investment firms on electronic trading platform MarketAxess and has recruited about 60 clients, people familiar with the matter said.

The move puts Jane Street in direct competition with traditional dealers like Goldman Sachs Group Inc. and JPMorgan Chase & Co. It also shows how bond markets are being transformed by electronic and algorithmic trading, innovations that swept stock and currency markets more than a decade ago.

Jane Street’s headquarters are a five-minute walk from Wall Street, but in some ways the firm is more akin to a Silicon Valley startup than an investment bank. “They have a different approach—there’s not a lot of sales and a lot of technology,” says Mike Nappi, a bond trader for mutual-fund manager Eaton Vance Corp. who has bought and sold bonds through Jane Street. “That’s different from a traditional bank where they have a lot of sales and the technology is more like Microsoft Excel.”

By joining those ranks, Jane Street aims to get recognition from asset managers for the balance sheet it uses to buy and sell with them, ultimately boosting the amount they trade with the firm, said Matt Berger, the firm’s head of fixed income and commodities trading. Jane Street trades about $550 million worth of corporate bonds in the U.S. every day, he said. This amounts to about 2% of the overall market, five times more than the firm traded two years ago.

That expansion would have been impossible without the recent spread of electronic bond trading.

Technology-driven trading firms like Jane Street and Virtu Financial LLC emerged after stock exchanges electronified in the 1990s, connecting  buyers and sellers through computers and reducing trading times to fractions of a second. The firms’ computer scientists built programs to cull market data and identify profitable trades that humans missed. Now, quantitative trading firms dominate the stock market.

Electronic trading has been slower to catch on in debt markets because bonds typically trade over-the-counter rather than on centralized exchanges. That has begun to change over the past five years as banks and money managers turn to electronic trading and data analysis to trim costs and to connect to more trading partners. Electronic trading platforms like MarketAxess have given Jane Street and other quantitative investors venues to apply the technology they used in other markets.

MarketAxess accounted for about 18% of all U.S. investment-grade bond trading last year, up from 12% in 2014, according to data from the company.

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Jane Street, founded by four partners including Michael Jenkins and Robert Granieri, now has about 50 bond salespeople and traders. Recruiting materials tout chess facilities, office gyms, math puzzle contests.

The firm trades less debt overall than most banks, which still employ hundreds of human sales and trading staff. But when it comes to its inventory of corporate bonds, “we are on par with the banks,” Mr. Berger said.

Jane Street hold bonds on its balance sheet for days or weeks to facilitate so-called portfolio trades of bundles of bonds often tied to ETFs. The portfolio deals normally range from $50 million to $750 million but can go as high as $2 billion, a person familiar with its trades said.

Read the full WSJ story here

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TradeWeb Cashes In, Broker-Dealer Investors Cash Out via IPO

Bonds and Billions 3.0…Tradeweb Markets, one of the original electronic bond trading pioneers, which first introduced its dealer consortium platform in 1996, proved that patience is a virtue when it comes to monetizing enterprise value. The company raised $1.1billion via its Nasdaq-listed IPO yesterday (NASDAQ:NW). Illustrating investor attraction to owning a piece of the fintech company focused on fixed income trading, the company increased the number of shares they first planned to offer from 27.3 million to 40 million shares and upped the ante for the IPO price from a $24-$26 range to slightly north of $27. The IPO puts a $6bil valuation on the company–whose original investors include a consortium of broker-dealers.

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Tradeweb CEO Lee Olesky photo courtesy of BRENDAN MCDERMID/REUTERS

Per snippet from Bloomberg News, Tradeweb intends to use proceeds to buy shares held by eight of the 11 large banks that own stakes in the company, including Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley and UBS Group AG, according to its registration statement filed with the Securities and Exchange Commission.

Tradeweb’s IPO is also the biggest for a financial services company in the U.S. since online lender GreenSky Inc. raised $874 million in May.

The offering follows benefits administrator Alight Inc.’s decision in March to postpone plans to raise up to $800 million in an IPO. Alight and Tradeweb are both owned by private equity firm Blackstone Group LP, which led the $17 billion acquisition last year of Tradeweb parent Refinitiv from Thomson Reuters Corp. Tradeweb, founded in 1996, builds and runs electronics markets for trading government bonds, derivatives, exchange-traded funds and other financial instruments over the counter. It handled an average of $549 billion in daily trades in 2018, according to its IPO prospectus.

Tradeweb posted net income of $160 million on $684 million in revenue last year.

As noted by Liz Hoffman of the WSJ, online venues are gaining ground in bond trading, digitizing orders that were once placed over the phone. At MarketAxess Holdings Inc., Tradeweb’s closest listed peer, trading volumes have more than doubled since 2014.

At $27, Tradeweb’s stock will list at about 30 times the company’s annual earnings. MarketAxess trades at nearly 50 times its earnings, while exchanges such as NYSE ownerIntercontinental Exchange Inc. fetch about 25 times their earnings.

JPMorgan Chase & Co.Citigroup Inc., Goldman Sachs and Morgan Stanley led the offering. Tradeweb will start trading Thursday under the symbol TW on the Nasdaq Global Select Market, according to the statement

Affiliates of Refinitiv will continue to hold about 54 percent of Tradeweb’s outstanding common stock, according to filings.

If you’ve got a hot insider tip, a bright idea, or if you’d like to get visibility for your brand through MarketsMuse via subliminal content marketing, advertorial, blatant shout-out, spotlight article, news release etc., please reach out to our Senior Editor via cmo@marketsmuse.com

HONR-ETF

Hoorah! HONR ETF; ESG is Now the New Normal For Institutional Investors

ETFs $HONR and $VETS advance an intriguing investment thesis: companies that stand up for military veterans outperform their peers.

Much like the view that women-led VC firms tend to outperform their male-dominated competitors, the thesis for investing in a culture-centric portfolio of companies is an approach now used by a broad spectrum of leading institutional investors. Dubbed “ESG” (Environmental, Social and Governance), the acronym refers to the three central factors in measuring the sustainability and ethical impact of an investment in a company or business. According to proponents, these criteria help to better determine the future financial performance of companies (return and risk). Of the 1500+ exchange-traded funds, only a small percentage provide a vehicle by which investors can express their interest in companies based on their cultural criteria. And, within the context of a thematic ETF comprised of companies that stand-out with respect to their leanings towards military veterans, there are only two ETFs to choose from.

Offering accolades to public companies that stand out for recruiting and supporting military veterans as well as active service members is no longer just a virtue, it is, according to more than a few experts, a winning investment strategy. Insightshares led the charge with the launch last January of InsightShares Patriotic Employers ETF (NYSEARCA:HONR), which is comprised of approximately 100 constituents and comes with an expense ratio of 0.65%. In April of 2018, ETF firm Pacer introduced The Pacer Military Times Best Employers ETF, $VETS–an index of 37 companies that is heavily-weighted with financial, industrial and information technology companies has an expense ratio of 0.60%

Truth be told, the performance for both of these funds correlates to the S&P 500, the distinction is an investment in these ETFs includes a proxy to support carefully-vetted veteran-centric philanthropies, as both donate 10 percent of the management fee to military-related charities.

Matt Villarreal, Head of Equity Trading for Mischler Financial Group, the industry’s oldest broker dealer owned & operated by Service-Disabled Veterans stated, “The constituents of the two respective veteran-centric ETFs include the most recognized and most widely-held Fortune corporations, which infers overall performance will correlate to major indices. The thesis that select companies that occupy thought-leadership positions when it comes to hiring military veterans and having former military officers in senior roles is easily defended. Companies that prominently support the military veteran community generally have higher employee morale and evoke higher customer embracement when compared to peers. The best part of these ETFs is they also have a dedicated mission to support veteran philanthropies, which proves crucial to the folks who have put themselves in harm’s way to protect the rest of us.”

Rich Cea, Head of Insightshares provides his perspective courtesy of a recent FOX Business Interview:

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MEMX-larry tabb perspective

MEMX-Do the US Equities Markets Really Need 14 Venues?!

For those who missed the MarketsMuse memo from Jan 14, there appears to be yet another exchange coming to the US Equities markets, as if the industry needs one more platform to facilitate trading in publicly-listed stocks. The latest platform, which is still on the whiteboard, is a consortium-based initiative named “Member Exchange”, whose creators have dubbed “MEMX.” As widely reported, the proposed exchange is being spearheaded by two of the top NYSE Designated Market-Making firms, Citadel Securities and Virtu-both of which are best known for their domain fluency in the world of high-frequency trading and both came to be NYSE DMMs by gobbling up legacy NYSE “specialist firms” after the now 227-year old institution was transformed in 2005 from a member-controlled “non-profit” into a for-profit enterprise, which is now controlled by the $42billion market cap company, Intercontinental Exchange, Inc. (NYSE:ICE).

MEMX challenges NYSE NASDAQ
MEMX wants to compete with NYSE and NASDAQ

Joining Citadel and Virtu in this initiative-which vies to compete directly with NYSE, Nasdaq and the assortment of other venues that facilitate trading in listed stocks is a collective of retail brokerage firms (Charles Schwab, E-Trade, TD Ameritrade, Fidelity Brokerage, and Bank of America Merrill Lynch) along with investment banks Morgan Stanley and UBS).  The $70 million question (the amount of capital they’ve put together to seed this initiative) as to why this consortium has been formed and what their game plan is has been a topic of spirited discussion across the sell-side. The moving parts necessarily connect to market data fees, payment for order flow (“PFOF”) and incentive rebates paid to those who provide liquidity to the markets. And most important, who profits the most from the complex fee schemes.

Perhaps the most granular coverage and commentary have been courtesy of industry think tank TABB Group, the research and strategic advisory firm focused exclusively on capital markets. Firm principal Larry Tabb has provided objective insight courtesy of this week’s dissertation, excerpted here:

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Larry Tabb, TABB Group

The question is: Why on earth do we need a 14th US equity exchange?

To understand why the brokers feel they need a new exchange, you need to understand a bit of history. Historically, there were two major equity exchanges: the 200-plus-year-old NYSE and the Nasdaq. These were member-owned exchanges that operated like utilities. After some regulatory challenges with the NYSE and Nasdaq, the SEC opened up the exchanges to competition, and a number of new equity matching platforms were developed. These new quasi-exchanges launched in the late 1990s/early 2000s and, while they looked and acted like exchanges, they were called ECNs and operated under a lower regulatory threshold. These platforms automated predominantly the Nasdaq market. In 2005 the SEC passed Regulation National Market System, or Reg NMS, which forced the NYSE to face competition as well.

By the mid-2000’s the traditional exchanges were also allowed to go public as they moved away from member-owned utilities. During the late 90’s and early 2000s, the traditional exchanges bought up the ECNs, and just as it appeared that the market would be reconsolidated under NYSE and Nasdaq, Dave Cummings, the CEO of Tradebot, along with another high-frequency firm, Getco (which became Knight and subsequently was acquired by Virtu), entered into the ECN space with the development of BATS. By 2006 BATS obtained funding by industry participants and it became a quasi-industry consortium.

When BATS entered the market, it provided competitive pressure to keep both Nasdaq and the NYSE in check. However, as BATS grew, an opportunity emerged for BATS to become a full-fledged exchange (2008), go public (2016), and, in 2017, get acquired by Cboe.

As BATS went public and subsequently was acquired by Cboe, its governance changed. Once BATS became public and was acquired by Cboe, instead of being managed as a lower-cost industry-owed entity, it needed to be run like a for-profit entity, similar to the NYSE and Nasdaq. During the 10-year span since BATS became an exchange, other exchanges were acquired by the NYSE and Nasdaq, until we reach today, when the 13 US equity exchanges are all – except for one, IEX – owned by NYSE (which was acquired by ICE in 2012), Nasdaq and Cboe.

If you’ve got a hot insider tip, a bright idea, or if you’d like to get visibility for your brand through MarketsMuse via subliminal content marketing, advertorial, blatant shout-out, spotlight article, news release etc., please reach out to our Senior Editor via cmo@marketsmuse.com

As the major exchange groups consolidated many of the competitive exchanges, industry brokers/institutional investors began to feel that the exchanges were becoming less responsive to the dealers (and their clients) that sent them order flow. This created frictions between the dealers and the exchanges and culminated with the October 2017 SEC Market Data roundtable, where it appeared the dealers and larger investors were targeting the three major exchanges as being non-responsive, while the exchanges responded that the industry was being needlessly greedy and attacking their business model.

Et voilà, the announcement in early 2019 of the Member Exchange.

MEMX-larry tabb perspective

So What’s MEMX Thinking?

TABB believes MEMX’s initial strategy will include the following:

SIP Rebate

While BATS started out as an ECN (a lit ATS), the opportunity to become an ECN has become problematic, as ECNs are not entitled to SIP market data revenue, which could easily provide MEMX with $10 to $20 million a year, as IEX with less than 3% market share generates approximately $10 million in SIP revenues. In addition, given the competitive threat, the order routing facilities that used to be operated by some of the smaller exchanges are no longer in operation, meaning an ECN needs to rely on an exchange for universal access, and given the competitive threat, it is unlikely that an exchange owned by the large three providers would develop that infrastructure. So, for MEMX to share in SIP revenues and control its own routing, it needs to become a regulated exchange.

Cookie-Cutter Model

The fastest way to obtain exchange status is to deploy a “cookie cutter” exchange, modeled exactly like an existing exchange. Unlike IEX’s speedbump, which caused a two-year licensing delay, MEMX will most likely employ a standard maker-taker model, with virtually nothing odd or controversial. While the other exchanges may complain about the added complexity of a fourteenth exchange, MEMX’s exchange application will be completely dull and boring, raising no flags with regulators. That will speed up approval and remove any possible SEC delays.

High Rebate

Once approved, MEMX, operating off the BATS playbook, will most likely employ the ‘Crazy Eddie’ “our prices are insane” pricing strategy: MEMX will provide a larger rebate than its cost to take liquidity. This will achieve two goals: first, it will provide an incentive for market makers to provide liquidity; and second, that incentive will be passed back into more aggressive pricing. While most of the high-rebate exchanges have super tiers of 32 mils (cents/share), MEMX will need to provide a higher rebate than 32 mils or provide more clients with access to the 32-mil top tier. Interestingly, these high rebates and the conflicts that it creates, is exactly what the buy-side is railing about, forcing the SEC to implement the new Access Fee Pilot, which I will discuss later.

To read the entire piece, click here

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CNBC Debuts Programming Dedicated to ETFs-Finally!

MarketsMuse coverage of the exchange-traded fund (ETF) industry began nearly ten years ago, and our senior curators have since been scratching their heads as to why CNBC, the retail investors’ most-watched business news network had never created dedicated programming to educate their viewers about ETFs, an asset class that has consistently grown (by as much as 20% YoY). How big is this market? Based on various metrics published by the assortment of ETF Issuers, more than $3 Trillion (with a “T”) of ETFs are held by US investors, the global market size is over $5 Trillion (with a “T”).

More telling, RIAs (Registered Investment Advisors) that manage money for retail investors now allocate well more than 50% of client money into these thematic funds. That said, CNBC–the business media channel that has become ubiquitous for its retail investor-targeted 12 hour+ daily coverage of stock market activity, interviews with fund managers, sell-side research analysts and public company CEOs have provided merely tangential insight to the ETF marketplace. Until now, that is.

Yesterday, CNBC premiered a new segment titled “ETF Edge” and hosted by commentator Bob Pisani. The premiere segment captured two particularly insightful ETF industry veterans; hedge fund manager Tim Seymour (who is also one of CNBC’s frequent market commentators) and Andy McCormond, Managing Director of ETF Execution for agency broker-dealer WallachBeth Capital, a boutique institutional brokerage whose thought-leadership on the topic of ETFs and better approaches to executing orders in ETF products has been embraced by a discrete universe of institutional investors and tens of dozens of RIAs for more than 10 years.

Hats Off to CNBC for shedding more light on an asset class that retail investors need to know more about.  Roll the opening show clip!

ETF Edge, January 23, 2019 from CNBC.

If you’ve got a hot insider tip, a bright idea, or if you’d like to get visibility for your brand through MarketsMuse via subliminal content marketing, advertorial, blatant shout-out, spotlight article, news release etc., please reach out to our Senior Editor via cmo@marketsmuse.com

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From The Halls of Montezuma-to the Floors of the NYSE

US Marine veteran of Operation Just Cause and Operation Desert Storm and veteran NYSE floor trader enlists with designated market-maker GTS with rank of Global Market Commentator

From the USMC to the NYSE, Mark Otto re-defines the phrase ‘veteran’ when considering his pedigree as a highly-decorated former US Marine and the 25 years of financial industry service he’s racked up since hanging up his gun belt. Former Marine Corporal Otto saw combat throughout his 4 years as an enlisted solider (first 1989 Panama Invasion “Operation Just Cause”and thereafter, Operation Desert Storm and then parachuted into the line of fire on the global financial industry’s most iconic battle field: the trading floor of the New York Stock Exchange. After three tours of duty serving under the commands of NYSE floor specialists Susquehanna Group, Knight Capital and J. Streicher, Otto will now be serving under a new command, he’s just signed on with the veteran-friendly NYSE Designated Market-Maker, GTS where Otto will have the rank Global Market Commentator.  In November, GTS announced they had secured a minority stake in veteran-owned investment bank and institutional brokerage, Mischler Financial Group

Excerpt from the Jan 17 ,2019 press release is below:

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Mark Otto-from the USMC to NYSE

NEW YORK–(BUSINESS WIRE)–GTS, a leading electronic market maker across global financial instruments, today announced the addition of U.S. Marine Corps combat veteran and experienced equities trader Mark Otto as the firm’s first Global Market Commentator.

As Global Market Commentator for GTS, Otto will combine his specialty of trading American depositary receipts (“ADR”), algorithmic trading, market making and volatility trading with his experience trading in times of historic geopolitical events and market turmoil such as the 2008 Financial Crisis, the Flash Crash, the Greek Debt Crisis, Eurozone Debt Crisis and Brexit to provide market commentary on current trends and their impact on the securities markets.

“I am thrilled to continue my career on the NYSE with GTS,” Mark Otto said, “So much of the pricing of stocks results from international developments and interconnected global economies. It’s an honor for me to share my commentary and views as part of the GTS platform. The firm is a pioneer in bringing innovation to the marketplace and it is an incredible opportunity for me to be teaming up with such an important player in the global capital markets ecosystem.”

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US Marine Corps Veteran and NYSE floor veteran Mark Otto

Between 1988 and 1992, Otto served under the 2nd Surveillance Renaissance and Intelligence Group based out of Camp Lejeune, North Carolina. During his military service, Otto saw combat during the Panama Invasion and Operation Desert Storm, as well as leading surveillance teams observing and securing U.S. boarders in support of Federal Law Enforcement agencies. Otto received over a dozen military decorations and achievements, including the Combat Action Ribbon with Gold Star, Joint Meritorious Unit Commendation and Airborne Jump Wings.

GTS is the largest Designated Market Maker (“DMM”) at the New York Stock Exchange (“NYSE”) and has an extensive track record of responsibly using best-of-class technology to bring better price discovery, trade execution and transparency to the markets. At the NYSE, GTS is responsible for the trading in more than 900 public companies that have a total market capitalization of approximately $13 trillion dollars. Listed securities include blue chip companies ranging from ExxonMobil (NYSE: XOM) and Ford (NYSE: F) to international companies such as Alibaba (NYSE: BABA) to leading global technology companies like Oracle (NYSE: ORCL) and AT&T (NYSE: T).

If you’ve got a hot insider tip, a bright idea, or if you’d like to get visibility for your brand through MarketsMuse via subliminal content marketing, advertorial, blatant shout-out, spotlight article, news release etc., please reach out to our Senior Editor via cmo@marketsmuse.com

To read the full press release, click here

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NYSE Top DMMs Aim to Defect? MEMX To Be Sprecher’s Mutiny On The Bourse?

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NYSE DMM Citadel Securities started as a HFT prop trading firm

Something funny happened on the way to the floor of the New York Stock Exchange last week; Citadel Securities and Virtu Financial, two of the three biggest NYSE “Designated Market-Makers” aka “DMM”) –also domain experts in leveraging high-frequency trading technology—and now control trading in nearly 40% of NYSE listed stocks, announced they formed a consortium and raised $70 million to create an electronic stock exchange called Members Exchange, aka” MEMX” that aims to compete directly with NYSE as well as NASDAQ to list and trade shares of public companies. The news release likely didn’t sit well with NYSE Chairman Jeff Sprecher, as the announcement reads like a script that could be titled “Mutiny on the Bourse.”

 

 

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A familiar scene..but not from the NYSE..yet.

Citadel Securities and Virtu Financial are not merely NYSE designated market-makers, an exclusive role granted by the exchange where the quid pro includes the DMM’s commitment to put their capital at risk while they maintain fair and orderly markets in the stocks they are assigned. Not your father’s NYSE specialists, Citadel and Virtu are also financial industry behemoths. Citadel is a global ‘alternative investment firm’ with $25b AUM and a high-frequency trading (“HFT”) domain expert. One of the original flash boys, the firm’s proprietary trading arm mints money using HFT tactics and strategies and is overseen by hedge fund billionaire Ken Griffin, whose net worth is estimated at $9.8bil.

Virtu Financial is also a $multi-billion platform. Firm co-founder Vinnie Viola is a former NYMEX Chairman, who became a high-frequency trading czar in the early 2000’s. Where Citadel’s Ken Griffith is a Harvard graduate, Virtu’s Viola hails from the US Military Academy at West Point. Now the owner of Florida’s professional ice hockey league franchise, Viola was on a Trump short-list to be nominated for US SecDef. Viola’s net worth of nearly $3bil might pale in comparison to Griffith’s pocketbook, but, what’s a billion here and billion there? Unlike Citadel, Virtu is a publicly-traded company ($5bil market cap), albeit the company’s shares are inauspiciously listed on NASDAQ (ticker: VIRT).  In addition to its ‘seats’ at the NYSE, Virtu has a membership presence on nearly 125 exchanges around the world.

So, both of those boys are billionaires, both of their firms are high-frequency trading Goliaths that have multi-asset, market-making presence across a spectrum of electronic trading centers, and both became NYSE top DMMs by gobbling up old-line specialist firms. Virtu secured its initial spot on the NYSE floor in 2011 and Citadel joined the party with its Pac-man strategy of NYSE specialist firm acquisitions shortly after Intercontinental Exchange “ICE” bought out the NYSE in 2014.

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Specialist traders work at a Virtu Financial booth on the floor of the New York Stock Exchange April 16, 2015. Shares of electronic trading firm Virtu Financial Inc rose as much as 24.6 percent during their IPO, valuing the company at about $3.23 billion. REUTERS/Brendan McDermid – RTR4XMJS

According to the launch announcement put out by MEMX, the $70 million in first round funding came from among others, Morgan Stanley, UBS, Charles Schwab, E*Trade Financial and TD Ameritrade. A total of nine firms are included in the initial business. There is only minor speculation as to why NYSE DMM GTS Securities is not currently involved in the new initiative-or at very least- they were not mentioned in the news release. Perhaps the simple reason is that GTS, which is also counted within the ranks of of multi-asset electronic market-makers, are NYSE loyalists and as relative newcomers to the NYSE, they are leery of aligning themselves with their sharp-elbowed tenants Virtu and Citadel in a yet-to-be-proven initiative and one that will certainly provoke the ire of Jeff Sprecher, the Chairman of the NYSE, and more importantly, the Chairman & CEO of NYSE owner Intercontinental Exchange (“ICE”) (NYSE:ICE). If you missed the memo, ICE is the global icon in the universe of financial exchanges; they own 12 other venues.

Why yet another stock exchange?! Does the equities market really need even more fragmentation?! Well, it’s all about the money. Duh.

According to insiders familiar with the MEMX initiative, the owners of Citadel and Virtu -as well as their sell-side partners, have long lamented the escalating cost of fees, both market data fees and the ‘extra fees’ imposed on “market on close” or “MOC” orders-the latter of which now represent the largest bulk of NYSE daily trading volume. Its no secret that those accessing the NYSE have increasingly pointed the egregious pricing to the point where those fees impede the ICE-owned venue’s ability to attract more order flow and better compete with other electronic exchanges that also trade in NYSE-listed companies.

One personal familiar with the MEMX’s pitch deck suggested, “These guys are tired of ICE taking in big market data fees and transaction fee revenue that they believe they are entitled to because they’re the ones making markets and providing liquidity. Their view is if were they to own their own exchange and offer lower fees, they could pocket it all themselves.” More telling as to the motivation is the narrative published on MEMX’s website: “As the only member-owned equities trading platform, MEMX will represent the interests of its founders….. and their collective client base..[comprised of retail and institutional brokerages] on U.S. market structure issues.”  Sounds like a line straight out of Gordon Gekko’s playbook.

Are you following former hedge fund trader Larry Benedict’s daily $SPX trading ideas? “Go Home Flat 201”

Trade along with the trades Larry is making.

As cited in the WSJ coverage of the story, MEMX website suggests their model is to “be more simplistic.”  They state: “We will include a limited number of order types to promote simple and transparent interactions,” as well as “no speed bumps” to potentially hold up the trading process.” That ‘no speed bump” feature might sound like a slap at the upstart IEX exchange, owned by IEX Group and the ‘anti-flash boys’ equities exchange venue whose shareholders include major buy-side institutional investors. The IEX value proposition is to be ‘fairer to institutional investors’ and it limits access by “exploitative HFT trading firms” whose trade strategies include predatory, nano-second order entry and order cancellation.

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ICE Chairman Jeff Sprecher (r) Benedict Arnold(l)

Or, the MEMX marketing message could be “click bait” when considering that they have purportedly approached IEX with a proposal to ‘take-over’ the nascent-stage and still-struggling-for-market-share equities exchange venue. Even flash boy fintech billionaires know that when it comes to trading technology, it is often cheaper to buy than it is to build. And, despite MEMX claims they can “easily replicate the NYSE technology and infrastructure at a low price point”, they know the $70mil they’ve put together is merely a seed round when comparing to the 7 year old IEX. which has taken in nearly $200mil since its formation and has only achieved less than 3% market share and the only company listing it has secured is electronic brokerage Interactive Brokers (IEX:IBKR). If MEMX can do a ‘take-under; of IEX, they’d have a ready-made exchange that its founders could pitch to the biggest NYSE-listed corporations.

If you’ve got a hot insider tip, a bright idea, or if you’d like to get visibility for your brand through MarketsMuse via subliminal content marketing, advertorial, blatant shout-out, spotlight article, news release etc., please reach out to our Senior Editor via cmo@marketsmuse.com

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Stock Price Implosion Puts HFT Firms Under Attack, Again

Stock Price Implosion Leads Some to Challenge Current Market Structure; HFT Firms Are Under Attack, Again…

Heads Up to High-Frequency Firms: Time to Hire a PR Crisis Manager Again, Call Your Lobbyists, Book Your Plane Tickets to Washington DC.

Before “bidding on” to the anti-HFT and anti-ETF remarks circulated by the assortment of market pundits appearing on Bloomberg, Reuters or the financial media megaphone channel, CNBC, you should know that SecTres Mnunchin has already weighed in. So has the SEC’s favorite tech entrepreneur, Mark Cuban. So has icon stock investor Leon Cooperman, who has the ear of Mnuchin and others. There’s a whole ‘hang-em-high’ crowd assembling to lay blame on high-frequency trading for the latest market routs. According to CNBC, Trump favorite Mike Flynn was overheard shouting to Mnuchin and Trump: “Lock them up!”

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NYSE DMM Citadel Securities started as a HFT prop trading firm

But, unless you’ve been investing in or trading in the equities markets for at least 20 years, you probably have no conception of a simple premise: markets go up and markets go down. Blame games are easy to play, equities investing is not always easy.

Traditional drivers to stock price movements include simple, time-tested fundamentals: the interest rate environment, the economic cycle, the value of the US dollar vs. other currencies, corporate revenue and profit, corporate debt levels, consumer debt levels, trends in residential real estate prices and other consumer optimism metrics. Yes, you can throw in the degree of confidence in the current government administration and a bunch of other geopolitical stuff (including tariff wars, Brexit event, and total uncertainty in many countries’ leadership–including the US) into the mix. We’ve all grown accustomed to the minute-to-minute chaos caused by the current president. His impact on stock prices is powered by his Twitter comments about China, the Federal Reserve Chairman, and blaming the latest government shutdown on democrats. Beyond that, institutional investors can only make investment decisions based on reality within context of  company earnings reports and not easily-fudged economic data. Investors should NOT make decisions based on a reality TV show produced in Foggy Bottom.

But, we should agree on one thing: the combination of complacent investing, a belief that prices of company shares will go up year after year is a fool’s view. The topic of debate in this post is whether the evolution of high-frequency trading (aka HFT) weaponry has contributed (yet again) to the large (downward) percentage moves in stock prices during the recent weeks. The sell-off, which arguably began during the first week of October, has led to an approximate 20% decline in the leading stock indices from the record highs. Many individual share prices have suffered bigger mark-downs, most notably tech sector stocks. Before asserting that high-frequency trading algorithms are the culprit, one need to ponder whether those same HFT tools also contributed to the nearly 50% gains the stock market has enjoyed since the 2016 US presidential election (two years ago)?

Whatever black swans have been flying over head for the past 6 months, now that equity prices have suffered multiple-day declines of 1%-3% (and the interim 1%-2% “dead cat bounce”) we need to blame someone!! After all, our very own president has been unwavering in his leadership mantra: “When the shit hits the fan, blame someone else for the problem!”

Let’s say you want to blame HFT firms for the slide. Considering the fact that today, the 3 largest NYSE market-makers are better known

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Specialist traders work at a Virtu Financial booth on the floor of the New York Stock Exchange April 16, 2015. Shares of electronic trading firm Virtu Financial Inc rose as much as 24.6 percent during their IPO, valuing the company at about $3.23 billion. REUTERS/Brendan McDermid – RTR4XMJS

for their legacy as high-frequency trading outfits, its easy to be cynical. These are ‘not your father’s NYSE specialist firm’, these are young quant jocks who made a ton of money as HFT prop trading shops starting back in the early 2000’s, and more recently, used some of that cash to purchase the legacy NYSE market-maker firms; the firms responsible for maintaining fair and orderly markets in NYSE listed companies. Now known as NYSE “DMMs”, they (actually their computers) also have the “first look” at orders to trade shares in which they are now the designated market-maker for. Instead of old-fashioned auction markets, these folks utilize algorithmic trading tools to match buyers and sellers and also trade for themselves. As a consequence, there is circumstantial evidence these firms are, to some extent, culpable for the rapid reflex moves in share prices.

Keep in mind, the flip-side is that these ‘HFT black boxes’ are also providing instantaneous liquidity, price transparency, and facilitate exiting or entering a investment position in less time than it takes to hit a ‘send’ button (until someone unplugs the machine after realizing they’ve risked the entire firm’s capital). Further, because everything happens in nano-seconds, one can argue that bear market cycles –periods that typically reflect recessionary pressures and in turn, signals that lead to a negative impact on the value of a company’s equity shares—are now much shorter in duration when compared to cycles going back 60-70 years.

To the first question, who can forget the May 2010 ‘Flash Crash’—an event that was certainly connected to HFT computers plugged into the walls surrounding the NYSE and NASDAQ computer server farms–and then became unplugged by humans when markets cratered due to a “fat finger” episode. We’ll tell you who cannot remember that event (other than having read about it years later): upwards of 1/3 of current ‘senior’ Wall Street quant jock HFT programmers who code the HFT machinery. Many of them were mining bitcoins in their MIT dorm rooms back in 2010. How many of the current generation of ‘systematic traders’ who now oversee billions of dollars were beyond high school in 2004? How many current trading desk wonks were around during the dot com bubble? How many folks who worked on trading desks in 1987 are even still alive, no less working in the business? Have you gotten the point, yet?

Because our pundits have accurately predicted this latest market down draft, allow us to further predict that we want to be “long on” private jet services to Washington (NYSE: BRK.A) and we’d love to invest in engagement contracts issued by PR Crisis Management gurus who represent these folks; they are presumably getting calls already by the best-known HFT honchos, starting yesterday.

Let’s be clear, the fundamental economic underpinnings that power equity prices have been sending mixed (warning) signals for months. OK, employment figures have been good, but Trump told us while campaigning for president that “US Employment figures are fake and fraudulent.” Yes, corporate earnings have met expectations, but nobody has delivered out-sized reports, and many companies have been sweating to provide realistic expectations, not wild-ass projections. According to recent polls, nearly 50% of Fortune CFOs are anticipating a recession will hit the US economy in 2019. 80% of CFOs believe a recession will be upon us before the end of 2020. Many multi-nationals based in the US are lamenting “Tariff Man” tweets. He says ‘US companies with US employees that make/sell products to US consumers will benefit, and the big companies have plenty of money to cushion the blows..” Really?!

So, fundamentals have been weakening during the past 2 quarters (unemployment figures aside). Even for those who subscribe to technical analysis and historic charts, the writing has been on the wall for months: “Caution Mr. Robinson, Caution!”

High-flying tech company shares started cracking in the 2nd quarter of 2018. They’ve been under an assortment of pressures that range from severe government and shareholder scrutiny to simple supply/demand obstacles impacting their business models (e.g. FB down nearly 40%, GOOG down 30% from its high, AAPL down 40%, AMZN down etc etc.) Bank stocks have been pummeled for the most part, even if GS’s latest beating is connected to yet another multi-billion dollar scandal. Big ticket corporate acquisitions made in the past 2 years have resulted in transition management problems. Corporate balance sheets have become increasingly overly-bloated with debt, thanks to folks on Wall Street who came up with a new pitch to corporate treasurers starting back in 2011: “We’ll float your bond offering (and get a big fee), you use the proceeds to repurchase outstanding shares, and you’ll make your EPS numbers look fantastic; everyone wins!!” Until the music stops, of course.  Corporate share repurchases have been credited with keeping equity prices stable and moving higher for upwards of seven years; the brokers are making nice commission on executing those buybacks and all is good with the world, until its not.

Stock market chartists started raising red flags in October. Corporate debt issuance came to a crashing stop in the last 6-8 weeks. That was a big signal. Less than two dozen Fortune companies have actually been buying back debt in the past quarter in preparation for the next shoe to drop; the one with the word ‘recession’ stamped on the bottom of each shoe. The notion that corporations should unwind the ‘sell debt, buy shares’ trade –by issuing new shares and using the proceeds to balance the balance sheet and repurchase outstanding debt is an idea that no investment bank would even suggest in his sleep, no less in an office. It would be professional suicide for a corporate CFO to even suggest that idea makes sense. Geopolitical impact re Trump’s tariff war is hitting US companies and US workers, even if not the Trump Hotel enterprise. The corporate tax cut was a short shot of heroin that stimulated the stock market, but increased the Federal deficit by nearly $1trillion. (Let’s not forget that Trump campaigned on reducing debt, not increasing it–but so does every other candidate). Now people are coming off the sugar high and that’s how/why stock prices revert to the mean.

Tariff Wars, Brexit and the assortment of geopolitical catastrophes have all been thrown into the mixing bowl. Crude oil prices have been crushed–along with the share prices of companies that drill, process and sell oil-based products. Yes, we’ll repeat: employment figures have been great, but as Donald Trump said throughout his presidential campaign, “Nobody can believe government employment figures, they’re all fake news!”

When weighing the assortment of fundamental signals that have been brightly broadcast throughout the past 9-12 months—and certainly since October of this year, anyone who had not re-balanced or pared down exposure to equities has no business investing in stocks. Its easy to say “Ok, 20-20 hindsight is great..blah blah blah..” For those following @marketsmuse, there’s no 20-20 hindsight; our resident pundits (with trading market pedigrees that go back to the 1980’s) have been shouting “Caution Ahead!!” for at least 4 months. (see the pinned tweet).  But, who wants to listen to experienced (if not cynical) professionals who have lived through multiple market cycles, especially when prices keep going up? Who wants to risk taking a profit and paying taxes on those gains when the asset value keeps going up, with or without fundamental justification? The answer: people who are (i) naïve (ii) overly-optimistic (iii) financially irresponsible (iv) not old enough to appreciate that what goes up, must go down.

Whatever black swans have been flying over head for the past 6 months, now that equity prices have suffered multiple-day declines of 1%-3% (and the interim 1%-2% “dead cat bounce”) we need to blame someone!! After all, our very own president has been unwavering in his leadership mantra: “When the shit hits the fan, blame someone else for the problem!”

Before the ink was dry on the famous Michael Lewis book “Flash Boys,” which profiled the May 2010 stock market crash, everyone knew who to blame. Before the first 1000 copies of that book left Barnes & Noble, government officials and regulators were busy sending out outlook meeting invites to the primary suspects-the heads of HFT proprietary trading firms that had come to dominate the trading of shares in US companies listed on public exchanges (and ‘dark venues), as well as stock index futures traded on electronic venues in Chicago.

Rules were introduced. Market structure lobbying groups were formed. Exchange executives pilot tested uptick rule changes. Fintech firms that provided ‘better solutions’ now represent more than just a cottage industry as evidenced by the fact, three of the leading HFT firms have through acquisition, become the three largest NYSE DMMs. For old folks, DMM is the contemporary phrase for ‘floor specialist’-the folks who are responsible for maintaining fair and orderly markets in the companies the NYSE assigns to market-makers on the floor of the NYSE. Pay-to-play and maker-taker rebate schemes advanced by brokers and exchange venues have flourished. Blah Blah Blah. Along the way, the US equities market, spurred by improving economic circumstances, and the last 10 years have been pretty much one long wet dream for traders and stock investors. The evolution of high-frequency trading morphed even more.

Irrespective of bull vs. bear views on individual stocks and stock indices and the 1500+ Exchange-Traded Funds that provide thematic investing styles, more than a carload of institutional investment managers still agree on one simple fact:  share price movements in individual companies and ETFs are exacerbated by high-powered black boxes that spit out millions of orders per minute. Those orders are often based on what has transpired in the markets during the past few seconds. This algorithmic approach to trading causes educated investors to scratch their heads when observing the value of shares in public companies can gyrate so violently in the course of an hour or a day, despite the fact those companies haven’t made any earnings report nor announced any positive or negative news as to the health of their business or the industry they sit in.

How does a company’s enterprise value move 10% down one day, then 5% up the next? Are there so many investors with differing views who are expressing these views constantly via buying and selling millions of shares? No. Honest electronic trading industry experts will estimate that at least 80% of the time, transactions taking place at the NYSE or NASDAQ are between two ‘transformers’; computer bots that are set on auto-trade. These black box powered bots do not represent investors, they don’t smoke (unless the computer is overheated and not residing in a freezer), they don’t curse and they don’t sweat—they simply spit out–orders based on algorithms.

Put more simply, actual investors are not involved in upwards of 90% of the trades taking place. Bottom line: the exaggerated changes in publicly traded corporate enterprise values that take place from second to second are even more pronounced as prices move lower. That’s a real fact, not a Kelly Ann Conway or Sarah Huckabee-style “alternative fact.” More than a handful of objective market observers and participants have long argued that Wall Street has evolved into a Battle of the Transformers”; price moves and volatility are powered by computers, not by momentary sentiment changes on the part of real investors.

But, we live in a blame game world, as best evidenced by our so-called leaders (yes, we’re referring to the current occupant of the White House) who, when faced with obstacles or after making stupid decisions, automatically blame others for the disaster that occurred recently.  And those blames are applauded by the blind mice and sheep who go along with the stupid decisions made for them.

Because our pundits have accurately predicted this latest market down draft, allow us to further predict that we want to be “long on” private jet services to Washington (NYSE: BRK.A) and we’d love to invest in engagement contracts issued by Wall Street-friendly PR Crisis Management guru. Those folks will be on speed dial for the best-known HFT honchos, starting yesterday.  Caveat Emptor: PR crisis management should be advanced by smart folks, not those trained in the art of jibber jabber and deflection. If there is a fundamental flaw, acknowledge it and implement transparent steps that will appease the plaintiffs and provide real solutions to the ‘problem’ .

If you’ve got a hot insider tip, a bright idea, or if you’d like to get visibility for your brand through MarketsMuse via subliminal content marketing, advertorial, blatant shout-out, spotlight article, news release etc., please reach out to our Senior Editor via cmo@marketsmuse.com

Kumaresan Wave Labs electronic trading

Corporate Bond e-Trading: “It’s like déjà vu all over again.” The Latest Effort…

The never ending battle to electronify the secondary market for corporate bonds has yet another new entrant that aims to disintermediate corporate debt dealers that ‘control’ the trading in what has morphed from a $2trillion market to a $9 trillion marketplace during the last decade alone. As profiled by CNBC last week, the platform is called Wave Labs and its led by former Nordea Asset Mgt head trader and “fintech quant wonk”. Miles Kumaresan.  Wave Labs purportedly as a new sauce that distinguishes itself from the current generation’s e-bond trading platforms; its powered by AI and algorithms that select corporate bonds based on buyer’s criteria. How Wave Labs helps to address the needs of sellers –which is arguably a crucial feature for any electronic trading platform–wasn’t addressed in the CNBC story

As best said by MarketsMuse Senior Curator Jay Berkman, who was credited with being a co-founder and head of business development for the 1990’s era “BondNet” and arguably the first electronic trading platform for corporate bonds, “At risk of infringing on any copyright that Yogi Berra might have,  “It’s Deja Vu All Over Again.”

While BondNet may have had the best technology, its business model was flawed, according to Berkman. “The business was positioned as an inter-dealer broker when it should have been positioned as a utility owned by a consortium of dealers, who would otherwise have an incentive to provide liquidity. When attempting to move to the buy-side, the dealers put the company into the penalty box.”  MarketAxxes, which started after BondNet, had the right approach-which explains how/why it grew to what is now a multi-billion market cap company, even if its niche is mostly matching small size trades (under $5mil notional). That typical trade size

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Miles Kumaresan, CEO of Wave Labs

metric is illustrative of the obstacles that face any electronic platform that hopes to secure a presence in the corporate bond market. As one industry veteran pointed out, “Stocks are bought and [corporate] bonds are sold (by a salesman); if there’s a new black box that can actually pick the precise bonds that an institutional buyer wants, without having to deal with a salesman, that’s the holy grail.”

During the last 3-4 years, newbie disruptors who have sought to be the new kids on the bond block seeking to displace the role of bank trading desks have included among others, Liquidnet (whose pedigree is more tied to equities trading),Trumid, Electronifie, OpenBondX,  and EMBonds. Their respective value propositions are the same: since the crisis of 2008, when bank balance sheets were forced to scale down inventory holdings, bank trading desks have not been able to address the liquidity needs of the marketplace. Each of the new generations of bond trading platforms has cute features, the most common being peer-to-peer trading, “RFQ” (request-for-quote) and also, scheduled auctions, as opposed to continuous bid-offer actionable price streaming. Electronifie and Trumid -both represented by fintech merchant bank SenaHill Partners, combined within two years of their respective start-up phase, as both struggled to get past B Rounds for funding in the course of trying to get a foothold in the marketplace.

Per the CNBC coverage by Hugh Son (@hugh_son), “Leaning on his quirky charm and the bravado of a true believer, Kumaresan says he has gotten meetings with some of the world’s biggest asset managers. He mentions their names — giants in the industry — and then requests that they stay out of print. As he tells it, the demonstrations of his prototype usually end abruptly as executives gush over its potential.”

One could argue those conversations end abruptly because Wave Labs is just the latest wave. As Berkman suggests, “Kumaresan might be better off tuning into Kevin O’Leary, the CNBC pundit and notorious Shark from ABC’s “Shark Tank”, and consider licensing his technology to MarketAxxes or TradeWeb–as they’ve already got the most important two elements: credibility and customers.”

If you’ve got a hot insider tip, a bright idea, or if you’d like to get visibility for your brand through MarketsMuse via subliminal content marketing, advertorial, blatant shout-out, spotlight article, news release etc., please reach out to our Senior Editor via cmo@marketsmuse.com

 

For the full story about Wave Labs, “This quant says his tiny start-up is about to blow up Wall Street’s $8 trillion bond trading monopoly” click here

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GTS, NYSE Top DMM Now Joins Forces With Boutique Investment Bank

Trifecta Month for GTS; NYSE DMM, Quant-Trading Powerhouse and Fin-Tech Think-Tank Now Aligned With Investment Bank Specializing in Primary Debt & Equity Capital Markets

GTS, the NYSE’s Top DMM, and one of the global trading market’s leading multi-asset electronic market-makers, is on a strategic deal-making binge. On the heels of GTS co-founder and CEO Ari Rubenstein’s November 2 announcement that his firm acquired Cantor Fitzgerald’s 35-member ETF market-making and institutional broking crew, last Thursday while in London, Rubenstein announced that GTS is expanding its collaboration with BNP Paribas to now include live-streaming US equities pricing, on top of already delivering GTS’s UST price feed through BNP’s platform. Making November a hat-trick month for GTS, Rubenstein today announced that his firm is joining forces with boutique investment bank Mischler Financial Group (“Mischler”), a specialist in primary debt and equity capital markets and institutional brokerage providing secondary market execution for equities and fixed income.

Founded in 1994, Mischler Financial is also the industry’s oldest diversity firm owned and operated by service-disabled veterans; a designation that enables GTS to advance a Diversity & Inclusion (D&I) value-add to its armory of new solutions and client experience that GTS will bring to investment managers and issuers of debt and equity across the listed-company landscape.

Below is the opening extract of the press release.

New York, NY – November 19, 2018 – GTS, the New York Stock Exchange’s largest Designated Market-Maker (“DMM”) and a leading electronic trading firm, and Mischler Financial Group, Inc. (“Mischler”), the financial services industry’s oldest minority broker-dealer owned and operated by service-disabled veterans, today announced a strategic alliance that will establish a best-in-class offering for primary debt and equity market underwriting as well as secondary market best execution across the capital markets.

The partnership, which is anchored by a technology-powered offering for public companies and a broad universe of capital markets participants, will yield a low-cost, more efficient and more effective trade execution experience. Mischler will become a “forward operating base” for the growing GTS capital markets franchise, affording clients access to technology and sources of liquidity that are generally only available to the world’s most sophisticated investors.

Founded in 2006 as a proprietary, quantitative trading firm, GTS is now a recognized thought-leader in market structure and proudly oversees trading for more than one-third of NYSE-listed companies. The firm has an extensive track record developing and deploying proprietary, industry-best technology to bring better price discovery, trade execution and transparency to the markets.

“This is a high-tech, high-touch partnership designed to meet the needs of a new generation of issuers, asset managers, and trading and investment professionals seeking low-impact market liquidity and best-in-class execution,” said Ari Rubenstein, Co-Founder and Chief Executive Officer of GTS. “Clients are rightfully demanding innovation in the marketplace, and this alliance is uniquely designed to provide that and much more.”

Mischler, established in 1994, is an active underwriter across global equities, corporate and municipal debt, government securities and structured products. In the last three years alone, Mischler has played a role in almost 700 primary debt and equity market transactions. The firm also provides conflict-free share repurchase services for corporate treasurers as well as secondary market trade execution in equities and fixed income for a discrete universe of public plan sponsors and institutional investment managers.

Continue to the entire news announcement here

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Attention! Veterans Day + USMC Birthday Salute to Veteran Owned BD Mischler

In Honor of Veterans Day and the USMC 243rd Birthday, MarketsMuse Curators extend our appreciation to all US Military Veterans, Happy 243rd Birthday and Semper Fi to all US Marines, a special salute to the battalion of sell-side broker-dealers owned and operated by Service-Disabled Veterans, and a Special Shout Out to Mischler Financial Group’s “Mischler Marine Expeditionary Force”, comprised of Managing Director, Public Finance Rick Tilghman; Senior Analyst, Capital Markets Jonathan Herrick; and Director, Portfolio Strategies Jason Klinghoffer, CFA.

OORAH! & SEMPER FII

If you’ve got a hot insider tip, a bright idea, or if you’d like to get visibility for your brand through MarketsMuse via subliminal content marketing, advertorial, blatant shout-out, spotlight article, news release etc., please reach out to our Senior Editor via cmo@marketsmuse.com

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Mischler Financial Group Marine Expeditionary Force

 

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NYSE DMM GTS Securities Buys Cantor’s ETF Market-Making Business

Breaking News: GTS Securities, the NYSE’s biggest specialist firm aka Designated Market Maker (“DMM”) and one of the electronic market-making world’s biggest players in the FX and rates markets is now aiming to become the ETF industry’s biggest market-maker the old-fashioned way, by buying into the space. After several months of speculation and rumors of a pending deal, GTS formally announced today they have acquired the entire team of ETF brokers and traders from Cantor Fitzgerald. According to the press release issued by GTS, the deal to acquire Cantor’s ETF team of approximately 35 ETF sales traders led by ETF industry veteran Reginald Browne is expected to close in February 2019. Terms of the transaction were not disclosed.

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(l)Reginald “ETF Godfather” Browne (r) Ari Rubenstein, co-founder GTS Securities

GTS was established by former NY Merc floor traders Ari Rubenstein and David Lieberman, who looked to Amit Livnat, a top-of-class graduate from the world famous Israel Institute of Technology to serve as the firm’s resident tech wonk. Of the three, Rubenstein is the camera-facing thought-leader, who first cut his teeth in the trading business as a runner on the floor of the New York Mercantile Exchange and later became a floor trader on the New York Cotton Exchange. Aligning with fellow floor trader David Lieberman and Livnat, GTS was first positioned as a quantitative prop trading firm that leveraged in-house trading technology and home-grown algorithms to peel incremental profits by executing tens of thousands of transactions per day across US equities, rates and FX markets. GTS levered its high-frequency trading domain expertise and morphed into its current role as a global trading powerhouse once the firm took control of the NYSE’s biggest specialist firm operated by a unit of Barclays Bank.

“For the first time on a scale never seen before, the most sophisticated Wall Street technology is being deployed for mainstream investors, be they institutional or retail,” said Ari Rubenstein, CEO and co-founder of GTS. “Investors around the world can now leverage the very best in machine learning, artificial intelligence and execution technology to help them save money whenever they trade and invest. This is an unprecedented opportunity for investors that unites unrivaled innovation with pioneering client service – while enhancing the capital raising opportunities for listed companies.”Stacey Cunningham, president of the New York Stock Exchange said, “The NYSE and our partners embody the synthesis of technology and human judgment, leading to the best possible outcome for investors and issuers.”

If you’ve got a hot insider tip, a bright idea, or if you’d like to get visibility for your brand through MarketsMuse via subliminal content marketing, advertorial, blatant shout-out, spotlight article, news release etc., please reach out to our Senior Editor via cmo@marketsmuse.com.

 

For the full press release, click here

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This Broker-Dealer Gives Back & Pays Forward

Broker-Dealer

Newport Beach, CA & Stamford, CT – November 1, 2018 — Each year, Mischler Financial Group, Inc. (“Mischler”), the securities industry’s oldest investment bank and institutional brokerage owned and operated by service-disabled veterans, pledges a percentage of the firm’s profits to veteran and service-disabled veteran philanthropies as part of its annual Veterans Day charitable initiative. This year, Mischler is proud to announce that Army Ranger Lead The Way Fund will be the recipient of the Mischler 2018 Veterans Day Month pledge.

lead-the-way fundEstablished in 2007, Army Ranger Lead The Way Fund, Inc. (“LWTF”) is a 501c3 Non-Profit created in honor of Sgt. James J. Regan (“Jimmy”) who served with Charlie Company, 3d Battalion, 75th Ranger Regiment. Jimmy was killed in action while serving in Baqubah, Iraq on February 9, 2007, at the age of 26. Since its formation, the organization has been dedicated to raising funds to support disabled U.S. Army Rangers and the families of Rangers who have died, have been injured or are currently serving in harm’s way around the world. LTWF provides spouses and children of deceased, disabled or active duty Rangers with assistance for acute medical care, recovery and wellness programs, warrior transition programs and other services determined to be vital to the family’s well-being, beyond what the government can offer.

Dean Chamberlain, Chief Executive Officer of Mischler and a graduate of the US Military Academy at West Point who served as a Captain in the U.S. Army 4th Infantry Division from 1985-1990 stated, “We are grateful to the many clients of our firm who provide us with the opportunity to demonstrate our capabilities and in turn, afford us the ability to pay back and pay forward to carefully-selected philanthropies throughout the year. When paying tribute to Veterans Day, in particular, we believe that Army Ranger Lead The Way Fund meets and exceeds the objectives of our firm’s philanthropic mission.”

broker-dealer-mischler-veteransAbout Lead The Way Fund, Inc.

Army Ranger Lead The Way Fund, Inc., A 501c3 Non-Profit, Is An Active Duty, Casualty Assistance, Recovery, Transition And Veterans Organization That Provides Financial Support, Beyond What The Government And Veterans Affairs Can Offer, To U.S. Army Rangers And The Families Of Those Who Have Died, Have Been Disabled Or Who Are Currently Serving In Harm’s Way Around The World. The organization website is https://www.leadthewayfund.org/.

About Mischler Financial Group, Inc.

Mischler is a federally-certified Service-Disabled Veteran-owned Small Business (SDVOSB). Established in 1994, the firm is FINRA’s oldest investment bank and institutional brokerage owned and operated by Service-Disabled Veterans. Within the primary capital markets, Mischler provides investment banking, underwriting, and distribution of corporate debt and equities, and municipal debt issuance. Mischler’s secondary market, conflict-free capabilities extend across the U.S. and global equity markets, exchange-traded funds and the U.S. fixed income markets. Mischler also provides asset management for liquid and alternative investment strategies. Clients of the firm include leading institutional investment managers, Fortune corporate treasurers and municipal officials, public plan sponsors, endowments, and foundations. The firm’s website is located at www.mischlerfinancial.com.

Media Contact:

Jay Berkman

The JLC Group

www.thejlcgroup.com

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Class Action Lawsuit Aims at TD; Broker Rebates from Exchanges & HFT Firms Under Fire

Broker Rebates From Exchanges and HFT Firms May Be Securities Fraud, Says Federal Judge

Broker Rebates, Payment-for-Order-Flow (“PFOF”) and “Pay-to-Play” have become synonymous with new world order in which exchanges, dark-pool operators and high-frequency trading (“HFT”) firms, (the so-called “flashboys”) dominate the world of stock trading. While many Wall Street geniuses will argue “the genie is out of the bottle”, it doesn’t mean this practice is right-minded, no less legal-and it hasn’t stopped naysayers from arguing that customers’ best interests are clearly not part of the equation. A Federal judge in Nebraska seems to agree, based on his ruling last week that allows a class action lawsuit aimed at TD Ameritrade in connection with their receiving payment-for-order-flow rebates from high-frequency trading (“HFT”) (and not even sharing those rebates with customers!) to proceed. The plaintiff argument is that TD has violated best execution guidelines. Should anyone be shocked?! After all, the topic of payment-for-order-flow and barely-disclosed rebates paid to brokerages by exchanges and electronic market-making firms in consideration for routing orders to them has been a topic of spirited debate for more than several years.

payment-for-order-flow-rebatesHere’s the excerpt from WSJ reporting by Cezary Podkul:

Mom-and-pop investors who think their brokers are prioritizing high-frequency traders over them may soon have a chance to try to prove their case in court.

A federal judge in Nebraska this month ruled a class-action lawsuit could proceed against TD Ameritrade Holding Corp. AMTD -1.09% , one of the nation’s largest discount brokerages. In his ruling, the judge cited “serious and credible allegations of securities fraud” stemming from the company’s order routing practices.

Plaintiffs allege the discount brokerage prioritized its profits over their best interest on stock transactions

The TD Ameritrade customers who brought the suit alleged the company, which provides investing and trading services for 11 million client accounts, prioritized its profits over their best interests. They claim it did so by accepting incentives from stock exchanges and large electronic trading firms to route customer orders to them without ensuring the customers would get the best prices available – an obligation that along with related factors is known as “best execution.”

A spokeswoman for TD Ameritrade said the company disagrees with the judge and will appeal his ruling.

Judge Joseph Bataillon’s ruling, delivered Sept. 14 in federal court in Omaha, Neb., marks the first time a court has allowed customers to pursue a class-action lawsuit on the grounds a retail brokerage breached its duty to provide best execution, according to the ruling and the plaintiffs’ attorneys.

The decision comes at a time of growing focus on how brokerages handle customer orders. In its Oct. 2017 blueprint for streamlining financial regulations, the U.S. Treasury Department said it is concerned payments to brokerages “may create misaligned incentives” for brokers and their customers. It urged the Securities and Exchange Commission to boost regulation of such payments and require more disclosure.

In March, the SEC proposed a study that would impose temporary restrictions on stock exchanges’ fee and rebate payments and measure the impact on order routing behavior and trade execution quality. On Wednesday, an SEC commissioner called on the agency to move ahead with the study and faulted it for not doing more to ensure transparency and fairness in the stock market.

Keep reading, the story is only going to get better, but not necessarily for brokers. Then again, the current SEC leadership is likely to put their own dog in the game, given their views toward re-defining the concept of fiduciary within the context of broker-dealer guidelines.

If you’ve got a hot insider tip, a bright idea, or if you’d like to get visibility for your brand through MarketsMuse via subliminal content marketing, advertorial, blatant shout-out, spotlight article, news release etc., please reach out to our Senior Editor via cmo@marketsmuse.com.

Here’s the link to the WSJ coverage

 

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NYSE Floor Broker Lauren Simmons Breaking Records & Glass Ceilings

MarketsMuse Curators extend our thanks for the excerpt below, courtesy of Aug 1 feature story by Philly Inquirer Reporter, Erin Arvedlund. Follow Erin on Twitter via   @erinarvedlund  or email  EArvedlund@phillynews.com

NYSE Floor Broker Lauren Simmons is breaking records and glass ceilings. She’s the youngest female and only the second African American woman to ever work at the NYSE in its 226-year history. On December 5, 2017, she signed her name alongside that of John D. Rockefeller in the constitution of the NYSE.

She’s what most traders aren’t — a millennial, a woman, and a minority.

At 23, Lauren Simmons is the youngest and only current full-time female trader on the floor of the New York Stock Exchange.

Simmons, a native of Marietta, Ga., graduated from Kennesaw State University with a degree in genetics and a minor in statistics, all of which helped her impress Gordon Charlop, partner at Rosenblatt Securities and a floor trader for twenty-five years. As a NYSE floor governor, he hired her to work on the floor of the New York Stock Exchange as an equity trader last year.

“He liked my stats background, and as a trader, you have to make quick decisions,” Simmons told the crowd. Rosenblatt is a specialist boutique brokerage firm that trades mostly exchange-traded funds, or ETFs, she said

While much of Wall Street trading is now automated and computerized, the NYSE is one of the last remaining trading floors with humans, she added.

“My orders from clients might move prices, and I can go to one of the market-makers in a stock in-person and ask them what the market’s looking like. Technology can’t do that.”

To continue reading the full story by financial industry veteran journalist Erin Arvedlund, please click here. Follow Erin on Twitter via   @erinarvedlund |  EArvedlund@phillynews.com

If you’ve got a hot insider tip, a bright idea, or if you’d like to get visibility for your brand through MarketsMuse via subliminal content marketing, advertorial, blatant shout-out, spotlight article, news release etc., please reach out to our Senior Editor  or email: cmo@marketsmuse.com.

This 23-year-old is the only full-time female trader at the New York Stock Exchange from CNBC.

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