Tag Archives: conflict of interest

Wall St Execs Do The Flip-Flop While Being Grilled In Washington; Payment For Order Flow Exposed


Conflict of Interest is Of Interest to Senate Panel Members “just learning about” industry-rampant Payment For Order Flow Schemes . Market Structure To Be Re-Structured?

Excerpts below courtesy of The Wall Street Letter’s on the spot coverage of the U.S. Senate investigation of Wall Street’s affection for high-frequency trading aka HFT, and with specific focus on order routing and execution practices, particularly with regard to kick-back inspired payment for order flow schemes, “maker-taker” rebate schemes and likely conflict-of-interest issues within the context of brokers such as Charles Schwab and TD Ameritrade (among others) failing to ensure so-called “best execution,” a role that necessarily precludes receiving payment for directing customer orders to any counter-party other than the one offering the best available price for that sized order at that point in time.

Here’s the WSL story as of 8 pm EST on the first day of testimony from members of the securities industry; no surprise to note certain executives take the ‘walk backwards’ and no longer defending the practices that have enriched their business models:

Market participants commenting in front of Senate’s Permanent Subcommittee on Investigations hearing into ‘Conflicts of Interest, Investor Loss of Confidence, and High Speed Trading in U.S. Stock Markets’ noted that the SEC needs to re-examine or dismiss the maker taker rule and subsequent rebates as they’ve harmed consumer confidence and efforts to provide best execution.

Tom Farley, president of NYSE, noted to Senators Carl Levin, John McCain, and Ron Johnson that the maker taker model has led to a proliferation of sell-side broker dealers executing orders on exchanges that are offering induced rebates to create liquidity, rather than sending orders that offer the best execution. Continue reading

51% Of Pension Managers Say NO to High-Frequency Trading

pensioninvestmentlogo   Excerpt below courtesy of Pensions&Investment April 14 edition, story by Christine Williamson

Controversy over high-frequency trading, fomented by Michael Lewis’ new book, highlights the conflict many chief investment officers experience over the practice.

On the one hand, both pension fund executives and their external money managers are grateful that the development of electronic trading and the competitive exchanges established to serve the growing high-frequency trading segment has dramatically lowered trading costs.

On the other hand, it’s maddening for many CIOs to suspect their portfolios’ returns might be harmed from front-running by high-frequency trading algorithms.

A Pensions & Investments’ online reader poll conducted last week showed 51.5% of respondents believe high-frequency trading is bad for institutional portfolios, while 17.1% said it’s good. The remainder said it was neither good nor bad.

For the full story and who said what, please visit P&I


Algo Shop Takes On Big Brokers With Pragmatic Solution To Combat Conflicted Brokers. Bravo!

tradersmag Courtesy of Mary Schroeder, TRADERSmagazine.com

MarketsMuse Editor Note: Although the following story profiles the algo revolution taking place within the FX market, those buysiders (and sell-side firms) utilizing algorithms for listed stocks, ETFs and options should find it easy to read in-between the lines–key word “conflict of interest.”

David Mechner, Pragma

Big brokers began offering foreign exchange trading algorithms five years ago, and now all of the major players have an offering. Now a vendor is hoping to upend the status quo with a suite of algorithms it claims will offer a better execution.

“We are an independent provider of trading technology and there’s a greater awareness these days in the FX market about existing algo providers who are generally dealer banks with a principal interest,” said David Mechner, chief executive at Pragma, historically a vendor of equities algorithms. “Their P&L is in direct conflict with that of the client.”

Mechner argues that banks may favor their own liquidity pools when handling customer orders and that may work to the disadvantage of the customer. “It’s an obvious conflict of interest,” he added. “A lot of the algo offerings that the banks provide explicitly trade into their own stream. Some of them are mixed where they may or may not. Some will mainly trade on ECNs, but there’s a clear awareness that there’s a role that an independent firm can fill there.”

Foreign exchange algorithms, like their cousins in the equity market, break up a large block trade and feed it piecemeal into the market place over time. In the FX world, the algos are succeeding point-and-click aggregation technology that simply gives the buyside access to a big pool of liquidity that might include ECNs as well as dealers. They are point-and-click mechanisms much like the old direct market access platforms of the traditional equities world.  FOR THE ENTIRE STORY FROM TRADERSMAGAZINE, PLEASE CLICK HERE

Move Over Ashton Kutcher: ex-Goldman’s Greg Smith Now Most Popular

If you haven’t read, or at least heard about the brouhaha surrounding GoldmanSachs’ former head of equity derivatives Greg Smith and his farewell-to-the-firm soliloquy in today’s New York Times, you might be on an advance scouting mission to Mars on behalf of Newt Gingrich.

Aside from this story occupying Wall Street, and the hearts and minds of the talking heads at CNBC, as of this writing (1:40pm, EST), Google data indicates “Greg Smith/GoldmanSachs” has been mentioned more than 250,000 times across the “Net” , not including this phrase being one of the Top 5 Twitter tweet phrases across the globe.

Greg Smith, Former GoldmanSachs VP

Move over Ashton Kutcher; Greg Smith is now an uber super-star for bearing his soul in a dramatic ending of his career as the spawn of “The Squid.” And, let’s not forget to mention that while Smith’s letting the door hit himself on the way out might impact his severance, it has also made him a fav among ethical females.

My better half, struck by the ethos articulated by Smith’s op-ed, txt’d me to ask whether I knew if Greg Smith is single. She claims to have posited the question on behalf of our marrying-age daughter; but any idiot that knows us could easily detect the inherent conflict of interest; no doubt my wife can guess that Smith is too old for our daughter, but just right for her mom the cougar.

Smith’s soberly-stated reflections of his tenure, and in particular with respect to his claims of  conflict of interest becoming a cultural norm at Goldman is no surprise to critics of Wall Street, et.al. Socialistic Cynics will argue that conflict of interest is both an ingredient and a by-product of capitalism, and therefore breeds contempt.  But, as one actively-trading hedge fund manager/Goldman customer says (without being authorized by his firm to speak on the record), “..One needs to fully understand..the double-sided coin before cashing in the conflict of interest complaint.” Continue reading