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financial market prediction 2024 marketsmuse

2024 Financial Market Predictions

Knowing that nearly every reader has already consumed as many financial market predictions for the new year as they can stand, we decided to wait for the official first day of 2024 to publish our financial market predictions and outlook, if only because Santa Claus rallies that find Santa slipping from his sled during the last day of a year (one in which markets failed to close at an ATH), and followed by rinsing of markets the days into the first week of the new year (as is the case for 2024), can cause technical chart pundits to re-assess outlooks they made only a few weeks earlier. If the first day of 2024 is an indication (AAPL downgraded and down 3.5% and all major indices down .5% to 2%+) expect strategists to re-strategize! But that’s what pundits are best at doing: changing their views to address changes in price trends.

Here’s what we learned from 2023: Nearly all market prognosticators were wrong; at the outset of the year, and then they were caught “offsides” at least three or four times during the year; which is perhaps the only reliable statistic that we can confidently hang our hats on!

Let’s “go to the videotape”

At the close of 2022, after equities were pummeled (S&P 500 down 19.5%; Nasdaq Composite down 33%; Russell 2000 down 21.5% and DJIA down 8.9%), a December Bloomberg LP poll of 22 “top strategists”, had them proclaiming: “2023 will be, at best, a lackluster year”; with the mean prediction suggesting gains of 7% for the year.

At the time, those outlooks made sense. After all, the Fed was barely mid-way through a record-setting rate-hiking mode to battle inflation, and with [most] market participants of the view that we were moving towards an interest regime of 5% (which is actually within the historical 4%-6% range going back decades), equities and interest rate prognostics were certain that stocks would underperform historical average gains.

During the first month of 2023, SPX rallied 10%, inspiring the naysayers to turn bullish, raise their price targets, and get long on stocks at January month end. By the end of February, half of the gains achieved through January 30 were extinguished, and by the first week of March, SPX, the most-followed index, had reverted to exactly where the year had begun. That up-and-then-down price action led the crystal ball crowd to revisit and temper down their year-end outlooks.

As is typically the case, that exuberance encountered a dose of reality. Market participants chose to ignore the consistent signals sent by the Fed (i.e. “Do NOT expect a cut in interest rates, as our fight to bring inflation back to target levels is far from over!”). Instead, many called the ‘all clear’ signal—with an increasing number of strategists pointing to year-end 2023 SPX of 4500. Of course, equities swooned over the next three months into the end of October, albeit by a factor of a mere 9%; a classic ‘reversion to the mean’ that brought that major index back to 4115. That was approximately the level that had been the year-end 2023 forecast made by Pundits Inc in December 2022. And, by this time, most had dismissed any likelihood that equities, as benchmarked by SPX, could end the year higher than 4350. 

chart courtesy of Bloomberg LP all rights reserved

And, we all know what happened by the end of October. Thanks to a compilation of lower inflation and resilient economic data points that discounted the notion of a pending recession, and sweetened by a dovish voice from the Fed, every negative narrative turned upside down. SPX closed 2023 at 4775, up 24% on the year, NASDAQ ended the year with a gain of 34%, and to illustrate the broadening of the rally from the end of October to the end of December, the DJIA closed the year up 13%, the equal-weighted S&P 500 (see ticker RSP) gained 11%, and long-time laggard Russell 2000 index finished the year with a 15% gain.

Some predictors did get it right; select strategists from BMO, BofA, and the always bullish Tom Lee, who runs a firm called “Fundstrat” accurately guessed at the outset of 2023 that a variety of best-case scenarios would come to fruition.  These firms, as well as a majority of sell-side strategists, are determined that 2024 equity market returns will prove positive. The median projection calls for the S&P 500 to rise by 8% (5100), and the staunchest bulls, including market veteran Ed Yardeni of Yardeni Associates (who proved uniquely prescient for his 2023 outlook) believe the S&P 500 can reach 5400 by year-end 2024.  The most notable bears throughout the past three years i.e. Mike Wilson from Morgan Stanley and JP Morgan’s Marko “Kill Joy” Kolanovic remain pessimistic, yet less bearish than usual. Wilson is forecasting a slight drop for 2024 (year-end target of 4500) and Kolanovic believes that current (high) equities valuations, historically low volatility, and any of several prospective black swan events could find the SPX back at 4200.

FACTOIDS that lend [some] confidence to a positive 2024 equity market performance.

·According to LPL Research going back to 1950, 80% of the time in years following a gain of 20% or more have seen the S&P 500 rise an average of 10%.

·Since 1960, in periods where the SPX was down 10% or more, then up 10% or more the following year, there has been no instance where the SPX ended down in the third year. ·

chart courtesy of macrotrends.com

·Fortune 500 balance sheets remain relatively strong; debt levels remain manageable, and profit margins remain respectable, despite a long stretch of higher wages, higher cost of goods, and rising debt among consumers.

·The advent of Artificial Intelligence (AI and Generative AI) has permeated throughout the corporate world; leading to increased spending and investments that will [presumably] lead to higher productivity, greater efficiency, and hence, greater profit margins for companies in nearly every sector, even if the bottom-line returns may not begin to be noticed until the end of 2024 at the earliest).

Irrespective of Federal Reserve decisions to continue to pause, lower, or even raise interest rates in the coming year, the yield on the 10 year UST is NOT a long-term harbinger of equities prices; the average 10-year yield going back to 1970 is approximately 5.5%*

Concerns to Be Mindful Of

·Too Early Rate Cut by Fed (in their effort to mitigate risks of recession). ·Geopolitical Risk | Black Swan Event* (Russia/Ukraine; China/Taiwan; Middle East)

·Vast Majority of Equities Strategists are Bullish.

*Caveat: Black Swan events, including the assortment of pandemics, wars, and bank failures, and major changes in government leadership that have occurred during the last three years alone (and may occur in the coming year) rarely cause extended (i.e. long-lasting) losses in major equity indices. 

$DWAC-SPAC-Trump

$DWAC, The SPAC on Crack

Digital World Acquisition Corp (NASDAQ:DWAC) Blank Check Company aka SPAC Proposes to Merge With Trump Blank-Deck Company. Will SEC Investigate?

When “E.F. Hutton Talks”, Will SEC Chairman Gensler Read the SEC and FINRA Rules Prohibiting SPAC Sponsors from engaging with acquisition targets prior to listing??

Just when we thought that MarketsMuse coverage of Donald Trump’s financial shenanigans had taken a breather, this past week’s announcement by SPAC sponsor Digital World Acquisition Corp (NASDAQ:DWAC) rocked the stock market and created a rocket-fueled run-up in its share price after the ‘blank check’ company created in December 2020 by Florida-based Patrick Orlando, a former Deutsche Bank derivatives trader turned SPAC promoter would be merging with Florida-based Trump Media & Technology Group (aka TMTG), a blank slate “social media enterprise” with no operating history and established by the former President two months after the formation of “DWAC” (in February 2021).

The Meme of the Week. When the announcement made by the DWAC sponsors and the Trump entity TMTG hit the tapes after the close of trading Wednesday, Oct 20, the following morning, the share price of the Digital World Acquisition Corp, which became publicly listed on NASDAQ six weeks prior, soared from $10 to $75 within a matter of a few hours, and was the second most actively traded stock in America. On Friday, the shares, which cannot be borrowed for shorting other than by broker-dealers, traded as high as $175 before closing at $90 (with the last sale of $80 in Friday’s after-hour trading session).

scaramucci-dwac-spac-trump

If the DWAC SPAC shareholders approve of the merger, and if the SEC does not raise a red flag, Trump Media & Technology Group will receive $293 million in cash that Digital World Acquisition Corp has in trust. 

So, we now have the next classic example of a “meme stock” (aka “Me-Me”) driven by so-called Reddit Bandits and tens of thousands of retail traders entering buy orders to drive up the price, believing they would force ‘hedge funds’ who might have been shorting the stock to pay even higher prices to cover their positions.  It’s a new take on the old-style “short-squeeze pump and dump.” 

Read about our coverage of Crypto-Kid Con Artists Andrew Katz and Matthew Krueger. The Saga continues. After being charged with felony assault in New York last year, Seaquake CEO Katz is said to be a “no-show” after failing to appear for Jan 20 2022 sentencing hearing at Manhattan Criminal Court. NOW A Fugitive/CLICK HERE/ for the story.

OK, a slug of buyers who swamped Fidelity, Robinhood, TD Ameritrade, and other brokers are also MAGA cap wearers and anti-vaxxers who will give Trump every last penny of their unemployment checks or social security checks to keep Trump’s hate-filled and anarchy-riddled beliefs front of stage, and to the point of breaking down the doors of the nation’s capitol building.

Here’s the joke: 8 out of 9 of the largest holders of DWAC include the industry’s biggest hedge funds, whose plain-vanilla strategy is to buy SPACs at the initial offering as a means to deploy cash that is not being used by the fund, and with the upside chance the investment will make a profit. Alternatively, stakeholders can redeem or ‘put back’ their holdings to the company at their original cost and get their full investment back after a merger announcement is made. Think of it is as a money market fund that has a “knock-in provision”.

The other largest holder is Arc Global Investments and owns the right to acquire approximately 20% of the authorized shares, which is controlled by none other than Patrick Orlando. Albeit, unlike the nearly 80% of shares acquired by the hedge funds, Arc’s shares have a restriction that prohibits selling those shares for an extended period of time. At least 2 of the 8 hedge funds (SABA Capital and Lighthouse Investors) were owners of several million shares each, and they made tens of millions of dollars inside of two days by unloading their shares to the retail investors, many of whom paid between 500%-1700% more for the shares from the prior day’s price. 

The punchline to the joke: The two funds that acknowledged selling to witless retail investors as the stock was skyrocketing did so because they wanted nothing to do owning a company that might eventually enable a Trump-fueled media enterprise initiative.

Fool Me Once, Shame on You. Fool Me Twice Shame on Me. In addition to the Reddit bandits and followers of Wall Street Bets who bought into the shares of the black-check company that proposes to merge with a still non-existent operating business (other than in name only), hordes of die-hard Donald Trump fans and followers with accounts at Fidelity, Robinhood and TD Ameritrade were believed to have purchased “millions of shares” in the past two days and, according to nearly every professional trader and investment manager in the world, “they paid prices that defied any scintilla of logic; proving that the extent of their education must have been a diploma they received from Trump University.”

Click Here for another MarketsMuse most-read feature stories

EF Hutton is the underwriter for Digital World Acquisition Corp? Adding yet another comedic twist to the story, aside from rumors that Hollywood producer and former Treasury Secretary Steven Mnuchin has purportedly secured the film rights to, so that he can do a remake of the 1949 film classic and Academy Award-winning “All the Kings Men” (which ended with the assassination of corrupt politician Willy Stark by one of his cronies (to put the feature photo of this post into context), the underwriter for Digital World Acquisition Corp, was formerly known as Kingsmark Capital*, and is now going by the name EF Hutton, the once legendary stock brokerage that was best known for its tag line, “When EF Hutton talks, people listen!”

$DWAC-SPAC-Trump

*Kingsmark’s brief history includes underwriting “micro-cap” stocks and SPACs, and acquired the EF Hutton name from the estate of the heirs to the original EF Hutton.

A PIPE Offering is Next? Because Trump spokesperson Liz Harrington stated that “TMGT is worth $1.8 billion” (@realLizUSA­), this would infer that Digital Media Acquisition Corp would need to do a follow-on sale of shares, presumably via a PIPE offering, to raise an additional $1.5 billion in cash that would meet the valuation that Trump believes his non-operating company is worth. Per link above, a PIPE is a private investment in a public equity.

Based on Friday’s closing price, the SPAC company would need, at very least, to nearly double the amount of shares outstanding from 28 million shares to 40 million shares, and to sell those newly-created shares during the “de-SPACing process (which is unlikely to occur for at least another 2-3 months) at Friday’s closing price of $90 via the PIPE offering.

Yes, the total volume on Friday exceeded 130 million shares, and Wall Street syndicate desks managers suggested any secondary sale (2-3 months from now) could be done with no market impact if trade volumes remain the same and the price remains elevated, yet it would also dilute the existing shareholders by nearly 50%.

To the above, one trader suggested “the odds of the DWAC share price remaining at the current exorbitant price level are about equal to the chances the SPAC will be de-listed after an SEC investigation is started; a50-50 probability for either outcome.”

Why should the SEC Investigate? Will Coincidence Kill the Golden Goose and Lead to a De-listing of DWAC?

Some things for Gary Gensler to Consider Before More Retail Investors Get Completely Burned Buying this “SPAC”.

SPACs cannot identify acquisition targets prior to the closing of the IPO. If the SPAC had a specific target under consideration at the time of the IPO, detailed information regarding the target IPO registration statement, potentially including the target’s, would be required to be included in the financial statements

Under the SEC’s rules, a SPAC may not identify a specific target company prior to the closing of its IPO, and the SEC requires the SPAC to disclose in its prospectus that the SPAC does not have any specific target company under consideration, and that neither the SPAC, nor anyone acting on behalf of the SPAC, has engaged in any substantive discussions with a potential target company. In fact, if a non-binding LOI is entered into before the SPAC’s IPO, the SEC may even suggest that it is the target company that should conduct an IPO, not the SPAC, which would defeat the entire purpose of using a SPAC as an investment vehicle and an alternative to a traditional IPO for the target company.

DWAC’s Prospectus states:  “We have not selected any specific business combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any business combination target.”

Suspicious Behavior? DWAC listed on NASDAQ on September 3; the merger announcement came less than six weeks later. Typically, it takes many months for a SPAC sponsor to research and perform due diligence on many companies before they bring a proposal to SPAC holders.

SPAC Sponsor and CEO of DWAC Patrick Orlando is a “good friend of Donald Trump”.  Orlando resides within a stone’s throw of Trump’s Mar-a-Lago country club and has since acknowledged to the New York Times that he is a “long-time friend of Donald Trump and speaks with him often.”

Collusion or Coincidence? So, is it just a coincidence that Orlando started and completed his due diligence inside of five weeks after the SPAC listed? Or, has there been a major violation of securities regulations, and is the offering prospectus nothing more than toilet paper?

Rule #1: Deny. Deny. Deny. To the above, a Trump spokesperson, speaking off the record (of course!) has since told at least two sources that “Mr. Trump never heard of Patrick Orlando and never communicated with him until weeks after the Digital Acquisition was listed on NASDAQ.”

Really?! At very least, Orlando has already publicly stated that he has been friends with Trump for a number of years and communicates with him ‘frequently’.?

Roma Daravi, a former Trump administration communications executive and the ‘media relations’ representative for TMTG was not available for comment, even if Liz Harrington did comment via Twitter.

Let’s play this back again; DWAC listed on NASDAQ on September 3. Five weeks later they announced proposed merger with Trump’s shell company, TMGT. In the history of SPAC offerings, DWAC has broken the land speed record for listing and then announcing a merger. Their ability to canvass opportunities, perform due diligence on various merger candidates, reach a conclusion, and then execute a merger agreement, all within 5 weeks from the date of listing the SPAC would seem implausible at best, and statistically impossible at worst when considering the average time for this process is 4-6 months.

Let’s try a different angle: The CFO for DWAC is 83 year old Brazilian national Luis Orleans-Braganza. Mr. Orleans-Braganza is a businessman and currently a self-acclaimed “right wing” member of Brazil’s National Congress. Sources say that he has been “a guest at Mar-a-Lago on several occasions” during the past two years.

How About this part of the DWAC Offering Prospectus?

Patrick Orlando’s DWAC Prospectus States “We will identify and complete business combinations with “market-leading companies”. This is identical to the boilerplate verbiage in every SPAC offering document, yet counter-intuitive to the merger announcement if Digital World’s strategy is to identify and complete business combinations with technology-focused, market-leading companies.  For more information, please visit www.dwacspac.com

BUT, TMTG has NO operating business, which would be a cause of concern for the institutional and individual investors who put money into this SPAC based on Patrick Orlando’s representations. TMTG has NO employees of record (other than Trump) and their pitch deck, which appeared on the entity’s website at the same time as the merger news hit the tape, reads as if it was written on a blank whiteboard:

Among other things, the Trump pitch deck, which, unlike any other startup pitch deck, fails to identify any management or key employees that will be executing the business strategy, yet it states: “The group plans to offer alternative media to challenge the traditional social networks like FacebookYouTube and Twitter via a social network called “Truth Social.” One of the slides states “…..envisions to eventually compete against Amazon.com’s AWS cloud service and Google Cloud.”

Other slides suggest “a social network (“Truth Social”) is set for a beta launch next month, and full rollout in the first quarter of 2022, is the first of three stages in the company’s plans, followed by a subscription video-on-demand service called TMTG+ that will feature entertainment, news and podcasts.”

So, we have a blank check company merging with a blank-deck company that is parsing jargon from an array of presentation decks that anyone can download on the internet.  

CAVEAT (EMPTOR): Mr. Orlando’s FINRA record is clean (so far) of any misdeeds. The fact that he worked at Deutsche Bank, the only bank that would extend credit to Trump, is likely a mere coincidence.

As of press time, MarketsMuse has not determined whether any DWAC officers, including CEO Patrick Orlando, spoke with or visited with Mr. Trump at Mar-a-Lago or any place else during the two months in which both Trump Media and DWAC were incorporated. We have yet to obtain evidence as to whether members of Orlando’s team communicated with Trump prior to the SPAC listing.

To the above, given Trump’s penchant for “hiding the potato” and withholding evidence, unless the SEC engages the FBI to trace any and all phone, email and/or burner phone txt communications between the interested parties, Gensler’s enforcement agents who are already overwhelmed with tens of dozens of cases, could face a challenge in their attempt to prove that Orlando and Trump discussed and negotiated a business transaction with DWAC prior to the SPAC listing.

Rudy Guiliani to Defend Trump in any securities litigation? Maybe. Then again, if Trump enlists his favorite lawyer to defend him, despite the fact the former prosecutor and former New York mayor was disbarred from practicing law in in New York (and the District of Columbia), he can still appear in a federal court, which is where any SEC prosecution, as well as any securities class action lawsuits brought by investors, would likely be filed. Sounds like a scene from HBO’s “Succession”.

Boondoggle for Class Action Securities Lawyers: This will create a boondoggle for plaintiff lawyers who specialize in class action litigation on behalf of investors that have lost money buying (and or selling) securities of companies that have blatantly run afoul of securities regulations, including disclosure requirements. Investors residing in New York, Florida, California, Colorado, Massachusetts, and other states should click here for a listing of class action securities attorneys in your state.

securities litigation attorneys DWAC SPAC

Lighthouse Investment Partners shed its holdings in Digital World Acquisition after learning of the deal with Trump’s venture, the fund told CNBC. Lighthouse had owned 3.2 million shares, or 11.2% of the special purpose acquisition company, which trades on NASDAQ, according to a Sept. 30 regulatory filing. 

Saba had owned a 9.3% stake in the SPAC, or 2.4 million shares, according to a Sept. 3 filing.

Other institutional owners that represent the remaining 80% of shares owned in DWAC include Highbridge Capital Management (2 million shares); D.E. Shaw & Co (2,425,000 shares); K2 Principal Fund (1,175,000 shares); ATW SPAC Management LLC (2,425,000 shares); Boothbay Fund Management (2,425,000 shares); Radcliffe Capital Management LP (2,425,000 shares). As of press time, these funds have not yet published updates as to whether they continue to maintain or have liquidated holdings in Digital World Acquisitions Corp.

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

wwII-ww2-D-Day-June-6-1944

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.

jane-street-corporate-bond-market-maker

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?

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.

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

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

tradeweb-ceo-lee-olesky

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-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.

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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.

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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 ,”At risk of infringing on any copyright that Yogi Berra might have,  “It’s Deja Vu All Over Again.”

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 sizekumaresan-wave-labs-bond-trading

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.  “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.”

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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

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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.”

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For the full press release, click here

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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.

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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

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

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ETF View: What’s Next: Telecom-Media Merge Into XLC

Extra! Extra! XLC is the new ETF that ties telecom and media constituents into one exchange-traded fund! For those with a view towards latest and greatest ETF products, eyes and ears are on the Communications Services Select SPDR Fund (NYSEARCA: XLC) — “it tracks the Communication Services Select Sector Index and “seeks to provide precise exposure to companies from the media, retailing, and software & services industries in the U.S.”

etc-xlcWow. That’s a bucket full of precision when considering the constituents of XLC include among others, Facebook (NYSE:FB), Alphabet Inc (NASDAQ: GOOGL), Activision (NASDAQ: ATVI), Verizon (NYSE: VZ), Comcast (NASDAQ: CMCSA), Netflix (NASDAQ: NFLX) The good news is that ETF maestro Andrew McCormond, Managing Director ETF Solutions for WallachBeth Capital distills the appeal of XLC, the latest innovative exchange-traded fund and one that might be the FANG-style ETF for portfolio managers who have yet to find a one-stop product that meets their portfolio allocation needs.

New ETF merges tech and media from CNBC.

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If you’re on a path to raise capital for a new hedge fund, a fintech initiative or a blockchain-startup, the first step is packaging your pitch and presenting the opportunity within a properly-prepared Prospectus. The go-to firm to assist you? Prospectus.com LLC. Straightforward, Smart and Bespoke Services.

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Former NYSE Prez Farley Launches Fintech SPAC IPO

Tom Farley, the former top gun at the NYSE, has long advocated the benefits of raising capital via the construct of Special Purpose Acquisition Company aka “SPAC”, aka “Blank Check company.” Now he’s become the CEO poster boy for SPACs with the formal IPO and NYSE listing of Fintech SPAC Far Point Acquisition Corp., a financial technology-themed acquisition company, which is backed by activist investor and fintech aficiondo Dan Loeb.

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Tom Farley, Far Point Acquisition Corp

42-yearold Farley, a Georgetown University alum and former ICE senior executive and the second youngest person to serve as NYSE President when taking on that role in 2012, will serve as CEO of the ‘fintech buyout’ company. Farley is arguably one of the industry’s most fintech-fluent folks, given his role in helping to transform NYSE into a financial industry trading technology centerpiece.

Farley’s long-held view towards the future is evidenced by the fact  NYSE’s two most dominant designated market-makers aka “DMM” firms, GTS Securities and Virtu Financial are companies that are synonymous with the phrase fintech. Both firms started their journeys as prop trading firms specializing in ‘high-frequency-trading’ and their more recently attained NYSE ‘specialist’ roles are powered by next generation in-house algorithmic trading and artificial intelligence tool kits. GTS Founder Ari Rubenstein, whose NYSE DMM is responsible for maintaining fair and orderly markets in 1200+ companies and who also oversees one of the industry’s most robust, multi-asset liquidity-providing prop trading platforms, is also a founding member of industry trade group Modern Markets Initiative (MMI) 

Back to SPACs- For those who may have missed the multiple memos coming out of the biggest investment banks, the blank check company construct provides a means to create a publicly-traded ‘shell company’, whose use of proceeds is intended to acquire a private company (or companies) and seamlessly “jump the shark” by rolling the private company into the publicly-listed company without bearing the burden of the time and cost that is synonymous with taking a company public via the traditional IPO process.

First introduced in the early 1970’s, blank check companies were soon derided by securities regulators after a string of capital raises by companies that had notoriously little corporate governance, enabled unsupervised CEOs to empty corporate coffers for personal gain, leaving investors with nothing. In the early 1990’s, the construct was re-invented by small-cap investment bank GKN Securities’ founders David Nussbaum, Roger Gladstone and Robert Gladstone, who have been credited with introducing the SPAC construct (along with securing a trademark for SPAC), which is chock full of checks and balances. The GKN leadership team’s early success in floating ‘blank check’ companies led to their creating a new firm, EarlyBirdCapital which has become the thought-leader in SPAC offerings, as the SPAC template has since been emulated by the financial industry’s leading investment banks and endorsed by major exchanges across the globe.

In the past 10 years alone, tens of dozens of capital raises via the SPAC construct have delivered billions of dollars of dry powder for designated acquisition companies that have since effected tens of billions of dollars worth of ‘quick IPOs’ for companies in nearly every industry sector, including the cannabis industry,

One fintech industry veteran and startup industry consultant who coincidentally helped GKN introduce their first SPACs to institutional investors back in 1993, and now serves on the advisory board of fintech merchant bank SenaHill Partners said, “Far Point Acquisition may not be the first Fintech SPAC, but its launch clearly reinforces a compelling approach to raising capital for the purpose of bringing established private companies into the publicly-traded ecosystem.”

Via video clip below, former NYSE top gun Tom Farley expresses his views on the SPAC construct and the fintech sector, and provides a glimpse at the prospective target acquisitions that Farley will be aiming for.

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Former NYSE president announces IPO for ‘blank check company’ from CNBC.

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securities-token-exchange

Boston Options Exchange to Launch Securities Token Mart

Securities Token Offering to Displace Initial Token Offering Fad; BOX in JV with digital broker-dealer tZero to Create Securities Token Exchange platform

(Redistributed with permission; story from Traders Magazine)-Well, Matilda, the Boston Options Exchange (BOX) is plotting to create the first regulated exchange to list and traffic in securities tokens as a means to legitimatize crypto-centric assets via a just-announced joint venture with Patrick Byrne’s digital-themed broker-dealer tZero. For those who haven’t gotten the memo, Securities Token Offerings aka STOs are the next generation approach to the now de-fangled initial coin offering (ICO) construct–which have been lambasted by securities regulators in nearly every corner of the globe.

Now that crypto cool kids are finally getting the memo: “These are Securities!” ,  the proposed first fully regulated Securities Token Exchange is coming to the US-via the Boston Options Exchange.

tZERO, the digital-themed broker-dealer created by Patrick Byrne and BOX Digital Markets LLC (BOX Digital)-a subsidiary of Boston Options Exchange, announced it has formed a joint venture to launch the industry’s first regulated security token exchange.

Lisa Fall, BOX Digital Exchange
Lisa Fall, Box Digital

On May 18, 2018, the two companies entered into a letter of intent to form an exchange to list and publicly trade security tokens for companies that issue, or convert existing stock to, security tokens. The proposed joint venture would be equally owned by tZERO and BOX Digital, with each having equal representation on the Board of Directors, together with one mutually agreed upon independent director. Lisa Fall, who currently serves as CEO of BOX Digital and as president of BOX Options Exchange LLC, would be the CEO of the joint venture.

“tZERO has proven to be a pioneer in the development and practical use of blockchain technologies for capital markets for a number of years,” said Ms. Fall. “tZERO’s track record and accomplishments in this innovative area, coupled with BOX’s expertise in operating a highly efficient and transparent equity options marketplace, made partnering together an easy decision and we look forward to building a world-class platform for listing and trading security tokens.”

tZERO plans to contribute cash and license tZERO’s blockchain technology for operation of the security token market. BOX Digital will contribute expertise and personnel toward obtaining regulatory approval and operation of the security token market. Approval of the U.S. Securities and Exchange Commission will be sought following execution of definitive documentation. Creation of the joint venture is subject to definitive documentation and customary conditions.

“Our partnership with BOX Digital Markets is a significant milestone that will create the first SEC-regulated exchange designed to efficiently trade crypto securities. Lisa Fall’s leadership, reputation and deep experience in the regulated securities exchange industry will be a major asset in achieving this objective,” said Saum Noursalehi, newly appointed CEO of tZERO. “Together, we will continue to work with the SEC as we develop a first-of-its-kind platform that will integrate blockchain capital markets into the current U.S. National Market System.”

“Now that pragmatic securities industry thought-leaders have figured out how to package crypto assets within the construct of a security so as to conform to the US regulatory regime, nobody can dispute the fact the genie is out of the bottle .  “Securities Token Offerings (“STOs”) is a much more palatable approach, making way for a new mantra, “ICOs are dead, long live STOs”, until of course, another shoe drops.”

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 from John D’Antona Jr. of Traders Magazine, click here

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cryptocurrency bank license

Crypto Cool Kids Getting The Joke-Aim at Bank Licensing

What’s Next? CryptoCurrency Bank License; Crypto Cool Kids New Goal: Stay Inside Regulatory Goal Posts

Coinbase Inc. and another cryptocurrency firm talked to U.S. regulators about the possibility of obtaining banking licenses, a move that would allow the startups to broaden the types of products they offer.

Coinbase, which operates the largest U.S. cryptocurrency exchange, met with officials at the U.S. Office of the Comptroller of the Currency in early 2018, according to a person familiar with the matter. Meanwhile, ivyKoin, a payments startup, in recent weeks sat down with officials at the Federal Deposit Insurance Corp., this person said. IvyKoin President Gary Fan confirmed the meeting.

The discussions included other topics, such as the firm’s business models, this person said. The companies might not seek a bank charter, which would significantly ramp up regulatory scrutiny. Whether they do so will depend on whether they decide the benefits of becoming a bank outweigh the costs.

A federal banking charter would let the firms swap a hodgepodge of state regulators for one primary federal one. The companies would also gain the option of directly offering customers federally insured bank accounts and other services, rather than partnering with existing banks.

A Coinbase spokeswoman declined to comment on the meeting. She said the firm is “committed to working closely with state and federal regulators to ensure we are properly licensed for the products and services we offer.” An OCC spokesman declined to comment.

IvyKoin pitches itself as a payments platform for government-issued currencies and cryptocurrencies that uses “know your customer” technology to detect money laundering. In the near term, ivyKoin is working with banks rather than trying to become one, but it asked regulators about a banking license to understand what might be necessary if it decided to apply, Mr. Fan said.

At the meeting, they “talked about our business model, what we hope to accomplish, next steps for us, key risks and how we can help banks manage that,” he said. “Our experience was really positive and [regulators] actually encouraged the discussion.”

Evan Fisher prospectus.com
Evan Fisher, Prospectus.com

“The past 18 months has seen an explosion of interest in ICOs, too many of which are unconstrained and outside the goal posts of what makes sense,” said Prospectus.com’s Evan Fisher, a former sell side investment banking veteran now consulting fintech firms on ICO best practices. “And, having the proper documentation in place for both investors and regulators is the most important part of any successful fund raise.”

Fisher is experienced in helping startups frame their value proposition properly and stresses founders need to ensure that when regulators do start to take a closer look at ICOs and cryptocurrencies, that all the necessary documentation is on file and easily obtainable.

Keep reading via WSJ

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