I will admit that having written extensively and aggressively about Wall Street’s self-regulator FINRA over the last three years, I did not think there was anything more I could see that would surprise me. Today I am surprised, shocked, and saddened. For those in our nation who have a semblance of decency and a desire to see due process reflected in legal hearings and financial arbitration, I believe you will be similarly dismayed. The case to which I will refer strikes deep into the core of Wall Street arbitration. I hope you are sitting down and do not have any sharp objects nearby as Dow Jones’ Al Lewis provides a scathing expose of a FINRA arbitration entitled Broker Bankrupted in Kangaroo Court,
Just as market regulators were finally getting wise to the fact that they have no clue how how modern market works, what modern market topology is, or how High Frequency Trading impacts the stock market (think Flash Crash), here comes Certichron, the supplier of a time service center at a Savvis market center in Weehakwen, which says it has now mastered sub-nanosecond readouts which are now "compliant with the FINRA Order Audit Trail System and is likely to be compliant with any Consolidated Audit Trail that might be specified by the Securities and Exchange Commission." In other words, here come sub-nanosecond markets.
Had to cross post this discussion with my brother Michael Whalen from The Institutional Risk Analyst. The past articles in The IRA require a $99/yr subscription, but the most recent is free.
Also note link to comment by Barry Ritholtz on The Big Picture re: the Facebook IPO. Actually Goldman Sachs led the covert IPO and hype festival last year, but the folks at the SEC and FINRA were sound asleep.
Indeed,under US securities law and FINRA rules, it is unlawful and a violation of professional ethics for a registered person or investment advisor to guarantee investment results for any client.
In April 2007, former New Jersey governor, 'honorable', Jon Corzine had an altercation with a Garden State Parkway guardrail. A year later, he addressed a bevy of reporters at the swanky Drumthwacket mansion and expressed appreciation for “family, friends, and the fragility of life.” During his recovery period, he advocated seatbelt safety, before returning to New Jersey's budget, extracting $500 million in austerity measures from farmers, educators, and environmentalists, and hiking tolls on New Jersey roadways. On the one-year anniversary of his accident, his chief-of-staff, Bradley I. Abelow declared, “Corzine has returned to his former self as a thorough and exacting boss.” (Italics mine.) Fast forward to the current MF Global flameout. Abelow shifted to Corzine’s Chief Operating Officer. And not only did Corzine ratchet up the ante on ways to really piss off farmers, but after several days of engaging in verbal dodge ball with Congress, this ‘thorough and exacting boss’ maintained his Forest Gump type cloak of secrecy regarding the stolen $1.2 billion of his customers’ segregated money. After days of political-reality TV, we knew nothing more about its evaporation. Corzine and his stewards, Abelow and Chief Financial Officer, Henri Steenkamp, executed a perfect chorus of ‘I don’t recalls’, ‘I didn’t intends’ and ‘the butler did its’.
Must Read: Presenting The MF Global Black Box: A Minute By Minute Breakdown Of The Doomed Broker's Last Week On EarthSubmitted by Tyler Durden on 12/15/2011 18:30 -0500
In order to get to the bottom of every collapse (or death), a forensic analysis of the last minutes of any transition from life to death has to be perormed. So far, we have only had broad strokes of the key events in the last days of MF Global as obviously many of them will implicate the management team in gross criminal behavior. Until now, when courtesy of the CME we have received a full breakdown of every key events in the chronology of MF Global's last days on earth, starting with October 24, and the rating agency downgrade of the futures broker (the same catalyst incidentally that started the AIG death spiral waterfall... and yet clueless pundits will tell you the ratings are totally irrelevant), and ending with the firm's filing for bankruptcy protection. Anyone who has any interest in the MF Global collapse, which incidentally should be anyone who has capital in third party possession and thus has counterparty risk, should read this narrative from first to last bullet.
Where is the money? My thought.
Why would Mary and her friends lie?
A Customer and Creditor's Guide to the MF Global Bankruptcy; Background & What Needs to Be Done, ProntoSubmitted by EB on 11/10/2011 09:37 -0500
Missing customer funds might be those of MF Global itself. Also, JPM gets to keep any and all collateral and cash it seized in return for $8 million?
The temptation to compare any financial institution’s failure to those that preceded the 2008 crisis and panic are reasonable. It is easy to classify MF Global as 2011’s “Lehman” event, just as it was to use the same term to describe Dexia a few weeks ago. The use of the term “this year’s Lehman” is somewhat misplaced simply because its users are looking for an event that kicks off another crisis or panic. Instead of using “Lehman” to describe a potential inflection point that propels the crisis into panic, it might be better to see MF Global as AIG. The comparison to AIG is not to say that MF Global was as interconnected, that its failure will be as devastating, or that it is the straw that breaks the European camel’s back. The urge to see the past in the present is historically valid, but it will never be exactly alike (Mark Twain had this right). Rather I think the comparison is useful in that AIG taught the wider world what was really rotten at the core of modern finance, namely hidden risks that were shockingly existential. MF Global’s failure importantly shows that none of the lessons have been heeded in the days since, providing a somewhat unique window into the real dangers that still lurk hidden in the shadows. More than that, though, MF Global demonstrates an obvious shortcoming of the financial system as it relates to the real economy.
Now that the affdavit of MF Global COO Bradley Abelow has been filed, we finally get the (partial and quite watered down) inside scoop of just what the events were that brought the company to its knees, and what specifically were the precipitating catalysts that ultimately led to the Halloween massacre. The relevant part begins with section E, paragraph 33, on page 13. "As a global financial services firm, MF Global is materially affected by conditions in the global financial markets and worldwide economic conditions. On September 1, 2011, MF Holdings announced that FINRA informed it that its regulated U.S. operating subsidiary, MFGI, was required to modify its capital treatment of certain repurchase transactions to maturity collateralized with European sovereign debt and thus increase its required net capital pursuant to SEC Rule 15c3-1. MFGI increased its required net capital to comply with FINRA’s requirement...." Read on.
- Sarkozy Sees More Budget Cuts to Save France’s AAA Rating as Growth Slows (Bloomberg)
- EU Crisis Deal Buys Time for Greece: Papandreou (Bloomberg)
- California Proposes to Curtail Workers’ Benefits (WSJ)
- FINRA brokerage oversight group misled regulators, SEC charges (WaPo)
- Greece Will Leave Euro Even With Pact: Rogoff (Bloomberg)
- Italian banks cool to demand for more capital (FT)
- EU Crisis Resolution Critical to Obama 2012 Bid (Bloomberg)
The WSJ has published the list of 18 trades that Finra is currently investigating (or, rather, isn't) Steve Cohen's hedge fund for illegal practices ("expert networks" and what not), using the same methodology as that applied by Zero Hedge a year ago, before anyone had the faintest clue that SAC would be the target of an extensive theatrical campaign by regulators and populist politicians. The following statement by Finra is priceless: "In the 18 referrals made by Finra and the NASD between 2002 and 2011 that were reviewed by the Journal, investigators said they were vexed by SAC's repeated appearance in routine screens of suspicious trading near mergers and acquisitions, earnings announcements and other market-moving news." Needless to say, if any readers has wittingly or otherwise traded alongside SAC in any of these transactions, it may be time to shred any evidence. After all, the "I don't recall nothing" testiony worked miracles for Rupert Murdoch.
From my recent conversations with emerging market portfolio managers, it is becoming quite clear that the enthusiasm investors had placed in Brazil as a domestic growth story earlier in the year is running thin. Buy why is the bloom coming off the rose? Some of the things portfolio managers are saying range from an experienced small-cap Latam buyer who said, “Inflation, Mantega going Don Quixote fighting wars that nobody creates other than themselves with high inflation. There is just no visibility,” to a large global fund manager who said, “I am in Brazil this week, it’s slowing down here for sure...” Banco Fator head of equity research Lika Takahashi made some very insightful comments this morning on this topic. In her view, there are couple of factors. First off, valuations in Brazil remain high. Especially considering that it’s likely the global slowdown coupled with high inflation domestically will crimp margins going forward, something she believes is not fully priced in yet.