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FINRA Arrives After The Fact To Put Out The Fire Caused By Burning Apples At Dick Boves Employer, More Jokes To Ensue!

Reggie Middleton's picture





 

WSJ.com reports: The Financial Industry Regulatory Authority is investigating alleged unauthorized trading at Rochdale Securities LLC

Daniel Crowley, Rochdale's president,
said Finra, a Wall Street self-regulator, was investigating trading that
has put the company in a precarious financial position, adding, "The
firm is recapitalizing and should be talking to the market shortly." He
declined to offer more details on the trading or the investigation.

A person familiar with the thinking of Rochdale executives said a trader at the firm received an order for stock in Apple Inc. AAPL +0.63%
but bought 1,000 times the number of shares requested. The trader is
saying the extra shares were ordered by mistake, the person said, but
the firm is alleging the actions were intentional. The company suspects
the trader was working with an outside party to execute the trade and
profit at the firm's expense, according to this person.

This is bullshit no matter which way you look at it. If you can
mistakenly place an order for 1,000 times your intended purchases, then
the risk management systems of this so-called institutional brokerage is
less robust than grandma's retail web page at E-trade! If the trader
did it on purpose, then he likely did it with management's consent and
they didn't subscribe to BoomBustBlog - travesty within itself since all
who subscribed knew it was time to short Apple! See The Blog That Could Have Saved Institutional Broker - Or - Beware Of Those Poison Apples!!

aapl research accuracy copyaapl research accuracy copy

Rochdale, based in Stamford, Conn., is
an institutional broker and equity-research firm that employs prominent
bank analyst Richard Bove. As of the end of 2011, Rochdale had $3.4
million in capital, according to a filing with the Securities and
Exchange Commission. On Saturday, Mr. Crowley said the errant trading
had left the company with a "negative capital position."

Amazingly enough, very few (if any) queried as to why Rochdale, with a
capital base of $3.4 million dollars could execute a trade worth a
billion dollars. Let's take an off the cuff measure of the leverage
involved here... $1,000,000,000/$3,400,000 = roughly 294x the trader
levered up the firms capital base, give or take. Who was the idiot(s) on
the other side of the trade and more importantly where the hell was
FINRA before this tiny bank had the nerve to go against BoomBustBlog
research with a 294x levered trade? Methinks FINRA was a little less
than effective here, no? Dick Bove, the rosk star bank analysts paid by
Rochdale Securities (and probably paid nearly as much as Rochdale's
capital base), should have alerted Rochdale to the risks therein, no?

Dick seems like a nice guy, but we don't always see eye to eye, reference CNBC Favorite Dick Bove Admits To Being Wrong On Banks, But For The Right Reasons, But Those Reasons Are Still Wrong!!!:

Last week I posted a rather scathing
diatribe, basically ridiculing the fact that Dick Bove get's so much MSM
airtime for his virtually consistently wrong calls and analysis:, as
excerpted: A BoomBustBlog Deep Dive on Dick

... Now, speaking of Europe, particular Dexia (France, Belgium Wrangle About Dexia Deal: Reports), this brings to mind another highlighted headline focusing on the oft quoted sell side banking analyst US Stress Tests Not Worrying: Bove...
Dick Bove is one of the, if not most oft quoted sell side bank analyst
in the mainstream media. I disagree with him, regularly. As the uber
independent investor/analyst that I am, I will never be accurately
accused of kissing [up to] Dick - regardless, let's grab Dick by the base [of his assumptions] and see if we can yank something usable out of it, shall we?

Okay, I admit I was a bit harsh, and it
appears as if Mr. Bove may have read said diatribe and used his cache
with the MSM to post a response - very professional one at that - and
one to which I must give him credit - alas, he was still wrong! To wit:

Bove: Why I Was Wrong on Bank Stocks

With a month left in 2011 and—barring a miracle—bank stocks headed for a negative year, Dick Bove is admitting he was wrong.

This is both commendable and respectable.
It is honorable and healthy to admit when you are wrong, and we all have
the opportunity to do so since nobody is right all of the time!...

It is my belief that this country idolizes Wall Street, and does so
foolishly. Attempting a trade on Apple which is obviously on decline at
294 times leverage with no apparent risk management mechanisms rivaling
that of a mere eTrade account is silly, and does not connote "Masters of
the Universe" status. In closing, keep in mind that as I drove from my
apartment shortly after the Sandy storm, I noticed that the Goldman
Sachs HQ had lights and electricity almost immediately. Why? Because it
was triple sandbagged against the elements with underground vents
properly sealed. Notice that the surrounding hospitals and schools
failed to receive similar attention. Where exactly are our resourced
flowing and for what reason. Happy voting on this historical election
day.

Subscribers expect fresh research and content later this week.

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Tue, 11/06/2012 - 17:19 | Link to Comment LongSoupLine
LongSoupLine's picture

 

 

 

no matter what transpired with the "AAPL trade", the bottom line is it's just another puzzle piece to the fucked up and corrupted train wreck picture known as the "capital markets".

Tue, 11/06/2012 - 17:12 | Link to Comment SillySalesmanQu...
SillySalesmanQuestion's picture

Dick Bove said he wants a "do over".

Tue, 11/06/2012 - 16:48 | Link to Comment Christophe2
Christophe2's picture

"Happy voting on this historical election day."

=> who do you have to vote for that you could feel happy about the fact you can cast a vote today, Reggie?

 

'Seems to me that if you actually managed to find a decent candidate (ie: NOT obummer or Romney), that candidate has no chance since he/she won't get counted by the electronic machines and regardless is unknown by the majority of the electorate...

 

As usual, they've even made it so that not voting for either of the 2 stooges, you are in fact spoiling a chance to vote against your worst nightmare as a candidate...

Tue, 11/06/2012 - 16:20 | Link to Comment Jumbotron
Jumbotron's picture

As I've said before.....couldn't have happened to a nicer "Dick" !

Tue, 11/06/2012 - 16:12 | Link to Comment ThisIsBob
ThisIsBob's picture

JQC himself couldn't get that kind of margin, even if he had a chart. 

Tue, 11/06/2012 - 16:09 | Link to Comment Smiddywesson
Smiddywesson's picture

 

 

Tue, 11/06/2012 - 16:10 | Link to Comment WTF_247
WTF_247's picture

I call bullshit as well.

$1bil worth of AAPL = 1.6 million shares @ approx $600 per share.  Assuming it was a mistake, it should have been caught immediately by the trader.  All traders have a p/l screen in front of them at all times, including exact positions and quantities.

AAPL trades on average 15mil shares a day.  An order of that size "done by accident" would have had to be done over time - you cannot fill that many shares in 5 minutes, lest we see a masive "fat finger" spike in the stock which I do not see.  So the error would have to have happened over at least an hour of time or so.

The only scenario I can see where it would be an error that is plausable is that the customer said to buy 16,000 shares and the broker thought it was 1,600,000, or the customer said to buy $1,600,000 WORTH of AAPL shares and the broker entered the wrong quantity into his vwap system and then hit go.  No one questioned the order nor gave the customer an "update" which would have caught the error early on.  On a trade of this size I would think the broker would have been updating the client every 10 minutes as to quantity done and avg price etc.  No one in compliance was watching the screen and asking questions.  Additionally, the order entry system should have had cap limits on order size, I know from experience almost all do (set by compliance to prevent this exact scenario from happening).  Usually its set at a limit where 95%+ of daily orders received and executed are below that level.  Above it requires a manager or compliance approval to lift the limit.  This is in place to protect the firm and prevent huge mistakes.

The clearing firm also should have had hard cap limits on their intraday activities.  When I worked in institutional trading we would get calls from the clearing firm periodically asking about positions, especially when we got close to our cap limit for the day.  I highly doubt that Rochedale regularly handled orders in excess of even $100 mil.  It should have outright rejected that order from the get go.  If traded manually, the execution system should have started rejecting orders once the size got above 100mil.

Tue, 11/06/2012 - 16:35 | Link to Comment cougar_w
cougar_w's picture

So it's BS. Fine.

But why would the bank want to blow themselves up? And if not deliberately, why would the bank take such an outsized risk on a volatile stock like AAPL?

Something seems not-right about this whole story. Either someone on the inside wanted to settle a score and was willing to risk Federal prison, or the bank was being fed bogus insider info about potential stock moves, or the bank blew itself up to cover some other even worse bit of business.

Tue, 11/06/2012 - 17:27 | Link to Comment Zero Govt
Zero Govt's picture

Your titles aren't getting any snappier Reggie, why don't you farm it out, I could do it.

FINRA Arrives After The Fact To Put Out The Fire Caused By Burning Apples At Dick Boves Employer, More Jokes To Ensue!

How about, 'Fat Fingered Apple Trade Still Smoulders' ..one third the words and bit snappier too.

"Dick seems like a nice guy ........Last week I posted a rather scathing diatribe, basically ridiculing the fact that Dick Bove get's so much MSM airtime for his virtually consistently wrong calls..."

Nice personal touch there... followed by a heavy bombing raid on his professional life. 

..with freinds (bitchez) like you, who needs enemies uh!

Tue, 11/06/2012 - 13:10 | Link to Comment GottaBKiddn
GottaBKiddn's picture

 

Telling it like it is, Reg.

Tue, 11/06/2012 - 14:26 | Link to Comment Zero Govt
Zero Govt's picture

Nothing of the sort

with Bove on the canvass Reggie is putting the boot in and rooting for his CNBC talking head spots

it's dog-eat-dog out there in talking heads guest land, the CNBC Green Room resembles a cage fight most days

Tue, 11/06/2012 - 12:26 | Link to Comment ebworthen
ebworthen's picture

Perhaps the trader knew a layoff was coming, or had some other grudge, and decided to give them the fat finger intentionally?

Tue, 11/06/2012 - 17:33 | Link to Comment Steaming_Wookie_Doo
Steaming_Wookie_Doo's picture

As a programmer, this process sounds like it's got more holes than grandma's underpants. If you're buying on a customer's behalf, I can't believe you wouldn't validate against how much $$ they have in their acct (and I doubt it's anywhere near $1bil) as a prelim. Even with "margin" how could you get to 10x let alone 1000x. And I can't believe there wasn't supervisor OK req'd on this too. Do we have a date/time on the purchase? Can we see a correspondent volume on the AAPL chart to verify?

Plus, Rochdale seems like total peanuts with $3.4mil in capital. Tho that was end of 2011, I doubt it's increased by orders of magnitude.

Tue, 11/06/2012 - 16:00 | Link to Comment 12ToothAssassin
12ToothAssassin's picture

The rare but satisfying fat [middle] finger!

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