Seeking to recover more than $200 million in illegal overcharges and penalties, Attorney General Edmund G. Brown Jr. today announced that he has filed suit against State Street Bank and Trust -- one of the world's leading providers of financial services to institutional investors -- for committing "unconscionable fraud" against California's two largest pension funds -- CalPERS and CalSTRS.
SEC Informs State Street It Will Authorize Civil Enforcement Action For Violation Of Anti-Fraud ProvisionsSubmitted by Tyler Durden on 08/10/2009 13:35 -0400
In June 2009, the Staff of the SEC provided State Street Bank with a “Wells” notice related to the SEC’s ongoing investigation into disclosures and management by SSgA of its active fixed-income strategies during 2007 and prior periods. The SEC Staff has informed us that it is proceeding with an enforcement recommendation to the SEC Commissioners asking the SEC Commissioners to authorize a civil enforcement action against us alleging violations of antifraud provisions of the federal securities laws.
Continuing the series of State Street presentations on relevant market topics, the latest piece "What are the Implications of the Growing Use of Electronic Trading" focuses on the nuanced difference between "real liquidity" and "liquidity hazard", depending on whether one is a price taker or market maker. Yet based on limited available public disclosure, non-premium clients of the NYSE and other PT-espousing exchanges have no visibility of who and under what conditions any given broker/dealer and quant become one or the other. And while merely a few years ago HFT was less than half of traded stock volume, recent data indicates high frequency trading now accounts for over 70% of US volume, and thus it is important to reasses what is the relevant set of data disclosure by dominating broker/dealers. The risk is palpable - as State Street itself notes, there is "equity capital at risk."
Liquidity, as frequent readers know, is a fascinating topic to Zero Hedge. Liquidity black holes, as one would imagine, is doulby so. However, when a firm like State Street, which is at the heart of the multi-trillion dollar stock lending endoskeleton of the market discusses both of these concepts, one must pay attention. The below report is a State Street presentation from 2003 discussing what happens in those episodes when liquidity disappears and how that impairs all other axes of proper market function.
Zero Hedge has always been fascinated by the behemoths of securities lending (or not so much lately) State Street and Bank Of New York: these firms, which allegedly had just marginal toxic exposure, were in the front lines for the TARP bailout and have traditionally been handled with velvet gloves by the administration. In fact, many would say the custodian firms are in a league of importance much higher than even Goldman or JP Morgan as with their repo activity, security lending and cash collateral reinvestment, they are the de facto center of the shadow banking system.
State Street (STT) stock tumbled 33% in premarket trading (last at $24/share). The world's largest money manager for institutions said 2009 profit will be little changed from last year after Q4 earnings fell 71%. What is curious is that according to Bloomberg out of the 18 analysts who cover the stock, 9 have a buy rating, 9 have a hold and 0 are at sell...yup, good to see sell-side research ahead of the ball on this one too.