Trading firms would do well to heed lessons in testing and crisis management
What a book! Who knew that a trading error at a Jersey City firm could end up being so interesting? One year ago, the mother of all electronic trading debacles scared Wall Street, when sophisticated trading outfit Knight Capital erroneously launched thousands of orders that led it to accumulate an impossible $7 billion position.
After catastrophic incidents like the Flash Crash, the failed Facebook IPO led by Nasdaq OMX, and BATS, the IPO that just couldn’t get off the ground despite all the brainpower behind, this time was supposed to be different. Yet, as author Edgar Perez details, hubris and failed crisis management procedures made this incident particularly painful to shareholders and employees, who didn’t know if the company could survive.
It is interesting to read about the true reasons for top executives not to take decisive action when their CEOs are not present. It was less and less about investors and shareholders, and more about fear, egos, fees and prestige. Nasdaq? Knight? Next?
If the reader is not intensely interested in financial markets, he or she will likely not make it through this book. If the reader skips CNBC or FOX Business Network or Bloomberg TV when flipping through the channels, then this book probably isn’t for him or her. It would be very interesting, but the reader probably won’t make it to the juicy chapters.
Perez makes a compelling case about the need for trading firms to rethink their technology management. Does anyone on Wall Street will ever really learn anything from this debacle? While all eyes are focused on SEC’s new regulations that force companies to show the impossible, the next trading debacle is probably lurking around, ready to storm Wall Street at a time when nobody will expect it.
The book goes into great detail when it analyses the backstories of the main characters involved in the company starting with founders Ken Pasternak and Walter Raquet, CEO Tom Joyce (known as T.J. since his Harvard days) and vulture bidders Daniel Coleman from GETCO and Vincent Viola from Virtu. While other books lose many people early, Perez whets readers’ appetites early by hitting the ground running in chapter one focusing on the chaos that ensued Knight’s infamous trades at the opening.
Perez does a tremendous job in making the histories of all of the people and companies involved as easy to digest as possible; peg orders are arguably not an easy concept to explain. Again – excellent book, but readers have to invest some time slogging through the first 25% of the book to get back to the action. As soon as Joyce comes back to the office after surgery and realizes the extent of the challenges ahead, all hell breaks loose and things start to get very exciting again.
Posted in Breaking news, Equity Markets, Hedge Funds, High-Frequency Trading, Regulation, Spread Trades
Tagged $440 million, Algorithmic Trading, August 1, Barbarians at the Gate, BATS, Chris Concannon, Citadel, Daniel Coleman, Dave Cummings, Den of Thieves, Direct Edge, Duncan Niederauer, Edgar Perez, electronic trading, facebook, financial markets, GETCO, Harvard University. Bob Greifeld, High-Frequency Trading, IBM, investors, IT department, Jersey City, KCG, KCG Holdings, Ken Pasternak, Knight Capital, Knightmare on Wall Street, Liar’s Poker, Michael Tobin, NASDAQ, New York Stock Exchange, NYSE, operational risks, Pricewaterhouse Coopers, Retail Liquidity Program, RLP, shareholders, software, Steven Sadoff, T.J., The Speed Traders, Thomas Joyce, traders, trading disaster, Vincent Viola, Virtu Financial, Wall Street, Walter Raquet, When Genius Failed
SEC lifts ban on hedge fund ads
Hedge funds and other firms that seek private investments will be allowed to advertise publicly for the first time under a rule adopted Wednesday by the Securities and Exchange Commission.
Adopted by a 4-1 vote, the rule eliminates an 80-year regime of advertising restrictions intended to safeguard small investors from taking on potentially dangerous risk. The rule covers the way issuers raise funds through private offerings, a process that is exempt from requirements to report public financial statements.
While the rule would authorize firms to raise unlimited amounts via mass advertising of private offerings, it would require reasonable steps to ensure that buyers are so-called accredited investors — who are wealthier and deemed better able to gauge investment risks.
Posted in Breaking news, Events, Finance, Hedge Funds, Regulation
Tagged advertising restrictions, ban, Hedge Funds, investment, investors, private investments, regulation
Hedge Funds Shift to Stocks, Just in Time for Pullback
Hedge fund investors have begun to like stocks again—just in time for what appears to be a rough summer ahead for the equity markets.
Reversing a trend that began in March 2010, hedge funds in May saw inflows to equity-based products and outflows from fixed income.
Posted in Finance, Fixed Income, Fixed Income Markets, Hedge Funds, Opinion
Tagged equity-based products, Hedge Funds, inflows, investing, investors, outflows, stock market
According to Forbes’ Nathan Vardi, last year the billionaire hedge fund manager David Einhorn predicted that Apple’s market capitalization could hit $1 trillion. He long ago made Apple one of his hedge fund’s biggest holdings and in a letter dated just two days ago Einhorn told his investors he had purchased more Apple shares as the price declined late last year. “We used the lower prices as an opportunity to repurchase the shares we sold in the third quarter,” Einhorn wrote.
Einhorn’s hedge fund was down 4.9% net of fees in the fourth quarter of 2012, thanks partly to the performance of Apple’s shares. “Our Apple was bruised,” he noted to his investors. The question now is, will Apple sink Einhorn and other hedge funds in 2013?
Einhorn’s hedge fund peformance, by his own account, was “pedestrian” last year. Like most hedge funds, Einhorn’s Greenlight was up in 2012, but it underperformed the U.S. stock market. In Einhorn’s case he was up 7.9% net of fees while the S&P 500 returned 16%. That’s actually a little better than the average hedge fund.
MIT Enterprise Forum in NY held a tech and VC event in the spacious yet intimate Gramercy loft of Sam Hamadeh, founder of PrivCo and Vault.com Thursday evening. Panelists from the NY venture capital community discussed the current and future directions of tech. Their conclusion: venture capital is very strong and NY is great place to start a company. But there is one caveat. According to panelist Habib Kairouz of Rho Capital Ventures, it will be a busy year for investors, but a tough one for early stage entrepreneurs. “A lot of companies got funded at a very early stage by angel and pre-series A rounds that are not trying to get the first institution round. I think the bar has gone up substantially for that person’s institution round.”
Charlie O’Donnell of Brooklyn Bridge Ventures sees a lot of investment in product at the individual company level. He says many first time founders who’ve been backed are relatively younger and don’t necessarily have industry experience. “If you kind of read the tea leaves and what’s being talked about, I think investors are finding that more focus on revenues and some kind of stability or predictability is where they’re looking. I like founders who have some expertise in their industry and have appropriate DNA for the kinds of problems they’re facing.”
According to Petter Lattman, as the private equity bubble inflated during the first half of 2007, a period defined by record acquisitions by the world’s largest buyout firms, the Federal Reserve took notice.
In a transcript of the Fed’s March 2007 meeting, Janet L. Yellen, then president of the Federal Reserve Bank of San Francisco, appeared troubled by the frenzied private equity deal-making that had taken hold on Wall Street.
Despite the recent turmoil in equity and mortgage markets, a reassessment of overall risk has yet to occur. We are still in an environment of low long-term yields, ample liquidity and what appears to be a generally low level of compensation for risk. For example, I recently talked with the principals of several major private equity funds, who were not just amazed but also appalled about the amount of money their industry has attracted. [Laughter] One partner said that he would have no difficulty immediately raising $1 billion. Indeed, one of his biggest problems is would-be investors who get angry at him because he is unwilling to take their money.
Posted in Economy, Equity Markets, Financial Crisis, Private Equity, Regulation
Tagged Bubble, Federal Reserve Bank, investors, liquidity, mortgage markets, PE Happy Hour, Peter Lattma, Private Equity, Private Equity Happy Hour, the Federal Reserve, Wall Street
Apple’s stock, widely held by hedge funds, is now even more popular.
Investment managers including Viking Global Investors, Renaissance Technologies, Third Point and others increased their positions in the iPhone, iPad and Mac maker during the second quarter. Shares of Apple fell during the period, losing 2.6% of its value, compared with a 5.1% decline in the Nasdaq.
Here is a list of some of the more notable hedge fund investors and what they did with their Apple holdings during the second quarter, according to releases today:
Viking Global Investors — The $12 billion long-only fund run by Andreas Halvorsen and David C. Ott added 807,300 shares to bring their stake to just over 980,000 shares.
Posted in China, Commodities, Derivatives, Economy, emerging market, Equity Markets, European economy, Hedge Funds, Investment Banking, Private Equity, Venture Capita;, Venture Capital
Tagged Apple, Economy, equity, financial markets, Global Economy, Hedge Funds, investment, investment bank, investment portfolio, investors, modern finance, Modern Finance Report, technolgy, trading, viking global investors