CougarJanuary 23, 2016"This is really a non-story as it is merely the risk-reward pay-off demonstrating high risk means that you can lose money If there is a story, and I'm sure there is, it would be around the marketing of the fund and the transparency used to explain its portfolio construction and management. Certainly from a regulatory perspective its disclosure appears fine.…"
SliderDecember 17, 2015"Excellent article! While other media outlets are reporting this incident as a portent of things to come in the broader debt market, this piece sticks to the facts regarding Third Avenue's actual portfolio. The distressed bond market is like another universe when compared to the investment grade and high yield markets. Orders in distressed bonds can go unfilled for weeks if not months, so offering anything close to same day redemptions to investors is laughable. Fun fa…"
WolfmanDecember 17, 2015"To be fair, the fund's prospectus states the fund might look to make investments in bankrupt companies and that those holdings could be difficult to sell. Also, the fund is a high-yield and distressed fund, so by definition the holdings are not going to be pristine. Even so, this fund took "slumming it" to new levels.…"
GooseDecember 17, 2015"I echo Merlin’s thoughts on the investors in this fund. Perhaps shades of Captain Renault in Casablanca? https://youtu.be/qmywwiZth5E Rick: How can you close me up? On what grounds? Renault: I am shocked, shocked to find that gambling is going on in here! Croupier: [hands Renault money] Your winnings, sir. Renault: Oh, thank you very much. Everybody out at once! I was really struck this week by the media narrative around this news. The headline risk for all high yield…"
ZobDecember 11, 2015"Mortgage Bonds. Thrifts. 80s... Ha ha! how the world has changed... and for the better BUT at the same time is this about changing human nature or just applying the old Pinocchio saying of 'don't lie or at least don't get caught lying'.…"
MerlinDecember 11, 2015"Wet towels are ok. If a house last sold for $1.5mm and is now listed at $1.2mm, is that an opportunity to purchase from a motivated seller or have equivlent houses been selling for $1mm still overstating the value of this house. It is not what this house last traded at but what alternative options are available and whether this house appears to be good value or not. Same for bonds. And your statement that there is no fundamental reason a simple 4-bedroom house in the…"
ChipperDecember 11, 2015"Sorry to be the wet blanket, but I think the used car analogy doesn't fit well here. But to stick with it, what if the car was being financed by the dealer, and they sold it to you at $20,000 but then valued it at $17,000 for financing purposes because that is the true value in their mind? Maybe residential real estate is more applicable...if you buy a house in CT you absolutely want to know the last price paid for it, the improvements since, the comparables, etc. If…"
MerlinDecember 10, 2015"First is reaction is they are kidding. Traders constantly mis-represent the level they bought or can buy bonds (at least pre-TRACE or those not reported on TRACE) as they use any/all tools/methods to extract the maximum amount of profit without risking the client finding out. And as has been discussed, does it matter? Prices move for all kinds of reasons that are security specific, issuer specific, industry specific or just with the market. What does one think the bon…"
CharlieDecember 3, 2015"A thought provoking video including brief presentations by three eminently qualified people from Stanford, Harvard and the Fed. I found it worth an hour of my time. Here are some of the things that I came away with: The Moderator David Wessel summed up the obvious question I had when he said “So in our attempt to get a diversity of views on the stage we didn't represent the people in the industry who are most worried.” Why not David? You missed a fantastic opportunity…"
MerlinNovember 13, 2015"What I would like to read about is the progress that these alternative platforms are making. How many participants do they REALLY have? How many fully executed documents do they have back? How many firms are executing transactions on their system (and paying for them)? What is their trading volume? Does anyone really care any more how many orders any of them might have? All you have to do is look at poor Bondcube that was hyping their multiple billions of orders days…"
GooseNovember 13, 2015"Break out the torches and storm the castle! I love all this talk about eliminating the unnecessary dealer/liquidity provider, we don’t need them!! Question, what would the market of the most liquid, regulated price formation market in the world, look like if everyone who is being compensated in some way to provide liquidity (market structure, maker/taker, etc) decided to turn off the switch all at once. How many bids/offers would be left, and how many buy side firms w…"
WolfmanNovember 13, 2015"There's so much here to work with. It seems that the reality is beginning to sink in. e-commerce solutions don't eliminate the need for all traditional methods of commerce. Hell, Amazon has opened a physical bookstore! Bonds aren't equities. Some bonds may trade like equities, like benchmark treasuries, but that's a function of a bond with no risk of default (I hope!) being used as a rate product, not as a credit trade. Anyhow, back to the article. First, Aladdin has…"
ZobNovember 13, 2015"Having no special sympathy or otherwise for Market A, all I can say is that by adding a simple protocol to their offering rather than 'revolutionising' the universe they have unlocked liquidity (especially in Europe) and good to them. Fintech guys in this space who are picking up awards for innovation and 'disruption' left right and center but haven't billed a$ or printed a trade are eventually going to be found out and the gullible anti-sellside, anti-broker, anti-mi…"
SundownNovember 11, 2015"One can argue that the IDBs have been the one of the most innovative participants in the current market structure. They are not the fat, lazy person on the other end of a phone yelling like they once were. They are sophisticated businesses operations run by savvy market structure people. Since they are were capital meets need, they are probably the best at determining inflection points in market structure. Many have dismissed these IDB participants as subordinate or c…"
CharlieNovember 10, 2015"The question that immediately sprang to my mind on reading this article was 'are dealers actually becoming brokers'? One can perhaps see why dealers are getting so upset when IDBs start to speak with clients. Dealers value proposition is less putting capital at risk and is more about distribution, something that IDBs have done well for decades. If, as anecdotally we are continually being told, dealers are in fact becoming order takers and searchers for the other side…"
Gab FredianiNovember 8, 2015"You only have intermediation if there's money paid for a valuable service. In the old days some of this added value was made up of entertainment and other nicies that are no-go today! I remember discussing what made a good broker: 'one who brings in lots of money' says his employer... 'One who brings me good flows/business/prices' says the dealer. Voice and hybrid Businesses alone will not be big or significant enough to build those powerhouses from the late 90s which…"
GooseNovember 6, 2015"There changes Mr. Ferreri mentions are definitely causing a lot of angst in the IDB/Dealer relationship. The value proposition that drove the compensation structure of the IDB market continues to be under pressure. Dealers mainly pay brokers to maintain an anonymous wholesale market where they can add/lay off risk, and most importantly of all, get price discovery, all away from the eyes of the clients they serve. Changes are leading to less balance sheet/less propriet…"
MerlinOctober 30, 2015"The issue isn’t ‘humans vs. machines’. It is people no longer willing to share information they way they once did. Things have gotten so bad that the buy side, in surveys, have stated that they break up trades, presumably to hide intentions from the sell side and I have heard first hand from sell side traders that they don’t even want to tell their own salespeople about some of their positions/axes due to concern that information leakage could hurt them. With investor…"
GooseOctober 30, 2015"Interesting take on the acquisition. I was thinking that as their core futures business matures, ICE was looking more at it as a diversity play with consistent revenue than as a statement around FI trading. Anyway, I completely agree with the point around human interaction in the credit market pricing process. Evaluated pricing is a great business to be in. Financial institutions investing in heterogeneous markets need to have a value on assets, retail statements, etc…"
WolfmanOctober 29, 2015"I summed this up as “putting your money where your mouth is”. Isn’t it interesting that in the same week we learn some of the details surrounding a $25 million investment from Peter Thiel and George Soros for a fully electronic bond platform, one of the most successful industry visionaries in the past decade invests more than 200 times as much in a business which relies on humans to price bonds. What might be more interesting is to see what ICE plans on doing with the…"
ChipperOctober 29, 2015"While I don't disagree with the premise that humans are important, I don't think this deal show that. In fact, I think it points more to a disturbing "rise of the machines" than does electronic trading (which is still done bilaterally by humans, one trade at a time. The reality is that the IDC data is an amalgamation of dealer quotes with little discretion paid to the quality of the quotes. As such, it takes the flawed effort of humans and applies a computer's veil of…"
MerlinOctober 23, 2015"Now you know what happened to liquidity. People tried and continue to try to turn the art into a science. I am not suggesting the markets need to revert to policies and protocols from the 80's. The 90's and early 2000's are goo enough where there was much better balance between buy and sell side accounts. What I find fascinating about today is the reluctance of people to share information feeling that this information will be used against them. Without information, ma…"
WolfmanOctober 16, 2015"Walmart's focus on innovation in retail helped it to create the world's largest retailer. That said, the stock tanked this week because it is taking some very big steps in increasing the minimum wage they pay their employees and making significant investments in ecommerce. Even when an organization is able to remove the single-silos that may inhibit innovation, there are still numerous challenges for any organization to innovate. I think we are going to see a transfor…"
Paul ReynoldsOctober 16, 2015"It's not just a problem in capital markets. Look at any innovation in the last ten years in finance and you will find it came from a non-bank initiative. Paypal, Transferwise, Apple Pay, Bitcoin, crowfunding etc... Every part of banking is now challenged by innovative, smart start-ups that take one activity and turn it on its head. Banking will be unrecognisable in the next five years.…"
GooseOctober 15, 2015"Innovating across business silos generally presents the unstated question, “Who’s ox is going to get gored?” The innovation benefits the overall firm, but key personnel in the silos needed to cooperate may suffer gains or losses from the outcome. Business managers get yearly compensation by generating profits and serving the needs of their customers TODAY. As a friend said to me, “I don’t get paid for long term visions”. Anything that disrupts the ability to generate…"
CharlieOctober 15, 2015"After years of cutting IT budgets to the bone, directing all expenditure to meeting new regulatory hurdles and shutting out requests from business lines to fund new products and change requests for competitive developments, an Innovation Team is created that ‘will help move the bank forward’. Does anyone else see anything wrong here? Is it surprising that the whizz kids are met with resistance? How is the Innovation Team partnering with the businesses to address the r…"
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When Can Bond Traders Lie to Their Customers – Bloomberg View
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What’s happening to liquidity in the bond market? – Brookings Institute Video
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Bond Market Blues Sneak Up on Asset Managers – FT
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Money Managers Now Have a Record Proportion of Their Portfolio Dedicated to Corporate Bonds – Bloomberg
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Middlemen the Key to Corporate Bond Market’s Electric Dreams – Reuters
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Are IDBs Obsolete? (Chris Ferreri) – Tabb Forum
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Humans 1, Machines 0 – Bloomberg View
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Opportunism and Restraint on Wall Street – Mitchel Abolafia (1989)
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What’s the Biggest Challenge to Innovation in Capital Markets? – Financial News
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