April 2, 2023

DealBook: N.Y.S.E. Settles Regulatory Action on Trading Data

Traders on the floor of the New York Stock Exchange on Thursday.Spencer Platt/Getty ImagesTraders on the floor of the New York Stock Exchange on Thursday.

The New York Stock Exchange on Friday settled accusations that its trading data gave select clients a split second advantage over retail investors, the latest federal action against a major exchange.

In a civil enforcement action, the Securities and Exchange accused the Big Board of “compliance failures” that allowed certain customers to receive stock data before the broader public. The improper actions, which began in 2008, ran afoul of safeguards set up to promote fairness in a system known for favoring elite investors.

The S.E.C. forced the Big Board to adopt a battery of internal controls and pay a $5 million penalty. While the fine is a token sum for the country’s biggest and most prominent trading platform, the action represents the agency’s first ever fine of an exchange.

“Improper early access to market data, even measured in milliseconds, can in today’s markets be a real and substantial advantage that disproportionately disadvantages retail and long-term investors,” Robert Khuzami, the agency’s enforcement director, said in a statement. “That is why S.E.C. rules mandate that exchanges give the public fair access to basic market data.”

In a statement, the N.Y.S.E. played down the significance of the action. The S.E.C., the exchange noted, did not unearth intentional wrongdoing or evidence that the problems harmed individual investors. Instead, the exchange blamed “technology issues” for the lapses, problems that N.Y.S.E. says it has since fixed.

“NYSE Euronext is pleased to have this matter resolved, and believes that the settlement is in the best interest of its shareowners, clients and employees,” Duncan L. Niederauer, the company’s chief executive, said in the statement. “We will continue to take every responsible measure to ensure that our market operates with the utmost fairness and transparency.”

The action against the Big Board is part of a wider federal crackdown on the nation’s biggest exchanges. The S.E.C., which has penalized the Direct Edge exchange for having “weak internal controls,” is also pursuing the Chicago Board Options Exchange for not properly policing the markets.

The sprawling investigation has grown in the wake of the so-called flash crash on May 6, 2010, when the Dow Jones industrial average plummeted more than 700 points in minutes before quickly recovering. Federal authorities and Congressional committees have centered their scrutiny on technology breakdowns and the ever-changing world of high-speed trading.

“Today’s action by the S.E.C. affirms what many have believed for years: that our U.S. capital markets are threatened by those with the resources and access to get split second advantages over the rest of us,” Senator Carl Levin, a Michigan Democrat whose Permanent Subcommittee on Investigations has examined high-speed trading, said in a statement.

In its most prominent case, the S.E.C. is investigating Nasdaq for Facebook’s botched public offering in May. BATS Global Markets has also acknowledged receiving a request from the agency, which is examining whether any collaboration between BATS and high-frequency trading firms could hinder competition. The agency is also examining BATS’ own aborted public offering this year.

The companies often blame their woes on technological glitches. But in the N.Y.S.E. case, regulators paint a more pervasive problem, tracing the improper acts to multiple technology mishaps and compliance woes.

In highlighting disparities in the distribution of stock data, the S.E.C. pointed to an “internal N.Y.S.E. system” and a “software issue.” The problems, according to regulators, caused the exchange to send stock pricing and other data to certain customers milliseconds – or even multiple seconds – before it released information more widely. The breakdown, which first came to light in the aftermath of the flash crash, ranged from 2008 to 2010.

Despite the scope of the issues, the S.E.C. suggested they were preventable.

The exchange, regulators say, failed to keep computer files that detailed the timing of data feeds. N.Y.S.E.’s compliance department also steered clear of the exchange’s major technology decisions, according to the S.E.C. The compliance staff, for example, did not help design or implement the exchange’s market data systems. Under the terms of the settlement, N.Y.S.E. must hire an independent consultant to study the exchange’s “market data delivery systems.”

“The violations at N.Y.S.E. may have been technological, but they were not technical,” said Daniel M. Hawke, the head of the agency’s Market Abuse Unit, which is leading the investigations into various exchanges. “Robust technology governance is just as important to preventing investor harm as any other compliance or supervisory function.”

Article source: http://dealbook.nytimes.com/2012/09/14/n-y-s-e-settles-regulatory-action-on-trading-data/?partner=rss&emc=rss

DealBook: Facebook’s I.P.O. Raises Regulatory Concerns

 Facebook on the NASDAQ Marketsite.Brendan Mcdermid/Reuters Facebook on the NASDAQ Marketsite.

Just days before Facebook went public, some big investors got nervous about the social network.

After publicly warning about challenges in mobile advertising, Facebook executives held conference calls to update their banks’ analysts on the business. Armed with the new information, analysts at Morgan Stanley and other firms started reaching out to their clients to dial back expectations for the Internet company.

One prospective investor was told that second-quarter revenue could be 5 percent lower than the bank’s earlier estimates. Another analyst warned that revenue could be light for the next two years.

As investors tried to digest the developments, Morgan Stanley was busy setting the price and the size of the I.P.O.

While some big institutions chose not to buy the stock, others placed large orders. And retail investors, who weren’t necessarily privy to the same information, continued to clamor for shares.

William Galvin, the Massachusetts secretary of state.John Tlumacki/Boston GlobeWilliam Galvin, the Massachusetts secretary of state.

In the end, Morgan Stanley bankers decided they had enough demand and interest for Facebook to justify an offering price of $38 a share.

They didn’t.

When Facebook went public on May 18, shares of the social networking company barely budged — and they have been falling every since. On Tuesday, the stock closed at $31, more than 18 percent below its offering price.

The I.P.O. of Facebook was supposed to be Morgan Stanley’s crowning achievement. The bank had helped usher in a new era of technology companies, leading the offerings of LinkedIn, Groupon, Pandora and more than a dozen other start-ups over the past year.

Facebook was poised to be the biggest and most ambitious. When the dust settles, Morgan Stanley could make more than $100 million on the I.P.O.

But Morgan Stanley may have given the market more than it can chew. Rival bankers and big investors have complained that Morgan Stanley botched the I.P.O., setting the price too high and selling too many shares to the public.

In a statement on Tuesday evening, Morgan Stanley said that it followed the same procedures for the Facebook offering as it does for all I.P.O.’s

Facebook’s fate as a public company is hardly sealed. Many newly public companies stumble out of the gate and later become top performing stocks, including Amazon.com.

But Facebook’s troubled debut raises questions about the I.P.O. process.

Regulators are concerned, in part, that banks may have shared information with certain clients, rather than broadly with investors. On Tuesday, William Galvin, Massachusetts’ secretary of state, subpoenaed Morgan Stanley over discussions with investors about Facebook’s I.P.O. The Financial Industry Regulatory Authority, Wall Street’s self regulator, is also looking into the matter.

“If true, the allegations are a matter of regulatory concern to Finra” and the Securities and Exchange Commision, Richard G. Ketchum, the chief executive of Finra said in a statement.

Morgan Stanley said in its statement:

After Facebook released a revised S-1 filing on May 9 providing additional guidance with respect to business trends, a copy of the amendment was forwarded to all of Morgan Stanley’s institutional and retail investors and the amendment was widely publicized in the press at the time. In response to the information about business trends, a significant number of research analysts in the syndicate who were participating in investor education reduced their earnings views to reflect their estimate of the impact of the new information. These revised views were taken into account in the pricing of the I.P.O.

Article source: http://dealbook.nytimes.com/2012/05/22/facebook-i-p-o-raises-regulatory-concerns/?partner=rss&emc=rss

DealBook: Man Group Assets Drop Amid Market Turmoil

Man Group, the world largest publicly traded hedge fund, suffered a rough summer like much of the industry, with assets dropping by nearly $6 billion in the latest quarter amid redemptions and weak performance.

The firm said investors pulled a net $2.6 billion its funds through September, while volatile markets prompted another $3.4 billion in losses. Overall assets now stand at $65 billion, the company said Wednesday.

The firm expects to post $145 million in profits before taxes from management and performance fees for the six months ended Sept. 30, compared with $147 million in the same period a year ago, prior to its acquisition of the hedge fund GLG Partners. On Wednesday afternoon, shares of the Man Group were down more than 19 percent, in large part because analysts had not expected such a steep drop in assets.

“The extreme volatility of markets in recent months has created challenging performance conditions across asset classes,” said Peter Clarke, chief executive of Man. “This has tested investor appetite for risk but also reinforced the need for diversifying, non-correlated investment returns.”

Indeed, Man’s flagship AHL product, which trades using computer models, fared well through the summer. It was up about 6.5 percent in July and August, the company said. The firm’s long-only portfolios suffered some of the greatest losses in the latest quarter, down about $1.9 billion. The funds also experiences some of the highest redemptions, as retail investors rushed to secure cash.

Man’s results mirror a number of big firms that have seen assets decline steeply owing to the sharp sell-off in stocks and highly volatile markets. A number of portfolios lost money as stocks went down and then failed to profit when many went back up because they had reduced exposure to the market. Slow growth in developed economies and the continued uncertainty over the Eurozone’s debt crisis have caused the markets to gyrate wildly, pummeling investors accounts and general sentiment.

Man’s results will also be watched as a barometer of investor sentiment, in particular whether there is a flight to safety. Man had been on a fundraising tearr, collecting $9 billion of assets in the quarter ended June 30. The firm pulled in another $4.5 billion through September, but it was not enough to overcome investor redemptions and performance losses.

Article source: http://feeds.nytimes.com/click.phdo?i=f64e6d621f159e1d3b74bb3ca9952c05

DealBook: Pandora I.P.O. Underwriters Got It Right (Sort Of)

Pandora IPORichard Drew/Associated PressPandora executives at the New York Stock Exchange on Wednesday.

5:37 p.m. | Updated

With the post-I.P.O. Pandora halo fading, it is time to grade the underwriters of the initial public offering: Morgan Stanley, JPMorgan Chase and Citigroup.

In a nutshell, Pandora managed to sidestep the LinkedIn debate over I.P.O. underpricing.

As the offering approached, the underwriters raised the target price to a final sale price of $16, from a range of $7 to $9.The stock finished the day at $17.42 after hitting a high of $26. First-day returns were 8.9 percent. This is in the average range for I.P.O.’s and a particularly good result considering the recent broad decline in the stock market. (On Thursday, Pandora’s shares fell nearly 24 percent, to $13.26, well below the I.P.O. price.)

The muted first-day pop was possible only because the underwriters used a now-standard formula for hyping these tech I.P.O.’s. It goes like this: Offer a very small number of shares. then retail investors, hungry for Internet riches, will drive up the price by bidding on the small number of shares offered in the market.

Bigger, more experienced investors will then also buy these shares in the offering in order to resell them quickly to retail shareholders.

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In Pandora’s case, only about 14.7 million shares were sold. This is about 9.2 percent of Pandora’s outstanding shares. The company itself sold only six million shares, with the rest sold by current stockholders. This type of sale is usually frowned upon because investors prefer to see I.P.O. proceeds go to the company rather than selling stockholders. Shareholder sales are seen as a lack of commitment to the company’s prospects, although in this case, the sales were small compared with the amount being retained so the negative impact was limited.

In this light, the Pandora I.P.O. was really a success, in no small part because of an underwriter sleight of hand in capitalizing on excessive, perhaps ill-advised demand. And the valuation — $2.78 billion — is a product of that. The company has never recorded a profit and posted revenue of only $44 million last quarter.

As a DealBook reporter, Susanne Craig (@susannecraig), noted in a Twitter message, compare this with Sirius, which had revenue of $724 million last quarter and a market capitalization of about $9.26 billion.

At this point I could simply retype the story language from the tech bubble, comparing Internet media companies and their heady valuations with old-line companies and their much lower ones. Analysts were certainly quick to make the comparison with Pandora, noting that its valuation seemed out of line with its prospects and historical results.

Still, the chance to grab Internet riches is a real draw for shareholders. And, hey, you never know, the opportunity to be the next Google is always a possibility, however small. This could be true even if you are in the declining business like the music one.

In this light, the underwriters did a stellar job of building expectations for an I.P.O. that has uncertain prospects. The lack of a big first-day bounce is evidence.

But of course, they also sold a product in a manner that may have led it to be overpriced because of failures in the market. If you buy into the argument that underwriters should serve a gate-keeping function, the subject of my column on Tuesday, then this affects their final grade. As gatekeepers, underwriters have a responsibility to bring companies to market that are appropriate for an I.P.O.

You can argue whether I have a too optimistic and unrealistic view of the I.P.O. market. In addition, it is unclear what investors expectations are for underwriters here. Investors themselves may disagree with my view. And of course, caveat emptor.

But the Pandora I.P.O. again shows that the underwriting process is about how to sell shares in these types of companies rather than whether they should be sold.

So the underwriters deserve a solid A- for selling this risky I.P.O. so successfully. But for stoking demand in a manner intended to sell a chancy product, I am lowering their final grade to a gentleman’s C, subject to future revision. And yes, this shows how subjective grading can be.

Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.

Article source: http://feeds.nytimes.com/click.phdo?i=f042d38cfe58cb71da23f568200721ef

DealBook: Glencore Prices Shares, Valuing It at $60 Billion

Glencore, the global commodities trader and miner, set the price range for its highly anticipated initial public offering on Wednesday at 480 pence to 580 pence a share, which at the midpoint values the company at about £36.5 billion, or roughly $60 billion.

The company aims to raise about $10 billion in its share issue in London and Hong Kong, with $7.9 billion coming from a primary sale. The rest of the shares will be sold by the company’s management.

Glencore is the world’s largest trader of commodities, dealing in metals like gold and copper, as well as energy resources like coal and oil. It also produces many of the commodities at its own mines, and holds about a one-third stake in the global miner Xstrata.

The company said that 31 percent of the offer, or $3.1 billion in shares, had already been subscribed to by cornerstone investors, who are locked in for six months after the offer.

More details are expected to be released on the investors with the publication of the London prospectus on Wednesday. The group is expected to include major sovereign wealth and hedge funds.

“We are pleased by the strong investor interest shown,” Ivan Glasenberg, Glencore’s chief executive, said in the company statement, adding that it was “one of the largest cornerstone investor participations ever achieved for an I.P.O.”

A prospectus will be issued May 13 in Hong Kong, the company said, where the issue is also open to retail investors. Shares are expected to start trading on about May 24 in London and May 25 in Hong Kong. If they are sold at the high end of the range cited on Wednesday, they would value the company at up to $65.8 billion.

The Hong Kong retail offer amounts to 31.25 million shares, or 2.5 percent of the total offer. Normally, when companies go public in Hong Kong, they are obliged to offer 10 percent of their shares through public subscription on the exchange, and up to 50 percent if the issue is oversubscribed — but Glencore has been granted a waiver.

Glencore reported $3.8 billion in profit last year, 41 percent higher than 2009. It notched revenue of $145 billion, up 36 percent from 2009. The company also reaffirmed its outlook for this year.

“Despite recent events in Japan and the Middle East, the directors remain confident that economic activity and commodity demand remain robust and that Glencore remains well positioned,” the company said, adding that it would still pay an interim dividend of $350 million in August.

Citigroup, Credit Suisse and Morgan Stanley are serving as joint global coordinators and joint bookrunners for the issue.

Glencore may opt for a 10 percent overallotment, it said, meaning that if demand is large enough, the company will issue additional shares worth about $1 billion.

Article source: http://feeds.nytimes.com/click.phdo?i=a33ef4f8dfe8ab70a3627edc02b6d433