UK Only Article:  standard article Issue:  How to set Syria free Fly Title:  Short-selling Rubric:  A regulatory probe sheds light on manipulative shorting Location:  NEW YORK Main image:  Bear raids can happen Bear raids can happen SHORT-SELLERS perform a valuable function in financial markets, exposing managerial incompetence, corporate fraud or plain overvaluation. Their reward, all too often, is calumny. Witness regulators’ rush to ban shorting in 2008 in response to sustained political attacks on the practice. Like any form of trading, however, shorting is open to abuse. Some firms claim to have been victims of illegal “naked” shorting, where the seller does not arrange to borrow the shares in time to deliver them to the buyer within the standard settlement period. This, they say, has long been a favoured tool of unprincipled traders looking to launch bear raids—usually on small stocks but also, in times of turmoil, …

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SINISTER as they may sound, dark pools perform a simple task. They allow institutional investors, who manage huge investment portfolios, to take or dispose of sizeable positions in a company’s shares without suffering adverse price movements as they carry out the trade.Let’s say that a pension fund wants to sell one million shares in Microsoft. If it submitted a sell order that big to an exchange, it might cause the share price to fall as the trade was being executed. The last of the million shares to sell might fetch a price significantly lower than the first one. Dark pools avoid this by executing the entire trade at a fixed price.

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Issue:  The dangers of a rising China Fly Title:  Morgan Stanley Rubric:  After failing to out-Goldman Goldman Sachs, Morgan Stanley hopes to reinvent itself as Wall Street’s client-friendly firm Location:  NEW YORK Main image:  20101204_fnp001.jpg »Getting back to business Europe’s other island Hands off our pensions Vote for agony ReprintsRelated topicsBusiness Financial markets Wall Street Salomon Smith Barney Investment brokerages Executives insist that this does not presage a new Morgan Stanley but merely a rebalancing towards less volatile, client-facing businesses, many of which, such as merger advice and securities underwriting, were the firm’s bread and butter before it contracted Goldman-envy. The firm has “cut off” the bits that made aggressive bets with its own capital, says Mr Gorman. Suspect units included a single mortgage desk that lost $9.6 billion. His mantra is “originate, distribute and manage capital”, not punt your own. The ride is proving bumpy. After a good first half of the year, the firm made …

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Issue:  The next emperor Fly Title:  Drexel Burnham Lambert’s legacy Rubric:  Twenty years after Michael Milken’s junk-bond firm came crashing down, the financial revolution that it fostered lives on Location:  LOS ANGELES Main image:  20101023_bbd001.jpg

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Issue:  Obama v BP Fly Title:  Economics focus Rubric:  Why price competition between investment banks is so feeble Location:  Main image:  201025fnc658.gif WITH governments seeking soft targets for tax revenues and regulators looking to curb their activities, investment banks have plenty to contend with. Now they face a new battle. The Office of Fair Trading (OFT), a British competition agency, said on June 10th that it would conduct an inquiry into equity underwriting, following complaints from issuing firms. What might the OFT be looking for? One concern is that the industry may have too few firms to ensure vigorous price competition. One bank may have so big a share of the market that it can charge high fees without worrying how its rivals will respond. But it is rare for trustbusters to find a single firm that dominates in this way with a market share below 40%. No investment bank comes close to that threshold. Rights issues by already-listed firms accounted for the bulk of equity-raising in Britain last year; the leading bank’s …

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Issue:  The new masters of management Fly Title:  Bank of America and Merrill Lynch Rubric:  Might the most controversial deal of the crisis pay off after all? Location:  New YORK Main image:  201016fnp001.jpg »Moynihands full Markets for minnows Twin peaks

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Issue:  The gods strike back Rubric:  The perils of a sudden evaporation of liquidity Location:  Main image:  Illustration by Tim Marrs Illustration by Tim Marrs STAMPEDING crowds can generate pressures of up to 4,500 Newtons per square metre, enough to bend steel barriers. Rushes for the exit in financial markets can be just as damaging. Investors crowd into trades to get the highest risk-adjusted return in the same way that everyone wants tickets for the best concert. When someone shouts “fire”, their flight creates an “endogenous” risk of being trampled by falling prices, margin calls and vanishing capital—a “negative externality” that adds to overall risk, says Lasse Heje Pedersen of New York University. This played out dramatically in 2008. Liquidity instantly drained from securities firms as clients abandoned anything with a whiff of risk. In three days in March Bear Stearns saw its pool of cash and liquid assets shrink by nearly 90%. After the collapse of Lehman Brothers, Morgan Stanley had $43 billion of withdrawals in a single day, mostly from hedge funds. Bob McDowall of Tower Group, a …

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Fly Title:  Obama and the banks Rubric:  Barack Obama proposes limiting the activities of big banks Location:  New York Main image:  REUTERS REUTERS IT IS a fair bet that one of Barack Obama’s new-year’s resolutions was to rattle Wall Street. A week after hitting America’s largest financial firms with a “responsibility” fee, to recoup up to $120 billion in bail-out losses, on Thursday January 21st the president proposed dramatic new curbs on their activities. Keen to show progress in at least one part of his agenda, especially after an election in Massachusetts stripped the Democrats of their super-majority in the Senate and put health-care reform in doubt, Mr Obama touted the plan as a way to cut the bloated giants of finance down to size and constrain excessive risk-taking with customer deposits. “Never again will the American taxpayer be held hostage by a bank that is too big to fail”, he thundered. The implausibility of that claim should not detract from the potential impact of the plan. Though not a full return to Glass-Steagall, the law that separated commercial banking and investment banking in …

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WHEN Larry Summers addressed our Buttonwood conference in New York in November, he sounded pretty angry about the banks. That anger is being channelled in a way that may divert the public mood away from the President’s problems.But is this plan practical? How would one separate prop trading from business done on behalf of clients? If a big client wants to sell 1m shares in IBM does the bank have to match buyer and seller? If instead the bank takes the position on its book until it finds a buyer, is that prop trading? Will it depend on how long it holds the stake? Or makes a profit? And if the banks do withdraw from trading, what does that do to spreads? The market will be less liquid, raising costs for the rest of us.And what does sponsoring a hedge fund mean? Being a prime broker? Advising clients to invest in one? Lending it stock? There is a lot of detail to be fleshed out.But I would guess that the likes of UBS and Credit Suisse are rubbing their hands at the thought of business heading their way from the US banks.

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Fly Title:  Finance Rubric:  The bankers are ready to play, with stricter rules Location:  Main image:  D_FN2_290.jpg After a near-death experience, the biggest banks in the West are breathing more easily. Life has been good to the survivors of the global financial crisis, especially those who escaped state ownership; and it will get better in 2010, despite tighter regulation and a blast of much-needed competition. In 2010 we will witness the emergence of a banking super-league comprising Goldman Sachs, JPMorgan Chase and Deutsche Bank. Each will have the liquidity and appetite to dominate capital markets. These too-big-to-fail titans will be joined by Barclays, long seen as an accident-waiting-to-happen but now poised for a comeback. Barclays will reap the benefits of two audacious gambles made at the height of the financial crisis: the purchase of the American operations of Lehman Brothers (if only Barclays had scooped up Asia, too); and the decision to snub British state aid in favour of private investors, notably from the Gulf. An independent Barclays, powered by its investment-banking arm, will …

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