Jamesian Philosophy Refreshed

  This is another comment on the Fifth Circuit decision I discussed briefly in my June 21st post on this blog.   You'll remember (I hope) that I said that the 5th circuit has (pending appeal) freed the private funds industry of a set of new SEC regulations, and that it did so on statutory grounds, not on the procedural theories that the fund associations' attorneys had also presented.  At this point I would like to say (on behalf of the industry, if I may), "Whew". They dodged a bullet that they had fired at themselves. It is lucky for the industry the court just ignored the procedural points.  Let's go back over this. A key procedural argument turns on the statutory requirements for notice-and-comment rulemaking, applicable in a vast number of agencies. They are:  (1) that a notice of proposed rulemaking be posed in the Federal Register, including a description of the issues involved or the text of the proposed rule; (2) that the public has an opportunity ...

For those to whom the terminology is new: 1) Reg CF is an SEC rule on the creation and use of equity crowdfunding portals, the intersection of high finance and social networks.  2) The phrase "the wisdom of crowds" was the title of a 2004 book by James Surowieck, deliberately echoed in the phrase I'm using as a headline here, which in turn I take from the source I'm linking you to below.  So the question "how wise is the Reg CF crowd" means "can equity crowdfunding portals as they exist at present effectively aggregate disparate information in the way Surowieck had in mind?  Here is the source:  How Wise Is the Reg CF Crowd?  - Financial Poise This may lead some of you to ask: why did Faille start this brief post with that odd illustration? Simply because it is trivially true that not ALL crowds are wise. Bubble-creating speculative buying of an asset gets less wise the more people get in on it. Holland/tulips/windmills. In due course the holders can...

Yesterday I discussed the history of Valeant Pharmaceuticals, and mentioned its unsuccessful effort to acquire Allergan. Valeant never did acquire Allergan, but its effort made some fascinating law. Some of the key questions arose from the fact that Valeant was acting in concert with a hedge fund manager, Pershing Square. So closely in concert, indeed, as to raise the question whether what was going on amounted to insider trading as SEC rules understand it? Pershing Square acquired a 9.7% stake in Allergan during the period of this collaboration, and it is was willing to vote those shares in favor of ousting the company directors that were resisting the takeover attempt. Allergan responded with a lawsuit, asking that Pershing Square be enjoined from voting its shares giving the "likelihood" that this would be deemed to be insider trading. Was there such a “likelihood” and would that have supported a preliminary injunction? The U.S. District Court for the ...

You will be assimilated into the Borg! Regular readers probably know that I believe that the infrastructure of contemporary capital markets is broken. The broken character of it is sometimes (misleadingly) attributed to the speed at which trading is done, or (not quite so misleadingly) to the automatic, Borg-like, algorithmic character of such trading. The initials HFT (high frequency trading) have come to serve as short hand for a range of issues that have made markets overly easy for some players to rig at the expense of other players: and at the expense of issuers, the going-public process, even the over-all economy. Mary Jo White, the chair of the SEC, is setting up a panel to advise her and the whole of the Commission on such issues. Unfortunately, it appears that the panel is rigged in favor of assimilated into the Borg. Bloomberg is reporting that economist Joseph Stiglitz (a Nobel Prize winner)  has been excluded from the body precisely because he has express...

The move of US exchanges into penny pricing in the 1990s is sometimes given credit for lessening something called a "spread," and thus to a degree the price of purchased securities. Let's pause on this point. The spread is the difference between the bid and ask prices at any moment: that is, the highest price that a would-be buyer has offered (that no one yet has accepted) on the one hand, and the lowest process that a would-be seller has asked for (with the same qualification, which I will hereafter drop) on the other. Books and articles and even blog posts that purport to teach you how to trade -- and this is emphatically not one of them -- will talk a good deal about which one of you should be the one to "cross the spread." It can all sound a bit like the musings of the wallflowers at a junior high school dance. As prices came to be quoted in smaller and smaller increments, there were (as the SEC expected there would be) greater opportunities for trad...

SIFMA and the SEC have of late been contending mightily over a fairly narrow set of issues that concern fees charged by exchanges to exchange participants for "non-core" market data. Here is a link to what I have had to say about this subject: WhatWouldSouthey say? Relatedly, my comment on this to my twitter followers was, "The cartelization of securities industry and oversight of cartel by various Nat'l authorities remains firm." The above illustration is what you get when you enter the word "cartel" into www.images.google.com Nuff said.