SEC to eliminate flash order exemption

We have filed the following comment with the SEC.

'It is essential that the following feature is present in any market place: all orders, of any size have to be executed according to clear rules with respect to 'priority' and 'precedence'. The execution trail has to be verifiable after the trade in case there is any dispute as to the accordance with these rules. Publication of transactions has to be as near to 'real time' as is technically feasible. There should be no exception (neither to market makers, semiprofessionals or large investors)'.

A more lenghty comment (no surprise there) has been submitted by Goldman Sachs and can be found here.

HealthSouth to reimburse for proxy fights

News that HealthSouth Corp. is moving to become the first big U.S. business to reimburse activist shareholders for the expense of unseating management-backed directors is welcome but we think there is a better - and cheaper - solution. In the Internet age it should be easy to eliminate 'snail mail' and transfer all communication between companies and their shareholders to the Internet. This would also include annual and interim reports. One has to assume that individual shareholders as a group are a sophisticated group of people who by now have full access to the Internet.

Matalan - Public Shareholders lose out

In 2006 the founder and owner of a 53 pct stake in the company took Matalan private. Now the company may be sold on for more than twice the price that was paid in the 2006 transaction. Pro Gov argues regularly against transactions that treat public shareholders as temporary guests on a path to riches - with the beneficiaries being majority owners, company management or so-called 'private' equity investors. It is in the public interest that as many companies as possible are owned by a wide spread of private investors and we argue that public companies should benefit from beneficial tax treatment in order to prevent the concentration of wealth among a very small part of the population. Those in charge of public companies (and the institutional investors acting as fiduciaries for the wider public who is the ultimate owner of the money they manage) must see a public listing not simply as a ticket to get rich but as a duty that carries significant responsibilities. Unfortunately, the way ownership in public companies gets traded is in contradiction to the rationale of publicly listed companies as we see it. There is no proper democratic process that decides the outcome of merger bids and buy-out offers. In the case of Matalan, for example, a clear majority of the shares not already controlled by the majority owner should have been required to vote for the bid. In addition, a single bid should be required in bid situations and that bid would have to be accepted by 95 per cent of the public shareholders in order to succeed. This would prevent the 'gaming' of bids and the process of haggling that currently occurs between the parties to the bid (and the media). As matters stand, the public - thanks to the casino mentality displayed all too often by their 'fiduciaries' - is the helpless spectator to another case were they see that someone reaps huge profits on the shares they were coerced to sell only a few years back. Is this Casino Capitalism in the public interest?

High-Frequencey or High-Priviledge Trading?

In the (distant?) past exchanges had clear-cut rules about how orders were treated. The New York Stock Exchange for example had clear rules defined with respect to priority and precedence that insured that orders large and small had a level-playing field. The present discussion (Wall St Journal, 13 Oct 09) about unfair advantages gained by giving priority access to so-called high-frequency traders makes it clear that these rules have to be adjusted in light of the technological advances we have seen in the past few decades. Now time intervals are measured in milli or nano seconds but technology also gives the tools the regulate high-speed trading orders. What is intolerable is the fact that certain market participants can claim faster access than is available to other market participants. It is high time that the arms race to ever-faster access speeds gets regulated by the authorities. The exchanges are no longer non-profit making institutions that have the interests of the wider investment public at heart and if necessary have to be told to put traffic humps in order to slow down order flow from certain market participants.

Blackstone getting bullish?

News that The Blackstone Group may plan to list up to eight of its portfolio companies in the near future is seen by some commentators as 'bullish'. We would rather think that the seller must have a cautious view of the upside potential for share prices, - why else would Blackstone want to sell now? Apart from the question of why anyone would want to purchase recycled merchandise from a well-informed insider this announcement of a wholesale clear-out of the portfolio brings the question of the purpose of the 'private' equity 'industry' to the forefront. We would argue that the business in its present form is neither 'private' (nearly all its money is coming from Joe Public) nor an 'industry'. If anything, it is a clever scheme to make a small number of people (very) rich at the expense of the wider investing public that has the privilege to repurchase businesses that were previously sold too cheaply by the fiduciaries handling their investments. Recent studies have also put in question the rationale for investing in IPO's, and the old saying 'Buyer Beware' should be remembered.

Options Self-Service - more from Eliezer Fich

Eliezer Fich just sent us the link to a fresh piece about the abuse/use of special option awards during merger negotiations. Happy reading!

Option Awards - Self-service by greedy CEO's

Again we have to reiterate: the fish starts to smell at the top. If CEO's would not be the main beneficiaries of the gaming of option awards the problem would not exist. Today's report in the Wall Street Journal about egregious abuse of executive share option awards by chief executives of companies that are in the middle of merger negotiations illustrates the unrestrained greed that is seen as acceptable by some executives. It beggars belief that Ronald Rittenmeyer, CEO of Electronic Data Systems Corp. finds no fault in accepting a share award just before a takeover deal allows him to take a profit $13.4 million on these very share options. He even has the temerity to claim: 'I did my job and I did the right thing by my shareholders'. Need we say more?