French Takeover regulation a laughing stock

Again a canny stock market operator has managed to get himself a sizable stake in a company without paying a premium. Shareholders who sold too cheaply are left without protection in France as the AMF regulatory body is unable to decide on which side of the shareholder governance debate it wants to sit. (LVMH acquired major stake in Hermes)

U.S. seeks to shield Goldman Sachs Secrets

"Federal prosecutors in Manhattan this week asked a federal district judge to seal the courtroom at the forthcoming trial of a former Goldman computer programmer accused of stealing the firm's computer code. The trial is set to start in late November." (Wall Street Journal, 27 Oct 2010)

Pro Gov continues to argue that the trading process in listed securities markets cannot be allowed to be dominated by secretive algorithms that are suspected to skim off profits at the expense of public order flow - be it from retail or institutional investors. The NYSE for example used have - and still has - very open rules about 'priority and predence' in relation to the execution of orders. In the age of computers it should also be possible to ensure that clear rules are adhered to - even if orderflow is measured in nanoseconds.

Shareholder anger at relocation expenses

Activist investors are turning up the heat on companies that give relocating executives generous benefits to cover the cost of their depressed home values (Wall Street Journal, 25 Oct 2010)

While the issue of relocation expenses may appear to be of minor importance it is an issue that can and should be closely monitored by the investing institutions that are to a large extent the fiduciaries of private investors. It is unrealistic to expect institutional money managers to micro-manage the businesses they are investing in. It is not their job to decide, for example, what goods a department store will have in the showroom for the Christmas season. Therefore calls for investors to 'have a dialogue' with management is an empty gesture. (Apart from the question how managers would have fireside chats with possibly hundreds of fund managers and analysts in the case of large corporations. Equally, fund managers with several hundred holdings cannot be expected to have conversations with all those companies). So the only way forward to improve corporate oversight is to set clear guidelines and rules that investee companies have to meet. Help with relocation expenses depends on business judgement - just like any other form of pay. We at Pro Gov argue that the pay for top management should follow rigid guidelines. If pay at the top is under control the pay further down the ranks would also follow a more moderate path.

High-Frequency Trader fined in US

FINRA sanctions Trillium Brokerage Services, Director of Trading, Chief Compliance Officer, and Nine Traders $2.26 Million for Illicit Equities Trading Strategy. This is probably only the tip of an iceberg and investors will not be able to have confidence in the workings of securities markets until high-frequency trading is properly supervised and regulated.

Who consults the REAL investors?

Representatives of the Asset Management Industry demand that European Union regulators increase engagement with asset managers with them in order to better take into consideration their concerns when legislating for regulatory changes. The forgotten party, however, are the real investors in mutual funds and pension funds, i.e. the ordinary individuals who supply the savings that are managed by the fund management industry. It is high time that appropriate associations are developed that can speak with authority for the interests of the wider public.

When is a Bonus not a Bonus?

If reports that the new CEO of Hewlett-Packard has received - among other 'compensation' - a (promised/guaranteed?) bonus of between 200 and 500 per cent of his basic salary one has to wonder what the meaning of the word bonus is. The practice of making a bonus nearly a fixed/guaranteed part of the salary package for CEO's (and other senior managers) makes a mockery of the word's meaning. It is also a slap in the face for the many employees of a company that make a contribution to the success of a business. When a new CEO joins a well-established company like HP he often is inheriting a business that has been build over many years and owes it's market position to many past and present employees.

May 'Flash Crash': Blame the Computer!

While the effort of the regulator in telling the story about the infamous May 2010 stock market 'flash crash' has to be applauded, it leaves the reader with no clear message about what is being done to prevent a similar debacle taking place in the future. The amount of selling unleashed by the presumed perpetrator - Waddell & Reed Financial, courtesy Barclays Capital - is not particularly large given the stupendous amounts of money managed today's 'fiduciaries' on behalf of the investing public. $4.1 billion can easily be mustered by literally hundreds of players - especially given the amount of leverage that is available in the derivative markets. So while we may accept that the flash crash was simply due to inept trading execution we are left with a sneaking suspicion that other 'investors' with a more ruthless killing instinct may just set off the next crash on purpose in order to cash in during the ensuing panic. A similar mechanism was at work in the 2007-2009 credit crunch when speculators drove down the indices in the derivative market for mortgage and asset-backed securities. This created a 'death spiral' in the market for these assets which contributed to the near-collapse of the global banking system. Ironically, 'investors' who were prominent in that game and in some cases made billions out of this dislocation are still feted as heroes by the financial markets and assorted cheerleaders in the financial media.