Badin Rungruangnavarat knows what we’re talking about. Read more »
I dunno, you want to get excited about the new proposed money market fund rules? You can if you want. To get a sense of the stakes involved, consider the email I got from a reader today worrying that the SEC may wind up “killing say the market for receivables conduit financing in an attempt to ensure that the precise conditions of September 2008 are never replicated.” So: fair, but also, like, farewell receivables conduit financing market, I hardly knew ye. I did not know ye at all, is what I’m trying to say.1
The new rules basically require money market funds to tell you their net asset value, instead of the current rule of not telling you their net asset value, which again is sort of a funny thing to get upset about. In the olden days you could just say your NAV was $1.00 as long as it was at least $0.995; if it fell below that you’d “break the buck” and have to freak out and have massive redemptions and forced sell-offs and so forth. Under the basis-point rounding of the new rules, you’d break the buck at below $0.99995 of NAV and I guess the idea is who has the energy to freak out there, it’s like a basis point man, whatever. Binaries create faster death spirals than continuums. The SEC says: Read more »
A criticism of the SEC that you’ll sometimes hear is that it’s mostly a bunch of lawyers, and two things that are broadly true of lawyers as a class is that they are good at close readings of dense texts and terrified of math. This means, some might say, that the agency is ill-equipped to regulate the high-tech quantitative world of modern finance. So it’s obscurely pleasing to read that the SEC’s office of quantitative research is rolling out a new program that applies high-tech quantitative methods to, basically, close reading of dense texts:
An initial step in the SEC’s new effort [to crack down on accounting fraud] is software that analyzes the “management’s discussion and analysis” section of annual reports where executives detail a company’s performance and prospects.
Officials say certain word choices appear to reveal warning signs of earnings manipulation, and tests to determine if the analysis would have detected previous accounting frauds “look very promising,” said Harvey Westbrook, head of the SEC’s office of quantitative research.
Companies that bend or break accounting rules tend to play a “word shell game,” said Craig Lewis, the SEC’s chief economist and head of the division developing the model. Such companies try to “deflect attention from a core problem by talking a lot more about a benign” issue than their competitors, while “underreporting important risks.”
It’s also pleasing to hear that a CFO’s guilty conscience over his earnings manipulation seeps directly into his prose. Though the article is a little light on the details of the SEC’s earnings-manipulation model, which I guess makes sense, since “companies and their lawyers are expected to respond to the crackdown by trying to outsmart the agency’s computers,” which I would really like to see.1 That could be a mixed bag; the Journal hints that it might result in easier-to-read but more grandiose filings:2 Read more »
“SEC Charges Institutional Shareholder Services …” is the sort of start to a headline that might make you think, ha ha ha SEC, always going after the bit players who keep big companies honest rather than the dishonest companies themselves. How’s Egan-Jones doing? But that wouldn’t be fair, for one thing because ISS – which tells lazy shareholders how to vote on proxy proposals and mergers and stuff – is kind of a Goliath itself these days, though not as much as it was last week. And also because this is really quite intensely bad:
From approximately 2007 through early 2012, an ISS employee (“the ISS Employee”) provided information to a proxy solicitor concerning how more than 100 of ISS’ institutional shareholder advisory clients (i.e., institutional investment managers) were voting their proxy ballots. In exchange for vote information, the proxy solicitor gave the ISS Employee meals, expensive tickets to concerts and sporting events, and an airline ticket. The ISS Employee, who had access to all of ISS’ clients’ proxy voting information, gathered the information by logging into ISS’ voting website from home or work and used his personal email account to communicate voting information to the proxy solicitor.
I mean! It’s not that bad for, like, the world, in the sense that institutional shareholders’ voting plans aren’t really nuclear launch codes or anything. I guess you could get up to some nefarious things with them – insider trading on close votes, etc. – but it sounds like they were mostly used for typical proxy-solicitor purposes.1 Which are mostly (1) calling up the shareholders and being all “hey why don’t you vote for us rather than for the other side?” and (2) impressing their clients with the extent of their knowledge about who’s voting how. I mean, why hire proxy solicitors if not for their knowledge of how investors are voting? You could call the shareholders yourself. One hopes. Read more »