SEC

Evidence.

Well, technically there’ll be some, but a lot fewer instances than in the past. Don’t do the crime if you can’t do the can’t do the time and admit publicly to [circle all that apply] insider trading/running a fake hedge fund/blowing investor money at T.G.I. Friday’s. Read more »

If you’re a director of a public company with a controlling shareholder, and that shareholder wants to buy out the rest of the shares, you have a problem. On the one hand, you have fiduciary responsibilities to your non-controlling shareholders to get them the best possible deal. On the other hand: you have a controlling shareholder! He’s controlling! He has inside knowledge that no outside bidder or shareholder can match. He can do stuff like fire you, or make it impossible for you to sell to a higher bidder, or generally make life unpleasant if you reject his bid. He’s got a distinct advantage in negotiating against you, his employee.

Courts and lawyers try to minimize this problem through arid procedural stuff – lots of disclosure and independent directors and majority-of-the-minority votes and “entire fairness” review – but it’s actually just a real problem. You can read about the pending Dole buyout, where founder/CEO/40% shareholder David Murdock wants to buy back his company at an inglorious 18% premium and is carefully following1 all those arid procedural rules, and ask yourself: who cares? Are shareholders really in the same negotiating position as they would be if they were selling an un-controlled company to an outside bidder? Mehhhhh.

But that’s boring and instead you should read today’s astonishing SEC order stemming from the approach to this problem taken by the board of Revlon, a company that at this point is probably more famous for making merger law than cosmetics.2 In 2009, Revlon’s 61% shareholder, Ron Perelman vehicle MacAndrews & Forbes, wanted to buy out the rest of Revlon in a moderately convoluted way.3 So M&F and Revlon negotiated a merger, but that ran aground when Revlon’s M&A banker, Barclays Capital, told Revlon that its fairness committee had said no dice: Read more »

“Self-regulation is a unique and fundamental component of federal securities regulation in the United States,” the SEC begins its order against the CBOE announced today, but it’s also a little silly. It’s right there in the name! If you’re doing it yourself, it’s not regulation; it’s just some stuff you’re doing. Regulation is being forced to do what you don’t want to do. And who better to force you to do what you don’t want to do than a voluntary organization that relies on your business to pay its salaries? Lots of people probably.

“CBOE agreed to pay a $6 million penalty and implement major remedial measures to settle the SEC’s charges,” from which you’d think there was a lot of terrible malfeasance. But not really? The order is more like a list of minor harmless-ish lawlessness by CBOE, albeit a long and varied list. As best I can tell it grew out of a sequence of events something like the following:

  • A CBOE member firm, optionsXpress, engaged in a mildly complicated naked short selling scheme in violation of Regulation SHO.1
  • CBOE didn’t catch it because, basically, they were dolts at Regulation SHO. From the order:2

Read more »

Badin Rungruangnavarat knows what we’re talking about. Read more »

Today in when prediction-markets-are-outlawed-only-outlaws-will-run-prediction-markets news, the SEC and CFTC have sued Banc de Binary, a prediction market that sounds like it’s no Intrade:

Banc de Binary solicited customers in the United States. … It broadly advertised its websites to individuals in the United States through YouTube videos, spam emails, and other internet-based advertising.

Also it’s a “Cypriot and Israeli company … based in the Republic of Cyprus and regulated by the Cyprus Securities and Exchange Commission (‘CySEC’),” so even if they are keeping your money in an escrow account at a bank it’s still not safe, ZING.

I dunno, is Banc de Binary a scam? I like the name: you say “prediction market,” they say “binary option,” someone says “online betting,” but they all mean roughly the same thing. And the website has I think median levels of eye-bleeding scrolling overpromising hyperbolic red-and-green flashing misery for an online trading site. “Spam emails” sounds bad but for the rest BdB advertises 24/7 live customer support and the SEC backs them up, saying as though it’s a bad thing “Banc de Binary also solicited potential investors in the United States by sending them emails, calling them on the telephone, and chatting with them via instant messenger over the Internet.”

Also the SEC’s (and CFTC’s) allegations about the harms of BdB are pretty meh. E.g.: 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 »

Remember when Facebook IPOed last May and it was a mess? Today the SEC released its amusing order fining Nasdaq $10 million for the mess and explaining what happened. Some computers were having a stressful day at work and so they decided to give up and hide out in the nap room, is the gist of it. I feel like I’d get along with those computers.

What started the mess is that Nasdaq opens the trading of a newly IPO’ed stock with an opening cross where it compiles quotes for a while and then crosses them in one big opening cross before continuous trading starts. And it uses the following process to do the opening cross:

  • 1 Get a bunch of orders over a ~20 minute period before trading starts
  • 2 Use a program called the IPO Cross Application to calculate the clearing price and shares crossed based on those orders, which takes a few milliseconds
  • 3 Check if any of the orders were cancelled during those milliseconds
  • 4 If they were, delete those orders and Goto 2

Did you spot the problem?1 Nasdaq’s systems engineers did not, even after the IPO Cross Application had been running on an infinite loop for twenty minutes. The SEC caught it, though, reading their order, I was worried that they’d fallen prey to it as well: Read more »