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Supporters Of Fed Window Could Use Regulations To Gain Competitive Advantage

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Is it a coincidence that the first public statement from a chief of a Wall Street supporting extending the Federal Reserve's discount window for securities firm came from Merrill Lynch, which enjoys the lowest leverage ratio on the Street?
There's no question that any move to make the new Fed borrowing facility a permanent feature of our financial infrastructure will be accompanied by a new regulatory framework. Whoever pays the piper calls the tune, as they say. One feature of the new regulations will likely be a cap on leverage for firms with access to the facility.
Especially when compared with banks, securities firms are heavily reliant on leverage to boost returns. But some are more reliant than others. John Thain, who yesterday called for the window to be extended beyond its scheduled expiration in September, runs Merrill Lynch, which just happens to have one of the lowest leverage ratios--the measurement of how much a firm borrows compared to its equity--on Wall Street. He even indicated that he'd be willing to accept a cap below the 23.8 ratio his firm reported at the end of the last quarter.
Merrill's competitors have higher ratios. Lehman's leverage ratio, which was recently as high as 32, is now down to 25. (But the firm stressed it did not want to go any lower). Morgan Stanley's last reported leverage ratio was 33. Even Goldman Sachs has a higher leverage ratio, at 24.
In short, Merrill may believe that it stands to gain from new regulations that push its competitors to adopt the kind of conservative ratios it has already put in place.


Let's Get One Thing Straight: Ken Griffin Only Accuses People Of Attempting to Gain A Competitive Advantage By Gaining Access To Proprietary Trading Strategies-- He Does Not Get Accused!

Back in October, a former Citadel employee, Yihao “Ben” Pu, was arrested and charged with "stealing trade secrets" from Ken Griffin (by "copying company data onto a removable storage device," and then attempting to sell it to Teza Technologies AKA the firm a bunch of ex-Citadel guys tried to join in 2009 before being sued for doing so by Griffin, as well as the the shop a former Goldman programmer, Sergey Aleynikov, went to jail for after giving it proprietary GS code). Now, because apparently people just can't help themselves, KG has been forced to levy another allegation of theft against some former employees who he believes took a piece of his property when they left for high-frequency trading firm Jump Trading. Does Griffin have actual evidence that they swindled him? No, not exactly. But he's got a hunch, and that hunch is based on the fact that since 2005, when people from Citadel's "tactical trading group" started leaving for Jump, "some of the strategies" employed by the TTG "have become less profitable" and are "behaving in a way consistent with their having been copied by rivals." So what KG would like a court to do is force Jump to turn over "personnel documents, strategy and trading records, and source code," which will prove him right and the Citadel defectors to be the plunderers he knows they are.  Evidence in hand, Griffin will then sue Jump and everyone named Ken Griffin will go home happy. The only issue that needs to be worked out is Jump Trading's cooperation, which so far is proving difficult to obtain. In fact, the firm is being downright unhelpful and not only that? Its legal team has accused Griffy-boy of being the thief, or at least trying to be. That's right: the way JT sees it, Citadel's new profitable algorithm development system is a two-step process that goes something like this: Step 1: Steal successful algorithms from rival firm. Step 2: Use them. In its response filing, Jump said that Citadel had no evidence that the algorithms had become less profitable because of any of Jump's actions. It said that any of the hundreds of other algorithmic trading firms could be at fault. "The petition is nothing more than a transparent attempt by Citadel to obtain a competitive advantage by gaining access to Jump's proprietary and confidential trading strategies," Jump's motion said. Your move, KG. Citadel Accuses Jump Employees Of Stealing Secrets [Reuters]