You are not entitled for any compensation for investing with false information on the market.

Today, it is safe a safe bet that information technology has shrunk the financial markets and securities exchange into our fingertips. Most of the trading is taking place with the help of computers, and financial information of companies is readily available on the internet at any given time. As a matter of fact, today, we make most of our investing decisions on the information available on the internet.

It is surprising to see how long it takes for a company’s stock price to fluctuate once the information about the company is published on the internet. They all have the same speed to reach investors and same potential to change the investing decisions. On September 8 2008, Bloomberg terminals across the world published a headline declaring the parent company of United Airlines had filed for bankruptcy protection. Within minutes, United Airline’s shares started to collapse in Nasdaq. The airline’s shares fell 76 per cent to $3 by 11 AM after opening at $12.16. In fact, this information was false and published with an error. United Airlines’ bankruptcy information was 6 years old and was interpreted as up to date by the investors. The trading started to take place until Nasdaq Stock Exchange had to halt the trading of United Airline’s shares. United Airlines immediately issued a press release to clarify error and the share price was returning to back to normal.

This is a very good example to show how fast the information is transferred in today’s world with the help of computers. Of course, this is a huge advantage for investors, but not always. It is a good lesson that we can learn as a responsible investor to validate the accuracy of the information before making any financial decisions. According to Robert Fusfeld, a securities investigator in Denver who spent 31 years as a Securities Exchange Commission enforcement, “Trades could only be undone if someone planted false information with the intention of manipulating the market”. As a matter of fact, Nasdaq has reviewed the transactions executed between that short period of time and has determined that all trades are valid. The investors who sold their shares were losing money and were not entitled for any kind of compensation for the false information.

ReportonBusiness. (2008). Old news is bad news for airline's stock. Retrieved Sep. 9, 2008, from http://www.theglobeandmail.com/servlet/story/LAC.20080909.RUAL09/TPStory/Business

What has happened and will happen to Nokia

As the report said, the stock price of Nokia went down by 13% to €14.03 ($20.10), a near three-year low. It reflects the fact that since March 13th 2007, when secondary mortgage crisis in U.S exploded, it has resulted in the weak global economic till today. As a result, almost all the stock markets over the world plunged into a corner. Set Dow Jones Industrial Average Index as an example. Its index has fallen from 14164.54 to 11185.63(the open price in Sep 5th). The industry of communication equipment also is not an exception. Set Motorola Inc. as an example, its stock price fell from 18.42 to 9.06(Sep 5th).


According to the report, what sent its shares down by 13% was Nokia’s reduced outlook. In my opinion, in one hand, it is quite normal for a corporation to adjust its outlook, as both of the economic circumstance and its own operating stiuation are changing. In the other hand, informing investors of latest and real corporate information in time just shows the communication equipment Giant’s reponsibility for investors. There is also a fact that cannot be ignored that Nokia holds almost 40% share of market and it predicted that its sale will increase 10%. However, under such circumstancem, its adjustion of outlook still caused the investors to send its stock price to pludge down such a lot. The fact sufficiently showed that investors had been influenced greatly in their investing activities by the world-wide lackluster economy. The investors are losing confidence in market and the market is losing its trust of investors.



As for its price policy, I think that there may be a couple of reasons. First of all, Nokia holds the largest share of market, and it has a large amount of loyal consumers. Depite the weak economy, these consumers will continue to buy its production with an acceptalbe price. So it is not very necessary for Nokia to cut price to attract consumers. Secondly, if Nokia let its production price go down, it is very difficult to raise the price when the economy reverts. Nokia decides to maintain its long-term profit instead of shor-term profit. Addtionally, although most of its rivals have cut prices, Nokia still try to make its price remain unchanged. It shows the company’s strength and confidence in its products and sales, which will leave investors, who are struggling during the weak economy, a positive signal. Also I think Nokia is trying to make consumers believe that they bought the right products, whose value will not decrease in spite of weak economy.


In conclusion, it is obviously to see that Nokia has adopted a totally different method on price decision. Although its stock price has fallen 13% after its claim of reduced outlook, which can be explained by the special economic environment, Nokia, which has a world-wide reputation, will keep moving forward and maitain more success.


The article is available at: http://online.wsj.com/article/SB122061885061003671.html?mod=todays_us_money_and_investing

Exchangeable bonds to be issued

Picture one:Shanghai Stock index from Apr. 1st to Sept. 5th during 2008

As the article discussed above, the China Securities Regulatory Commission (CSRC) published a draft regulation of finance tool. Let's first get to the background of this oversupply in the Chinese stock market. When China government first established its own security market, the CSRC set up some non-tradable share in fear of losing the control of some State-owned property. The non-tradable share always takes a large percentage of the whole shares, sometimes even more than 60%. The non-tradable shareholders include shareholders with over 5% non-tradable share and shareholders with less than 5% non-tradable share. The former shareholders are always strategic investors, and the latter are speculators. However, with the development of China capital market, some abuses have been emerged just like the non-tradable share holder doesn't care about the operational performance of the company, sometimes do something jeopardize the company but gain their own profit like impropriate the asset of company. So since the 1998, the China government tried many times to make the non-tradable shares tradable and finally they got a final version for that at 2005. But when the non-tradable begin to trade, too many shares were emerged at the market at a same time, the stock market slumps which shows at the followed picture. The shock index slumps from 6000 to 2424 during seven months and the CSRC just published a new draft about allow shareholders of listed companies to issue exchangeable bonds.

As the spokesman of CSRC said, the exchange bond could help the non-tradable shares could be sold at a much more slow rate than before, remodel the expectation of the market and also the exchange bond could serve as a new financial tool which could reduce the risk and provide more choices for the investor. However, as far as I am concerned, this new exchanged bond could hardly serve as a tool for shore up the market. Firstly, the shareholders with over 5% non tradable share, who could afford the exchange bond trade fee, are always strategy investors. What they want is control the State-owned company and only they need to do is sell few shares of their own to cash in( in addition, the cost of non-tradable shares are always very cheap for they were the product of 2 decade ago, which almost one cents per share). And, almost every shareholders with less than 5% non-tradable shares could not afford the threshold of the standard to publish the exchangeable bonds and even if they could reach the standard, the highly cost of the issuing would stop them to do so.
Even if the non-tradable share holder would follow the plan to issue the so-called exchangeable share, what will happen? An assumption seted by the CSRC is that the share sellers are in trouble get enough money so they want to simply dump their holdings. However, this is even not the truth. Due to the cost of the non-tradable shares and the reality that almost every non-tradable shareholders dumping their holding right at the time when the non-tradable shares could trade legally, it is ridicule to think that so many State-owned property shareholders relapse into financial crisis. The truth is that they all need cash in to earn excess profit.
For the reasons I provide above, I hold a negative view about the new plan and I think it fail catch the essence of this slumps of the Chinese Stock market so it could not serve as a useful tool to shore up the market.

Article drawn from the ChinaDaily:
http://www.chinadaily.com.cn/bizchina/2008-09/06/content_7004705.htm
picture from:
http://finance.sina.com.cn/stock/jsy/20080906/08425279417.shtml

The Impact of Technology on Securities Markets Around the World

We spoke in class about how important technology is to the financial markets and securities trading. Rather than men and women running around physical stock exchange floors yelling buy and sell prices, the computer has enabled us to eliminate the need for physical interaction implementing technology at almost every step of the process. We can all look back and realize how much technology has impacted and innovated the securities market. The London Stock Exchange currently boasts that with their advanced technology, a single stock trade can occur over 30 times faster than the blink of an eye. Wow. With that said, I think most are blinded by how amazing technology is today and fail to realize that within that same blink of an eye, and entire stock exchange can be shut down for hours. According to the Wall Street Journal article, “London Exchange Paralyzed By Glitch,” just yesterday, trading in shares of some of the United States’ and Europe’s largest companies were cut off for over seven hours as a glitch in the technology behind the scenes caused a system failure. Not only was the London Stock Exchange itself paralyzed by the technological failure, but other exchanges throughout the world such as Johannesburg Stock Exchange were also suspended due to their reliance on London’s TradElect and other parent software systems.

Yesterday was not just an average day across world markets; it was one where the US Government had officially decided to bail out mortgage lenders Fannie Mae and Freddie Mac. With that said, the New York Stock Exchange (NYSE) experienced its third highest trading day EVER while at the same time those who relied on the London Stock Exchange for trading simply sat at their computers both losing money and causing login jams on the LSE system servers. Luckily, some investors turned to alternate trading floors to conduct pertinent and time-sensitive trades with LSE’s smaller competitors such as Chi-X Ltd.

While the article goes in to further detail regarding yesterday’s importance and more details on how other European markets fared in response to LSE’s failure, it is important to note that while technology provides advanced efficiency, speed, and capability regardless of physical location it also allows for added risk in securities trading when money and success are both at stake. As major exchanges involved with the securities market look to pinch pennies and squeeze the maximum profits from their operations, they look to save money, sometimes on their technology and equipment. In an effort to keep costs low an exchange may choose a less expensive system providing fewer maintenance and support technicians. However, in an effort to be competitive and lower costs such failures as seen yesterday could end up costing millions to an exchange and those involved in the securities markets affected. While the monetary effects of yesterdays incident has not yet been calculated we can be assured they will hurt the LSE’s reputation and could force traders to rely on other exchanges throughout the world.

System failures such as the one yesterday force us as technologically oriented people to take a step back and realize the damage that can be done with such a heavy reliance on technology. Keeping this in mind it is imperative that proper technological maintenance and security be practiced in the information technology world as the economies and structures throughout the world rely on it.

Article drawn from the WSJ: http://online.wsj.com/article/SB122088611707510173.html?mod=hps_us_pageone

Bill Gross Wants Treasury to Buy Assets to Prevent Tsunami

Bill Gross Wants Treasury to Buy Assets to Prevent Tsunami
By, Mike "Mish" Shedlockhttp://globaleconomicanalysis.blogspot.com/2008/09/bill-gross-wants-treasury-to-buy-assets.html September 4, 2008.

The Article discusses what Bill Gross, co-chief executive officer of PIMCO, wants the U.S. Government to bailout companies/private investors and allow lenders to forgive some of homeowners' debt. The author Mike "Mish" Shedlock replies to Bill Gross’s ideas.

In essence, what is better for our economy for the United States Government to bailout distraught companies and possibly recreated the problems we are trying to fix by actually trying to fix our economy with what caused these hardships in the first place or to just leave everything as is and let the economy fix its self.

The last few years have been fraught with great money making opportunities along with several economic bubbles bursting, from the dotcom bubble to the recent housing bubble, According to author bailing out private investors was tried many times and it has failed every time. And that the bubbles where in direct cause of the bailouts by Chairman Greenspan.

Personally, I cannot see direct a correlation between bailouts and harm to the U.S. economy. Bailouts are not used every time a company fails, nor should they be. The question is when Government intervention should happen and to what extent should they happen. Should some minor finical help be given or should the Government take control and run the company. Suggesting that the Government shouldn’t do anything doesn’t help out because the bailout will always fail is a copout. And just because in the past mistakes where made it doesn’t mean the Government shouldn’t try again.

And should homeowners’ debt be forgiven and should the market be propped up by the government and more importantly our tax dollars? Allowing the debt of homeowners be forgiven because of the harm it has caused is a double edge sword. On one hand it helps out the people that are in need. And on the other hand it could give the impression to people that they not need to worry about debt because they can be bailed out. If severe harm is caused by their actions, people and companies must be held accountable for what they have done. They shouldn’t be given a free ride by the government.

The harm that has been caused cannot just be whitewashed away because there is harm that has been caused to the American/World Economy. Banks and Corporation must be allowed to fail. Not everything should be bailed out. On the same thought just sitting by and doing nothing will not help us out of the self dug hole. There are times for bailouts and there are times for laissez-faire economics. The key is to not believing that each are the only way to react to a damaged economy. The both must be used and neither one is greater than the other.

Lies in the Age of Information

With the rise of data warehouses and increasingly sophisticated information networks, keeping a secret is becoming increasingly difficult. Hedge funds use financial brokers to act as a proxy to keep other investors from knowing about certain financial trades. While this is great for competitive business this is not terribly comforting for the consumer and for good reason.

As a kid I remember watching the people on the news who lost money because they invested their life savings into Enron and thinking: "how could anyone be so stupid"? But the answer it turns out was pretty clear: they didn't know any better. And to be perfectly honest I bet no one could have predicted the kind of mess that Enron would get into. Even an informed investor, while able to minimize his losses, would not have been able to predict the internal actions of the executive board.

I had class that visited Fannie Mae just as the whole sub-prime mortgage crisis was going on and when one of the students asked about how such a crisis would affect the company, they said that the matter was unrelated to their business. Several months later Fannie Mae is under government control. My simple question is how healthy is it for companies to withhold information when investors decisions rely so much on consumer confidence?

There seems to be a catch 22 when it comes to building up capital and building up investor confidence. Individuals will only invest in a company that they think is going to succeed but in order to get to a successful place one must have a successful product. Either way, there is a good chance that a barely successful venture will have to oversell itself to raise the funds necessary to "make it" in today's market.

In the past investors had less access to instantaneous information as they did in the modern times. As a result there was less oversight and more independence/innovation. With more access to information, investors can make more calculated decisions and the pressure to succeed is even higher than before. In some cases this is great while in other cases I feel as if this is a harmful for the overall equilibrium in the marketplace.

Successful companies do very well while failures crash and burn harder than ever before. One example of this phenomenon can be spotted in the startup industry in Silicon Valley. Investors often have little knowledge of new web 2.0 business strategies. What little information is often exaggerated in the blogosphere and thus companies who are looking for investment money will often have to display a high amount of confidence to pull off a successful sell.

As a result, many of the companies that started off failed outright and lost investors a good deal of money. These risky expenditures could have been possibly reduced if companies were more realistic about their expectations not unlike the housing market debacle.

While I don't see any quick solution to this problem, I can say that this problem will be solved through a change in business culture. There needs to be a less of a "winner-take-all" mentality when it comes to investing and people will take appropriate risks when necessary.

http://www.istockanalyst.com/article/viewarticle+articleid_2500051.html

http://money.cnn.com/2008/09/07/news/companies/fannie_freddie/index.htm

Digital Upgrading

The development of the internet generated an insatiable demand for instant information that led modern society to seek to understand more than just their immediate surroundings. With every generation’s evolvement comes a stronger dependency on innovation to be the leading driver behind this globalization.

Based on the subsequent information, it is not surprising that almost all business related information is disclosed on the internet. According to an article posted on Lawfuel.com, one of the largest law news sites on the Net, the SEC modified one of its previous mandates by eliminating its requirement for “foreign companies without SEC registered securities to submit paper disclosures.” At this time investors can directly find company disclosures on the internet.

I believe that the SEC’s amendment illustrates society’s growing dependency on information technology, specifically their need to access information instantaneously, and the government’s growing desire to accommodate. Their act is progressive in nature, as it promotes the elimination of paper transactions and utilizes information technology to facilitate information exchange; and in my opinion, this will help to satisfy our society’s need for immediate information. The increased ease of accessing information will promote engagement in foreign transactions and will better equip US investors participating in foreign markets. Ultimately, the SEC’s amendment illustrates the government’s innovative advances in information technology and their eagerness to modernize the business world.

Although the government is attempting to modernize by presenting the public with more instantaneous access to information, some opponents feel it is beyond their capabilities. According to “Government Data and the Invisible Hand,” a scholarly article written in the Yale Journal of Law and Technology, the government should continue to grant open access to government information and modify their infrastructure; however, they should allow private companies to take over the communication of this information.

It is easy to agree with the authors’ standpoint on this issue. They are correct in stating that the government is unable to keep up with the “evolving power of the internet,” and that private companies are better equipped to deliver information. They propose that the government should redirect their focus to just providing reusable information and maintaining current infrastructure. Accordingly, this should lead to the evolution of third parties, who will step in and utilize the latest IT tools to convey information to the public. The taxpayer will cover the IT cost in cases where third parties fail to evolve. However, the authors anticipate former instances to surpass the latter.

My concern is that the author is placing too much emphasis on the emergence of a third party. It is not guaranteed that a third party will evolve to communicate information to the public. Alternatively, complete dependency on third party providers could become costly or limiting to the public. If fees are charged to employ the websites that disclose the information, then access will be limited to those able and willing to pay. Furthermore, giving a third party the ability to access information before the general public could create bigger issues; the third part might be tempted to use the information to their advantage before publishing it. Although government websites tend to be outdated and lagging behind private company sites, it is comforting to know that they are accessible and accurate. Ultimately, the government should identify a median, such as contracting individuals to help modernize the existing infrastructures and identify the optimum way to present information.



Robinson, David, Yu, Harlan, Zeller, William P. and Felten, Edward W.,Government Data and the Invisible Hand. Yale Journal of Law & Technology, Vol. 11, 2008
Available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1138083

"SEC Votes to Modernize Disclosure Requirements to Help U.S. Investors in Foreign Companies." Lawfuel 27 Aug 2008. 6 Sep 2008

http://www.lawfuel.com/show-release.asp?ID=19148