This article talks about Scottrade's improvements in its network. There is a plan to increase its branch offices to 500 over the next 2 years. The branches of Scottrade are its main line to its customer's and by supporting these branches with an MPLS WAN (multiprotocol label switching wide area network), which would link them to its headquarters in St. Louis. Qwest Communications is the IT company onboard with Scottrade for this project. This project has greatly increased Scottrade's service capabilities through the increased bandwith, quality of service, and diagnosis of data flow that Qwest has implemented for Scottrade. The customer service side of Scottrade is not the only internal benefit, but helping by leveraging wiki with experts in the branches, streaming monthly updates from the CEO, which would not be possible with their old network.
In recent news with the LSE outage there have been talks about disaster plans. With their new network Scottrade's own disaster backup plan is much stronger, which in turn means a more reliable company when it comes to trusting their technology. After implementing this new network with Qwest and also help from Cisco, Scottrade has had a 15% annual growth in its branches as well as moving 10 to 20 each year for better locations.
After the the outage at the London Stock Exchange many people have become aware of the possibility of huge loses through technological glitches. Scottrade has moved into an excellent direction through improving its network to better secure/prepare itself from these problems, which would make it look much better to an investor when looking for a place to invest their own capital. They not only are working to limit the damage that could occur through outages, but also have improved their customer service through the upgrade of their network with Qwest Communications. When investing money these are two key areas: limited technological glitches and customer service. They are able to connect to a local branch where they can become familiar with that person and have that representative have a faster workflow and better information.
http://www.wallstreetandtech.com/it-infrastructure/showArticle.jhtml;jsessionid=JBDDQZDW4210GQSNDLPCKH0CJUNN2JVN?articleID=210601060
Thursday, September 11, 2008
Wednesday, September 10, 2008
Blame Game: The ‘Uptick’ Rule Debate
In the Article Blame Game: The Uptick Rule Debate, both arguments of effect of the removal of the uptick rule in July 2007 on market volatility are presented. After extensive research and a pilot test in 2005, the Securities and Exchange Commission determined that the “uptick” rule was not necessary in preventing short selling. The uptick rule was initially implemented after the 1929 stock market crash. Its purpose was to hinder bearish traders, believing that a stock was overpriced, from short selling, consequently contributing to falling prices by flooding the market with shares. Under the uptick rule, shares could only be sold after the price had increased.
In July 2007 the SEC revoked the uptick rule, deeming that the rule was “hindering trading without protecting prices”. Many believe that this has contributed to the increased volatility of the market. Now stocks can be shorted even as prices fall. According to the article, some experts feel that the elimination of the rule has made it easier for bearish traders to short sell. The Volatility Index indicates that stock-price volatility has remained 70% higher after the rule was changed than before. The volatility of the market has caused investors to want higher returns, which leads to higher cost of capital for companies.
Others argue that the market’s problems are not due to the removal of the uptick rule, but rather, to much greater problems such as the debt crisis. One researcher notes that there have always been ways around the uptick rule, allowing traders to short sell, including simply breaking the rule and paying a small fine.
I agree with the head of one firm, who points out that the correlation between the market’s volatility and the removal of the uptick rule does not necessarily equal causation. There are too many contributing factors that the impact that the removal of the uptick rule cannot be isolated as a determining cause.
Blame Game: The ‘Uptick’ Rule Debate
Gregory Zuckerman
Wall Street Journal. April 1, 2008. pg. C.1
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10&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1220997338&clientId=
31806>
In July 2007 the SEC revoked the uptick rule, deeming that the rule was “hindering trading without protecting prices”. Many believe that this has contributed to the increased volatility of the market. Now stocks can be shorted even as prices fall. According to the article, some experts feel that the elimination of the rule has made it easier for bearish traders to short sell. The Volatility Index indicates that stock-price volatility has remained 70% higher after the rule was changed than before. The volatility of the market has caused investors to want higher returns, which leads to higher cost of capital for companies.
Others argue that the market’s problems are not due to the removal of the uptick rule, but rather, to much greater problems such as the debt crisis. One researcher notes that there have always been ways around the uptick rule, allowing traders to short sell, including simply breaking the rule and paying a small fine.
I agree with the head of one firm, who points out that the correlation between the market’s volatility and the removal of the uptick rule does not necessarily equal causation. There are too many contributing factors that the impact that the removal of the uptick rule cannot be isolated as a determining cause.
Blame Game: The ‘Uptick’ Rule Debate
Gregory Zuckerman
Wall Street Journal. April 1, 2008. pg. C.1
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10&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1220997338&clientId=
31806>
Sign on the Digitally Dotted Line
The article “Sign on the Digitally Dotted Line” talks about the ever-increasing demand for and practicality of software for electronic authentication and e-signatures. The still-prevalent requirement of a physical signature on a physical page in important transactions is probably the last frontier that needs to be overcome before we can fully digitalize our business lives. However, while we as individuals can readily benefit from the convenience and security provided by such software, financial institutions may be facing a double-edged sword when it comes to e-signatures.
The article mentions that conservative financial institutions such as banks and securities markets are as usual being slow in the adoption of so-called “miracle solutions”. Nevertheless, there are undoubtedly major benefits in such software products, especially when they are adopted on a “first-mover” basis. For example, current market trends show unequivocally that in a competitive market, the business that offers the simplest, most hassle-free and least time-consuming method of completing a transaction will gain tremendous market share (as was the case of Amazon.com in online book sales a few years ago). For the financial institution that adopts software enabling said transactions, this would result in a competitive advantage that draws in more customers away from other businesses that still require written documents as proof of consent. Securities markets as a whole will also enjoy increased transaction volume from individuals who might have previously thought of the start-up process as too tedious. Finally, according to software providers such as ArticSoft and DocuSign, the possibility of fraud, identity theft and other security issues are minimized with the encryption and digital marking that accompanies e-signatures.
However, in my opinion there are some major downsides to all-out adoption of digital signatures, especially for securities markets and financial institutions. First and foremost, eliminating the need of physical interaction while signing a contract or completing a transaction could be paving the way towards the full automation of trading, possibly to a point where brokers and middle-men become obsolete. Another threat by such over-digitalization is that individuals might become more prone to making imprudent decisions due to their perceived lack of need for personal contact and consulting. “Rogue traders” seem more likely to emerge in front of a computer screen at home than on the phone with their brokers. Finally, there is the issue that in the initial stages of adoption, people might not take electronic signatures as seriously as they do physical ones – the article mentions that there have already been cases in which someone e-signed a document and simply did not do what the contract ordered them.
Whether or not this technology is coming is not the question – digital signatures have been growing in popularity ever since the Electronic Signature Act was passed in 2000. The issue at hand is whether we’re prepared to start eliminating personal contacts in business as we are eliminating physical paper.
Main Article: Sign on the Digitally Dotted Line
Author: McClure, Marji
Source: EContent; May 2008, Vol. 31 Issue 4, p40-44, 5p
Company/Entity: GARTNER Inc. DUNS Number: 097220180
ISSN: 15252531
Database: Academic Search Premier
(the article can be located by logging into Aladin and searching "Sign on the Digitally Dotted Line" in Academic Search Premier EBSCO)
Also cited:
http://www.articsoft.com/finance_security.htm
The article mentions that conservative financial institutions such as banks and securities markets are as usual being slow in the adoption of so-called “miracle solutions”. Nevertheless, there are undoubtedly major benefits in such software products, especially when they are adopted on a “first-mover” basis. For example, current market trends show unequivocally that in a competitive market, the business that offers the simplest, most hassle-free and least time-consuming method of completing a transaction will gain tremendous market share (as was the case of Amazon.com in online book sales a few years ago). For the financial institution that adopts software enabling said transactions, this would result in a competitive advantage that draws in more customers away from other businesses that still require written documents as proof of consent. Securities markets as a whole will also enjoy increased transaction volume from individuals who might have previously thought of the start-up process as too tedious. Finally, according to software providers such as ArticSoft and DocuSign, the possibility of fraud, identity theft and other security issues are minimized with the encryption and digital marking that accompanies e-signatures.
However, in my opinion there are some major downsides to all-out adoption of digital signatures, especially for securities markets and financial institutions. First and foremost, eliminating the need of physical interaction while signing a contract or completing a transaction could be paving the way towards the full automation of trading, possibly to a point where brokers and middle-men become obsolete. Another threat by such over-digitalization is that individuals might become more prone to making imprudent decisions due to their perceived lack of need for personal contact and consulting. “Rogue traders” seem more likely to emerge in front of a computer screen at home than on the phone with their brokers. Finally, there is the issue that in the initial stages of adoption, people might not take electronic signatures as seriously as they do physical ones – the article mentions that there have already been cases in which someone e-signed a document and simply did not do what the contract ordered them.
Whether or not this technology is coming is not the question – digital signatures have been growing in popularity ever since the Electronic Signature Act was passed in 2000. The issue at hand is whether we’re prepared to start eliminating personal contacts in business as we are eliminating physical paper.
Main Article: Sign on the Digitally Dotted Line
Author: McClure, Marji
Source: EContent; May 2008, Vol. 31 Issue 4, p40-44, 5p
Company/Entity: GARTNER Inc. DUNS Number: 097220180
ISSN: 15252531
Database: Academic Search Premier
(the article can be located by logging into Aladin and searching "Sign on the Digitally Dotted Line" in Academic Search Premier EBSCO)
Also cited:
http://www.articsoft.com/finance_security.htm
Is the London Stock Exchange in trouble?
Ryan Van Parys
http://www.guardian.co.uk/business/2008/sep/07/londonstockexchangegroup.stockmarkets
The good old days of traders enjoying robust fees may soon be over for the people of the London Stock Exchange. For years, the London Stock Exchange, or better known as the “LSE” has survived the threat of rival tech based exchanges due in large part to surging high worth investments like hedge funds. However, the latest threat of lightening fast trading and substantially cheaper fees brought on by a multitude of trading platforms may be too much for the LSE to handle. For instance, Wachman cites Project Turquoise, Chi-X, Nasdaq OMX, and Bats Trading as all viable threats to the LSE’s market share. Apparently, Wachman is not the only one who thinks this isn’t true: the London Stock Exchange’s share price has fallen by over half of its original price 18 months ago. The article points to a few quotes by the president of the new Nasdaq OMX who credits cheaper fees, faster electronic trading, and access to trade across Europe instantaneously as a reason for why the best days of the LSE are over. Others disagree, stating that the steady flow from revenues earned due to listing services, expansion of alternative investing markets, and prestige of having money in the LSE will keep the Exchange prosperous.
While this article is not entirely technical by any stretch of the imagination, I found the issue to be particularly engaging because we talked about how technology affects the securities market extensively in class last week. The article mentions how the NYSE has lost 50 percent of its market share due to increasing competition from other exchanges that provided customers with faster services through the advantage of technology. While the LSE’s market share numbers are bound to narrow due to natural maturation of financial markets, it is interesting to note how the attitude towards trading seems to have really changed since the invention of e-trading and/or e-platforms. Many investors seem to be more interested in the lowest fee possible and doing their own research, rather than trading on a notable but expensive exchange. I think this can be attributed to a number of technological advances such as the open access to all of the corporate and market research that the internet has to offer, and the easy ability to now essentially perform a trade with one click. Additionally, I think (some) investors are backing down from name recognition for every day trades and are focusing on exchanges like the LSE only when they want to invest in an alternative security. However, the article does admit that the prestige of the LSE still is a very big deal. I would even suggest that if it wasn’t for its name recognition and its ability to monopolize the English market on the listing fee business, I don’t think the LSE would be nearly as competitive as it still is today.
I found the part of the article which discussed how the LSE is staying alive to be particularly interesting. In addition to its alternative securities and name recognition, it also is receiving, ironically, what the article mentions as a “tariff” by the British government. It seems very strange to me that the British government would implement a tariff to a market driven aspect of the economy, especially against exchanges that may bring more efficiency and growth to Britain’s markets, or encourage investment. I think it would be interesting to research other European exchanges and see if their governments are practicing the same type of protectionism in their own financial markets. If so, it certainly poses quite a contrast to the US approach.
http://www.guardian.co.uk/business/2008/sep/07/londonstockexchangegroup.stockmarkets
In search of a floor: Is America’s house price crash at last bottoming out?
http://www.ft.com/cms/s/0/91dd4430-7ea0-11dd-b1af-000077b07658.html
Though these signs point to the Housing market finally starting to, if not rebound, at least starting to stabilize, there are many very worrying signs that suggest that the market will not bottom out until well into 2009. The biggest worry is the rising foreclosure rate, which is up 183% in 2008 alone. Until this rate plateaus, it will be exceedingly difficult for Banks to predict the bottom of this crisis. A major concern came last week when the Fitch Rating announced that 92 billion in flexible payment loans would be subject to more stringent policies, thus making in harder on those borrowers and likely causing more foreclosures. This trend has been a common one as banks are desperate to sure up their capital with their borrowers. Amongst internal problems, the housing market is also facing serious external economic problems, the first of which being unemployment.
With eight consecutive months of job losses, the U.S. unemployment rate has jumped from 4.9% to 6.1%. Compound this with higher gas prices and the rising cost of foods, and it is not hard to see how the housing market could continue its downward spiral. Gas prices are hitting especially hard, as many of the foreclosures are coming from rural residential suburbs, where commuting via cars is much more common. OPEC isn’t helping the situation either as they just cut production as crude finally dropped below 100 dollars a barrel. As it stands now almost 1 in every 400 homes are being foreclosed.
The road ahead, though less rocky than what has already been traversed, seems to be long and enduring. Alan Greenspan said last month that housing prices could continue to slide through 2009 and some predict that we should be looking at a 2010 stabilization point. Either way we can only hope that what traction financial institutions have gained will be enough to hold them. Should unemployment continue to rise with inflation, the housing market could be in for a much-prolonged battle.
Since the crash of the housing market 18 months ago, financial institutions have been falling left and right with Washington Mutual looking to be the next victim. It has turned into a waiting game of the most epic proportions. Just trying to stay afloat at this point, banks are waiting for some kind of inclination as to where the bottom of this market is. Once a stabilization point is established Banks can get a firmer grip on their total losses and start once again to build credit. In this article from Tuesday’s Financial Times, things seems to be pointing up as Americans are perceived to be getting back into the housing markets. Price declines have fallen from 2.2% in February to .5% in June. In addition, the recent government backing of Fannie Mae and Freddie Mac has given markets a boost, and should help keep mortgage prices down and encourage Americans to purchase homes. All this however is but a small bright spot on what is an ugly U.S. housing market.
Though these signs point to the Housing market finally starting to, if not rebound, at least starting to stabilize, there are many very worrying signs that suggest that the market will not bottom out until well into 2009. The biggest worry is the rising foreclosure rate, which is up 183% in 2008 alone. Until this rate plateaus, it will be exceedingly difficult for Banks to predict the bottom of this crisis. A major concern came last week when the Fitch Rating announced that 92 billion in flexible payment loans would be subject to more stringent policies, thus making in harder on those borrowers and likely causing more foreclosures. This trend has been a common one as banks are desperate to sure up their capital with their borrowers. Amongst internal problems, the housing market is also facing serious external economic problems, the first of which being unemployment.
With eight consecutive months of job losses, the U.S. unemployment rate has jumped from 4.9% to 6.1%. Compound this with higher gas prices and the rising cost of foods, and it is not hard to see how the housing market could continue its downward spiral. Gas prices are hitting especially hard, as many of the foreclosures are coming from rural residential suburbs, where commuting via cars is much more common. OPEC isn’t helping the situation either as they just cut production as crude finally dropped below 100 dollars a barrel. As it stands now almost 1 in every 400 homes are being foreclosed.
The road ahead, though less rocky than what has already been traversed, seems to be long and enduring. Alan Greenspan said last month that housing prices could continue to slide through 2009 and some predict that we should be looking at a 2010 stabilization point. Either way we can only hope that what traction financial institutions have gained will be enough to hold them. Should unemployment continue to rise with inflation, the housing market could be in for a much-prolonged battle.
Government Bailout = Pimco Strikes Gold
Recent news of the US government's takeover of Freddie Mac and Fannie May catapulted the Pimco fund to a $1.7 billion gain on Monday. This is the highest one-day gain against its benchmark index. This is in sharp contrast with the investors of Fannie May and Freddie Mac, who suffered massive losses as a result of the news.
Fund manager Bill Gross' shift to agency bonds over the last year is largely responsible for the gain, dumping US T-bills and corporate bonds in order to compensate for his predicted US takeover of the two organizations. Pimco's took a huge calculated risk in this move, but had they not taken these steps, Pimco would be in a similar predicament that Freddie and Fannie investors faced on Monday. Morningstar reported that for the 12 months before August 1, Pimco had beaten all of its peers, gaining 9.2 percent.
Right now, Gross and other investors on the Pimco team must be thinking of what they're going to turn their newly minted $1.7 billion into. Judging by Gross' history, he seems to favor short term investments. Look for changes in the near future.
Brewster, Deborah. "Bail-out wins Pimco $1.7bn." Financial Times.
Fund manager Bill Gross' shift to agency bonds over the last year is largely responsible for the gain, dumping US T-bills and corporate bonds in order to compensate for his predicted US takeover of the two organizations. Pimco's took a huge calculated risk in this move, but had they not taken these steps, Pimco would be in a similar predicament that Freddie and Fannie investors faced on Monday. Morningstar reported that for the 12 months before August 1, Pimco had beaten all of its peers, gaining 9.2 percent.
Right now, Gross and other investors on the Pimco team must be thinking of what they're going to turn their newly minted $1.7 billion into. Judging by Gross' history, he seems to favor short term investments. Look for changes in the near future.
Brewster, Deborah. "Bail-out wins Pimco $1.7bn." Financial Times.
Tuesday, September 9, 2008
Primary Market Performance in a weak economy
History, as they say, repeats itself. The cyclical nature of the stock market and its corollary markets means that the economy will undeniably face some periods of “highs” and some periods of “lows”. We are currently experiencing a low period in the primary market. This assertion comes in the face of numerous firms tending towards insolvency, individuals increasingly declaring for bankruptcy, plummeting stock prices and a generally unhealthy financial industry. However, initial public offering deals (conversion of private limited liability company to a public limited liability company) seem to pass unnoticed.
In the article, “For IPO’s in August, a Sound Silence” Lynn Cowan talks about the small number of IPO deals that occurred during the month of August 2008. Even though the month of August is a time when a lot of people are on holidays, which will concurrently result to fewer deals being carried out, it is no excuse for the lowest number of deals since data providers started tracking the number and value of IPOs worldwide in 1995. Cross sectional data analysis reveals that August 2008 brought about twenty-five IPO deals worldwide as opposed to twenty-nine in January 1995, thirty-two in January 1998, and thirty-five in August 2003. Although the number of deals may not vary significantly, the monetary value in billions of dollars makes for a substantial difference. The article also talks about the August value of IPOs worldwide summing up to $1.25b, which is an 84.72% drop from the value of August 2007 IPO capital raising. This shows that not only are firms being majorly hit by a huge decline in company value, but raising capital is also a difficult task.
The world experienced an IPO boom for the last few years that provided companies with huge amounts of capital and also an optimistic stock market. With the huge declines in company valuations and one of the worst years of IPOs for companies and investment banks, one may wonder if the IPO bubble has come to an end. I believe it is too early to correctly assess this claim, especially because there has traditionally been an incumbent “recoil” period following periods of economic sluggishness. For instance, after the 9/11 attacks (Sept 9, 2001), the American economy experienced slow growth rates and thousands of layoffs, but was able to regenerate itself fairly well by 2004. I believe certain events such as the presidential election and the encouraging price of oil, will help the economy. It is only a matter of time before the economy experiences some stimulation in the form of investments, purchasing of government bonds and securities, reduction of the required reserve ratio, and positive fiscal and monetary policies. The chairman of the Federal Reserve – Dr. Ben Bernanke – is among those who can help to revitalize the economy. The big question though, is how soon will this be?
Lynn Cowan, “For IPO’s in August, a sound of silence”, Wall Street Journal, September 2, 2008.
In the article, “For IPO’s in August, a Sound Silence” Lynn Cowan talks about the small number of IPO deals that occurred during the month of August 2008. Even though the month of August is a time when a lot of people are on holidays, which will concurrently result to fewer deals being carried out, it is no excuse for the lowest number of deals since data providers started tracking the number and value of IPOs worldwide in 1995. Cross sectional data analysis reveals that August 2008 brought about twenty-five IPO deals worldwide as opposed to twenty-nine in January 1995, thirty-two in January 1998, and thirty-five in August 2003. Although the number of deals may not vary significantly, the monetary value in billions of dollars makes for a substantial difference. The article also talks about the August value of IPOs worldwide summing up to $1.25b, which is an 84.72% drop from the value of August 2007 IPO capital raising. This shows that not only are firms being majorly hit by a huge decline in company value, but raising capital is also a difficult task.
The world experienced an IPO boom for the last few years that provided companies with huge amounts of capital and also an optimistic stock market. With the huge declines in company valuations and one of the worst years of IPOs for companies and investment banks, one may wonder if the IPO bubble has come to an end. I believe it is too early to correctly assess this claim, especially because there has traditionally been an incumbent “recoil” period following periods of economic sluggishness. For instance, after the 9/11 attacks (Sept 9, 2001), the American economy experienced slow growth rates and thousands of layoffs, but was able to regenerate itself fairly well by 2004. I believe certain events such as the presidential election and the encouraging price of oil, will help the economy. It is only a matter of time before the economy experiences some stimulation in the form of investments, purchasing of government bonds and securities, reduction of the required reserve ratio, and positive fiscal and monetary policies. The chairman of the Federal Reserve – Dr. Ben Bernanke – is among those who can help to revitalize the economy. The big question though, is how soon will this be?
Lynn Cowan, “For IPO’s in August, a sound of silence”, Wall Street Journal, September 2, 2008.
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