http://blog.watersonline.com/ en Copyright 2008 Thu, 20 Nov 2008 21:36:16 +0000 http://www.sixapart.com/movabletype/ http://blogs.law.harvard.edu/tech/rss Year - number of delistings for cause 2000 - 61 2001 - 65 2002 - 62 2003 - 41 2004 - 18 2005 - 21 2006 - 14 2007 - 21 Septmber 2008 - 19 October 2008 - 25 ]]> http://blog.watersonline.com/2008/11/nyse_delisting_frenzy.html http://blog.watersonline.com/2008/11/nyse_delisting_frenzy.html Thu, 20 Nov 2008 21:36:16 +0000 Waters has had in the last couple of months has touched upon the prospects of budget cuts and headcount reductions. Even when the topic starts out somewhere else--a new product release here, a new analyst report there--it inevitably returns to what it all means in the context of the dire current economic environment. Analysts across the board are predicting budget cuts of up to 20 percent, a statistic which was borne out by a recent Waters survey--check out the December issue of Waters for more details on this. Much of this cost cutting may be achieved by laying off personnel--a sobering thought given momentum by yesterday’s announcements of over 50,000 job cuts to come at Citi--bringing the firm’s total job losses this year to 75,000. But for many firms, cost savings will come from the discretionary part of their IT budgets--which in most firms accounts for between 20-30 percent of the total. Firms cannot trim back on IT security, network monitoring and all the other things that constitute “keeping the lights on”. So, for the time being at least, IT innovation must suffer. That’s not to say it will go away entirely, but perhaps the days of financial institutions as technology companies are over. Perhaps we will see an increase in the buying of technology as opposed to building it in-house. Perhaps we will see even more outsourcing--I could certainly name a few people that hope this will be the case. Or perhaps it will just be a temporary blip and once everything settles down, in six, nine, or even twelve months’ time, we will see a return to the way things were. In the end, there may be fewer IT jobs on Wall Street overall, as firms are forced to become more efficient. Bad news for technologists, but not necessarily bad news for firms. -This article first appeared as the editor's letter for Waters News, our weekly email alert.]]> http://blog.watersonline.com/2008/11/innovation_will_suffer.html http://blog.watersonline.com/2008/11/innovation_will_suffer.html Tue, 18 Nov 2008 20:04:09 +0000 this article the number of floor brokers in the US is set to go up 25 percent between now and the year 2016, a statement that would seem to contradict the trend towards greater electronification and automation of the securities industry over the last two decades. What they do: Floor brokers bargain with other brokers over the price of stocks. A sales agent then sells the securities or commodities to an investor for the negotiated price. Annual mean income: $83,608 (Annual mean income from CBSalary.com) Projected employment in 2016: 399,000 (Employment projections based on Bureau of Labor Statistics data) Increase between 2006 and 2016: 25 percent Sang Lee, founder and managing partner of analyst firm Aite Group, doubts we will see such an increase in floor broker jobs. "I am not certain where they got that number from but I have to guess that it is outdated data. We certainly have seen shrinkage and not expansion of floor brokers over the last few years and I just don’t see where the additional increase will come from. Given the rapid adoption of electronic trading and automation overall, today’s battle over the floor is about survival and not expansion." ]]> http://blog.watersonline.com/2008/11/floor_brokers_to_grow_in_number.html http://blog.watersonline.com/2008/11/floor_brokers_to_grow_in_number.html Wed, 12 Nov 2008 19:12:08 +0000 Treasury Secretary in the new Obama administration. Also on the list are investing guru and the world's richest man Warren Buffet, business tycoons Eric Schmidt, CEO and chairman of Google, Indra Nooyi, CEO and chairwoman, Pepsi, as well as an array of former Fed chairmen, Treasury Secretaries and younger academics who have advised Obama during his campaign. ]]> http://blog.watersonline.com/2008/11/treasury_secretary_dimon.html http://blog.watersonline.com/2008/11/treasury_secretary_dimon.html Thu, 06 Nov 2008 21:29:18 +0000 The virtues of free-market capitalism have been presented as accepted truth to economics students the world over. In my lifetime, the march of de-nationalization, privatization, and market liberalization has seemed unstoppable. Until now. Nationalization is a very strong word and I'm not sure it's really appropriate for what is happening now in the financial services sector. Injections of cash, purchases of preferred stock, and guarantees of loans are not the same thing as taking back the reigns and getting government officials involved in the running of things. But current government actions do seem to have reversed--if only slightly and hopefully temporarily--a long-time trend. What happens if those governments do see an opportunity for political gain once the banks owe them money? Could we see a forced reversal of the IT outsourcing and offshoring trend? Ever since it began 15 or so years ago, outsourcing of IT jobs to foreign countries where wages are lower has been a political hot potato in most Western countries. I will be interested to see if governments see an opportuity to create new domestic jobs by encouraging banks that previously outsourced to bring those tech jobs back onshore. During a recession, creating jobs at home will bring a great deal of political capital. Such an effort may not be incredibly successful, as it would end up costing already ailing firms a lot of money, but the thought must be tempting nonetheless. http://blog.watersonline.com/2008/11/bank_ownership_and_offshoring.html http://blog.watersonline.com/2008/11/bank_ownership_and_offshoring.html Thu, 06 Nov 2008 20:32:04 +0000 History was made last night. Whether you voted for the man or not, this nation elected an African American who was not born in a powerful family with all of life's advantages. It was a peaceful transfer of power in an age when the rhetoric often got out of hand. This is an incredible moment. But after Barack Obama takes the oath of office on January 20th, he will have a tough road ahead of him. Even if the recession starts to lift -- like it did shortly after Bill Clinton took office in 1992 -- Wall Street will look different than it did one year ago. There are fewer investment firms, for starters. Bank CEOs have a slightly better reputation than used car salesmen. Regulatory oversight will gain urgency like never before. The days following the passage of Sarbanes-Oxley might seem mild and pedestrian with the new wave of compliance we may see. Risk management will be a real-time mantra for tomorrow's traders and porfolio managers. Until then, we can congratulate the winner and ourselves and look for ways to dig our way out of this global recession. http://blog.watersonline.com/2008/11/an_obama_victory.html http://blog.watersonline.com/2008/11/an_obama_victory.html Wed, 05 Nov 2008 15:56:17 +0000 Fox Business News, Tabb Group CEO and founder Larry Tabb predicts a return to "old-style" banking, where large financial firms shy away from complex financial products. "We're seeing people move out of the stock markets and wanting to keep their assets in deposits which pay low interest so their cost of funds go down. They're rationing credit so when they lend money they are lending it at higher rates and so those spreads widen out," he says. As investors look for more transparent products the demand for complex instruments is going down. As profts at these old-style banks inevitably go down, they will not be able to pay the same high salaries and people will leave to start up new-style investment banks that will be partnerships and not publicly traded companies, he says. As more and more hedge funds close, Tabb foresees that these individuals will join together with the "renegades" from the old investment banks to form new partnership-based investment banks that will be smaller and more able to indulge in the trading of complex products. ]]> http://blog.watersonline.com/2008/10/banks_go_retro.html http://blog.watersonline.com/2008/10/banks_go_retro.html Fri, 31 Oct 2008 19:50:10 +0000 Click Here to take survey The survey will only take a couple of minutes and your participation will be greatly appreciated. See the December issue for the results of the survey. ]]> http://blog.watersonline.com/2008/10/last_chance_waters_survey.html http://blog.watersonline.com/2008/10/last_chance_waters_survey.html Thu, 30 Oct 2008 18:28:51 +0000 Black Tuesday - one of the first worst days on Wall Street that saw stock prices plummeting in 1929 amid the crash that preceeded the Great Depression. Lots of people are making lots of parallels with that time and this. Sadly, many people have lost their jobs and still more have lost their homes. But before we all succomb to the-sky-is-falling-hysteria, it's worth remembering that we enjoy a far more comfortable standard of living than did our grandparents and great grandparents. I hope I am never proven wrong, but I seriously doubt we will see a return to long lines outside of soup kitchens as the citizens of America and other countries line up for their daily free meal. We take our level of comfort for granted and consider it a hardship if we cannot upgrade immediately to the latest flat-screen TV. We may well have to tighten our belts but let's try and keep some perspective. ]]> http://blog.watersonline.com/2008/10/crashes_soup_kitchens_and_hyst.html http://blog.watersonline.com/2008/10/crashes_soup_kitchens_and_hyst.html Thu, 30 Oct 2008 14:47:04 +0000 Dealing with Technology]]> http://blog.watersonline.com/2008/10/wall_street_blame_the_media.html http://blog.watersonline.com/2008/10/wall_street_blame_the_media.html Wed, 29 Oct 2008 16:40:28 +0000 The Securities Industry and Financial Markets Association (SIFMA) held it's annual meeting today with a top-notch lineup of speakers--although Treasury Secretary Henry Paulson unfortunately was a no-show. Mayor Mike Bloomberg kicked off the day with a few jokes and what seemed remarkably like a campaign speech--2009, anyone?--as he pointed out that the US will face much bigger crises in the coming years than the current financial one if it does not focus on its crumbling infrastructure, as well as energy issues and improving schools. With regards to the securities industry, he pointed to a need for better, smarter industry regulation. When he was a securities trader in the 1970s there was a clear difference between a mutual fund, an investment bank and an insurance company, and accordingly they all had separate regulators, he said. But now that everyone offers pretty much every kind of financial product the regulatory landscape has become confusing and complex. "Agencies are overlapping unnecessarily while some areas are completely unregulated," he said. This point was echoed in the next presentation, given by Blythe Masters, head of global commodities at JP Morgan Chase and newly elected chairman of SIFMA. Masters, who is credited with the invention of the credit default swap--described by Warren Buffet as financial weapons of mass destruction--described the current legislatory landscape as "a patchwork quilt with more holes than patches". When insurance company AIG collapsed, it was answerable to over 50 state and federal regulators, she said. There followed a panel discussion on the future of regulation in a post-bailout world. The panel discussed the need for a financial stability regulator to sit on top of all other regulators to provide more transparency and reduce systemic risk. It is likely the Federal Reserve will take on this role, as it already has the knowledge, the staff and the tools to do this. The future of the Securities and Exchange Commission (SEC) meanwhile hangs in the balance. Some believe a merger with the Commodity Futures Trading Commission (CFTC) is imminent. The panelists acknowledged that overcoming opposing political ideologies to get the right legislation through the US Congress will be a challenge. And considering that the current crisis is a global one, there will need to be a global effort beyond mere cooperation and coordination, if new regulation is to be effective. "Regulation must be global to avoid regulatory arbitrage," said Bob Greifeld, CEO of Nasdaq, who spoke later in the afternoon. NYSE CEO Duncan Niederhauer, speaking before him, said that the last thing the US needs is another Sarbanes-Oxley that will risk making the US less globally competitive. Regulators around the world will need to come together and work out international standards. Having the same rules will not be enough--as the interpretation and level of enforcement may differ from country to country, said Mary Shapiro, CEO of the Financial Industry Regulatory Authority (FINRA), one of the morning's panelists. http://blog.watersonline.com/2008/10/takeaways_from_sifmas_annual_m.html http://blog.watersonline.com/2008/10/takeaways_from_sifmas_annual_m.html Tue, 28 Oct 2008 20:19:09 +0000 Bloomberg reports that securities firms have set aside $20 billion for bonuses. Not to channel a Fox News populist, but how does anyone inside a Wall Street firm think that this helps their case? Let’s look at the numbers: Merrill Lynch has a reported $6.7 billion set aside for bonuses. Still viable firms like Goldman Sachs and Morgan Stanley have $13 billion saved for bonuses despite being 28 percent over last year. “There should be a moratorium on bonuses,” says Barney Frank, chairman of the House Financial Services Committee, in the Bloomberg article. “If nobody gave them, there wouldn't be a competitive aspect.” Sounds reasonable to us. ]]> http://blog.watersonline.com/2008/10/a_bonus_insult.html http://blog.watersonline.com/2008/10/a_bonus_insult.html Mon, 27 Oct 2008 16:20:24 +0000 news reports this morning say that the LSE has already hired a City headhunter to find a replacement for Furse. "Clara has been with the exchange for eight years and it's natural that the board is thinking about succession planning," says an LSE spokesperson. As the top-level resumes are sent to the LSE, it must be sobering for Furse to know that the end is nigh. Her time at the exchange has been nothing if not colourful. Since joining in early 2001, the Canada-born CEO has fended off numerous take-over bids from rival international exchanges and presided over the technology roadmap that saw the introduction of the record-breaking TradElect and Infolect trading and market data platforms. Not all that long ago, she was hailed as the saviour of the LSE, especially after clinching the Borsa Italiana acquisition last year. In June she was even recognised in the Queen's Birthday honours list, becoming Dame Clara Furse. But the times they are a-changing. Amidst growing market turmoil, an increasing number of competitiors - Chi-X, Turquoise, Nasdaq OMX and BATS - are forcefully knocking at the exchange's door and it has proven itself far from resilient in response. Not only has its share price tumbled, but a major 7-hour systems outage on 8th September and the failure of Lehman Brothers - which it had partnered to form a dark liquidity pool - did little to restore confidence. Serious work needs to be done at the LSE to stay on top of the market and in the long-term, the board no longer sees Furse as the one to lead it.]]> http://blog.watersonline.com/2008/10/lse_calls_time_on_clara.html http://blog.watersonline.com/2008/10/lse_calls_time_on_clara.html Mon, 27 Oct 2008 10:31:57 +0000 Washington Post article: "The deterioration in consumer credit, the latest downturn to whack Americans after the housing slump and mortgage meltdown, threatens one of the linchpins of the U.S. economy. Over the past 10 years, credit card debt has gone up 75 percent as Americans' real wages and savings rate have stayed flat. That means Americans have been spending beyond their means -- and fueling economic growth with borrowed money. Now, the housing crash, financial downturn and contracting economy have made it more difficult for Americans to settle their bills, setting off a downward spiral. As people fail to pay off their credit card bills and other loans, banks must put away money to cover expected losses. So banks lend less. Americans who tended to rely on loans to fuel their spending must cut back, readjusting their spending habits to conform with what they earn." I agree that credit card defaults are probably the next big problem and some people will have to adjust their lifestyles – which isn’t necessarily a bad thing. Americans spend more than they earn, which is not sustainable. You can’t keep a country growing on nothing so there needs to be an adjustment. But I don’t believe we will see as big a crash as we did with subprime mortgages. I don’t know for sure but I don’t think there is the same kind of securitization of credit card loans like we saw with the mortgage industry. Firms are too aware – and afraid – of the risks associated with collateralized debt now – or at least they should be. CDSes, CDOs and MBSes ended up being worth a lot more than the actual loans underlying them and so when everything went into default, a lot more was owed than just the underlying debt. Basically the securitization of the debt ended up escalating the problem many times over. I do think we will see a credit card problem. But I don’t think it will have as many ramifications as the subprime mortgage crisis because I don’t think there is the same amount of securitization – at least I haven’t heard of a market of credit card debt-based derivatives. Please correct me if I am wrong. I’ve no idea if firms are out there buying and selling credit card-backed derivatives. If they are the industry obviously has learned nothing and deserves all it gets. But do we the "innocent" consumers deserve too suffer too? There are protesters standing on the corner of Wall Street who would argue "no". ]]> http://blog.watersonline.com/2008/10/are_credit_cards_next_1.html http://blog.watersonline.com/2008/10/are_credit_cards_next_1.html Fri, 24 Oct 2008 22:46:39 +0000 Dealing with Technology]]> http://blog.watersonline.com/2008/10/stress_in_the_fiscal_mess.html http://blog.watersonline.com/2008/10/stress_in_the_fiscal_mess.html Fri, 24 Oct 2008 20:19:32 +0000