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    Metamorphosis in HFT: Update with Brad Katsuyama of IEX, Central Figure in ‘Flash Boys’ Guest columnist and intrepid reporter Doug Friedenberg talks to Brad Katsuyama about HFT, Michael Lewis and more.

    As Gregor Samsa awoke one morning from uneasy dreams he found himself transformed in his bed into a gigantic insect.  "The Metamorphosis”, by Franz Kafka. Brad Katsuyama awoke one morning in early spring, 2014, to find he had just become the object of greatly mixed opinions and emotions upon publication of Michael Lewis’s work Flash Boys.   Michael Lewis had reached out to Brad earlier in the preparation of the book, but as the book took shape, and Michael spent more time at Brad's offices, Brad began to suspect that he might be featured rather more than he first thought. When publication bore out that notion, the floodgates opened.  Brad Katsuyama did seem rather like a pesky cockroach who shouldn’t be crawling through the hors d’oeuvres to the HFT firms who had financial interests to protect.  On the other hand, there was a growing chorus of institutional investors who, for the first time, could see unnecessary costs generated by HFT operations which apparently served no useful purpose. We asked Brad what he had learned ...

Featured Post


One Ordinary Week in the Life of Climate Change


We thought it would be instructive to share with you links and the odd quote from recent press reports on the subject of climate change.  As a professional investor,  you no doubt want to be ahead of trends in the investment world.   Investment opportunities arise when there is a divergence of opinion, as is uniquely the case in the United States (unlike the other nations on Earth) on the subject of climate change.  The headlines of a few days tell ...


China’s Oil Giant At Center Of Corruption Probe

Oilprice.com's Ky Krauthamer looks at corruption in China's oil industry.

By Ky Krauthamer Grins were on the faces of China National Petroleum executives this week as they celebrated a blockbuster 30-year deal for Russian gas. It was a good day for CNPC, the state-owned colossus at the center of China’s oil and gas webs and one of Eurasia’s biggest energy investors. For some, however, those grins could soon turn to grimaces, because the deal comes against a backdrop of a series of high profile corruption investigations by the state, and CNPC has ...

Guest Posts


The Skorina Report is Surfing the Age of Asset Management: Will the tide of global AUM lift all asset-management boats?
Charles Skorina looks at the future of CIOs and with rising AUM and sees a forecast calling for sunny and bright. Maybe it's finally time to break out the shades!

By Charles Skorina The future looks bright for investment-management professionals as global assets under management surge from the current estimated $87 trillion dollars to a projected $400 trillion in 2050. Andrew G. Haldane of the Bank of England recently declared that global assets under management presently stand at about $87 trillion and says they'll rise 15 percent to $100 trillion by 2020, just five years from now. Looking farther out, Mr. Haldane foresees global AUM quadrupling to $400 trillion by 2050, boosted by ...


Hedge Fund Regulation

Exemptions and Pools: CFTC Harmonizes with the JOBS Act
Two rules within the CFTC rulebook that offer exemptions for certain CPOs from certain regulatory requirements mirrored the original pre-JOBS Act Reg D on the SEC side. But of course we are now in a post-JOBS Act world, and the CFTC staff has now acted, not through a rule change but by staff letter, to harmonize with its sister agency and with the JOBS Act mandate.

The CFTC’s Division of Swap Dealer and Intermediary Oversight has issued an exemptive letter with regard to certain provisions of Regulations 4.7(b) and 4.13(a)(3). This letter brings the agency’s position into line with that of the SEC on solicitation restrictions. Readers of AllAboutAlpha will likely recall (and those who do may feel free to skip the remainder of this paragraph) that private funds often rely on the SEC’s Reg D as a safe harbor for non-registration. For a long time, Reg D prohibited the ships that weighed anchor within its harbor ...

Risk management

Burr XII, Extreme Value, and a Fantasy
The eight authors of a new study seek to add to “the existing literature of Bayesian VaR methods by … considering the … general class of Burr XII extreme value distributions “ and by estimating error bounds. After having a little fun we try to puzzle out what that means.

“They used a Burr XII extreme value distribution?” “Yeah, that’s what I’ve heard.” “What the heck is that?” “My best guess: it implies that Aaron Burr has bene cloned at least 11 times in secret laboratories.” “Why would that have extreme value?” “Suppose you wanted to stop the nefarious creators of 11 Alexander Hamilton clones….” “I don’t think that theory deserves a very widespread distribution.” But Seriously Folks Several scholars, including one affiliated with the CME Group and one with Morgan Stanley, have together announced a new framework for quantifying the risk of an equity portfolio, a ...

Risk management

Custodians Helping Customers with Securities as Collateral
How address issues of supply/demand imbalance in the world of collateral requirements? Custodians can do a good deal on behalf of their customers here, and are exploring just how much.

Sometimes the early material in a report is so boring that even us dedicated expositors can do nothing better than to splash into the middle. This is one of those times. But there is important stuff in the middle and end of the recent report by the Committee on Payments and Market Infrastructures, a working group under the umbrella of the Bank for International Settlements. The CPMI has issued a report on collateral management services. Nothing much matters here until Section III, which details the range of approaches that have ...

CAPM / Alpha Theory

Betting on Vice Doesn’t Really Pan Out
Christopher Faille, inspired by Greg Richey, of California State University, San Bernardino, has a few words about socially irresponsible investing, that is, the creation of a portfolio built around destructive human vices.

One venerable theory among alpha seekers is that one should bet on “vice,” that is, one ought to invest in companies that sell products widely regarded as anti-social, precisely because such companies are likely to have been heavily discounted. With all the regulatory and sociological artillery aimed over the years, over the decades now, at companies that sell liquor or tobacco, or allow gamblers to lose their money at felt tables, isn’t it plausible that investors have fled from the pertinent securities, and that the flight has more than compensated for ...

Legislation/Court rulings

Is Liability Insurance an Estate Asset in Bankruptcy?
The Manhattan bankruptcy court has now granted individual defendants in the MF Global matter, including Jon Corzine, access to funds from their D&O insurance. But it wasn't easy for them to get here, and therein lies our moral.

A recurrent issue in corporate bankruptcies may have entered the alternative-investment world’s consciousness more keenly than ever before as a consequence of the fall-out from the much-watched bankruptcy of commodities broker MF Global. Former MF directors and officers, facing lawsuits by shareholders and customers alike, seek access to what is known as their “A insurance.” In the D&O world, A insurance is that which pays the individual defendants for costs and losses that, for legal reasons, the ...

Performance, Analytics & Metrics

Asset Allocation & the Practical Application of Time-Window Analysis
Guest columnist Andrew Smith, CAIA, on performance analysis and its effect on asset allocation.

By Andrew Smith, CAIA Time window analysis is a version of performance analysis that takes looks at the statistical distribution of returns over different time-windows or holding periods. For example, let us say we have a fund with a 10-year track record of returns. A time window analysis would look at the return distribution of 1 day returns, 1 month returns, 3 month returns, etc on a day to day basis. So 1 month returns, for ...

Technology

Vindicating Austrians: The New ESMA Warning on Risks
In a new report, ESMA discovers that some investors may be guilty of "over-reliance on continued policy support." I gather that means that investors believe that central bankers and governments will play the role of Santa Claus indefinitely.

The European Securities and Markets Authority recently warned that valuation risks are on the rise on key markets. Some of the reasoning of the report must be giving Austrian economists, those much-despised Cassandras of central-bank-inspired bubbles, a sense of vindication. The good news is that in the first half of 2014, EU securities markets have witnessed “significant gains amid low volatility and notwithstanding a challenging economic and political environment.” The corollary is: low interest rates force a ...

Performance, Analytics & Metrics

Merger Arb: Getting Your Stick to Where the Puck Will Be
Christopher Faille speaks to Matt Porzio, the VP of Strategy and Product Marketing at Intralinks, about the data behind Intralinks' DFI.

This spring and summer’s excitement over Valeant and Allergan, and the former’s desire to acquire the latter, fed a broader trend: the day of the merger arb is upon us in earnest. You’ll remember that at least some of the dust in that dust-up had cleared by August 27th, when Valeant and its ally, Pershing Square[V/PS], won an important point in the Delaware Chancery. Allergan now says that it will hold a special meeting of its ...