In Honor of Veterans Day and the USMC 243rd Birthday, MarketsMuse Curators extend our appreciation to all US Military Veterans, Happy 243rd Birthday and Semper Fi to all US Marines, a special salute to the battalion of sell-side broker-dealers owned and operated by Service-Disabled Veterans, and a Special Shout Out to Mischler Financial Group’s “Mischler Marine Expeditionary Force”, comprised of Managing Director, Public Finance Rick Tilghman; Senior Analyst, Capital Markets Jonathan Herrick; and Director, Portfolio Strategies Jason Klinghoffer, CFA.
OORAH! & SEMPER FII
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Mischler Financial Group Marine Expeditionary Force
Breaking News: GTS Securities, the NYSE’s biggest specialist firm aka Designated Market Maker (“DMM”) and one of the electronic market-making world’s biggest players in the FX and rates markets is now aiming to become the ETF industry’s biggest market-maker the old-fashioned way, by buying into the space. After several months of speculation and rumors of a pending deal, GTS formally announced today they have acquired the entire team of ETF brokers and traders from Cantor Fitzgerald. According to the press release issued by GTS, the deal to acquire Cantor’s ETF team of approximately 35 ETF sales traders led by ETF industry veteran Reginald Browne is expected to close in February 2019. Terms of the transaction were not disclosed.
(l)Reginald “ETF Godfather” Browne (r) Ari Rubenstein, co-founder GTS Securities
GTS was established by former NY Merc floor traders Ari Rubenstein and David Lieberman, who looked to Amit Livnat, a top-of-class graduate from the world famous Israel Institute of Technology to serve as the firm’s resident tech wonk. Of the three, Rubenstein is the camera-facing thought-leader, who first cut his teeth in the trading business as a runner on the floor of the New York Mercantile Exchange and later became a floor trader on the New York Cotton Exchange. Aligning with fellow floor trader David Lieberman and Livnat, GTS was first positioned as a HFT prop trading firm that leveraged in-house trading technology and home-grown algorithms to peel incremental profits by executing tens of thousands of transactions per day across US equities, rates and FX markets. Framed early on as one of the industry’s so-called “flash boys”, GTS levered its high-frequency trading expertise and morphed into their current role as a global trading powerhouse when the firm took control of the NYSE’s biggest specialist firm operated by a unit of Barclays Bank.
“For the first time on a scale never seen before, the most sophisticated Wall Street technology is being deployed for mainstream investors, be they institutional or retail,” said Ari Rubenstein, CEO and co-founder of GTS. “Investors around the world can now leverage the very best in machine learning, artificial intelligence and execution technology to help them save money whenever they trade and invest. This is an unprecedented opportunity for investors that unites unrivaled innovation with pioneering client service – while enhancing the capital raising opportunities for listed companies.”Stacey Cunningham, president of the New York Stock Exchange said, “The NYSE and our partners embody the synthesis of technology and human judgment, leading to the best possible outcome for investors and issuers.”
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Newport Beach, CA & Stamford, CT – November 1, 2018 — Each year, Mischler Financial Group, Inc. (“Mischler”), the securities industry’s oldest investment bank and institutional brokerage owned and operated by service-disabled veterans, pledges a percentage of the firm’s profits to veteran and service-disabled veteran philanthropies as part of its annual Veterans Day charitable initiative. This year, Mischler is proud to announce that Army Ranger Lead The Way Fund will be the recipient of the Mischler 2018 Veterans Day Month pledge.
Established in 2007, Army Ranger Lead The Way Fund, Inc. (“LWTF”) is a 501c3 Non-Profit created in honor of Sgt. James J. Regan (“Jimmy”) who served with Charlie Company, 3d Battalion, 75th Ranger Regiment. Jimmy was killed in action while serving in Baqubah, Iraq on February 9, 2007, at the age of 26. Since its formation, the organization has been dedicated to raising funds to support disabled U.S. Army Rangers and the families of Rangers who have died, have been injured or are currently serving in harm’s way around the world. LTWF provides spouses and children of deceased, disabled or active duty Rangers with assistance for acute medical care, recovery and wellness programs, warrior transition programs and other services determined to be vital to the family’s well-being, beyond what the government can offer.
Dean Chamberlain, Chief Executive Officer of Mischler and a graduate of the US Military Academy at West Point who served as a Captain in the U.S. Army 4th Infantry Division from 1985-1990 stated, “We are grateful to the many clients of our firm who provide us with the opportunity to demonstrate our capabilities and in turn, afford us the ability to pay back and pay forward to carefully-selected philanthropies throughout the year. When paying tribute to Veterans Day, in particular, we believe that Army Ranger Lead The Way Fund meets and exceeds the objectives of our firm’s philanthropic mission.”
About Lead The Way Fund, Inc.
Army Ranger Lead The Way Fund, Inc., A 501c3 Non-Profit, Is An Active Duty, Casualty Assistance, Recovery, Transition And Veterans Organization That Provides Financial Support, Beyond What The Government And Veterans Affairs Can Offer, To U.S. Army Rangers And The Families Of Those Who Have Died, Have Been Disabled Or Who Are Currently Serving In Harm’s Way Around The World. The organization website is https://www.leadthewayfund.org/.
About Mischler Financial Group, Inc.
Mischler is a federally-certified Service-Disabled Veteran-owned Small Business (SDVOSB). Established in 1994, the firm is FINRA’s oldest investment bank and institutional brokerage owned and operated by Service-Disabled Veterans. Within the primary capital markets, Mischler provides investment banking, underwriting, and distribution of corporate debt and equities, and municipal debt issuance. Mischler’s secondary market, conflict-free capabilities extend across the U.S. and global equity markets, exchange-traded funds and the U.S. fixed income markets. Mischler also provides asset management for liquid and alternative investment strategies. Clients of the firm include leading institutional investment managers, Fortune corporate treasurers and municipal officials, public plan sponsors, endowments, and foundations. The firm’s website is located at www.mischlerfinancial.com.
Broker Rebates From Exchanges and HFT Firms May Be Securities Fraud, Says Federal Judge
Broker Rebates, Payment-for-Order-Flow (“PFOF”) and “Pay-to-Play” have become synonymous with new world order in which exchanges, dark-pool operators and high-frequency trading (“HFT”) firms, (the so-called “flashboys”) dominate the world of stock trading. While many Wall Street geniuses will argue “the genie is out of the bottle”, it doesn’t mean this practice is right-minded, no less legal-and it hasn’t stopped naysayers from arguing that customers’ best interests are clearly not part of the equation. A Federal judge in Nebraska seems to agree, based on his ruling last week that allows a class action lawsuit aimed at TD Ameritrade in connection with their receiving payment-for-order-flow rebates from high-frequency trading (“HFT”) (and not even sharing those rebates with customers!) to proceed. The plaintiff argument is that TD has violated best execution guidelines. Should anyone be shocked?! After all, the topic of payment-for-order-flow and barely-disclosed rebates paid to brokerages by exchanges and electronic market-making firms in consideration for routing orders to them has been a topic of spirited debate for more than several years.
Here’s the excerpt from WSJ reporting by Cezary Podkul:
Mom-and-pop investors who think their brokers are prioritizing high-frequency traders over them may soon have a chance to try to prove their case in court.
A federal judge in Nebraska this month ruled a class-action lawsuit could proceed against TD Ameritrade Holding Corp. AMTD -1.09% , one of the nation’s largest discount brokerages. In his ruling, the judge cited “serious and credible allegations of securities fraud” stemming from the company’s order routing practices.
Plaintiffs allege the discount brokerage prioritized its profits over their best interest on stock transactions
The TD Ameritrade customers who brought the suit alleged the company, which provides investing and trading services for 11 million client accounts, prioritized its profits over their best interests. They claim it did so by accepting incentives from stock exchanges and large electronic trading firms to route customer orders to them without ensuring the customers would get the best prices available – an obligation that along with related factors is known as “best execution.”
A spokeswoman for TD Ameritrade said the company disagrees with the judge and will appeal his ruling.
Judge Joseph Bataillon’s ruling, delivered Sept. 14 in federal court in Omaha, Neb., marks the first time a court has allowed customers to pursue a class-action lawsuit on the grounds a retail brokerage breached its duty to provide best execution, according to the ruling and the plaintiffs’ attorneys.
The decision comes at a time of growing focus on how brokerages handle customer orders. In its Oct. 2017 blueprint for streamlining financial regulations, the U.S. Treasury Department said it is concerned payments to brokerages “may create misaligned incentives” for brokers and their customers. It urged the Securities and Exchange Commission to boost regulation of such payments and require more disclosure.
In March, the SEC proposed a study that would impose temporary restrictions on stock exchanges’ fee and rebate payments and measure the impact on order routing behavior and trade execution quality. On Wednesday, an SEC commissioner called on the agency to move ahead with the study and faulted it for not doing more to ensure transparency and fairness in the stock market.
Keep reading, the story is only going to get better, but not necessarily for brokers. Then again, the current SEC leadership is likely to put their own dog in the game, given their views toward re-defining the concept of fiduciary within the context of broker-dealer guidelines.
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MarketsMuse Curators extend our thanks for the excerpt below, courtesy of Aug 1 feature story by Philly Inquirer Reporter, Erin Arvedlund. Follow Erin on Twitter via @erinarvedlund or email EArvedlund@phillynews.com
NYSE Floor Broker Lauren Simmons is breaking records and glass ceilings. She’s the youngest female and only the second African American woman to ever work at the NYSE in its 226-year history. On December 5, 2017, she signed her name alongside that of John D. Rockefeller in the constitution of the NYSE.
She’s what most traders aren’t — a millennial, a woman, and a minority.
At 23, Lauren Simmons is the youngest and only current full-time female trader on the floor of the New York Stock Exchange.
Simmons, a native of Marietta, Ga., graduated from Kennesaw State University with a degree in genetics and a minor in statistics, all of which helped her impress Gordon Charlop, partner at Rosenblatt Securities and a floor trader for twenty-five years. As a NYSE floor governor, he hired her to work on the floor of the New York Stock Exchange as an equity trader last year.
“He liked my stats background, and as a trader, you have to make quick decisions,” Simmons told the crowd. Rosenblatt is a specialist boutique brokerage firm that trades mostly exchange-traded funds, or ETFs, she said
While much of Wall Street trading is now automated and computerized, the NYSE is one of the last remaining trading floors with humans, she added.
“My orders from clients might move prices, and I can go to one of the market-makers in a stock in-person and ask them what the market’s looking like. Technology can’t do that.”
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Digital Token Offerings & Securities Regulation: Are you an ICO or STO? (the following is courtesy of Prospectus.com LLC)
A question that is harder to ask than whether asked if your product is butter or margarine. Blockchain token sales (aka initial coin offerings or “ICOs”) reportedly topped $5 billion in 2017, with approximately $1 billion ICO offerings originating in the United States, according to a December 2017 report by Ernst & Young. Blockchain technology has a variety of prospective applications, and blockchain tokens can have a variety of features and functionality. For example, some blockchain tokens may function as a virtual currency, or as a license or right to receive a good or service or to use certain software. Even traditional assets like real estate or stock in a company may be “tokenized.” That said, a token’s characteristics and the manner in which the token is sold drives the determination as to whether US securities laws –as well as a growing universe of securities regulations in other jurisdictions-may be applicable, explaining the more recent industry labeling:“securities token offering” , also known as STO.
Evan Fisher, Prospectus.com LLC
While much has been said and much has been written on the topic of securities regulations within the context of digital token offerings, it would seem that many are still clueless (or perhaps have bananas in their ears and blinders on their heads). Evan Fisher, a finance industry veteran and business plan consultantat Prospectus.com LLC stated, “Of the several dozens of initial conference calls between the staff at Prospectus.com LLC and crypto cool kids seeking white paper writingand/or investor offering document preparation for respective ICOs, the take away is that many crypto entrepreneurs still suffer from blind eye syndrome and are advancing capital raises in direct violation of established law. ” Adds Peter Berkman, a US securities and real estate attorney who also advises clients of Prospectus.com LLC, “Regrettably, ignorance of the law is not a viable defense strategy for those charged with violating securities laws and/or anti-money laundering laws.” Added Berkman, “the popular argument held by many start-up entrepreneurs in ‘crypto land’ is that their token is not actually a security-which is fine-as long as they’ve set aside several hundred thousand dollars to defend that argument when they wind up wearing court order to appear.”
That said, there should be two rules of thought for those who aspire to advance digital token offerings and who believe they have a great, industry disrupting idea that leverages their fintech fluency and the blockchain ecosystem. First, consider the 3 Duck Rule-If it looks like a duck, walks like a duck and quacks like a duck, regulators will call it a duck and second, advancing the notion that your ‘token’ is a utility device and the pitch to investors is “the value of the token will increase as usage of the token increases”–hence the reason for investing in it-is a thesis that has been advanced by each of the 800+ digital token offerings that have died on the vine before reaching puberty. Leading many investors to ask in retrospect, “What the f*&k happened to the money I invested?!” In turn, leading this author to answer: “Your money has been carefully distributed to a variety of real world assets, including luxury homes, vacation homes, cars, NetJet contracts and other toys purchased by the folks who you sent your money to.” If you’re a crypto cool kid and your value proposition is “If we build it, they will come and they will play” and hence, “its the balls and bats that we provide that will have value and the more folks play, the greater the value of the bat and balls,” we congratulate you for socialistic leanings.
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On the other hand, sophisticated investors are rapidly losing interest in pitches for digital token offerings that are based on the same premise advanced by dot-com busters–the one that suggested “if we get enough users, we’ll be profitable!” Yes, that proved true for whose business models were based on advertising sales and were able to attract enough eyeballs to appeal to advertisers. And yes, this model has worked beautifully for Alphabet Inc, FaceBook, YouTube and a select universe of others. Yes, you can also go to the dot-com graveyard and locate the thousands of others who never got enough users, or never got advertisers to pay those sites to install a click-able link. In the Software as a Service (SaaS) model, people pay for using a software application on a subscription basis. In the utility token construct, payment to use the software application and those who receive payments is often complex; but investors in the token are generally not sharing in that revenue. They can only look to a return on their investment if a whole bunch of people are using it and if a whole bunch of people are using it, they will need to procure more tokens for continued usage. If there are a limited number of tokens available for using the application, the value of the token will therefore increase. Not to suggest the ‘pay-to-play’ model is bad (its arguably a good business model), the rubber meets the road at the point where users don’t want or don’t need to play with your token–because nobody else cares to play with it.
To read the entire article from Prospectus.com LLC, please click here
Extra! Extra! XLC is the new ETF that ties telecom and media constituents into one exchange-traded fund! For those with a view towards latest and greatest ETF products, eyes and ears are on the Communications Services Select SPDR Fund(NYSEARCA: XLC) — “it tracks the Communication Services Select Sector Index and “seeks to provide precise exposure to companies from the media, retailing, and software & services industries in the U.S.”
Wow. That’s a bucket full of precision when considering the constituents of XLC include among others, Facebook (NYSE:FB), Alphabet Inc (NASDAQ: GOOGL), Activision (NASDAQ: ATVI), Verizon (NYSE: VZ), Comcast (NASDAQ: CMCSA), Netflix (NASDAQ: NFLX) The good news is that ETF maestro Andrew McCormond, Managing Director ETF Solutions for WallachBeth Capital distills the appeal of XLC, the latest innovative exchange-traded fund and one that might be the FANG-style ETF for portfolio managers who have yet to find a one-stop product that meets their portfolio allocation needs.
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If you’re on a path to raise capital for a new hedge fund, a fintech initiative or a blockchain-startup, the first step is packaging your pitch and presenting the opportunity within a properly-prepared Prospectus. The go-to firm to assist you? Prospectus.com LLC. Straightforward, Smart and Bespoke Services.
Morgan Stanley Raises Its Hand and Appoints e-Trading Veteran to lead investment bank’s scheme for the Electronification of Fixed Income Markets. Electronic bond trading has long been a holy grail for certain folks in and around Wall Street. On the one hand, reducing head count and mitigating dependence on high-paid sales people as opposed to ‘electronifying’ the trade inquiry and execution process makes sense and save dollars. For buy-sider players, the notion of increased transparency for instruments that have historically traded ‘over-the-market’ has been widely embraced by institutional investors, albeit many buy-side bond traders have encountered logistical, cultural, and arguably, political challenges when it comes to utilizing electronic trading tools. Without counting the number of independent e-bond exchange initiatives launched (and languished) in both the US and Europe since the turn of the century (a number that extends into the several dozens), the major banks have long insisted that bond trading is their domain alone and the concept of a centralized exchange platform is generally counter-intuitive to sell-side bond traders. Other than select legacy platforms whose initial backing (and liquidity) came from a consortium of banks (such as Market Axess and prior to that, BrokerTec), the six-pack banks have been reticent to join hands and to better ‘normalize’ bond trading in an electronic manner similar to other asset classes. Instead, everyone, including established exchanges, including the NYSE have aimed at building their own playing fields.
Phil Allison, “Captain Morgan’s” new Head of Automated Fixed Income Trading
(Bloomberg) — Morgan Stanley, which has recently thrown down its own gauntlet to advance electronic fixed income tools hired Phil Allison, previously of KCG Holdings Inc., to lead the automation of its fixed-income business. Allison will head fixed-income automated trading and report to Sam Kellie-Smith, according to a memo sent to staff Monday.
He was most recently the chief executive officer of KCG Europe, a high-speed trading business that was acquired last year by Virtu Financial Inc. Allison, who became chief executive of KCG’s European business in September 2014, purportedly received a golden parachute payment of up to $7m when he was tossed out the door when Virtu took over KCG. He was previously the global head of cash equities at UBS Group AG.
Automating bond trading is a “major priority” after Morgan Stanley succeeded in digitizing stock trades, helping it become the top equities shop globally, CEO James Gorman said earlier this month. Fixed-income businesses have been harder to switch, partly because of the market’s lower liquidity.
Morgan Stanley has been finding ways to incorporate its electronic-trading technology, known as MSET, into the bond- trading business. Kellie-Smith, who previously led equities, was picked in 2016 to revamp the fixed-income business after the bank reduced the unit’s headcount by about 25 percent. Allison worked at UBS from 1997 to 2014, developing statistical models and playing a leading role in algorithmic trading and automated market-making.
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Tom Farley, the former top gun at the NYSE, has long advocated the benefits of raising capital via the construct of Special Purpose Acquisition Company aka “SPAC”, aka “Blank Check company.” Now he’s become the CEO poster boy for SPACs with the formal IPO and NYSE listing of Fintech SPAC Far Point Acquisition Corp., a financial technology-themed acquisition company, which is backed by activist investor and fintech aficiondo Dan Loeb.
Tom Farley, Far Point Acquisition Corp
42-yearold Farley, a Georgetown University alum and former ICE senior executive and the second youngest person to serve as NYSE President when taking on that role in 2012, will serve as CEO of the ‘fintech buyout’ company. Farley is arguably one of the industry’s most fintech-fluent folks, given his role in helping to transform NYSE into a financial industry trading technology centerpiece.
Farley’s long-held view towards the future is evidenced by the fact NYSE’s two most dominant designated market-makers aka “DMM” firms, GTS Securities and Virtu Financial are companies that are synonymous with the phrase fintech. Both firms started their journeys as prop trading firms specializing in ‘high-frequency-trading’ and their more recently attained NYSE ‘specialist’ roles are powered by next generation in-house algorithmic trading and artificial intelligence tool kits. GTS Founder Ari Rubenstein, whose NYSE DMM is responsible for maintaining fair and orderly markets in 1200+ companies and who also oversees one of the industry’s most robust, multi-asset liquidity-providing prop trading platforms, is also a founding member of industry trade group Modern Markets Initiative (MMI)
Back to SPACs- For those who may have missed the multiple memos coming out of the biggest investment banks, the blank check company construct provides a means to create a publicly-traded ‘shell company’, whose use of proceeds is intended to acquire a private company (or companies) and seamlessly “jump the shark” by rolling the private company into the publicly-listed company without bearing the burden of the time and cost that is synonymous with taking a company public via the traditional IPO process.
First introduced in the early 1970’s, blank check companies were soon derided by securities regulators after a string of capital raises by companies that had notoriously little corporate governance, enabled unsupervised CEOs to empty corporate coffers for personal gain, leaving investors with nothing. In the early 1990’s, the construct was re-invented by small-cap investment bank GKN Securities’ founders David Nussbaum, Roger Gladstone and Robert Gladstone, who have been credited with introducing the SPAC construct (along with securing a trademark for SPAC), which is chock full of checks and balances. The GKN leadership team’s early success in floating ‘blank check’ companies led to their creating a new firm, EarlyBirdCapital which has become the thought-leader in SPAC offerings, as the SPAC template has since been emulated by the financial industry’s leading investment banks and endorsed by major exchanges across the globe.
In the past 10 years alone, tens of dozens of capital raises via the SPAC construct have delivered billions of dollars of dry powder for designated acquisition companies that have since effected tens of billions of dollars worth of ‘quick IPOs’ for companies in nearly every industry sector, including the cannabis industry,
Fintech industry veteran and startup industry consultant Jay Berkman, who coincidentally helped GKN introduce their first SPACs to institutional investors back in 1993, and now serves on the advisory boards of fintech merchant bank SenaHill Partners and investor document consultancy Prospectus.com LLC said, “Far Point Acquisition may not be the first Fintech SPAC, but its launch clearly reinforces a compelling approach to raising capital for the purpose of bringing established private companies into the publicly-traded ecosystem.”
Via video clip below, former NYSE top gun Tom Farley expresses his views on the SPAC construct and the fintech sector, and provides a glimpse at the prospective target acquisitions that Farley will be aiming for.
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Bloomberg’s Betty Liu Moves to C-Suite Role at NYSE
(Original story from Traders Magazine – June 6- by John D’Antona Jr.)–The women’s movement continues at the U.S.’ NYSE, the oldest public stock exchange, announced that former Bloomberg “babe” Betty Liu, who is also founder of financial content firm Radiate, Inc., will become Vice Chair of the NYSE, the global financial industry’s most famous bourse, a subsidiary of Intercontinental Exchange Inc. (MarketsMuse Senior Editor expresses warm note to Betty and re: the phrase used in quotes above is intended to be entirely respectful and complimentary –and not to be misconstrued as ‘not PC’ or to inspire a #MeToo moment)
Intercontinental Exchange, Inc., operator of the New York Stock Exchange, announced today that Betty Liu, an award-winning business journalist and entrepreneur, is joining the New York Stock Exchange as Executive Vice Chairwoman. Her appointment takes effect July 9. Liu will also join the NYSE Group Board.
Betty Liu, NYSE Co-Chairwoman
Liu is the Founder and CEO of corporate leadership advisory Radiate, Inc. and a 10-year veteran of Bloomberg Television, where she most recently co-anchored Bloomberg’s “Daybreak Asia” and “Daybreak Australia.” In her new role at NYSE Group, Liu will bring her global experience working with thought leaders, newsmakers and C-level executives to the Exchange. Working with NYSE President Stacey Cunningham and NYSE COO John Tuttle, along with the senior leadership teams of the NYSE and Intercontinental Exchange, Liu’s mission will focus on strengthening and building the NYSE leadership network, cultivating connections through live events and creating valuable opportunities for organizations to connect across the NYSE’s unmatched listed community of 2,400 leading global companies.
Liu will be joining the NYSE alongside its acquisition of Radiate, Inc., the company Liu founded in 2016 to empower emerging leaders with expert advice. ICE’s acquisition of Radiate is subject to customary approvals. When the deal is complete, Radiate’s team and content will become assets of the New York Stock Exchange and will be scaled across NYSE platforms. Radiate offers a library of more than 2,000 short-length video lessons taught by over 100 global CEOs and thought leaders. The Radiate platform, when it becomes a part of the NYSE, will add to the Exchange’s broad array of content and events. The transaction is expected to close in June and will not impact ICE’s 2018 results or capital return plans.
“Betty is a valuable addition to our leadership team, bringing her unique experience and perspective gained through her global postings and firsthand experience as a media entrepreneur,” said Stacey Cunningham, President of NYSE Group. “By working directly with the leadership of emerging and leading companies, and leveraging the Radiate platform, Betty will help us offer our customers even more opportunities to tap the NYSE network to connect and share ideas on our global stage.”
Liu’s years of international experience working for major news organizations include CNBC, Dow Jones, and the Financial Times. She has been stationed in Atlanta, Hong Kong and Taiwan on assignments.
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Securities Token Offering to Displace Initial Token Offering Fad; BOX in JV with digital broker-dealer tZero to Create Securities Token Exchange platform
(Redistributed with permission from BrokerDealer.com; story from Traders Magazine)-Well, Matilda, the Boston Options Exchange (BOX) is plotting to create the first regulated exchange to list and traffic in securities tokens as a means to legitimatize crypto-centric assets via a just-announced joint venture with Patrick Byrne’s digital-themed broker-dealer tZero. For those who haven’t gotten the memo, Securities Token Offerings aka STOs are the next generation approach to the now de-fangled initial coin offering (ICO) construct–which have been lambasted by securities regulators in nearly every corner of the globe.
Now that crypto cool kids are finally getting the memo: “These are Securities!” , the proposed first fully regulated Securities Token Exchange is coming to the US-via the Boston Options Exchange.
tZERO, the digital-themed broker-dealer created by Patrick Byrne and BOX Digital Markets LLC (BOX Digital)-a subsidiary of Boston Options Exchange, announced it has formed a joint venture to launch the industry’s first regulated security token exchange.
Lisa Fall, Box Digital
On May 18, 2018, the two companies entered into a letter of intent to form an exchange to list and publicly trade security tokens for companies that issue, or convert existing stock to, security tokens. The proposed joint venture would be equally owned by tZERO and BOX Digital, with each having equal representation on the Board of Directors, together with one mutually agreed upon independent director. Lisa Fall, who currently serves as CEO of BOX Digital and as president of BOX Options Exchange LLC, would be the CEO of the joint venture.
“tZERO has proven to be a pioneer in the development and practical use of blockchain technologies for capital markets for a number of years,” said Ms. Fall. “tZERO’s track record and accomplishments in this innovative area, coupled with BOX’s expertise in operating a highly efficient and transparent equity options marketplace, made partnering together an easy decision and we look forward to building a world-class platform for listing and trading security tokens.”
tZERO plans to contribute cash and license tZERO’s blockchain technology for operation of the security token market. BOX Digital will contribute expertise and personnel toward obtaining regulatory approval and operation of the security token market. Approval of the U.S. Securities and Exchange Commission will be sought following execution of definitive documentation. Creation of the joint venture is subject to definitive documentation and customary conditions.
“Our partnership with BOX Digital Markets is a significant milestone that will create the first SEC-regulated exchange designed to efficiently trade crypto securities. Lisa Fall’s leadership, reputation and deep experience in the regulated securities exchange industry will be a major asset in achieving this objective,” said Saum Noursalehi, newly appointed CEO of tZERO. “Together, we will continue to work with the SEC as we develop a first-of-its-kind platform that will integrate blockchain capital markets into the current U.S. National Market System.”
According to electronic trading market veteran Jay Berkman, an Advisory Board member of fintech merchant bank SenaHill Partners and COO of investor documentation firm Prospectus.com LLC, “Now that pragmatic securities industry thought-leaders have figured out how to package crypto assets within the construct of a security so as to conform to the US regulatory regime, nobody can dispute the fact the genie is out of the bottle . Added Berkman, “Securities Token Offerings (“STOs”) is a much more palatable approach, making way for a new mantra, “ICOs are dead, long live STOs”, until of course, another shoe drops.”
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For the full story from John D’Antona Jr. of Traders Magazine, click here
What’s Next? CryptoCurrency Bank License; Crypto Cool Kids New Goal: Stay Inside Regulatory Goal Posts
Coinbase Inc. and another cryptocurrency firm talked to U.S. regulators about the possibility of obtaining banking licenses, a move that would allow the startups to broaden the types of products they offer.
Coinbase, which operates the largest U.S. cryptocurrency exchange, met with officials at the U.S. Office of the Comptroller of the Currency in early 2018, according to a person familiar with the matter. Meanwhile, ivyKoin, a payments startup, in recent weeks sat down with officials at the Federal Deposit Insurance Corp., this person said. IvyKoin President Gary Fan confirmed the meeting.
The discussions included other topics, such as the firm’s business models, this person said. The companies might not seek a bank charter, which would significantly ramp up regulatory scrutiny. Whether they do so will depend on whether they decide the benefits of becoming a bank outweigh the costs.
A federal banking charter would let the firms swap a hodgepodge of state regulators for one primary federal one. The companies would also gain the option of directly offering customers federally insured bank accounts and other services, rather than partnering with existing banks.
A Coinbase spokeswoman declined to comment on the meeting. She said the firm is “committed to working closely with state and federal regulators to ensure we are properly licensed for the products and services we offer.” An OCC spokesman declined to comment.
IvyKoin pitches itself as a payments platform for government-issued currencies and cryptocurrencies that uses “know your customer” technology to detect money laundering. In the near term, ivyKoin is working with banks rather than trying to become one, but it asked regulators about a banking license to understand what might be necessary if it decided to apply, Mr. Fan said.
At the meeting, they “talked about our business model, what we hope to accomplish, next steps for us, key risks and how we can help banks manage that,” he said. “Our experience was really positive and [regulators] actually encouraged the discussion.”
Evan Fisher, Prospectus.com
“The past 18 months has seen an explosion of interest in ICOs, too many of which are unconstrained and outside the goal posts of what makes sense,” said Prospectus.com’s Evan Fisher, a former sell side investment banking veteran now consulting fintech firms on ICO best practices. “And, having the proper documentation in place for both investors and regulators is the most important part of any successful fund raise.”
Fisher is experienced in helping startups frame their value proposition properly and stresses founders need to ensure that when regulators do start to take a closer look at ICOs and cryptocurrencies, that all the necessary documentation is on file and easily obtainable.
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Goldman Sachs, the venerable investment bank and trading house, has been called lots of things, including “Squid.” But nobody on Wall Street can dispute the fact that $GS is uniquely innovative and perhaps, a firm that can smell the trail of money better than its peers and explains why Goldman is opening a bitcoin trade desk. While JPMorgan CEO Jamie Dimon has repeatedly said bitcoin and other cryptocurrencies are at worst, the foundation to a Ponzi scheme, and at best, a passing fad, Goldman’s CEO Lloyd Blankfein has a different, more open-minded view. As evidenced by last week’s announcement, Goldman is opening a digital asset trade desk to accommodate a growing spectrum of hedge funds, endowments and foundations that already own digital assets or intend to deploy funds to the alt currency asset class. The new digital asset desk will be led by a fellow named Justin Schmidt, an MIT quant jock who previously worked at several quantitative investment management firms, including a hedge fund connected to The Schoenfeld Group.
Jason Schmidt, Goldman Sachs Crypto Trader
As reported by NYT reporter Nathan Popper, “…While Goldman will not initially be buying and selling actual Bitcoins, a team at the bank is looking at going in that direction if it can get regulatory approval and figure out how to deal with the additional risks associated with holding the virtual currency….Rana Yared, one of the Goldman executives overseeing the creation of the trading operation, said the bank was clear-eyed about what it was getting itself into…”
Ms. Yared said the bank had received inquiries from hedge funds, as well as endowments and foundations that received virtual currency donations from newly minted Bitcoin millionaires and didn’t know how to handle them. The ultimate decision to begin trading Bitcoin contracts went through Goldman’s board of directors.
Whether your company is a fintech startup planning a private placement offering, a crypto concern with a custom token offering that is seeking to raise capital from qualified or accredited investors via an Initial Coin Offering (ICO), a Securities Token Offering (STO)or if you are fast growth firm setting the stage for an initial public offering (IPO), a properly prepared offering prospectus or offering memorandum is required by your investors and industry regulators that govern securities offerings. Issuers seeking expert, yet affordable investor document solutions rely on experts at Prospectus.com.
Goldman has already been doing more than most banks in the area, clearing trades for customers who want to buy and sell Bitcoin futures on the Chicago Mercantile Exchange and the Chicago Board Options Exchange.
In the next few weeks — the exact start date has not been set — Goldman will begin using its own money to trade Bitcoin futures contracts on behalf of clients. It will also create its own, more flexible version of a future, known as a non-deliverable forward, which it will offer to clients.
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Alpha Trading Labs, the Chicagoland fintech “crowd sourcing startup” has thrown the gauntlet down and threatens to democratize the sacred world of HFT wonks, those hoodie-wearing quant jocks who occupy $1mil per yr cubicles at high-frequency trading firms like Virtu, Citadel, Jones Trading, Hudson Trading, and Two Sigma (among others). You know who mean, those cool kid computer wizards who make their bosses billions (or at least tens of dozens of millions) using computer-generated trading schemes. That’s right, Matilda (and you Mark, Mary, Max, Moshe, Mel, and Melissa) and everyone else who aspires to be a Flashboy (or Flashgirl), can jump into the fray thanks to serial fintech entrepreneur Max Nussbaumer.
Max Nussbaumer, Fintech Entrepreneur
While the criteria to be accepted into the new program sponsored by fintech startup Alpha Trading Labs is not nearly as simple “High Frequency Trading for Dummies“, if you’ve got a reasonable thesis as to trading strategy and are reasonably computer literate, each of you can become a quant jock now! No more merely dreaming about having command and control of the same HFT weapons deployed by those ‘secretive prop trading firms’ that make fractions of pennies tens of thousands of times per day while trading cross the electronified world of stock, options and futures trading.
Per excerpt from WSJ trading markets reporter Alexander Osipovich’s latest piece, “Alpha Trading Labs is throwing its system wide open, with a programming tool kit that anyone can use to access high-powered trading machines.The company, which launched its do-it-yourself platform in January, has invited anyone with a trading idea and coding skills to try it out. Those who craft successful algorithms can get a chance to run them and share profits with Alpha Trading Labs, whose owners have up to $100 million to allocate to crowdsourced trading strategies..”
Chicago-based Alpha Trading Labs says it will execute trades through computers housed in the data centers of Nasdaq Inc., the New York Stock Exchange and other markets, a practice known as “co-location.” For those not aware, HFT firms use co-location to execute trades without being slowed down by the need to transmit electronic signals over long distances.
Alpha Trading Labs’ main investor is CMT Group , a firm founded by two veteran traders in 1997, with businesses that now run the gamut from high-speed trading to venture capital to real estate. It was an early investor in Dollar Shave Club, the razors-by-mail service acquired by Unilever PLC for $1 billion in 2016.
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An SEC subpoena is not exactly what any Issuer (or stock promoter) puts on the top of their birthday wish list. And, for crypto cool kids who are either already a member of the ICO Issuers Club, or who have applied to become part of the dapper dapp crowd that is floating digital coin or digital token offerings, its time to make sure that you have set aside real cash (or crypto-currency) for defense counsel fluent in engaging with the SEC.
According to multiple news outlets, the top US securities regulator has launched a series of cluster bombs in the form of SEC subpoena aimed at ICO Issuers and respective enablers. Included in the SEC’s ‘outreach” are ‘consultants, advisors, promoters, and other actors who have played a role in helping blocktech start-up companies raise what industry experts believe to be billions of dollars through initial coin offerings. Of that figure, forensic investigators believe at least $200 million raised by several dozen ICO companies during the past year has “gone south.”
As noted by investor document preparation firm Prospectus.com, “According to multiple news outlets, in recent weeks the SEC has sent subpoenas to dozens of blocktech companies and individuals who are involved in cryptocurrency, including crypto crowd thought-leader Patrick Byrne, the founder of Overstock.com and his company’s cryptocurrency-focused subsidiary, tZero. When Overstock announced in early November they would be launching an ICO, the company’s shares skyrocketed from the the mid $20’s to nearly $90 per share in a manner of days. When it was revealed this week that Overstock (NASDAQ:OSTK) was one of multiple companies that have received SEC subpoenas, its share price plunged 20% in two days.
“ICO Issuers are compelled to understand the term “Caveat Venditor”, lest they be moved to the top of the SEC’s ICO Subpoenas list.”
The targets of the initial coin offering crackdown subpoenas include potential SEC enforcement actions against companies that have launched ICOs, the cryptocurrency equivalent of IPOs, as well as their lawyers and advisers. The subpoenas reportedly include requests for information on how ICO sales and pre-sales are structured, according to anonymous sources to WSJ. The SEC is also requesting the identities of the investors who bought digital tokens, The New York Times found. The SEC declined to comment.
Peter Berkman, a Florida-based securities attorney and US Federal Bar Association member who also advises investor document preparation firm Prospectus.com, stated “Nobody should be ‘shocked’ that regulators are stepping up their scrutiny of ICOs given that many have the characteristics straight out of “Boiler Room 4.0.” There’s a cadre of bad actors and so-called promoters who are preying on the naivete of start-up entrepreneurs as well as the greed profile of unsophisticated investors,” stated Berkman.
There are steps that ICO issuers can take to stay inside the regulatory goal posts, or at very least, under the radar given that SEC rules for ICOs remain in the ‘forming stage. Attorney Berkman advocates ICO Issuers should be compelled to understand the term “Caveat Venditor”, unless they want to be moved to the top of the SEC’s ICO Subpoenas list. Prospectus.com thought-leaders were arguably early to opine that among other ICO compliance guidelines to follow, accredited investor guidelines should be embraced by ICO issuers. The firm has provided multiple crypto cool kids and start-up entrepreneurs with a best practice approach to raising capital in the course of advancing digital token and digital coin offerings.
To continue reading via blog post at Prospectus.com, click here
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Asset Management Industry is Notorious for Waste: Its About Blockchain, You Blockheads. NOT Bitcoin,
Blockchain Dapps Can Mitigate Risk of “Death By Drop Copy”
Any asset manager in today’s world who has more than $500 of AUM does not need to be fluent in the language of fintech, blocktech or be able to explain ‘the internet of things’ to understand the benefits of embracing blockchain dapps and the power of distributed ledger technologies. Any asset management firm that claims to be operating in the world of institutional fund management does need to get on the blockchain bus–or risk getting run over by it.
(courtesy of Prospectus.com LLC) As part of ongoing series “Its About Blockchain, Blockhead, Not Bitcoin!”, FT reporter Attracta Mooney hit the yellow zone of the target in a recent column profiling the how, where and why investment industry asset managers in UK, Ireland, Luxembourg, Hong Kong, Singapore, Taiwan and Australia could enjoy nearly $3billion in annual savings were they to embrace blockchain’s distributed ledger powered processes. After all, the new ‘internet of things’ blockchain value proposition for securities industry purposes is specifically designed to deliver at very least, greater efficiency in work flow, greater trust in the information being shared, enhanced transparency among trade processing constituents and more effective use of human capital resources.
Where? Let’s focus on the back office, the central place where administration of transaction reporting, accounting, trade processing and related legacy “drop copy” tasks take place. How? Distributed Ledger dapps leveraging the blockchain ecosystem are intended to mitigate duplicitous human interactions within the context of transaction affirmation, transaction processing, transaction reporting and transaction documentation.
If the above is confusing to you, or if you have not yet interrogated any of the thousands of simple-to-understand primers and tutorials on this topic (including the growing assortment of content pieces published in the news section of Prospectus.com) then you should
schedule a call with a fellow named George Chrisafis, who oversees fintech merchant bank SenaHill Partners’ Emerging Tech and Infrastructure Advisor Group. George is an IT industry grey beard with 30 years of domain expertise and his CV includes senior roles at the world’s biggest banks. When it comes to distributed ledger—as well as AI applications being developed for the securities industry, George is a reliable source of insight.
bring a high school or college-aged family member to your office and have them deliver a 5 minute dissertation on the topic of blockchain and distributed ledger, and to limit the cryptocurrency explanation to 1 minute. For some, the topic is confusing, but this is confusing, there is no shortage of simple primers and tutorials that frame the value proposition of distributed ledger.
Why Asset Managers Should Embrace Blockchain applications Barring above steps to independently confirm the thesis put forward in the FT article (excerpt and link below), let’s jump straight to the topic that best defines the purpose of asset managers: MONEY. Now let’s delve into the real cost and real expenses associated with their role(s) from both a human capital perspective and IT angle. [The information cost (research) and marketing expense components can be addressed in a different opinion piece}.
From a human capital expense perspective, transaction reporting tasks are notorious for their duplicative and redundant steps spread across various internal departments; many back-office professionals lament the high risk of Death by Drop Copy, simply because much of their time is spent drop-copying one file from one software application into an unconnected software application that performs a different task. From an IT perspective, let’s opine that most investment management firms are spending considerable sums each year on software licenses, software maintenance, and software administration. Succinctly, blockchain applications can save tens, if not hundreds of thousands of dollars to an established asset management firm—in turn enabling a firm to deploy those cost savings to revenue producing initiatives and recalibrating how internal human capital resources are better utilized.
If you’ve got a hot insider tip, a bright idea, or if you’d like to get visibility for your brand through MarketsMuse via subliminal content marketing, advertorial, blatant shout-out, spotlight article, news release etc., please reach out to our Senior Editor or email: cmo@marketsmuse.com.
MiFID II Implementation Triggers Flow of $50b into Europe ETF Market In First Weeks of 2018; ETF Sec Lending and ETF Options Growth Expected to Drive EU Financial Markets.
“What we’ve seen for the first time in European ETF trading is really a concerted interest in trading ETF options in Europe. A load of clients use ETF options in the States, but in 2018 — and it’s a culmination of MiFID II (and other factors) — I think there is an acceptance that this is now a practical and attractive proposal for people who want to trade volatility, buy protection or raise income by selling options. That’s really unlocking a whole new dimension in the way end-investors can use ETFs,”
Twenty-five years ago, when SPDR, the original Exchange-Traded Fund (ETF) was christened on the American Stock Exchange with the nickname “Spiders”, this MarketsMuse senior curator was one of the first market-makers on the Amex to trade the ‘new-fangled’ product. Along with a cadre of other professional traders and floor brokers from that time, we’re now viewed as the original cast of The ETF Story. A quarter of a century later, ETFs represent $3trillion in assets; a number that some expect to double in size in just a few more years. Across the US financial market ecosystem, the ETF evolution has transformed investment strategy schemes on the part of retail and institutional investors within the context of equity, fixed income, commodities and derivatives market investment styles. And with the January 2018 implementation of The Markets in Financial Instruments Directive II (MiFID II), few will dispute that Europe is on the cusp of realizing a massive asset allocation transformation to ETF constructs, as the benefits to investors and industry participants cannot be understated.
Slawomir Rzeszotko, Jane Street
“Best execution and post-trade transparency are two areas where MiFID II seems to have had an impact on ETF trading,” said Slawomir Rzeszotko, head of institutional sales and trading, Europe, at quantitative trading firm, global liquidity provider and market maker Jane Street Group LLC in London. “In both cases, the changes appear to have encouraged institutional investors to execute more trades via (request for quote platforms).”
For those who are still unclear as to the value proposition of utilizing exchange-traded funds, let us the count the ways, starting with the ability to deploy assets based on investment theme (e.g. industry or index of specific types of stocks or bonds) via an instrument that trades just like a stock in terms of transparency, liquidity and low cost commissions. There’s a host of reasons why retail investors are generally better served to use ETFs vs. Mutual Funds. Let’s not overlook Warren Buffett’s view that index investing is a smarter approach for individual investors. For institutional investors, the list of reasons to embrace ETFs has become equally compelling. We won’t provide a tutorial if you haven’t gotten the memo yet, we’ll simply point you to the text book explanation. It’s taken a long time for institutional investors in the U.S. to ‘get the joke’, now its time for European ETF Issuers to ramp up the education and awareness process aimed at institutional investors. Here’s a few hints as to how MiFID II implementation is going to benefit those charged with overseeing institutional portfolios, pension assets and end retail clients:
Securities Lending (Sec Lending) Opportunities (more income to funds that hold ETFs)
Introduction of Options on ETFs–to enable hedging and portfolio optimization schemes.
“When volumes and trading hit a certain critical point, the acceptability of any of those things that trade as collateral becomes more feasible.” The look-through liquidity afforded by the MiFID II rules means “we’re at a tipping point where ETFs themselves are being recognized increasingly as something that can be used in the world of lending. It means the borrow market in ETFs in Europe is moving toward where it is in the States.. A good “borrow” or securities lending market also lends itself to a “functional options market..”
We’ll leave the lengthier explanation to P&I’s Sophie Baker–who put forth a superb dissertation in the Feb 19 2018 edition of Pensions & Investments Magazine titled “Europe in line for ETF boom, thanks to MiFID II”. MarketsMuse ETF curators also extends a big shout out to “Dame Deborah Fuhr”, who is viewed by most across ETF land as the “Queen of ETFs”. Her Eminence Dame Deborah is an industry icon and founder of research platform and industry think tank ETFGI. When it comes to objectively framing the ETF value proposition within the European theater, nobody does it better–so we think you should follow her on Twitter.
If you’ve got a hot insider tip, a bright idea, or if you’d like to get visibility for your brand through MarketsMuse via subliminal content marketing, advertorial, blatant shout-out, spotlight article, news release etc., please reach out to our Senior Editor or email: cmo@marketsmuse.com.
(MarketsMuse fintech and blocktech curators extend our thanks to Prospectus.com LLC for the following contribution)-Bloomberg Intelligence reporter Jonathan Tyce wins the Valentine’s Day Award for Very Good Framing courtesy of his latest piece “Blockchain is Coming Everywhere, Ready or Not” –one of a series of articles by Tyce that puts the blockchain value proposition into proper perspective. Without suggesting there is any IP underlying the thesis advanced by Tyce, the opening sentence speaks volumes to those who are crypto challenged and have the misinformed view that blockchain = bitcoin=all kinds of bad things, including but not limited to ‘investment bubble”, Ponzi scheme, “pump and dump” ICOs where the Issuer is now hiding in the ‘dark web’ or sun-tanning in Belize, and lastly, ‘one of the things that lets people create crazy currency that isn’t even fungible’. Bid repeats: Its all about the blockchain, blockhead. Not bitcoin. Welcome to BlockTech.
Without intending to invite the BloombergLP copyright cops to castigate this blog for infringement violations, this blog has posted a series of original articles themed with the same title of this post. With that disclaimer, we’ve responsibly stayed within the goal posts and merely excerpted select portions of Tyce’s piece to advance smart thinking and give credit where due…
The applications of blockchain technology will spread in 2018 far beyond bitcoin and, perhaps more surprisingly, way beyond financial services. Significant disruption and new business opportunities are on the menu. Four of the most-critical benefits from distributed-ledger technology can be encapsulated within trust, transparency, cost and speed. Where will the disruption occur?
Blockchain is now a familiar term to many, though in most cases, its meaning will be inextricably linked to bitcoin after a 10-fold price surge in 2017 valued the cryptocurrency at more than $180 billion.
This is only one strand of the story for Europe and globally. The applications of blockchain technology will spread in 2018 far beyond bitcoin and, perhaps more surprisingly, way beyond financial services.
For starters, huge improvements in efficiency and transaction speeds, cost savings and enhanced security are on the menu, with significant disruption and new business opportunities likely to follow.
Distributed-ledger technology
Putting the semantics to bed early, blockchain is the name designated to a string or chain of transaction records (blocks), cryptographically signed with “hashes,” or digital signatures. Though undoubtedly the most high-profile application of blockchain, the bitcoin network is just one example of how cryptocurrencies and other transactions can use this technology.
Blockchain is effectively the means to create tamper-proof records of data and transactions — whether that is a money transfer, vote cast, medical record or change of property ownership. It is just one of a variety of decentralized database technologies that exist across multiple locations. These are known as distributed ledgers, and it is within these so-called DLT technologies that great opportunity exists.
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Here’s the excerpt from WSJ reporting by Cezary Podkul:
Wow. That’s a bucket full of precision when considering the constituents of XLC include among others, Facebook (NYSE:FB), Alphabet Inc (
