Chillin' out till it needs to be funded
Regulators are having a field day, chomping away at little acts of banks long allowed as fair and market friendly in the spate of SEC investigations against the “vampire squid” as anointed by a Rolling Stone cover and against the owners of fortress balance sheets that still returned a 15% return on equity in 2011.
Yesterday’s short SEC action targeted analyst and hedge fund huddles as Insider Trading and Goldman Sachs settled with SEC for $22 mln. The morning huddles between analysts and traders plus a select group of hedge fund clients of the bank seemed a fair proposition to clients and traders to exchange notes before trading for the day. However as no compliance was present and inhouse Algorithmic trade matching/identifying software isolated 739 non actioned cases where days before a ratings change, abnormal profits were made in the trades in that sector/company where ratings were changing but GS had taken no further action
Goldman agreed to review its policies and procedures esp regarding the huddle in a settlement with regulators to review if ratings changes were discussed with traders or clients. However, the Glass Steagall Act and the wall between trading and research was repealed only to ensure a
smoother flow of information and it remains a matter of waiting before a more tempered decision can again be taken on whether any free flow of information at a designated time and place can indeed be regarded as trading in inside information just because Ratings teams are soliciting or disseminating opinions on their “soon to be published” research. The phenomena of markets trading in public information alone can not really be compartmentalised in terms of people unable to seek information preventing the dissemination of information between people “with access”.
Many other postulates can be constructed with equally material impact yet unclear disposition and the insider trading investigations apart such SEC actions are only limiting the regulator from being regarded a s a competent authority