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When The SEC Investigates Market Failures

This week, the SEC gave us a belated Christmas present.  But what does it actually portend?

The present in question is an 88-page "Research Note" from the SEC's Division of Trading and Markets titled "Equity Market Volatility on August 24, 2015." It's an innocuous-enough title, but for us market-structure wonks, it's kind of a big deal.

The conclusions of the piece are purely factual, and include dozens of pages of juicy charts and tables (be still my nerdy heart!). There's little or no conjecture, and there's absolutely no policy recommendations.

It outlines the facts of that fateful trading day, discussing what went wrong, and which classes of securities were affected. It's a gold mine for folks who want to dig in and understand what happens when things break, and, for any investor, it's worth reading at least the first six pages.

Key Findings

Here are the most interesting findings—not just because they're objectively interesting—but because they give you some insight into where the

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Investment Firm Director Snake In The Grass

Companies would expect their investment firm, especially management and Senior members, to not only dissuade insider trading, but to lead by example.  Here's a complete failure.

Case in point Mr. Michael Anthony Dupre Lucarelli.  The Director of Market Intelligence at a Manhattan-based investor relations firm.  Market Intelligence?  Serious oxymoron going on there?  Maybe not an oxymoron such as "honest politician" or "almost pregnant" but snake in the grass, no doubt (allegedly).

1290824?profile=originalToday the SEC charged the "Director" of insider trading by more than a dozen clients.  The charges were filed against Mr. Lucarelli alleging he garnered nearly $1 million in illicit profits.

An SEC investigation and ongoing forensic analysis of Lucarelli’s work computers uncovered that he repeatedly accessed clients’ draft press releases stored on his firm’s computer network prior to public announcements.  The SEC alleges that Lucarelli, who had no legitimate work-related reason to access the draft press r

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th?&id=HN.607994136074849660&w=300&h=300&c=0&pid=1.9&rs=0&p=0The Securities and Exchange Commission has touched off a major bureaucratic scuffle with its fellow financial regulators by proposing to, in the words of one Democratic aide, “rip the heart out of Dodd-Frank.” The SEC, following the wishes of one of its Republican commissioners, has initiated a turf war over which agency gets to monitor a key corner of the financial system.

At issue are so-called asset managers, companies like BlackRock, Fidelity and Pimco, who manage investments on behalf of individuals and groups through mutual funds and other vehicles. Asset management firms collectively control an astonishing $53 trillion in investor funds.

Historically, the SEC has regulated asset managers. But under Dodd-Frank, the Financial Stability Oversight Council, a newly created super-regulator, can designate “systemically important financial institutions,” or SIFIs, and subject them to rules previously reserved for banks. An FSOC designation puts non-bank SIFIs under the supervision of th

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Daily Reads

  • 1290420?profile=RESIZE_480x480The SEC is investigating electronic bonds prices and why some are hidden from view.  Are customers truly receiving "best price"?
  • Hands down the best explanation or deciphering I have seen on Fed policy, Yellen's statement and QE taper. (hat tip GT) CWS Market Review
  • Marked weakness continues in biotech and technology names.  Rotation into financials and oil&gas names?  We think so.
  • With hopes for SGR (Sustainable Growth Rate) reform dashed, physicians prepare for a 24% pay cut effective April 1, 2014.
  • Bank stress tests are out and worst case scenario?  A mere $501 Billion in losses to the Fed.  What could go wrong?  They can always file Bankruptcy like everyone else.  *lol*
  • Take Yahoo, minus out it's stake in Alibaba and Yahoo Japan and what's left.............is worthless. Ritholtz (click to enlarge image)
  • If you do NOT feel the biotech bubble has burst and you merely feel this is some profit taking and rotation into other sectors, here's a list of the biggest biotech l

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