Wall Street Cops Turn to AI for Market Surveillance

Posted on October 27, 2016 by admin

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FINRA Market Surveillance Crew Gets the “Artificial Intelligence Memo” After NASDAQ and LSE introduce AI tools to Monitor “Layering.”

(Reuters)–27 October-Artificial intelligence programs have beaten chess masters and TV quiz show champions. Next up: stock market cheats.

Two exchange operators have announced plans to launch artificial intelligence tools for market surveillance in the coming months and officials at a Wall Street regulator tell Reuters they are not far behind. Executives are hoping computers with humanoid wit can help mere mortals catch misbehavior more quickly.

The software could, for instance, scrub chat-room messages to detect dubious bragging or back slapping around the time of a big trade. It could also more quickly unravel complex issues, like “layering,” where orders are rapidly sent to exchanges and then canceled to artificially move a stock price.

A.I. may even sniff out new types of chicanery, said Tom Gira, executive vice president for market regulation at the Financial Industry Regulatory Authority (FINRA).

“The biggest concern we have is that there is some manipulative scheme that we are not even aware of,” he told Reuters. “It seems like these tools have the potential to give us a better window into the market for those types of scenarios.”

FINRA plans to test artificial intelligence software being developed in-house for surveillance next year, while Nasdaq Inc (NDAQ.O) and the London Stock Exchange Group (LSE.L) expect to use it by year-end.

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The exchange operators also plan to sell the technology to banks and fund managers, so that they can monitor their traders.

Artificial intelligence is the notion that computers can imitate nuanced human behavior, like understanding language, solving puzzles or even diagnosing diseases. It has been in development since the 1950s and is now used in some mainstream ways, like Siri, an application on Apple Inc’s (AAPL.O) iPhone that can engage in conversation and perform tasks.

While financial firms are already applying artificial intelligence software for everything from compliance to stock-picking, it is only starting to become useful for market oversight.

“We haven’t really let the machines loose, as it were, on the surveillance side,” said Bill Nosal, a Nasdaq business development executive who is overseeing its artificial intelligence effort.

50 BILLION EVENTS

Market surveillance generally relies on algorithms to detect patterns in trading data that may signal manipulation and prompt staff to investigate.

But the sheer volume of data can lead to an overwhelming number of alerts, many of which are false alarms.

FINRA monitors roughly 50 billion market “events” a day, including stock orders, modifications, cancellations and trades. It looks for around 270 patterns to uncover potential rule violations. It would not say how many events are flagged, or how many of those yield evidence of misbehavior.

The “machine learning” software it is developing will be able to look beyond those set patterns and understand which situations truly warrant red flags, said Gira.

Machine learning is a subset of artificial intelligence in which computers figure out new tasks without having been programmed to do so. In the case of market surveillance, that would mean the computers “learn” which trading patterns lead to enforcement charges, in order to flag the right ones.

FINRA plans to test the new tool next year alongside its existing systems to compare the results.

The regulator has already moved its surveillance systems to Amazon.com Inc’s (AMZN.O) web-based Cloud, giving it more computing power to quickly analyze massive data.

Nasdaq is working with cognitive computing firm Digital Reasoning, which it invested in earlier this year.

LSE has teamed up with International Business Machine Corp’s (IBM.N) Watson business and cyber-security firm SparkCognition to develop its A.I.-enhanced surveillance, Chris Corrado, chief operating officer of LSE Group, told Reuters in an interview. Watson has become something of a household name, having bested contestants in the game show “Jeopardy” in 2011.

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Longbow Analyst: Bullish or Bull-Sh*t?

Posted on March 21, 2016March 21, 2016 by admin

Longbow Research Execs Asleep at the Wheel?

aka Can You Spell C-O-N-F-L-I-C-T-E-D?

Call it the “I Gotcha Moment” courtesy of NYT reporter Gretchen Morgenson via her Fair Game column and weekend spotlight on “independent research” firm Longbow Research. Just when you thought Henry Blodget‘s experience promoting dot com companies while at Merrill and at the same time, sharing with cohorts that his buy recommendations were bull-sh*t, which led to his being permanently banned from the Industry would not be repeatable by others, the notion of conflicted research still runs rampant. For those who fear losing sleep over another story about conflicted research, this report re: Tempur Sealy coverage is not for you..

Here’s the opening extract of Gretchen’s article:

File this column under: Why It Pays to Read the Footnotes.

On Tuesday, Longbow Research, an independent institutional research and brokerage firm with offices in New York, San Francisco and Independence, Ohio, published a report recommending that its clients buy shares in Tempur Sealy International, the mattress maker (NYSE:TPX).

That’s not unusual. Wall Street research analysts put out buy recommendations every day. Probably too often, in fact.

But Longbow’s report was atypical in one way: Mark Rupe, the analyst who wrote it, recently left Tempur Sealy as head of its investor relations unit. Investors didn’t learn that, though, unless they read a disclosure on the penultimate page of the 17-page report, which said that Mr. Rupe or a member of his family owned stock and options in Tempur Sealy.

The amount of the holding wasn’t disclosed, but it appears to have resulted from Mr. Rupe’s employment at the bedding maker. The report also noted that Mr. Rupe stood to receive additional incentive compensation from Tempur Sealy over the next two years if the company met certain performance hurdles.

So, an analyst who is supposed to offer unbiased opinions on a company owns a position in it that could benefit from his bullishness. What gives?

This is just the kind of conflict of interest that brought the wrath of regulators down on Wall Street research a dozen or so years ago. Except in those days, analysts’ conflicts weren’t disclosed. At least close readers of the Tempur Sealy report were armed with the information and could base their decisions on it.

Still, it’s hard to imagine that Mr. Rupe’s stake in Tempur Sealy and his close relationship with the company won’t color his view. The question is, why would Longbow, a firm that appears to pride itself on independent research, want to open itself up to this kind of criticism?

I tried to ask this of David MacGregor, Longbow’s chief executive and research director. Neither he nor Mr. Rupe responded to my emails seeking comment.

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Broker-Dealers and Bankers Bolster Use of Uber In Pre-IPO Lobbying

Posted on July 10, 2015 by admin

The current over-bubbly Silicon Valley “Unicorn” wave, which advances the notion of ‘stay private’ and eliminates the need to take a company public when there is an over-abundance of private equity cash available to prop up the so-called enterprise value, has led to a dearth of IPO deals and by extension, has crimped the wallets of brokerdealers and investment bankers who garnish big fees and commissions from the initial public offering process. Have no fear, to win over ride-sharing whale Uber in advance of their ultimate IPO, Bankers are pulling out the stops.

Wall Street bankers and broker-dealers are notorious for climbing over walls to win over whales in advance of the ultimate monetization event. In the case of Uber, the biggest Unicorn of them all, with a private market valuation of more than $50billion, JP Morgan, Goldman Sachs and other major investment banks have launched a pre-IPO lobbying campaign by banning the ubiquitous line-up of black car services esconsed outside their palatial Wall Street homes, and instead, they are offering their brokers special compensation to embrace the use of Uber so as to win over the senior executives who will decide on this decade’s potentially biggest initial public offering mandate for investment bankers.

In a July 10 NYT story by Nathaniel Popper, which has been re-purposed by tens of dozens of media outlets, we give credit where credit is due and share the following excerpt from Popper’s column:

“..The latest reminder came this week when JPMorgan Chase announced that it would reimburse all of its employees for rides taken with Uber — offering access to “Uber’s expanding presence and seamless experience,” the company said in a news release.

JPMorgan made its decision long after other parts of corporate America were already hailing cars through the California start-up. But banks have recently shown a fondness for the service — with Goldman making the company part of its official travel policy in late May and Morgan Stanley putting out its own news release about its Uber use late last year.

Bank experts were quick to note that these moves come as the banks are jockeying to win a coveted spot managing Uber’s initial public offering — one that is not yet scheduled but that is assumed to be coming in the not-too-distant future. The I.P.O. for Uber, whose fund-raising so far has pegged its valuation at $50 billion, will most likely be the blockbuster I.P.O. in whatever year it takes place.

BrokerDealer.com provides a comprehensive global database of broker-dealers located in more than 30 countries across the free world.

A spokeswoman for JPMorgan said that the Uber news release this week had nothing to do with an I.P.O. and was instead part of the bank’s broader business relationship with the company. It does, though, fit squarely within a hallowed tradition of banks going to sometimes amusing lengths to secure a prized initial offering and the significant fees and reputational lift that it can provide.

“On the margin, sometimes the little incremental thing will make the difference,” said Lise Buyer, who advises start-ups looking at initial offerings. “Anything that a bank can do on the margin to improve their odds will probably be useful.”

The softer side of the sales pitch has taken on many forms over the years. When Amazon.com was going public, Ms. Buyer said that banks presented their pitch books to the company in the form of bound books, to celebrate Amazon’s book-selling roots. Other bankers have made humorous videos about the company they were proposing to bring to the stock market.

One of the most storied practitioners of the hard and soft sell of potential clients was the JPMorgan banker Jimmy Lee, who died unexpectedly last month.

Mr. Lee placed a G.M. car in the lobby of JPMorgan’s headquarters on Park Avenue when General Motors executives came in to consider whether to use the bank for the carmaker’s return to the public markets after the financial crisis. (JPMorgan participated.)

A few years later, Mr. Lee was in a custom-made Facebook hoodie — a sharp departure from his normal pinstripe suit — when Mark Zuckerberg visited JPMorgan before his company’s initial offering. (The bank took part in that one, too.)

These sorts of efforts have a well-grounded logic for the companies shopping for a bank. A banker taking a company public has to sell the shares of the company to investors — and thus needs to show an understanding of what the company does.

For the full story at the NY Times, click here

Any Grads Want to Join a BrokerDealer? These Banks Want You!

Posted on June 16, 2015June 16, 2015 by admin

If you or your college grad who you just financed 4 years of college for has yet to secure that sought-after Wall Street job, Brokerdealer.com profiles 9 different types of people that Goldman Sachs, J.P. Morgan and Morgan Stanley are looking to hire at this point in the year. Here is what efinancialcareers.com said:

1. Goldman Sachs wants private wealth management and fund management professionals

2. Sachs wants technology professionals in Warsaw

3. Sachs wants derivatives clearing professionals in London and Warsaw

4. J.P. Morgan wants ‘client rationalization’ professionals in London

5. Morgan wants associates for its London investment banking team in London

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6. J.P. Morgan wants someone to join a new team working on ‘VaR methodology’ in London

7. Morgan Stanley wants a cyber intelligence analyst in Glasgow

8. Stanley wants over the counter collateral analysts in Glasgow

9. Morgan Stanley wants top university graduates for glorified data monitoring and presentation roles

If you’re interested in getting into contact with one of these broker dealers, click here. BrokerDealer.com provides a global database of broker-dealers registered in the US as well as those performing brokerdealer services in upwards of 30 major countries throughout the world. -

The First Crypto Corporate Bond Offering..aka Bitcoin Bond from Overstock

Posted on June 8, 2015June 10, 2015 by admin

BrokerDealer.com profiles retailer Overstock.com’s plan to issue the first crypto corporate bond deal using the technology that underlies cryptocurrencies such as bitcoin.

Below extract is courtesy of Finextra.com. BrokerDealer.com provides the world’s database of broker-dealers registered in the US as well as a comprehensive directory of non-US brokerdealers based in 30+ countries throughout the globe.

Last Autumn, the firm acquired a 25% stake in alternative trading system (ATS) PRO Securities as part of a long-term ambition to use the core blockchain technology to create a cryptosecurity trading system, in which computer algorithms are used to trade virtual stocks issued by public companies.The company is now scouting institutional investor interest in its first digital bond issues, which is powered by Overstock.com’s TØ.com technology – a name that refers to the fact that trades on the system securely settle the same day, as opposed to the T+3 convention on Wall Street.”The cryptorevolution has arrived on Wall Street,” says Overstock.com CEO Patrick Byrne. “We’re making it official by offering the world’s first cryptosecurity.”According to Byrne, issuing the TIGRcub bonds on the TØ.com platform proves that cryptotechnology can facilitate transparent and secure access to capital by emerging companies. He says that a circular informing investors of the cryptobond offering was distributed on 1 June, 2015.