This is potentially a huge scandal. Thanks for bringing it to our notice.

10% of our total stock market, just hidden in a dark pool

I’m not holding my breath waiting for fair exchanges.

wtf??? how the hell is this permitted? how long has wall street been gamed like this?

You’ve got my vote on a new Pecora Commission. Will it happen? Um…I’m highly skeptical. A little tap-dancing for the TV cameras, maybe, but something with gator teeth? Unlikely.

Also: …”a practice that has drawn scrutiny from the Securities and Exchange Commission…”

Um… http://www.bloomberg.com/apps/news?pid=20601087&sid=a6ItnK32Cl6Y

This is a joke, right? Please tell me this is a joke.

Well, if you are a large, favored investor, like Harvard’s Endowment, you can get new issues, which often go up by a quarter to a double in the DAY of issue.

HUGE issue. Hope to see much more on this.
A news outfit would have to combine tech staffers, economics beat editors, and crime beat reporters to cover this one.

I was sure that IPOs have behaved in this manner for the longest time.

But to read about this actually happening in privately established exchanges is simply maddening.

This is another example of our financial system is rigged, not in places, not now and then, but throughout and always. It is a system of crony casino capitalism and its purpose is to serve the often destructive interests of our elites, at the expense of ordinary Americans and small investors everywhere.

See my 6.

There are two major ways that Big players will beat out the investor every time>
!) is computer or autromatic trading which involves a computer placing the order once a set market criteria is met. The computer has faster reflexes that you do and doesn’t have to dail a phone or type an email to place an order. It jsut executes the ordert
2) Private (stealth market) trades which are not availabel to John Q Public

Neither has really been regulated– which was one thing when it was one Wiz Kid writng code, but now has grown to be a sizable chunk of the market and now could actually crash the market.

And no government oversight in sight

How did this hidden 10% stock market act during the Banking Crisis? Also if only special people get the trades special people should bailout the banks!

You beat me to it. Isn’t that hysterical in a really evil way? The SEC just hired a Goldman vice president to be its chief enforcement officer, and shades of Neel Kashkari he is an old man of 29 years. You absolutely can’t make this shit up. Another item to add to my Obama scandals list.

There is a new Pecora Comission, all the commissioners have been appointed. It is Headed by Phil Angelides.

I am waiting to see how their work turns out.

As for the 20 Something from Goldman Sachs becomeing the Chief Operating officer at SEC, I read that this morning too

and now could actually crash the market.

Until we get an investigation for all we know it already has.

You’re comment was not visible to me as I was typing mine. On refresh I see it.

Which is exactly my point, I was sure there were favored investors in IPOs. What I did not know was that there were private exchanges POST IPOs.

Two different investor classes is a totally bad thing to my mind.

how can they not be regulated? i thought all stock transactions were regulated — silly me.

TCU

You got a point, there

Nope Suz, only transactions offered tothe public at large are regulated.

If I want to sell you my shares of IBM in a side deal , that’s off the grid

Nopt that I have shares of IBM, but if I did

Natch.

Is Washington interested in an investigation?

Not to be contrarian here but how do you regulate these kind of transactions without surveillance of the kind some of use find repugnant to 4th Amendment principles? And how does the existing Securities Act of 1933 and Securities Exchange Act of 1934 not cover this anyhow?

I didn’t know about these other exchanges either and have emailed a friend who’s in the market to she if she was aware. But I’m not surprised. Two (or more) classes of investors is de rigueur. Can’t rely of the regulators to deal with that! After all, what’re they gonna do for employment after they leave the regulators?

And to pile on to your question, didn’t Glass-Steagall keep a lot of this nefarious “off the books” crap with registered securities out of the realm of do-able?

I knew there was a commission starting to ramp up. Whether it will be thorough – full subpoena power, special counsel(s), realistic timelines (in other words, enough time to do the job) – remains to be seen, however. I ain’t holdin’ my breath, but would very much enjoy being proven wrong. In fact, I’ll eat crow right in front of TV cameras right on the capitol steps if that happens. mmmm….tastes like chicken…

Can we ban these funny exchanges until after we investigate them after all there is a danger America can’t afford another bank bailout.

You seem to be typing against yourself. Either they’re regulated, or some amendment or another prevents regulation. Or legal regulation is not done. Or whatever.

The general principle is that you are allowed to do whatever you want, as long as it does not harm another individual. Stealth exhanges would seem to violate that principle.

The SEC’s newest head of enforcement, Adam Storch, will get right on this. With his five years total experience since B-school (all at Goldman Scratch), and no legal or audit experience, what this 29 year-old will know is who at Goldman to ask for help. I’m sure they’ll give it; it’s what they do every time Tim Geithner calls.

No, the ‘33 act relates only to public offerins, not private offerings. And the ‘34 Act realtes only to trades on public exchanges, not private deals

Two different investor classes is a totally bad thing to my mind.

Not to be too technical but these are called grifters and marks.

Frankly, I’m continually surprised at my naivete.

I keep thinking I know where things in our systems, social and economic, are broken, but then there’s always MORE ways to beat/cheat than I consider. Gah.

Ahhhhhhhh, yes, the repeal of Glss-Steagall had many many unfortunate consequences. One wonders how a=many of these private deals are doen by banks who are now free to noodle inthe stock market

Touche!

As they say in Hong Kong, the guys who make money only trade on insider information.

Actually, he should have audit experience. He worked in Goldman’s Business intelligence group which was their in house IG

You’re right. As soon as his mommy gives him fresh-baked cookies and a glass of milk, he’ll get right on it. That always fortifies him…

There you go with all that technical stuff again…

Heh. No matter how cynical I try to be, I still turn out to be naive. Maybe stealth exchanges is not a particular example. But there are plenty or other examples.

WRT IPO procedes, they are so embedded in Wall St (where I worked for over a quarter of a century), that everyone thinks it is normal. Never gave any thought to other ways that the distribution of trading is biased. Shame on me.

From the Bloomber article:

He [Storch] has certifications in accounting, fraud examination and auditing.

It is not a question of his qualifications but his maturity and allegiances. No employees from Goldman should be allowed near a government post. The conflicts of interest abound.

Blackpools would seem like ripe candidates for investigation of collusion and fraud, none of which will happen under this Administration. They simply attest to the pervasiveness of the corruption.

Seconded.

“And you, the individual investor, cannot get access to this method of exchange.”

While most of your post brings up valid points, you are mistaken about this point. I, an individual investor, make trades through Directedge almost daily.

http://www.interactivebrokers.com

With a whopping five years experience, his certificates are pretty weak beer. He has no credible administrative, management or government experience. Apparently, he has no experience with full blown audits or investigations or prosecutions. His work is most likely to have been in the context of due diligence for acquisitions and takeovers. Those lead to price and fee adjustments; if he had allowed them to queer a deal, he’d no longer be at Goldman. As junior as he is, that would never have happened anyway.

Having viewed the world only from Goldman’s angle is at least as debilitating as Storch’s painfully limited experience and competent but modest academic background (for this work). His lack of experience is a strong signal to the markets that this will be business as usual.

Whoa. Check this: 15 USC sec. 78c:
§ 78c. Definitions and application
”
(a) Definitions
When used in this chapter, unless the context otherwise requires—
(1) The term “exchange” means any organization, association, or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange.”

Fair enough, but you’ve seen Ivy League lawyers, accountants and investment bankers with five years experience.

Look at the machinations public issuers have been engaged in just since Enron imploded. Has Mr. Storch a background that suggests he would be able to lead multiple teams, to uncover secrets of Fortune 100 powerhouses and dynamic new issuers, to look their CEO’s, CFO’s and General Counsels in the eye and not blink? It doesn’t appear that way to me.

No, The principle is that the regulatory agency sometimes gets to interpret the scope of its own regulations and jurisdiction which sometimes, no, often, means restricting the scope of the law as written by Congress (here in 1933-1934) to a much narrower field than is obviously intended. The question is: do you need an act of Congress to undo what prior restrictive interpretations have undone or you do administratively do what the the law obviously intended you to do in the first place? I say if Obama wants this SEC to clamp down on this BS, then it doesn’t need an act of Congress.

But that doesn’t answer my first question: how as a practical matter does any regulator, however well intentioned toward doing the right thing and enforcing the law, enforce a law which can be easily circumvented by certain players as individuals who are no different, but for their means, than the rest of us? Maybe having a lot of money and having done a certain number of transactions which violate the law would qualify for a warrant. So maybe I can easily answer my own question. But how do you know who the violators are to begin with?

Direct Edge is a brokerage. And they belong to public exchanges like NYSE.

We are talking about non Exchange trades

These are not
exchanges” these are private contract transactions. They just happen to move 10% of all the stock traded

If Smokry, an individual investor, trades directly over what he believes to be an “exchange”, what prevents Directexchange from being an “exchange” subject to regulation under the law as now written?

No, I don’t know know what his capailites are. But I do know that the Business intelligence group does do due diligence, money laundering investigations, and similar work.

Until recently, the BI Group at Goldman was not only the gold standard in the indutry, it was so far out in fornt of the next best, that you could see the curve in the Earth’s horizon.

Now, of course, all things Goldman are suspect, but that does not mean the derision is deserved by every component of Goldman

Go look at the link. Direct Exchange is a brokeage firm. It belongs to FINRA and SipIC and is just like Smith Barney or Merril Lynch

What is “private”? What is “public”? This is really a technical or maybe rather an old fashioned question: if organizations like Directexchange “hold themselves out” to the public as willing and able to deal in trade with anyone who has the requisite cash, then by definition, they are an “exchange” and subject to the Securities Exchange Act as an exchange. Whether the SEC chooses to subject these entities to the law as “exchanges” is another question. Maybe that is the question for a New Pecora Commission?

Thanks for bringing this subject up again Cynthia. I only found out about this about two years ago … and look who’s in the middle of it

Goldman Sachs Creates Private Stock Exchange for Unregistered Securities, Clients with $100 Million Minimum

OK, a broker is: “any person engaged in the business of effecting transactions in securities for the account of others.” My experience with federal administrative agencies from the 1980’s and 1990’s (look at the FCC for instance) is that novel interpretations of the laws and definitions to address new situations is allowed great deference. Why shouldn’t laws which are designed to protect common investors be given the same interpretation as when agencies interpret the laws for the benefit of insiders, as they did in the Reagan and Bush eras?

Like I said above, I’m not trying to be a contrarian. I’m just asking questions. If you have a point, maybe it needs to be that the Securities and Exchange Act is obsolete in understanding the realities of modern trades. Maybe Congress needs to investigate the agency and the “business of brokerage”. I’m somewhat attuned to the fact of who really owns this country and it’s not people like me (I don’t know about you). So who is a “person engaged in the business of effecting transactions in securities for the account of others.” As Lewis Carroll said:

“`The question is,’ said Alice, `whether you can make words mean so many different things.’

`The question is,’ said Humpty Dumpty, `which is to be master — that’s all.’”

“Through the Looking Glass”.

Derision is deserved in this case. Not just because Storch’s sole experience is with Goldman, but because of his lack of experience.

Goldman’s BI department may be beyond the “gold standard”, but in whose interest does it operate? Goldman’s, its clients, the marketplace, private investors, the government? Possibly one and two, certainly not the last. What was Storch’s leadership role in that department?

Even were it not, five years experience is inadequate to be the Street’s top cop. It’s giving a star lieutenant an aircraft carrier to run. Wrong tool, wrong job.