This session features Harold Bradley, the CIO of the Kauffman Foundation, Bill Hambrecht, founder, Chairman and CEO of W.R. Hambrecht + Co., and Duncan Niederauer, CEO of NYSE Euronext. It is moderated by Francesco Guerrera of The Wall Street Journal. It is entitled Challenging Industry Norms: Has Innovation Helped or Hurt the Integrity of the Markets?
My session notes follow. As always, these are at-the-time notes. I make no guaranty as to their accuracy or completeness.
- Much of what we call “innovation” is dealer bookmaking (Wall Street uses access to help themselves to the detriment of individuals).
- Risk — people “need to borrow more to make the same.”
- Lower costs aren’t harmful to the purchaser; question — why do we really need so many intermediaries.
- Proprietary trading causes many of the problems.
- JOBS Act — new jobs come from new companies; the idea is to open the pathway.
- Sarbanes came from Enron, but current small companies don’t have that level of complexity (supporting JOBS Act).
- Rulemakers should get back to the basics — what went wrong?
- Great advantages in innovation; most problems in trading.
- With more efficient markets and tighter spreads, incentive to leverage is huge (and that’s a problem).
- Is the playing field level? Much more so now, especially for retail.
- Problem — fear of crisis (3 “hundred year floods” in last ten years); shaken confidence in banking and markets — it will last a while.
- transparency is always a good thing.
- Negative consequence of crisis — consolidation, moving banks from small offerings; JOBS Act should help that.
- Sarbanes is a psychological barrier, so 5-year exemption via JOBS Act is helpful.
- Tech companies went public not due to a capital need, but due to a liquidity need by employees.
- Doesn’t work with bulge-bracket firms now because they insist on discretionary allocations.
- Innovation generally is good, but the consequences aren’t always good; we need to recalibrate.
- Tighter spreads are a big incentive to work “in the dark.”
- Benefits of transparency and tighter spreads increase velocity (which has risks).
- As markets get “darker,” benefits of innovation tend to wane.
- We will continue to have a big crisis every 5-7 years.
- Retail clients are uneasy due to market velocity — but if you are an investor and not a day-trader, why should you care?
- Regulators can’t put a “firehouse” in front of every house — the goal is to respond quickly and well.
- Today — transparency leads to a free-rider problem.
- Buy-side/sell-side/exchanges — each constituent has its own issues; buy-side will become more active.
- JOBS Act — goal is helping 100-150 firms a year; these are the job-creators; not designed to hide stuff from investors.
- Let’s move from identifying issues to solving problems.