Continue reading U.S. Regulators Propose Caps for Derivatives Markets

U.S. Regulators Propose Caps for Derivatives Markets originally appeared on BloggingStocks on Thu, 14 Oct 2010 10:00:00 EST. Please see our terms for use of feeds.

So the European Union's 27-nation bloc is setting new rules for short selling and derivatives trading. The European Commission set up the European Securities and Market Authority to police European markets.

Michel Barnier, European Union commissioner in charge of reform said: "Today we are proposing rules -- so we know who is doing what and who owes what to who."

Continue reading European Union Sets New Short Selling and Derivatives Curbs

European Union Sets New Short Selling and Derivatives Curbs originally appeared on BloggingStocks on Wed, 15 Sep 2010 12:00:00 EST. Please see our terms for use of feeds.

For the past few weeks we've been hearing cries from Europe concerning how to regulate or ban derivatives trading. Now the word has crossed the pond and we are hearing the same complaints here in the U.S.

We have a parade of regulators who want to do something about derivatives trading. First we heard from Gary Gensler, chairman of the Commodity Futures Trading Commission, who said: "Standard credit default swaps and other privately traded, over-the-counter derivatives need drastic reform." He went on to say: "The only parties that benefit from a lack of transparency are Wall Street dealers."

Continue reading Will There Be an End to Derivatives Secrecy?

Will There Be an End to Derivatives Secrecy? originally appeared on BloggingStocks on Wed, 10 Mar 2010 10:10:00 EST. Please see our terms for use of feeds.

Reuters reports that derivatives traders have opened an emergency trading session this afternoon to settle a variety of derivatives trades involving Lehman Brothers Holdings Inc. (NYSE: LEH). As I posted earlier today, I think the most likely option for Lehman is a bankruptcy filing by the end of the day today. And these derivatives trades are intended to minimize the losses to a bankruptcy filing. To that end, the trades conducted this afternoon will expire if Lehman has not filed for bankruptcy by midnight tonight.

The emergency trading session will last for two hours this afternoon. Reuters writes, "The session will run from 2 p.m. to 4 p.m. and will involve credit, equity, rates, foreign exchange and commodity derivatives. The aim is to reduce risk associated with a potential bankruptcy filing by Lehman. Trades are contingent on a bankruptcy filing at or before 11:59 p.m. New York time Sunday. If there is no filing, the trades cease to exist."

I endorse this idea because it looks to me like a prudent move that would minimize the damage of a Lehman bankruptcy filing. I wish I knew how much such a filing would cost Lehman's stakeholders or how much this emergency session will limit its damage. Unfortunately, I don't know. Even if Lehman does not file for bankruptcy, this emergency session looks worthwhile because it won't cost much to conduct and if there is no need for it, the trades will expire worthless.

Continue reading Lehman bankruptcy chance spurs emergency derivatives trading session

Lehman bankruptcy chance spurs emergency derivatives trading session originally appeared on BloggingStocks on Sun, 14 Sep 2008 15:30:00 EST. Please see our terms for use of feeds.

So far, Europe has lagged behind the United States in terms of exorbitant compensation being heaped on top corporate executives.

But Porsche CEO Wendelin Wiedeking's $100.2 million pay package is sparking controversy in Germany. I consider myself a big supporter of strong corporate governance, but a big pay package isn't a problem by itself; it's only a problem when it is completely out of line with the fundamental growth of the company.

At Porsche, that may be the case. According to the Wall Street Journal (subscription required), "In its most recent financial statement, Porsche disclosed that it made more money in its latest fiscal year from trading derivatives than it did from selling cars. It said earnings from stock-option transactions contributed a pretax €3.59 billion to the overall result."

Here's the problem: Trading derivatives for big profits can be hugely risky, and profitability can be fleeting in a way that operational growth (e.g., selling cars) isn't. Paying executives huge bonuses for gambles that paid off is bad for two reasons: First, it's completely unwarranted (Maybe they just got lucky) and, secondly, it can encourage rampant speculation. They're playing with shareholders' money for a chance at big profits. If they lose big next year, they probably get fired -- but hey, he just made $100 million!

Maybe the company isn't taking big risks with derivatives trading, but I seriously doubt it; as Long Term Capital Management and the Orange County crisis taught us, big rewards in derivatives generally come with big risk, even if it isn't apparent when the money is rolling in.

Porsche CEO's $100 million package brings corporate governance concerns to Germany originally appeared on BloggingStocks on Sat, 01 Dec 2007 18:10:00 EST. Please see our terms for use of feeds.