Tag Archives: SEC

Reuters: SEC Widens Investigation Into ETFs

The Securities Exchange Commission, which has been investigating the impact ETFs have had on volatility since the Flash Crash of 2010, has now widened the scope of its probe, reports Reuters.

While the initial probe had focused on complex ETFs, Reuters says the SEC is now focused on whether shorting ETFs is having an effect on the larger, more popular funds.

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Testimonies From ETF Panelists

The debate over whether ETFs are dangerous to the market is finally getting a congressional hearing. Over the past year, ETFs have been accused of increasing market volatility as well as posing other risks to the financial system.

A subcommittee of the Senate Banking Committee held a hearings Wednesday entitled “Market Microstructure : Examination of Exchange-Traded Funds (ETFs). The hearing was conducted by Sen. Jack Reed (D-R.I.).

IndexUniverse.com published the congressional testimonies of the four panalists:

• Noel Archard, managing director at iShares, the world’s biggest ETF firm
• Harold Bradley, chief investment officer at the Kauffman Foundation, and co-author in the past year of two papers critical of ETFs
• Eric Noll, an executive at Nasdaq, the second-biggest U.S. exchange, in charge of transaction services
Eileen Rominger, director of the Securities and Exchange Commission’s Investment Management division

Financial Reform for Dummies

If you want to understand the changes that will be enacted with the recent financial reform law, you can go to the Securities and Exchange Commission and read the 2,300-page Dodd-Frank Wall Street Reform and Consumer Protection Act, or just skip to your favorite topics. But it’s a bitch to get through and the legalese is deadly.

Here’s the New York Times angle.

But by far, the most detailed and easy to understand analysis of this new law and its implications comes from the law firm of Millbank, Tweed, Hadley & McCloy. Highlights of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is a quick read that lays out all the changes without the jargon.

The SEC is taking comments now for what new rules should be written.

Big ETF Moves on Goldman News

Exciting day on Wall Street as the Securities and Exchange Commission sends a shot across the bow of Goldman Sachs.

The stock market started out mildly higher, when midmorning, the SEC charged Wall Street’s most influential bank with fraud over its marketing of a subprime mortgage product designed to fail. The SEC says a Goldman vice president was also charged with fraud for his responsibility for creating the questionable mortgage product, known as ABACUS. Surprisingly, criminal charges were not filed.

However, this makes many question whether the bull run of the last year is over.

According to Reuters, the SEC alleged that Goldman structured and marketed ABACUS, a synthetic collateralized debt obligation that hinged on the performance of subprime residential mortgage-backed securities. However, Goldman allegedly didn’t tell investors “vital information” about ABACUS, including that the hedge fund Paulson & Co helped choose the securities in the portfolio. Run by John Paulson, the hedge fund made billions of dollars betting that the housing market would crash. The SEC also alleged that Paulson took a short position against the CDO in a bet that its value would fall, reported Reuters. “This included an estimated $1 billion from the transaction detailed in the SEC lawsuit, which the agency said cost other investors more than $1 billion,” said Reuters.

Many people on Wall Street have said this is a politically motivated moved as Congress begins debating reform of financial industry regulation.

Goldman denied the charges. Its stock fell $23.57, or 12.8%, to $160.70, and it brought down the entire market with the Dow Jones Industrial Average losing 126 points, or 1.1% to 11018.66. The S&P 500 dropped 19.5 points, or 1.6%, to 1192.13.

Obviously, this means a lot of movement among ETFs.

The Direxion Daily Financial Bear 3x (FAZ) jumped $1.14, or 10.3%, to $12.18, posting the third-largest volume of the market gainers, 209.7 million shares.

ProShares UltraShort S&P 500 (SDS) gained 94 cents, or 3.3%, to $29.72.

ProShares UltraShort Financials (SKF) jumped $1.15, or 6.8%, to $18.11.

The Financials Select Sector SPDR (XLF) fell 62 cents, or 3.7%, to $16.36.