Why it’s time to shine a light on the Flash Boys who trade on the dark side of Wall Street

 

New York

America’s top financial markets regulator, the Securities and Exchange Commission (SEC), is finally catching up with high-frequency traders and operators of private “dark pool” trading venues. Well, sort of.

In a speech to Wall Street’s finest this week, SEC chair Mary Jo White proposed much closer scrutiny of super-fast algorithmic traders and of the “dark” private exchanges that account for a huge chunk of daily  trading. But the “Flash Boys”, as they are called in Michael Lewis’ new book, will hardly be quaking in their shiny designer shoes. To coin a phrase, the music is still playing, so the Flash Boys will continue to dance until the headmistress clips their ears.

White’s proposals are smart and sensible, but they are way more than a day late and a dollar short. It shouldn’t take a Michael Lewis book to bring the sheriffs into town.

Her plans essentially would bring more of the activities of the Flash Boys under regulatory scrutiny — at the moment, a lot of the securities trading in the United States, especially the opaque stuff away from official exchanges, is not required to be registered with regulators. And they wonder why they have a problem. So it is a no-brainer to bring more of the Flash Boys on to the radar screen of the SEC and other regulators. The only question is: how long will it take those regulators to approve and implement White’s proposals?

White certainly made the right noises to the investing public when she addressed Wall Street. “The SEC should not roll back the technology clock or prohibit algorithmic trading, but we are assessing the extent to which specific elements of the computer-driven trading environment may be working against investors rather than for them,”  she started.

Then came the meat and drink. “I have asked the SEC staff to prepare two recommendations for the commission: the first, a rule to clarify the status of unregistered active proprietary traders to subject them to our rules as dealers …  second, a rule eliminating an exception from FINRA (Financial Industry Regulatory Authority) membership requirements for dealers that trade in off-exchange venues. Dealer registration and FINRA membership should significantly strengthen regulatory oversight over active proprietary trading firms and the strategies they use.”  Yes it would. But when?

White saved her harshest words for the murky “dark pools” where big investors can trade large blocks of securities without revealing their hand to those on the other side of the trade that would give the other side an advantage.

“Dark venues lack transparency in other important respects,” said White. “Although the trades of dark venues are reported in real time, the identity of participants in the dark venue is not disclosed to the public. And dark venues generally only provide limited information about how they operate…

“Transparency has long been a hallmark of the US securities markets, and I am concerned by the lack of it in these dark venues. Transparency is one of the primary tools used by investors to protect their own interests, yet investors know very little about many trading venues that handle their orders. We must continue to examine whether dark trading volume is approaching a level that risks seriously undermining the  quality of price discovery provided by lit venues.”

 Full marks to White for shining the light on Wall Street’s darkest arts. It is now up to her SEC colleagues to quickly bring her proposals to life.

Are British firms just pawns in a US tax-avoidance game?

 Are more and more British and mainland European companies to become mere takeover pawns in a giant chess game of tax avoidance by huge American corporations?

It appears that US corporate mergers and acquisitions decisions are increasingly being motivated by American companies’ offshore tax policies. Pfizer, the US Viagra drug giant, made no secret of its wish to move its tax domicile to lower-tax Britain had it been successful in its recent bid for AstraZeneca.

News wire reports this week speculated that if US company Medtronic joined the bidding for London-based Smith & Nephew, it too might move its tax domicile out of the United States.

Much lower corporate tax regimes in Britain and some mainland European countries are a major attraction for many companies in America, where taxes are much higher. Google has told regulators it keeps a huge chunk of its cash outside of the US so it can deploy up to $30bn (£18.75bn) for possible acquisitions.

Google makes roughly half its revenue outside of America and, like many companies in the United States, it keeps a lot of its “foreign” earnings abroad to avoid paying US taxes. So it is not just acquisitions that motivate US firms to keep their money abroad - if they bring the money home, they’d take a huge tax hit.

US non-financial companies alone had an estimated $947bn (£591bn), or 58 per cent of their collective cash, stashed overseas to avoid tax at the end of 2013, according to Moody’s. That’s up from $840bn in 2012.

“The high amount reflects the negative tax consequences of permanently repatriating money to the US, and the domestic use of cash for dividends, share buybacks and the majority of acquisitions,” said Moody’s Richard Lane.

Technology firms appear to be the most cash-rich, and they go to great lengths to preserve that cash, even if it means keeping it abroad for very long periods.

“Among sectors, technology continues to hold the most cash and has extended its lead,” said Lane. “The technology sector held $638bn, or 39 per cent, of total corporate cash at the end of last year, followed by healthcare/pharmaceuticals, consumer products and energy.”

Apple, Microsoft, Google and Verizon were among the most cash-rich companies. Together with Pfizer, they had $404bn, or 25 per cent, of America’s non-financial company corporate cash at the end of 2013.

As long as corporate tax rates in the United States remain much higher than the UK and certain other countries, big American companies will keep their cash abroad and look to put the money to work. That could mean AstraZeneca will not be the last British company to be a target for  American firms with money to burn.

Arts and Entertainment
TVShow's twee, safe facade smashed by ice cream melting scandal
Life and Style
life
News
Brad Pitt and Angelina Jolie reportedly married in secret on Saturday
peopleSpokesperson for couple confirms they tied the knot on Saturday after almost a decade together
Voices
Pupils educated at schools like Eton (pictured) are far more likely to succeed in politics and the judiciary, the report found
voices
PROMOTED VIDEO
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
News
Actor, model and now record breaker: Jiff the Pomeranian
Video
News
REX/Eye Candy
science
Sport
Alexis Sanchez celebrates after scoring his first goal for Arsenal in the Champions League qualifier against Besiktas
sportChilean's first goal for the club secures place in draw for Champions League group stages
News
i100
News
Down time: an employee of Google uses the slide to get to the canteen
scienceBosses are inventing surprising ways of making us work harder
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Junior Asset Manager

£25000 - £35000 Per Annum: The Green Recruitment Company: Job Title: Junior As...

Investment Analyst

£33000 - £40000 Per Annum Discretionary profit share: The Green Recruitment Co...

Graduate / Trainee Recruitment Consultant

£20000 - £30000 per annum + OTE £45000: SThree: SThree are a global FTSE 250 b...

PMO Analyst - Risk - Banking - London - £350-£400

£350 - £400 per day: Orgtel: PMO Analyst - Risk - Banking - London - £350 - £4...

Day In a Page

Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone
Amazon is buying Twitch for £600m - but why do people want to watch others playing Xbox?

What is the appeal of Twitch?

Amazon is buying the video-game-themed online streaming site for £600m - but why do people want to watch others playing Xbox?
Tip-tapping typewriters, ripe pongs and slides in the office: Bosses are inventing surprising ways of making us work harder

How bosses are making us work harder

As it is revealed that one newspaper office pumps out the sound of typewriters to increase productivity, Gillian Orr explores the other devices designed to motivate staff
Manufacturers are struggling to keep up with the resurgence in vinyl records

Hard pressed: Resurgence in vinyl records

As the resurgence in vinyl records continues, manufacturers and their outdated machinery are struggling to keep up with the demand
Tony Jordan: 'I turned down the chance to research Charles Dickens for a TV series nine times ... then I found a kindred spirit'

A tale of two writers

Offered the chance to research Charles Dickens for a TV series, Tony Jordan turned it down. Nine times. The man behind EastEnders and Life on Mars didn’t feel right for the job. Finally, he gave in - and found an unexpected kindred spirit
Could a later start to the school day be the most useful educational reform of all?

Should pupils get a lie in?

Doctors want a later start to the school day so that pupils can sleep later. Not because teenagers are lazy, explains Simon Usborne - it's all down to their circadian rhythms
Prepare for Jewish jokes – as Jewish comedians get their own festival

Prepare for Jewish jokes...

... as Jewish comedians get their own festival
SJ Watson: 'I still can't quite believe that Before I Go to Sleep started in my head'

A dream come true for SJ Watson

Watson was working part time in the NHS when his debut novel, Before I Go to Sleep, became a bestseller. Now it's a Hollywood movie, too. Here he recalls the whirlwind journey from children’s ward to A-list film set
10 best cycling bags for commuters

10 best cycling bags for commuters

Gear up for next week’s National Cycle to Work day with one of these practical backpacks and messenger bags
Paul Scholes: Three at the back isn’t working yet but given time I’m hopeful Louis van Gaal can rebuild Manchester United

Paul Scholes column

Three at the back isn’t working yet but given time I’m hopeful Louis van Gaal can rebuild Manchester United
Kate Bush, Hammersmith Apollo music review: A preamble, then a coup de théâtre - and suddenly the long wait felt worth it

Kate Bush shows a voice untroubled by time

A preamble, then a coup de théâtre - and suddenly the long wait felt worth it
Robot sheepdog technology could be used to save people from burning buildings

The science of herding is cracked

Mathematical model would allow robots to be programmed to control crowds and save people from burning buildings
Tyrant: Is the world ready for a Middle Eastern 'Dallas'?

This tyrant doesn’t rule

It’s billed as a Middle Eastern ‘Dallas’, so why does Fox’s new drama have a white British star?