“… we’re here to help”
Evidently our transition to state-managed capital markets was completed last night. These worthies will now decide who the winners and losers will be. JPM seems to have done pretty swell. Lehman not so much. I guess Fuld wasn’t in with the Goldman crowd that’s running the show. Tant pis.
While the impact this will have on our children is beyond the scope of this blog (we could give them conciliatory t-shirts: “My parents pissed away my future and all I got was this lousy t-shirt”), the impact on our markets remains to be seen but is of great interest to the algorithmic trader.
From a regulatory perspective, sufficiently large traders need to be ready to explain why they shorted particular names. I can just imagine that interview for a quant manager, blinking at the SEC official and stammering something about how “my computer told me to…” But this probably won’t be an issue for most.
In the short term, we still can’t short nearly a quarter of the markets biggest names for a bit longer. And what the markets will look like when this cloddish bit of seat-of-the-pants regulation expires, should be some kind of bonanza for sellers of vol. Though they’d have to be pretty brave to wade into this environment in size as our new market managers might pull another 2am rabbit out of their hats…
On the market-microstructure front, the unseemly asymmetry of the up-tick rule will likely be reinstated to our equity markets causing all sorts of difficulties for strategies which had been relatively recently modified or introduced to adapt to the removal of that arbitrary imposition of asymmetry to our equity markets.
Lots of uncertainty. What’s certain is that the rules are changing and strategies we may have deployed profitably for some time must now be viewed, like the markets on which they operate themselves, with a newly critical eye.
