Humans Take Over From Bots to Make ETF Trading Smoother – Bloomberg

Perhaps in the end, this move from bots to humans is so NYSE can make more money. Well, we all know that part is true. NYSE is a publicly traded company with a duty to maximize shareholder wealth. Precisely how this makes NYSE more money is up for discussion. I suspect the move from bots to humans facilitates wealth transfer from uninformed investors placing large trades at the beginning or end of day to the NYSE.

-Dr. Moore

https://www.bloomberg.com/news/articles/2019-02-28/bots-ousted-by-humans-in-nyse-plan-to-make-etf-trading-smoother?srnd=premium

NYSE Dumps Bots for Humans to Make ETF Trading Smoother

Rachel EvansFebruary 28, 2019, 6:23 AM PST
The New York Stock Exchange is preparing to hand human traders a bigger role making markets for exchange-traded funds.

The exchange plans to allow bond, commodity and currency ETFs to list on its main floor as soon as August, according to Douglas Yones, NYSE’s head of ETFs. Last year, regulators approved the proposal, through which individuals known as designated market makers, or DMMs, will oversee ETF trading.

Bourse Rivalry

NYSE Arca hosts the most ETFs by assets
Source: Bloomberg

The funds currently reside on the company’s NYSE Arca exchange, an electronic venue powered by algo-driven traders known as lead market makers. While these firms commit to offering the best prices for a large part of the day, the lack of human involvement can leave less traded products struggling if a large order hits just as trading begins or ends, or there aren’t enough liquidity providers making a market at any given time.

“With a designated market maker, you don’t have that issue, you have a person,” Yones said in an interview. “The unique floor model lends itself very well to some potential benefits for the world of ETFs.”

ETFs with around $430 billion under management will be eligible to shift to the NYSE floor from Arca, according to data compiled by Bloomberg. Another $300 billion of funds at other exchanges will also be able to relocate, while new ETFs can list directly on the main exchange.

DMMs have a regulatory responsibility to be there all day, and set aside capital to matching incoming orders. That could appeal to issuers of new or less liquid ETFs that want to insulate their funds from market dislocations.

Winners, Losers

For NYSE, opening its two-centuries-old exchange to ETFs could generate extra revenue, as it competes with Cboe Global Markets Inc. and Nasdaq Inc. for ETF listings. NYSE hasn’t yet published its fees to list on the main exchange instead of on NYSE Arca.

The exchange’s five DMMs also stand to gain from the uptick in volume that ETFs could generate. But lead market makers, or LMMs, the firms that currently oversee ETFs on the electronic Arca platform, could lose out. Neither Jane Street Group nor Susquehanna International Group are DMMs, yet together they oversee about a third of ETFs listed on NYSE Arca.

Although electronic traders can make markets on the floor, they are less visible than DMMs, which also control the price when an equity starts and finishes trading for the day. That could encourage some LMMs to set up DMM businesses, if a significant number of ETFs opt to list on the main venue.

Still, that’s some way off. Some 79 percent of ETF assets are in stock funds that aren’t eligible to join the main exchange due to so-called line of sight rules that prohibit derivative products from trading in view of their underlying components. But market makers do expect to see demand from funds that are eligible.

“A lot of issuers would love to have a DMM manage their listing,” said Ari Rubenstein, chief executive at GTS, a NYSE DMM that recently agreed to buy Cantor Fitzgerald LP’s ETF business. “They love it because there’s lots of liquidity, efficiency and transparency for their investors, and ETF issuers are attracted to that.”

— With assistance by Nick Baker

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Software Engineer Loses Life Savings in Quadriga Imbroglio

What about diversification? The old saying “don’t put all your eggs in one basket” surely would have prevented the loss of this person’s entire life savings. Well, at least he is young and has time to recoup. I’d like to ask him if he would invest in crypto again.

I hear proponents of crypto say things like “I’m betting on the technology,”(with little training or experience in software engineering and cryptography) “it can’t be hacked,” and “it is more secure than government backed dollars.” This sounds similar to the lies sold to people regarding diamonds “diamonds are forever,” “diamonds are scarce,” and “diamonds are an investment.”

Ironically, the same government that backs currency is needed to rule in the favor of those who lost money playing the crypto game – an “I don’t need you until I do” type situation.

-Dr. Moore

Software Engineer Loses Life Savings in Quadriga Imbroglio
https://www.bloomberg.com/news/articles/2019-02-09/software-engineer-loses-life-savings-in-quadriga-imbroglio

Harley-Davidson Profit Is Wiped Out by President Trump’s Tariffs

The administration’s tariffs on EU steel and aluminum led to reciprocating tariffs by the EU on Harley’s imports. Then Harley decides to expand production in Thailand to get around those tariffs. A move associated with the goal of a firm: maximize shareholder wealth. A move necessitated by ill-conceived policy.

From there, the same President that lifted up Harley in the beginning as a point of national pride, tells that same nation he would support a boycott of Harley. Harley sales decline 10% domestically. Even with the corporate tax break giveaway by the current administration, Harley still reports no profit. And our government budget deficits and national debt continue to rise due to lower tax revenue collections on lower output like Harley.

Did everyone follow that?

I prefer to use whole words rather than twitter-like disemvowelments, but I must use one here: SMH

Read, and ride, on.

-Dr. Moore

Harley-Davidson Profit Is Wiped Out by President Trump’s Tariffs
https://www.bloomberg.com/news/articles/2019-01-29/harley-profit-wiped-out-by-tariffs-as-sales-continue-slumping

That Flying-Car Future Looks Like a Dystopia

So these flying cars have roots in inefficient helicopters, when measured by fuel consumed per passenger mile. The article also makes an important point: if you invest in public transportation infrastructure on the ground, the need to “fly above the fray” is mitigated. The article cites Tokyo as an example. I’ve never been. If you have, please comment on the Tokyo public transit infrastructure. I’d like to hear how smooth (or non-smooth) it is.

-Dr. Moore

That Flying-Car Future Looks Like a Dystopia
https://www.bloomberg.com/view/articles/2019-01-27/do-flying-cars-have-a-future-just-look-at-helicopters-for-a-clue

Too Many Americans Will Never Be Able to Retire

To the chagrin of many current and future students, it looks like I must work well into my 60s…

Seriously though, this article provides interesting perspective on population trends and economic impacts of immigration policy. You guessed it, a more inclusive policy (that is enforced) is better for the long-term health of the nation.

-Dr. Moore

Too Many Americans Will Never Be Able to Retire
https://www.bloomberg.com/view/articles/2019-01-23/america-needs-more-young-workers-to-support-aging-population

Why the Quants Aren’t Adding Up

This article points out an interesting contradiction in the quantitative approach “that the approach exploits inefficiencies, but requires market efficiency to realign prices to generate returns.”

Perhaps the old saying “success is a journey, not a destination” applies…

-Dr. Moore

Why the Quants Aren’t Adding Up
https://www.bloomberg.com/view/articles/2019-01-19/quant-funds-poor-performance-may-not-be-temporary

Foreign Students Sour on America, Jeopardizing a $39 Billion Industry

Interesting read. I never thought of higher education as a service that we export, every bit as important as soybeans and coal – perhaps more important. That is an interesting perspective consistent with reality. Soybean crop values totaled $38 billion in 2016: USDA website. Coal exports in 2018 were about $9 billion: EIA website. Hopefully, someday, we can get back to policies that promote education here in the U.S., welcome students from abroad, and thereby help our economy in the near and long-term.

-Dr. Moore

Foreign Students Sour on America, Jeopardizing a $39 Billion Industry
https://www.bloomberg.com/news/articles/2019-01-17/foreign-students-are-a-39-billion-industry-trump-is-scaring-them-off