Q: Why is it exciting that new regulations are being passed in the secondary market and how are they helping to clear up confusion? (more…)

If you are managing a broker dealer and recruiting new advisors is important to you, you have a very important question to address….Who is talking to your prospective advisors? (more…)

So you think you know marketing.

If your idea of brilliant marketing is putting a 4” x 4” ad in the local paper to advertise a seminar, you’re wrong. (more…)

There is a void in the capital markets world today. A small company that wants to “go public” is finding that accomplishing a public listing properly is a highly treacherous endeavor and often a seemingly impossible task. Worse yet, even if the public market listing is achieved, the results that are normally desired by such a move are not achieved.

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When financial advisors consider changing broker/dealers, they’ll often visit prospective firms to see who’s the best fit and most interested in them, and which ones can be crossed off their list. That makes planning and managing Home Office visits for advisor prospects a very big deal for a firm’s recruiting effort.

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In the midst of perhaps the greatest collapse in Wall Street history, FINRA is hard at work not protecting American Investors across the country, but instead is working behind the scenes to once again consolidate even more power away from small firms and place it in the hands of a few.  The SEC is currently asking for members to comment on this latest FINRA proposal that would eliminate free elections for the National Adjudicatory Council and replace it with a majority of Public members who are outside the industry. From FINRA’s filing with the SEC:

The restructured NAC would therefore consist of 14 members, including seven

industry members, two of whom are “at large” and five of whom are designated

specifically as representatives of large firms, mid-size firms, and small firms, and seven

non-industry members, three of whom are public.9 The tenure of NAC members is

generally three years and the terms of the NAC members are staggered. The proposal

would not disrupt the process of approximately one-third of the NAC members

completing their service in a particular year and being replaced with newly appointed

NAC members. The proposal would result in a Small Firm and a Large Firm NAC

Member joining the NAC near the beginning of 2009; a Mid-Sized Firm NAC Member

joining in 2010; and a Small Firm and Large Firm NAC Member joining in 2011

Is this the best FINRA can do for its members right now?  Wall Streets elite have collapsed and every one is blaming lack of regulation as the reason.  Presidential Candidate John McCain has called for the resignation of SEC Chairman Christopher Cox and the organization that failed at the front line to stop the abuses of Bear Stearns, Merrill, Goldman and Lehman wants to instead focus on eliminating another layer of Self regulation?  Naked Short sale abuses, Hedge funds trading with 40:1 leverage at the largest firms on the street and Stock Brokerage firms holding trillions of dollars in bad mortgage derivatives and this is what is important?  Is it any wonder we are in this mess?  Now is the time to comment and let your voice be heard. Please click here for the full notice.

http://www.finra.org/Industry/Regulation/RuleFilings/2008/P039155

It’s obvious that the merger of two regulatory bodies has failed the industry and the public. Why on earth should we continue this path toward eliminating the rights of small firms?  Since FINRA was formed over a year ago we have had:

•          The Collapse of Lehman brothers, a fixture on Wall Street for 158 years.
•          The collapse and Fire sale of the largest Brokerage firm in the U.S, Merrill  Lynch.
•          The Collapse and federal intervention and fire sale of the Second largest Clearing Firm in the U.S , Bear Stearns.
•       The Treasury Secretary has designated that Goldman and Morgan can become Bank holding companies.

Maybe its time to admit that a single regulator with ties to the largest firms on the street may not have been a good idea.  After all, The Chief Compliance Officer of Lehman was a fixture on the NASD board for many years.  John Thain of the NYSE who also pushed for the merger with NASD became head of Merrill Lynch a few years ago.  Too close for comfort in our opinion.  Its time to focus on Self Regulation and Investor protection, not one preserving regulatory power for the privileged few. 

Mary Shapiro, CEO of the FINRA, had this to say in a communication to Broker Dealers, in response to recent market events:

“As you know, FINRA’s primary responsibilities are regulating broker-dealers and the broker-dealer subsidiary of any newly formed bank holding companies, as well as protecting customer accounts. We do not have jurisdiction over the holding companies.

We have been working closely with other regulators, providing guidance to firms, examining for compliance with FINRA rules and federal securities laws, and, when rules are violated, investigating and enforcing those rules. We have also committed considerable resources to educating investors and arming them with information they need to make sound investment choices in this difficult environment.”

Now come on. Please! Was Goldman Sachs a bank holding company two weeks ago? How about Lehman? BofA? Well okay, there were in fact bank holding companies out there over which FIRA has no jurisdiction. But this in NO WAY ABSOLVES the regulatory bodies from oversight at the major broker dealers! And the clever scrutinised derivatives market was created and fomented by brokers like GS. But forget the gargantuan excesses of the derivatives positions – what about the other countless violations, the hundreds of violations that  the FINRA did record against the Bulge Bracket firms?

The fact that the Bulge Brackets had violations recorded is NOT an answer. It does not speak to the asymmetric nature of enforcement. The Big Firms were never stopped from doing business for, say, thirty days. Or told that they could not add any more clients for the duration of the year.  They were never given any of the devastating punishments frequently meted out to small firms. The Big Firms began to see regulation as a tax on doing business; nothing more.  Whereas smaller firms are often forced OUT of business.

Equal application of the regulatory element? I think not.

And the end result is that inordinate power was given over to the Bulge Bracket firms. And in this environment, when the very FED was making comments like “if everyone will all just join hands and buy an S.U.V. we’ll be okay” (said by the Dallas Fed Governor in 2003)! In an easy money environment when the financial firms were encouraged to create all kinds of instruments to put that money to work, one might expect that some shenanigans might get afoot. After all, absolute power corrupts absolutely!

Where were you THEN, Mary? Focusing on cracking the whip at small firms, and busy consolidating regulatory oversight!

I’m sorry, but petty excuses after the fact do not make up for an error in resource allocation that the financial markets of the entire WORLD into a tailspin!

Everyone knows how hard the FINRA has been working to get the merger complete, and the potential benefits of the entire FINRA’s hard work. But there were warning signs – the constant violations at the Bulge Brackets. The complaints of countless small firms that the regulatory environment had become unfair. There were signs.    

If the FINRA had stepped in once – only One time, for example – and suspended Lehman from doing anything but closing positions for thirty days – wouldn’t that have had a chilling effect on their willingness to do risky business?

You may have an opinion. You may well think that it wouldn’t have solved a thing. But the fact is, your opinions no longer matter. You have lost your power base. Goldman is no longer subject to your consideration. The Big Five no longer exist as such, and those that do now answer to a higher authority.

What you can do now: bring a more reasoned approach to regulation. Assist firms in keeping compliant. End unwarrented punishments that reward criminal behavior while at the same time penalising honest folks who are just trying hard to make an honest living. Restore reasonableness and the perception of ethical behavior at the Regulatory level. Then you will find that firms work with you to keep compliant, rather than operating from a position of fear and loathing.  

With the ban on short expired today, the market may be in for yet another wild ride as the market expresses it’s faith in the recent bailout in dollar terms. According to an article by Kevin McCoy in USA Today, here’s how some well known folks weighed in:

Richard Baker, president of the Managed Funds Association: “I don’t know that you’ll see any dramatic shift in positions…Current market conditions and other factors will cause our members to move cautiously and slowly.”

Jon Najarian, co-founder of OptionMonster: “I think when the prohibition expires, you’ll actually see better markets…Once all market participants have the ability to sell, as well as buy, they will see it as a game they understand.”

Donald Luskin, chief investment officer of TrendMacro: The lift of the ban will unleash a wave of short sales in financials; “”The shorts will pick some stock to attack,” Luskin said.

Others have called on the SEC to extend the ban, or to reinstate the Uptick Rule, which was done away with last year. Jeff Morgan, president of the National Investor Relations Institute, a group of corporate officers and investor relations consultants, suggested to USA Today that the SEC should develop short sale related ciruit breaker (this would presumably be in addition to the already existing circuit breakers).

The ban has been a mixed blessing. While some have argued that it was necessary to stabilize the markets, others have argued that it did irreparable harm in contributing to the crisis of confidence in the US market system. Some Hedge funds have all but begged the SEC to lift the Ban.  Opinions in the blogoshpere have gone so far as to claim that the ban was nothing more than a political move done to mollify an ignorant public, who tend to blame short sellers for any market downturn, while others, in other blogs,  have suggested that it is downright Un-American to sell short. In any case, we’ll soon know what the market  really thinks.

Wall Street’s Fed Addiction

The recent events on Wall Street prove once again that the Fed is nothing more then an enabler to Wall Streets addiction for constant intervention.  This ‘business as usual’ attitude is a risky and reckless bet that has not worked and in my humble opinion will not work anytime soon.  Lets Recap the Fed’s Actions over the past year:

•       The Fed aggressively lowered interest rates in 2007 trying to prop up Wall Street and the banks.  That failed.
•       The Fed, acting through the Securities and Exchange Commission, banned short selling in the largest and in some cases, the most corrupt financial Institutions on the Street. The Market continued to slide.
•       The Fed came in an arranged for financing of the take over of Bear Stearns and Merrill Lynch..  That failed to stop the slide on Wall Street.
•       Then the Fed came in and took over the largest Insurer, AIG Insurance and The largest lenders in Fannie Mae and Freddi Mac.  The markets still slid lower.
•       Finally, We were assured by the Fed (Bernanke and Paulson) that if we spend roughly a Trillion Dollars on a bail out of the banks and Wall Street Elite, all our problems will be solved and the markets will stabilize and prosperity would be here in a few months and the markets would be happy.  The markets have collapsed since the President signed the act over a week ago. 

So in the face of further market declines, this morning the Fed cut rates another 50 basis points.  As Joel, played by Tom Cruise in the classic movie Risky Business once immortalized: “sometimes you just have to say What the F#@!”?????

Two weeks ago many Brokers and B/D owners bombarded the SIPA with concerns about the Trillion dollar bail out.  We wrote an article in which we questioned whether it would work and more importantly whether ample time and thought had been given to the plan.  Today proves once again the Fed has about as much clue about the markets and the economy as the greeter at Wal-Mart!

This continued obsession with only wanting BULLISH days on Wall Street must end.  In a free capital market, BAD, CORRUPT and UNPROFITABLE companies should and will get punished.  For some reason the Fed believes it’s wrong to have a down day on the market.  The fact that the Federal Government was going to put a Trillion Dollar band aid on the Banking industry does not mitigate the fact that most of the companies impacted by this bail out will not be profitable for several quarters!  It boggles my mind that investors have been rushing in to buy these companies every time it appeared a bailout plan was going to pass.  At the end of the day you should be buying a company for its balance sheet and profit margins, not because the Fed has stopped their bleeding.  This latest round of rate cuts by the Fed was based purely on the decline in the stock market, not on our economic pulse.  The Fed also had a responsibility to tell congress that in addition to the trillion dollars, more rate cuts will be needed.  Oil prices have come dramatically down over the last few months after a dramatic rise over the last two years.  For some reason though, The Fed believes the Stock market should only go strait up.  We now will be staring HYPERINFLATION strait in the eyes just so we can stop a decline on UNPROFITABLE companies on Wall Street.  Does that make any sense or did Joel have it right on when he said “ What the F#@!”?

So it looks like come hell or highwater, this bill is gonna pass see bill here today. Okay, so where does that leave us? Better than Monday, i should think. Some of the more offensive parts of the bill were removed, and plenty O’ Pork was thrown in to incentivize. All can claim Victory. And while the bill will not fix ANY of the underlying problems that got us here in the first place, it is a heck of a lot of money. 

But it will, among other things, stabilize the situation for a time… Maybe, with a little luck, through the elections. But the other ”things” referenced above are benefits equally important. I’m glad to see that our representatives said NO WAY to the first Bill and worked to hard to affect meaningful change, and get the bill to where it could be passed. Here are some examples of the meaningful change:

1) Added to the Bill: An Excise Tax has been lifted (and extended) on Puerto Rican Rum. I think this is especially important, since it will allow us all to get completely rat-assed when the ripple effects of the meltdown start coming our way, if indeed they do

2) The Bill includes a lifting of the 39 Cent Tax on Wooden Arrow Shafts. This is important too, since most economists are still crying DOOMSDAY and saying that the worst is yet to come, and it will come in form of major dislocations like food shortages, etc. So when we can no longer afford food, if ever that comes to pass, and there is no food to be had even if we could afford it, those arrow shafts will come in pretty handy for Bambi.    Or for squirrelling away a sqirrel or two.

It is indeed amazing that our legislators were able to pass such a bill in such a short time, they must be recognized for their hard work, through rain and shine, in and out of days, over the last 72hrs, tirelessly and methodically adding in every dollar of the $1.6BL additional allocation in special programs for you and I.

Let us stand in awe of the genius in our elected representatives, and this Bill, which stands as the shining example - The Best That They Could Do.  Thank goodness, given the limited time they had, that they focused on what was truly most important.