EconoMonitor

Intraday Observations

It is odd that over the past 5 days the headlines have been dominated by computer-related events: from program trading fiascoes at Goldman over the weekend, to what seems to be a full scale assault against US governmental and market infrastructure. I have relished in the amusement of Sky Net derived jokes, but this is starting to get all too real. From Yahoo Finance:

The powerful attack that overwhelmed computers at U.S. and South Korean government agencies for days was even broader than realized, also targeting the White House, the Pentagon and the New York Stock Exchange.

An early analysis of the malicious software used in the attack found its targets also included the National Security Agency, Homeland Security Department, State Department, the Nasdaq stock market and The Washington Post. Many of the organizations appeared to successfully blunt the sustained attacks.

The Associated Press obtained the target list from security experts analyzing the attack. It was not immediately clear who might be responsible or what their motives were.

The attack was remarkably successful. Some of the affected government Web sites — such as the Treasury Department, Federal Trade Commission and Secret Service — were still reporting problems days after it started during the July 4 holiday.

Obviously, especially as pertains to the capital markets, the greater the reliance on computer models and algos in our daily lives, the greater the risk that sooner or later someone will find a big gaping hole that the countermeasure experts haven’t caught yet, and one can only imagine the possible abuse that would result. Visions of the Mac guy attempting to prevent a huge Firesale, however without Agent McLane at his side, emerge.

In other news, Morgan Stanley is hoping to take advantage of the short bus and irrational exuberance yet again, by repackaging a bunch of crappy loans into what will certainly be a doomed attempt at restarting the securitization bubble. From Bloomberg:

Morgan Stanley plans to repackage a downgraded collateralized debt obligation backed by leveraged loans into new securities with AAA ratings in the first transaction of its kind, said two people familiar with the sale.

Morgan Stanley is selling $87.1 million of securities that it expects to receive top AAA ratings and $42.9 million of notes graded Baa2, the second-lowest investment grade by Moody’s Investors Service, according to marketing documents obtained by Bloomberg News. The bonds were created from Greywolf CLO I Ltd., a CDO arranged in January 2007 by Goldman Sachs Group Inc. and managed by Greywolf apital Management LP, an investment firm based in Purchase, New York.

Not really much to say there: if investors into this “AAA” security are willing and eager to throw away their money, so be it. MS’ persistence is impressive: if the offering is successful, expect the firm and other investment banks to take CDO^2 and repackage their “riskless” tranches into yet another conduit. While the paperwork is already likely in progress in the bowels of 1585 Broadway, the only question is what will this Frankensteinian aberration be named: CDO Quadratic sounds just a little better than CDO Square Squared. McKinsey is likely already providing its extensive appelation consulting skills… in exchange for a handsome fee. Probably the true name “Yet More Soon To Be Phenomenally Uber-Toxic Crap” has not surfaced quite yet.

Let’s see what else – Meriwether has blown up his Nth hedge fund….the IMF keeps drinking the Kool Aid… and the market keeps going down. We now have a good 10% retracement from the highs. If Bob Pisani is right, this should be just the opportunity for all the quadrillions in cash on the sidelines to jump in. Many are not holding their breaths.

Lastly, and somewhat most peculiarly, Jean-Pierre Aguillard (together with his co-pilot), died in a freak glider accident over the weekend. Many have not heard of Aguilard: it may be surprising for people to learn that he is the French equivalent of Jim Simons, as his firm Capital Fund Management, with $2.7 billion in assets, is one of the largest French hedge funds and at the forefront of electronic and program trading. Curiously, CFM was in the news as recently as on April 22, 2009, CFM replaced its legacy market data distribution system with NYSE Technologies’ Market Data Platform at its New York and Paris operations. In fact Automated Trader has quite an in depth article on what happened a mere two months ago in an article titled “Capital Fund Management selects NYSE Technologies for new electronic trading platform.”

NYSE Technologies has announced that Capital Fund Management (CFM), the French private hedge fund, has licensed its high-speed real-time market data distribution and integration software.

CFM has replaced its legacy market data distribution system with NYSE Technologies’ Market Data Platform at its New York and Paris operations. NYSE Technologies’ sub-millisecond feed handlers and high performance Middleware Agnostic Messaging API (MAMA) deliver data to CFM’s trading systems, which handle 100% of the firm’s order flow electronically.

Jacques Sauliere, Chief Operating Officer at CFM, commented, “Since we connect to all major US, European and Asian markets, NYSE Technologies was the clear choice considering the breadth of coverage available through its extensive range of feed handlers, its cutting-edge market data distribution platform and comprehensive value-added services.”

NYSE Technologie will provides CFM with connectivity to a mix of direct market data feeds including NYSE OpenBook, NYSE ARCA Options, NASDAQ ITCH and CME Multicast. This is complemented with connectivity to a vendor consolidated data feed. Sauliere explains, “The consolidated datafeed serves as a back-up, providing the optimal mix of resilience and coverage needed for CFM’s global trading operations.”

Sauliere adds, “During the implementation phase, NYSE Technologies provided us with the ability to work alongside our existing middleware vendor while we transitioned to our new low-latency platform. We were able to consolidate our use of APIs by using its middleware API and write all of our applications to MAMA with the ability to upgrade our middleware in line with technology advances.”

In addition, CFM also uses NYSE Technologies’ Data Access and Reporting Tools (DART) Entitlements to control user and application access to the market data feeds and report on unused or underused market data services. Other value-added services include performance monitoring and a real-time tick capture adapter that consumes data from any industry standard or ODBC database for post-processing of internal data.“CFM is a pioneer in the adoption of pure electronic trading systems generating value for their investors. Being trusted with their business in New York and Paris is something we’re extremely proud of and validates our strategy in serving the buy-side,” said Stanley Young, CEO of NYSE Technologies and Co-Global CIO of NYSE Euronext.

“CFM’s enterprise deployment firmly secures NYSE Technologies as the partner of choice for connectivity, transaction solutions and data management services at the world’s largest and most active trading firms and leading markets.” (highlights mine)

Zero Hedge extends its condolences to Aguilard’s family. We, of course, hope that the fund’s recent close entanglement with the NYSE for program trading facilitation and the loss of the fund’s CEO are purely coincidental, especially in these difficult times for the integrity of program trading courtesy of Goldman Sachs’ recently disclosed scandals.


Originally published at Zero Hedge and reproduced here with the author’s permission.

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Emre Deliveli is a freelance consultant, part-time lecturer in economics and columnist. Previously, Emre worked as economist for Citi Istanbul, covering Turkey and the Balkans. He was previously Director of Economic Studies at the Economic Policy Research Foundation of Turkey in Ankara and has has also worked at the World Bank, OECD, McKinsey and the Central Bank of Turkey. Emre holds a B.A., summa cum laude, from Yale University and undertook his PhD studies at Harvard University, in Economics.

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