The True Story behind Merrill's result and the markets explained Monday, October 29, 2007

This excellent analysis (yet to be shown on Bloomberg for some reason) is mandatory viewing for anyone trying to understand the fundamentals behind the turbulence in the credit markets over the Summer.

It unpicks the "apparent" mystery of SIVs in the sub-prime market for the layman who may be worried by the impact of the financial meltdown on their pension and analyses the rationale for government intervention in the market liquidity crisis.



Some of the insights were apparently shared with the Merrill's Board over the weekend, which was the firm that had called in the collateral on the Bear Stearn's Hedge Funds in July, precipitating their collapse.

Job done John.

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posted by John Wilson @ 11:17 PM Permanent Link ,

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Get a new car cheaply and then park at my house Thursday, March 08, 2007

If you read this blog more than once (apparently someone has), you'll have realised I am fascinated and passionate about markets and market mechanisms, amongst other things. So whenever someone at OpenCoffee starts to outline a venture that is markets related I confess to taking a keen interest in understanding how they intend to operate the market.

Last week I met with the founder of autoedbid, which is an excellent business that operates a reverse auction for the sale of new cars. Quite simply, you publish the car specification and the maximum price you commit to pay, then let car dealers fight it out for your business by competitively bidding down the price they are willing to sell you the car for. Autobid operates a "no win, no fee" revenue and has 700 UK dealers signed up.

Dealers submit their bids anonymously thereby protecting their reputation - only the buyer gets to find out who the successful dealer was and the identity of other bidders remains secret. Dealers are motivated to use this service as it enables them to quietly shift stock to meet quotas and earn improve terms. Buyers are motivated to use the service simply getting a better deal and without the pressure sell they might get in a dealership - of course, the buyer has to make a commitment when opening the auction; it's not a play thing, so take care.

This market simply could not exist in any workable fashion without the internet.

Today I came across Parkatmyhouse, which is an online market for parking spaces, the founder of which is an OpenCoffee member. People willing to rent out their driveways/parking space post a listing including a price and details of when the space is available.

People looking for a space can then search locations to identify listings or can post a "want" listing if no suitable ones are presently showing. Spaces are shown in context on google maps.

Presently there is no price negotiation facility I could locate on the site, nor is there any price history data (the site is fairly recent) of advertised spaces or transactions done on the site, to help participants gauge what to pay/charge. I think both of these would help.

Whilst this market could exist in the classified ads section, the fact that it didn't shows two things

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posted by John Wilson @ 9:26 PM Permanent Link ,

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Wow - free real-time NYSE share prices Friday, January 12, 2007

This set of announcements here and here from Reuters and Google could really shake up the market data industry in capital markets.

Right now, firms typically devote sizeable chunks of their budgets to buying market data including real-time price feeds. In most cases such feeds are mandatory spending because professional traders need to see what's happening in the market to both take advantage of opportunities and avoid howlers. These real-time feeds are sold by Stock Exchange for whom they represent considerable income streams.

Large brokers and banks alike have always hated these fees primarily because the stock market is the original "user supplied content" concept and hence they are providing data to the Exchanges only to repurchase an aggregated set back from them.

Unsurprisingly, the Stock Exchanges, up until now at least, have always carefully controlled what users have been able to do with those feeds, particularly around re-distribution attaching very high charges to such practices or forbidding it. This has successfully deterred most firms from making the data widely available and avoided Exchange revenues from being undermined.

It therefore takes a firm of the financial muscle and standing like Google step in and pay punitive monthly charges to the NYSE to make it universally available on the web, assuming this deal goes through. Whilst that is not a large sum for Google to absorb, I reckon they may well recoup (much of) that $100k per month simply from rendering adwords etc on the relevant pages.

From the SEC's standpoint this is a win-win. After all, it's hard for a regulator to support a scenario under which access to market data should be restricted and shouldn't instead be a free public good. Yet its another thing to actively intercede and change such a practice - far better than Google have resolved it!

This will undoubtedly hit a number of Data Vendors that redistribute NYSE real-time prices, as well as putting pressure on other exchanges to follow suit.

The google blog suggests that:

The NYSE proposal would allow you to see real-time, last-sale prices across all Google properties including Google Finance, Personalized Google, Mobile, and of course, Google.com. It won't matter if you're on Wall Street or Main Street -- you'll have free, easy and fast access to real-time prices from NYSE on Google.

Depending on how such data is made available e.g. only viewable on a page or capable of being consumed as a structured feed that can be used by other applications, this could be of use to some professional investors as well as retail investors. If the former, this is likely to be of little interest since most current feeds are plumbed into trading and portfolio applications.

Another key consideration will be what important data, if any, is missing from the feed and how real "real-time" is it. I've written before about how firms will spends considerable sums to receive their data milliseconds/seconds faster since it can give them a trading edge over others - i.e. if I see a good price before you, I can grab it and make money.

Nonetheless this could be the start of an avalanche with market data vendors in its path.

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