Roger McNamee post from July 28th, 2011

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Jan, 2012

I knew I liked Roger McNamee. Here he is holding a Martin guitar!

Yesterday while trading equities for our clients, and trying to out-maneuver the predatory HFT “liquidity-providing” front-running 2% of the Stock Exchange customer base who make up 80% of their revenues, we were treated to one of the finest CNBC interviews we have ever been privy to.

Roger McNamee, Elevation Partners co-founder, Integral founder, Silver Lake co-founder, Rocker-dude extraordinaire, and Market Structure Genius was being interviewed by CNBC’s David Faber and Gary Kaminsky. He offered his perspective on CSCO, Big Tech, Social Media, and yes, even the for-profit public stock exchange model. Kudos to Kaminsky and Faber for conducting a Grade-A interview that allowed us all to witness one of the sharpest, most progressive minds our equity markets have ever seen. In this interview (Watch CNBC Video Here) at the 8:00 mark in, we were treated to this comment:

NASDAQ, once it went to flash trading, it said we’re not in capital formation anymore. We’re just in the business of letting our market makers front run their customers… you’re crazy to go public on NASDAQ… We have now gone back 40 years, to what NASDAQ used to be, where we have negotiated markets for informed investors… the venture capital market has been reinvigorated.

Facebook… being private hasn’t hurt them at all; they are able to keep people focused (long term). I’m a long term holder; for the first time in fifteen years I see this massive change that I can invest in for ten years at a time.

So, Roger, it would seem to us, has been following how the Stock Exchanges are not really about Trading Stock anymore. They are not about Exchanging Capital. They are about selling services like collocation, data services, and other Adnan Kashogi-esque menu items so that their largest customers can flip stock in microseconds. I think Bloomberg published a recent article where they called the NYSE a server farm. Perhaps Roger might agree with that sizing-up.

How did Bob Griefeld respond to Roger McNamee’s comments, just minutes later, on the same program on CNBC? In a moment of purely priceless television, Bob Greifeld, CEO of NASDAQ, who doesn’t know what gross margin is (See Horrific Video Here), when asked about McNamee’s comments on public exchanges, stated that McNamee “with all due respect doesn’t follow market structure as closely as somebody like myself.” (See here: CNBC Video : fast forward to about 3:15 mark).

We wish to note here that NASDAQ sold Instinet to Silver Lake Partners, a firm McNamee co-founded,  for $200 million, who in turn then turned around and flipped it, quicker than a Greenwich Connecticut starter home, for five times that amount, $1 billion.

Ummm we think perhaps Mr. McNamee understands our market structure a tad better than NASDAQ’s CEO does. Perhaps NASDAQ stockholders might do well to have someone like McNamee be the CEO, someone focused on long term value as opposed to short term micro trends. Perhaps then NASDAQ can know what it feels like to buy something and sell if for a five-bagger, instead of the other way around.

You can’t make this stuff up.

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The Single Best Line Ever Written In An SEC Comment Letter

27

Jan, 2012

“We have created such a monstrosity that a metaphorical instance of minor varicosity could become an aortic aneurysm.”

The above line was written by Tim Quast from ModernIR and could be the single best line ever written in an SEC comment letter .  Tim was responding to a request for comment by the SEC on their new Limit Up/Down circuit breaker proposal.   The proposal was written by the exchanges and submitted by the SEC. Immediately, that should be a tipoff that there may be more than meets the eye in this proposal.  As with any SEC proposal, market participants are encouraged to comment publicly to make sure their voice is heard.  Tim has been a long time friend of Themis’ and has written some excellent comment letters in the past. Tim’s firm, ModernIR,  uses technology to help investor relations officers make sense of their stock price movements. The corporate issuer’s voice has been mostly silent in the market structure debate and Tim has been trying to change that. Here is a bit of Tim’s letter:

“Markets benefit from an orderly system for pausing activity during periods of marked uncertainty. But proposals thus far only hope to halt contagion, and offer no path for blunting aftershocks and restoring vibrancy. Avoided again is the elephant in the room: Current market structure crafted by rules is the root cause of systemic risk. To sustainably diffuse risk, the system must be disaggregated. Instead, recommendations thus far move the opposite direction giving rise to grave concern.”

“The reason for risk of systemic contagion is the existence of a system. If a panic occurs at Safeway in the canned-goods aisle, it doesn’t spread to the fresh-foods section at Kroger. No system links all grocery stores by law. But in trading markets, by rule, all SROs must be connected to facilitate compliance with Reg NMS rules. All protected quotes are automated, all order types conformed to Reg NMS protocols, all markets conjoined by order-routing requirements. We have created such a monstrosity that a metaphorical instance of minor varicosity could become an aortic aneurysm.”

“A concluding word on public perception: Imposing complex controls in markets will not instill the public with confidence. On the contrary, the populace at large may conclude that market function has become so byzantine, the fear of structural failure so great, that they stop participating. By contrast, regulations that look not only to prompt a market to “take a breath,” but which also genuinely examine and let go of failed rules send the message that money should return”

Well done Tim, we hope the SEC is listening

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Roger McNamee CNBC Interview Yesterday.

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Jan, 2012

What Do Google And The Stock Exchanges Have In Common?

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Jan, 2012

Difficult Teenagers

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Jan, 2012

Wait… Spreads Haven’t Decreased After All?

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Jan, 2012

Losing Faith In The Arms Merchants

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Jan, 2012

How to Value Stocks in Modern Barren Equity Landscapes

12

Jan, 2012

Crashes and High Frequency Trading

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Jan, 2012

It Couldn’t Happen Again. Wait…

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Jan, 2012