The Securities and Exchange Commission is considering changing rules that govern how U.S. stocks are traded, including pricing incentives that exchanges and high-speed traders use to attract orders, Chairman
Gary Gensler
said Wednesday.
Speaking to an industry conference, Mr. Gensler outlined a broader examination of market structure than he had previously described. Mr. Gensler, who took over the SEC in April, has questioned the system that results in many individual investors’ orders being routed to high-speed traders known as wholesalers, such as Citadel Securities and Virtu Financial Inc., instead of going to public exchanges.
Mr. Gensler suggested individual investors might get better prices if more trading were done on public exchanges. Only about 53% of all trading in January was done on exchanges, while the rest involved wholesalers and broker-run trading venues known as dark pools, Mr. Gensler said.
“The question is whether our equity markets are as efficient as they could be, in light of the technological changes and recent developments,” Mr. Gensler told the Piper Sandler Global Exchange and FinTech conference.
SEC Chairman Gary Gensler said he was seeking to revise rules for controversial 10b5-1 plans at WSJ’s CFO Network Event. Corporate insiders use the plans to avoid insider-trading claims when buying or selling their own company’s stock.
While public exchanges disclose their bids and offers and then compile the orders to publish a national best bid and offer for every stock, wholesalers and the so-called dark pools don’t reveal their pre-trade prices. Those off-exchange venues have to execute trades at prices at least as good as the national best price coming from the exchanges.
But the national best bid and offer, known as the NBBO, may be a substandard benchmark, Mr. Gensler said, because so many trades happen away from the exchanges. Even some exchange orders aren’t included in the national best price, such as those in odd-lot sizes, in which fewer than 100 shares change hands.
“I believe there are signs…that the NBBO is not a complete enough representation of the market,” Mr. Gensler said.
The SEC will consider revising how the benchmark is calculated, and will examine other potential rule changes related to how exchanges and brokers price shares, he said.
Mr. Gensler has previously criticized a system of trading incentives known as payment for order flow, in which retail brokers send clients’ orders to firms like Virtu and Citadel Securities for a fee. The wholesaler executes the order, typically at a price slightly better than the national best bid or offer.
Trading apps could see some regulation in the future, SEC Chairman Gary Gensler told WSJ’s Jean Eaglesham at the CFO Network Event.
That price improvement can be a fraction of a cent per share. Exchanges aren’t allowed to price shares at prices of less than a penny. That may give wholesalers an advantage when competing for orders, Mr. Gensler said.
Shares of Virtu dropped about 8% in the minutes after Mr. Gensler’s remarks, though they later pared their losses. Virtu handles between 25% and 30% of individual investors’ order flow in U.S. stocks, and its stock has rallied this year amid heavy trading of meme stocks like
by small investors. Citadel Securities, the only wholesaler with a larger market share, isn’t publicly traded.
The SEC will consider changes to rules governing the minimum price increments, Mr. Gensler said. Any rule changes would first be issued as proposals, giving the ability to investors and other market participants to comment on them. Mr. Gensler didn’t say when the agency would issue a proposal, but said “it should not be confused with something that is far off.”
Exchanges also use incentives, known as rebates, to attract orders from brokers. The SEC tried to force the exchanges to experiment with limiting rebates, but a federal appeals court ruled last year that regulators didn’t have the authority to mandate the planned pilot program. The regulator will consider changes to that pricing system as well, Mr. Gensler said.
“Both types of payment for order flow raise questions about whether investors are getting best execution,” Mr. Gensler said. He noted that brokers are banned from paying for order flow in the U.K., Canada and Australia.
U.S. stock futures edged up Friday ahead of fresh data on manufacturing and services sectors that will provide more insights into the pace of the economic recovery.
Futures tied to the S&P 500 ticked up 0.3%, suggesting that the broad market gauge may end the week on a tepid note after dropping 0.4% by the close on Thursday. Nasdaq-100 futures edged 0.2% higher Friday, pointing to big technology stocks sealing their best week since mid April.
Stocks have ground lower this week on mounting concern that inflation will rise and remain elevated as the economy rebounds. Sentiment reversed on Thursday after initial jobless claims, seen as a proxy for layoffs, fell to a new pandemic low. Investors have poured back into risky assets including growth stocks and cryptocurrencies, prompting prices to rebound from the week’s lows.
“There was some relief that the labor market recovery is under way in the U.S. and we’re seeing some nervousness about inflation ebbing away,” said
Kiran Ganesh,
a multiasset strategist at UBS Global Wealth Management.
Some money managers are betting that some sectors—such as banking and energy—could benefit in particular as the economy rebounds to pre-pandemic levels.
“If we can get a combination of confidence that inflation is under control, and signs of economic momentum coming through, I think there is still good opportunities to be had, in the reopening type of sectors in particular,” Mr. Ganesh said. Stocks that performed poorly during the pandemic could become the new drivers that lead major indexes higher, he added.
Ahead of the market opening, oat-milk maker Oatly rose over 10%. The shares jumped 19% in their trading debut on Thursday.
Preliminary surveys of purchasing managers, due to be released at 9:45 a.m. ET, are expected to show that the U.S. manufacturing and services industries expanded in May.
In bond markets, the yield on the benchmark 10-year Treasury note ticked down to 1.639%, from 1.631% on Thursday.
Bitcoin edged up 2% from its 5 p.m. ET price, trading at about $40,900. The digital asset has rebounded sharply from its Wednesday intraday low of $30,444.93, but is still down over 18% since 5 p.m. last Friday.
“The context of this week is that markets are tired,” said
Paul O’Connor,
head of a multiasset team at Janus Henderson. “Stocks keep losing momentum, speculative areas of the market are losing momentum. There is fatigue here.”
Surveys of purchasing managers across Europe showed that manufacturing and services activity increased in the eurozone this month. The pan-continental Stoxx Europe 600 edged up 0.5%.
In Asia, major benchmarks were mixed by the close of trading. The Shanghai Composite Index declined 0.6% while Japan’s Nikkei 225 advanced 0.8%.
Traders worked on the floor of the New York Stock Exchange on Thursday.
U.S. stock futures edged lower Friday as investors assessed fresh waves of Covid-19 infections globally that could hamper global supply chains and drive up inflation.
Futures tied to the S&P 500 ticked down almost 0.3%, a day after it closed at a record. The broad market index remains on track for its best month since November. Nasdaq-100 futures declined 0.3%, suggesting that technology shares may be among the weakest performers after the opening bell.
Rising Covid-19 cases in Brazil and India and signs of weakening in China’s manufacturing sector are sapping some of the optimism that took the major indexes up to all-time highs earlier in the week. New variants are threatening to hobble global travel, convulse supply chains further and slow the recovery, investors say.
Signs that the U.S. growth is accelerating are also stoking concern that inflation may rise too much, driven by a persistent shortage of products like electronic chips and the prospect of more fiscal stimulus flooding markets. Persistent inflation can erode portfolio returns.
“That is where the market is, wrestling between those two,” said Edward Park, chief investment officer at Brooks Macdonald.
If the supply constraints and inflationary factors extend into next year, “the growth parts of the markets, which are supported by this ultra cheap money environment, will struggle,” he added.
New economic data from China weighed on sentiment, with official gauges for manufacturing falling short of expectations in April. China’s statistics bureau said global chip shortages, international logistics jams and rising delivery costs have weighed on factory operations.
Increased costs for businesses due to supply-chain issues could be passed on to consumers, boosting prices, investors said.
High cases of Covid-19 in India, Brazil and Japan have bolstered concerns that new variants could emerge and spread globally. A variant of the coronavirus first spotted in India has been detected in the U.S. and 18 other countries and territories. Another variant from Brazil that has been detected in more than 30 nations.
“The third wave is the big thing,” Mr. Park said. “The greater the case count, the greater the chance a new variant is created that unwinds a lot of the good work being done in the vaccine rollout program.”
In bond markets, optimism about U.S. growth prospects—stemming from better-than-expected corporate earnings, signs of the labor market’s recovery, and President Biden’s new $1.8 trillion spending proposal—have encouraged money managers to sell government bonds, considered the safest assets. There are also growing concerns that inflation could curtail the returns from fixed-income securities, and from stocks that are richly valued for their future cash flow.
The yield on the 10-year Treasury note ticked up to 1.645% from 1.639% Thursday, and is poised to extend its advance for five of the past six days. Yields rise when prices fall.
“You’re seeing a lot of companies reporting pricing pressures, supply chain disruptions, coupled with all this extra stimulus coming through from the U.S. that is why people are now really starting to focus on inflation,” said Edward Smith, head of asset allocation research at U.K. investment firm Rathbone Investment Management. “Persistent inflation beyond spring is the biggest risk to markets this year, because it could cause the Fed to taper and hike interest rates sooner than expected.”
Investors are likely to continue monitoring earnings, with energy giants
Fresh figures on U.S. consumer spending, due at 8:30 a.m. ET, are expected to show a rebound in March. Economists anticipate that Americans boosted spending as warmer weather and the vaccine rollout encouraged people to spend stimulus checks and savings.
Overseas, the pan-continental Stoxx Europe 600 edged 0.1% higher.
Most major indexes in Asia declined by the close of trading. Hong Kong’s Hang Seng shed almost 2%. The Shanghai Composite Index, South Korea’s Kospi and Japan’s Nikkei 225 each fell 0.8%.
Endeavor CEO Ariel Emanuel, fourth left, rang the New York Stock Exchange opening bell on Thursday to celebrate his company’s IPO.
as an existential threat to his dream of the future. So
Tim Sweeney
decided to fight. He gave his dispute with the world’s biggest company a code name: Project Liberty.
The clash was a bold gambit from a man who built an empire around “Fortnite,” the online multiplayer shooter game filled with cartoonish characters that became a phenomenon beloved by teenagers around the world. The ambition of Epic Games Inc.’s chief executive was that Fortnite’s legions of devoted young fans could turn it into a thriving social network, and help realize his vision of the “metaverse,” a shared virtual world where people might one day live, work and hang out.
Mr. Sweeney saw Apple as a central roadblock to that vision, according to people familiar with his thinking and documents unveiled in a recent court proceeding, because of the iPhone maker’s tight control over how people access “Fortnite” and any other mobile apps from Epic. Apple’s App Store takes a 30% cut of Epic’s revenue from those users.
Epic circumvented Apple’s fees and rules last August by introducing its own system for processing user purchases into mobile versions of “Fortnite.” It also prepared for a larger legal and public-relations campaign, complete with a video mocking a legendary Apple ad and the social-media hashtag #FreeFortnite.
“You’ll enjoy the upcoming fireworks show,” Mr. Sweeney said in an email to an ally at
Google booted “Fortnite” from their app stores, Epic responded by suing both companies.
The fate of Epic’s fight has widespread implications for the entire technology world. It could help determine everything from how much revenue app developers are able to keep to how exposed Apple could be to potential antitrust violations. Apple has rejected claims it has monopoly power, saying that Epic broke the terms of a contract and engaged in a smear campaign.
A resolution could be drawing near. Starting May 3, the dispute goes to trial before federal Judge
Yvonne Gonzalez Rogers
in Oakland, Calif. The judge must decide whether Apple is misusing its power to quash competition or if Epic is merely trying to break its contract with the iPhone maker to boost its bottom line.
Save the world
The man at the center of this clash is a 50-year-old programmer who prefers an office uniform of cargo pants and T-shirts. He eschewed the clubby confines of Silicon Valley to locate Epic’s headquarters just outside of Raleigh, N.C. Mr. Sweeney’s previous dealings with other technology companies showcase his instincts for big and prolonged fights, as well as an eye for strategy. The Maryland native is worth more than $9 billion, according to Bloomberg’s Billionaires Index.
The man who is taking on Apple prefers an office uniform of cargo pants and t-shirts. Here he is pictured in Epic’s offices in 2019.
Photo:
Jeremy M. Lange for The Wall Sweet Journal
He launched Epic from his parents’ basement at age 20 in 1991 and evolved his company from solely building games for PCs to include those for videogame consoles and smartphones. In 2012, he sold a 40% stake of his company to
, in part to tap the Chinese tech giant’s expertise in mobile gaming and wringing money from users through small purchases known as microtransactions. (Mr. Sweeney remains Epic’s largest shareholder.) Epic also owns the video-chat app Houseparty and makes the Unreal Engine, a suite of software tools for developing games and producing special effects for television shows, movies and other types of digital content.
Epic’s biggest hit started with the 2017 launch of “Fortnite: Save the World,” then a $40 game for up to four players to fight zombies and build forts. A few months later, after disappointing results, Epic offered up a new, free-to-play mode called “Battle Royale,” in which 100 players duke it out until only one combatant or squad remains. It later sold virtual currency that players could use to acquire in-game perks such as an outfit to make their avatars appear as a Marvel Comics superhero.
To build the community, since only a small percentage of players make such purchases, Epic pushed console makers to allow users of one machine to play “Fortnite” with users of another machine, in what would be an industry first for all three major videogame systems. That meant a PlayStation player could join a match with a friend on Microsoft’s Xbox or
In the fall of 2017, Epic updated its software that briefly allowed a Sony PlayStation “Fortnite” player to compete against someone on Microsoft’s Xbox. It pulled that function back, saying it was a mistake, after online chat boards lighted up with excitement. Seeing what was possible, gamers demanded more. Players cast Sony as the villain on social media with hashtags such as #blamesony and #notfortheplayers, a harbinger for the Apple dispute.
As Sony internally debated its position, executives were worried about exposure of its consumer-behavior data and competitors taking an unfair share of their business, according to people familiar with the talks. They felt Epic had backed them into a corner and worried that finicky gamers would turn on them, the people said.
Following months of negotiations, Sony relented. Asked about it afterward, Mr. Sweeney described it simply as “an effort in international diplomacy.” Since then, the Tokyo-based company has twice invested in Epic, having most recently contributed around $200 million in a funding round that valued Epic at $28.7 billion. A spokesman for Sony declined to comment.
Mr. Sweeney’s hardball tactics with Sony helped him usher in cross-play across videogame consoles, personal computers and Apple and Android devices.
All hands on deck
The relationship with Apple was cordial for its first decade. In March 2018, “Fortnite” was launched on Apple’s App Store. A year later, Mr. Sweeney was at the annual Game Developers Conference celebrating how cross-play had helped the game grow to almost 250 million players world-wide – a smashing success. Apple’s managers were happy to help promote the new hit, offering technical and marketing assistance to Epic.
Mike Schmid, head of Apple’s games business development for the App Store, helped oversee the “Fortnite” rollout and several updates. In a court statement, he described an “all-hands-on-deck treatment to address Epic’s non-stop asks, which frequently involved middle-of-the-night calls and texts demanding short-turnaround.”
To manage the work, he assigned someone in Australia so Apple could provide 24-hour coverage.
Mr. Sweeney located Epic’s headquarters far from Silicon Valley, to a spot outside Raleigh, N.C. The offices are pictured here in 2019.
Photo:
Jeremy M. Lange for The Wall Sweet Journal
The relationship described by Apple in court papers differs greatly from the experiences detailed by other developers on Apple’s iOS mobile operating system. Smaller software makers have complained about what they perceive as Apple’s seemingly arbitrary rules and mercurial ways.
With Epic, Apple appeared to go out of its way to help the gamemaker establish itself on the platform. Mr. Schmid said Epic employees had told him Apple represented just 7% of its revenue. He couldn’t be reached for comment through Apple.
“On a variety of occasions, Epic personnel have told me that if Apple did not comply with its demands, Epic would simply terminate its relationship with Apple and remove its games off the iOS platform,” Mr. Schmid said in court records. A core part of Apple’s antitrust defense is that Epic’s games are available on a variety of tech companies’ platforms, not just Apple’s.
By early 2020, “Fortnite” was showing signs of aging, although popularity for online games can sometimes ebb and flow due to new seasons or features. The privately held company doesn’t disclose financial records but app-analytics firm Sensor Tower Inc. estimates global consumer spending within “Fortnite” on Apple devices had fallen in the first quarter of last year to $70 million from a peak of almost $180 million in the third quarter of 2018. Epic Chief Financial Officer Joe Babcock, who departed the company in early 2020, said it expected the trend to continue, according to a deposition he gave cited by Apple. Mr. Babock couldn’t be reached for comment.
Epic disputes the notion that “Fortnite” was waning in popularity, as the company in May 2020 said it had reached 350 million registered accounts.
Epic said in May 2020 it had reached 350 million registered ‘Fortnite’ accounts, up from 250 million a year earlier.
But for this new plan to work, the company needed to find a way it could afford to compensate its would-be partners. Apple’s 30% share, the presentation concluded, was an “existential issue” for its plan and needed to be cut so Epic could share a majority of the profit with creators.
The battle begins
Last spring Epic began sharpening its plan to wrest itself from Apple’s fees and control. Its team investigated ways to surreptitiously add an alternative payment system to the versions of “Fortnite” on Apple and Google’s app stores, according to court records. By May Epic decided it would deploy the new system through a so-called hotfix, an important software update usually reserved for security bugs, records show, and do so just before the debut of the game’s new season.
Epic executives initially considered targeting Google alone, according to court records citing internal emails. But later they decided to include Apple, which in time would become the focus of the effort.
From an early stage, the plan depended on Epic’s payment system being rejected, read an email between Epic executives disclosed in court records. At that point: “The battle begins. It’s going to be fun!”
Epic co-founder
Mark Rein
predicted there was a greater than 50% chance Apple would immediately remove “Fortnite” from its platforms, according to an Epic employee deposition cited in court records. “They may also sue us to make an example.” Mr. Rein declined to comment.
While it worked on the technical attack, Epic also planned to cut prices on certain items in the console and PC versions of “Fortnite” by 20%— essentially creating a reason for players to eschew the mobile alternative offered by Apple.
But first, Epic would go to the front door and ask a favor of Apple and Google: The company wanted permission to run its own competing store and payment system.
In a late June email to Apple CEO
Tim Cook,
according to court records, Mr. Sweeney sought an exemption from App Store rules. Most important, he wanted to stop paying Apple’s 30% fee.
Apple rejected the request in a July 10 letter, laying out many of the same arguments it would make in defending itself against the eventual Epic lawsuit. Epic had other ways to sell its game, Apple’s lawyer added, as well as noting Epic collects royalties from games built on its software.
“Yet somehow, you believe Apple has no right to do the same, and want all the benefits Apple and the App Store provide without having to pay a penny,” the letter concluded. “Apple cannot bow to that unreasonable demand.”
‘Fortnite’ became a phenomenon beloved by teenagers around the world. Here fans cheer during the 2019 ‘Fortnite’ World Cup inside Arthur Ashe Stadium in New York City.
Photo:
johannes eisele/Agence France-Presse/Getty Images
Mr. Sweeney on July 17 responded with another email to Mr. Cook and others calling the response a “self-righteous and self-serving screed.” He promised to “continue to pursue this, as we have done in the past to address other injustices in our industry.”
Behind the scenes, Epic’s Project Liberty team met regularly and devised a way to present their plan to a judge and the public. The team included as many as 200 Epic staffers, outside lawyers and public-relations advisers. It developed an argument that Apple violated antitrust laws with its requirements that all apps offered on its iPhones and iPads go through its App Store and that all purchases of digital content go through the tech giant’s in-app purchase system.
It wasn’t a unique gripe. Other app makers, including
and Spotify Technology SA, have also butted heads with Apple on its slice of fees and control. Apple says the walled mobile-software garden it built in 2008 is now responsible for more than a half-trillion dollars in commerce.
Epic’s team worried it wouldn’t be a sympathetic character in a public fight and that gamers would blame the company if Apple and Google ultimately decided to yank “Fortnite.” So it strategized on how to bring in additional companies, including smaller, sympathetic developers, to advocate for its cause, records say. It also studied past Apple responses to major public fights, focusing on its battle with the Federal Bureau of Investigation over demands to create a backdoor into the iPhone of a shooter in a 2015 terrorist attack in San Bernardino, Calif. The controversy subsided when the government found an alternative way into the device.
The Epic team concluded that Apple could be thin skinned when it came to its public image. “Nothing moves Apple to change other than notable consumer pressure,” an Epic memo noted.
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As August approached, Epic’s board of directors was briefed on the project’s final pieces in a presentation dubbed “battle plan.” By this point, the board was told, Epic had spent time helping form the Coalition for App Fairness, an advocacy group, to support its crusade and it tested the payment system that would eventually be uploaded to Apple’s and Google’s app stores.
Mr. Sweeney sent emails to Sony, Microsoft and Nintendo alerting them to the upcoming price changes in “Fortnite,” a prelude to the “fireworks show.”
On Aug. 13, he lighted the fuse. “Epic will no longer adhere to Apple’s payment processing restrictions,” Mr. Sweeney wrote at about 2 a.m. in an email to Apple. Hours later, Epic flipped the switch on the new payment system and a public-relations campaign to rally gamers to its fight.
Project Liberty was in play.
Apple and Google both booted the game by day’s end, springing the second part of Epic’s plan: a legal battle.
A trial date hasn’t been set in Epic’s lawsuit against Google, though the situation is distinct. Devices that run Google’s Android operating system can download software from other app marketplaces in addition to the Google Play store. Google has said that Epic violated its app store’s policies as well, which are designed to keep it safe for users.
In the months after its lawsuit, Epic pursued complaints with regulators around the world and supported lobbying efforts among statehouses and Congress for changes that would crimp Apple’s power. It also released an online video that echoed Apple’s famous 1984 ad, a nod to George Orwell’s dystopian novel, that framed the computer maker as the underdog against the then-mighty
This time around, the image of a televised Big Brother was replaced by one of a talking Apple wearing glasses similar to those of Mr. Cook. The call to action at the end read: “Join the fight to stop 2020 from becoming ‘1984.’ ”
is expected to be more profitable in 2021 than it has been in more than 14 years, boosting the war chest of parent company Mercedes-Benz,
which is staking its future on ambitious plans for the flagship luxury-vehicle brand.
Shares in the German automobile giant climbed more than 1% higher in Frankfurt trading after the group released earnings for the first quarter of 2021.
The back story. Daimler prereleased headline figures for the first quarter on Apr. 16, revealing that strong sales, particularly in China, helped the company speed back to prepandemic levels after a dire year for the global auto industry.
The results last week significantly outpaced analysts’ consensus expectations across most major measures. Adjusted earnings before interest and taxes (Ebit)—a figure closely watched by analysts—was €4.97 billion ($5.96 billion) across the group, almost €1 billion more than forecast, while adjusted Ebit of €3.8 billion at Mercedes-Benz alone was around €800 million more than expected.
The earnings were a lift for a company in the midst of a massive transformation—and the stock, which is up around 30% this year. In February, Daimler announced plans to spin off its trucks and buses unit—which contributes to more than 15% of earnings—and rename itself Mercedes-Benz, the group’s flagship luxury brand. The group is also doubling down on its shift toward electric vehicles, with ambitious plans for Mercedes-Benz to dominate the luxury end of the segment.
More immediate pressure on the industry comes from the global shortage of semiconductors, which are components in critical systems from power steering to parking sensors. Earlier this week, Daimler said it would cut the hours of around 18,500 workers at its factories due to the chip shortage, and introduce temporary production halts at two plants.
What’s new. Daimler’s complete earnings for the first quarter of 2021 released on Friday confirm the preannounced figures. “Deliveries, revenues and profits increased significantly, particularly thanks to tailwinds in China, a strong product mix and favorable pricing, supported by industrial performance enhancements and cost control,” said
Harald Wilhelm,
the group’s chief financial officer.
But the results also point to a well-paved road ahead for Mercedes-Benz. Daimler said that margins—expressed as adjusted return on sales—in its premium-vehicles division would rise to 10% to 12% in 2021, upping its previous forecast of 8% to 10%. Margins at Mercedes were 6.9% in 2020 and 5.8% in 2019, and haven’t been as high as double digits since before Daimler sold its Chrysler arm in 2007.
Daimler also noted that the global semiconductor shortage impacted deliveries in the first quarter and could affect sales in the second quarter. However, the group expects any lost volumes to be partly recovered by the end of the year.
“After this promising start, we are very confident that we can keep up the pace to improve our margins on a sustainable basis and at the same time expand our electric vehicle lineup,” Wilhelm said.
The group confirmed that the expected spin off of Daimler Trucks and Buses was “well on track” to be completed before the end of the year.
Looking ahead. Daimler isn’t alone in feeling the pinch from the chip shortage, but it also shouldn’t dig into profits too much. In fact, analysts at Swiss bank UBS
expect Daimler and other auto makers to take advantage of their pricing power from the restricted supply amid booming demand coming out of the Covid-19 pandemic.
But the profitability targets for Mercedes-Benz should be the real focus. Daimler’s strategy for the future involves doubling down on the premium brand for profits, because margins are wider at the upper end of the auto industry. That should help fund the group’s ambitious plans to pivot to electric vehicles amid a wider industry shift. The fact that Mercedes is already well on its way is a sign that the group is on track.
Alibaba sign outside the company’s office in Beijing on April 13, 2021.
Greg Baker/AFP via Getty Images
Chinese billionaire
Jack Ma
courted controversy last year when he criticized banking regulators, and then he disappeared from public life for weeks. Now, his fintech firm Ant Group may be making moves for him to part ways.
It was Ant Group that had to scuttle its highly anticipated $37 billion initial public offering in November after Ma’s critical comments rained regulatory scrutiny on Ant and Ma’s affiliated e-commerce giant Alibaba.
Reuters reported on Monday that Ant is exploring options that would allow Ma to divest of his stake and give up control. Meetings with regulators signaled such a move could help lower the regulatory heat on Ant, Reuters said, citing people familiar with the regulators’ thinking.
The Wall Street Journal previously reported that Ma offered during a November meeting with regulators to hand over parts of Ant to the Chinese government.
Shares of Alibaba fell 1.6% on Monday and are up just 0.9% this year compared to the nearly 11% gain for the S&P 500.
Over the same weekend, Alibaba reached a $2.8 billion settlement with regulators, who have been investigating it for antitrust since last fall.
While a record amount, Wall Street analysts who follow the stock said it wouldn’t affect Alibaba’s financials and was “closure” for investors.
On Monday, Truist Securities analyst
Youssef Squali
lowered his price target on Alibaba to $315 but maintained a Buy rating.
The hefty settlement does not dampen the secular trends of the last few years: Consumers continue to use e-commerce sites in greater numbers and merchants have adjusted their business to take advantage of that.
It may help Ma and Alibaba move on from months of turbulence, however. Ant’s move to become a financial holding company could dampen its valuation if it tries to go public again.
Ma’s Ant stake in Ant could be sold to existing investors or to shareholders of Alibaba, Reuters reported, quoting a source with company ties. He could also transfer his stake to a Chinese investor affiliated with the state, a second source told Reuters.
The Reuters report said officials from the People’s Bank of China (PBOC), and financial regulator China Banking and Insurance Regulatory Commission (CBIRC) have held talks Ma and Ant separately since the beginning of this year, including discussing the possibility of Ma’s exit from the company.
The report quoted an Ant spokesman disputing that last point. “Divestment of Mr. Ma’s stake in Ant Group has never been the subject of discussions with anyone,” an Ant spokesman told Reuters.
CAMBRIDGE, Mass. (Project Syndicate)—President Joe Biden’s $2 trillion infrastructure plan is likely to be a watershed moment for the American economy, clearly signaling that the neoliberal era, with its belief that markets work best and are best left alone, is behind us. But while neoliberalism may be dead, it is less clear what will replace it.
The challenges that the United States and other advanced economies face today are fundamentally different from those they faced in the early decades of the 20th century. Those earlier challenges gave rise to the New Deal and the welfare state. Today’s problems—climate change, the disruption of labor markets due to new technologies, and hyper-globalization—require new solutions.
We need a new economic vision, not nostalgia for a mythicized age of widely shared prosperity at home and global supremacy abroad.
On climate change, Biden’s plan falls short of the Green New Deal advocated by progressive Democrats such as Rep. Alexandria Ocasio-Cortez. But it contains significant investments in a green economy, such as supporting markets for electric vehicles and other programs to cut carbon-dioxide emissions, making it the largest federal effort ever to curb greenhouse-gases.
“
Economics is different from an arms race. A strong U.S. economy should not be a threat to China, just as Chinese economic growth need not threaten America. ”
On jobs, the plan aims to expand employment offering good pay and benefits, focusing, in addition to infrastructure, on manufacturing and the growing and essential care economy.
New ways of thinking about the role of government are as important as new priorities. Many commentators have framed Biden’s infrastructure plan as a return to big government. But the package is spread over eight years, will raise public spending by only 1 percentage point of gross domestic product, and is projected to pay for itself eventually.
A boost in public investment in infrastructure, the green transition, and job creation is long overdue. Even if the plan were nothing more than a big public investment push financed by taxes on large corporations, it would do a lot of good for the U.S. economy.
“
We need a new economic vision, not nostalgia for a mythicized age of widely shared prosperity at home and global supremacy abroad. ”
But Biden’s plan can be much more. It could fundamentally reshape the government’s role in the economy and how that role is perceived.
Traditional skepticism about government’s economic role is rooted in the belief that private markets, driven by the profit motive, are efficient, while governments are wasteful. But the excesses of private markets in recent decades—the rise of monopolies, the follies of private finance, extreme concentration of income, and rising economic insecurity—have taken the shine off the private sector.
At the same time, it is better understood today that in a complex economy characterized by so much uncertainty, top-down regulation is unlikely to work. Regardless of the specific domain—promoting green technologies, developing new institutional arrangements for home-care workers, deepening domestic supply chains for high-tech manufacturing, or building on successful workforce development programs—government collaboration with nongovernmental actors will be essential.
“
If it succeeds, the example it sets of markets and governments acting as complements, not substitutes—demonstrating that each works better when the other pulls its weight—could be its most important and enduring legacy. ”
In all these areas, the government will have to work with markets and private businesses, as well as other stakeholders such as unions and community groups. New models of governance will be required to ensure public objectives are pursued with the full participation of those actors who have the knowledge and capacity to achieve them. The government will have to become a trusted partner; and it will have to trust other social actors in turn.
In the past, each excessive swing in the state-market balance has eventually prompted an excessive swing in the opposite direction. The Biden plan can break this cycle. If it succeeds, the example it sets of markets and governments acting as complements, not substitutes—demonstrating that each works better when the other pulls its weight—could be its most important and enduring legacy.
Biden’s unhelpful framing
In this regard, it is unhelpful to view the Biden plan as a way to restore America’s competitive position in the world, especially vis-à-vis China. Unfortunately, Biden himself is guilty of this framing. The package will “put us in a position to win the global competition with China in the coming years,” he recently argued.
It may be politically tempting to market the infrastructure plan in this fashion. In an earlier era, the prevailing fear that the U.S. was losing its edge to the Soviet Union in ballistic missiles and in the space race helped catalyze a national technological mobilization.
But there is much less reason for fearmongering today. It is unlikely to buy much Republican support for the plan, given the intensity of partisan polarization. And it diverts attention from the real action: if the plan increases incomes and opportunities for ordinary Americans, as it should, it will have been worth doing, regardless of the effects on America’s geopolitical status.
Moreover, economics is different from an arms race. A strong U.S. economy should not be a threat to China, just as Chinese economic growth need not threaten America. Biden’s framing is damaging insofar as it turns good economics at home into an instrument of aggressive, zero-sum policies abroad. Can we blame China if it tightens restrictions on U.S. corporations as a defensive measure against the Biden plan?
The plan could transform the U.S. and set an important example for other developed countries to follow. But to achieve its potential, it must avoid misleading state-versus-market dichotomies and outdated Cold War tropes. Only by leaving behind the models of the past can it chart a new vision for the future.
A few weeks ago, New York hedge fund Alden Global Capital LLC was on the verge of acquiring Tribune Publishing Co. —home to the Chicago Tribune, Baltimore Sun and other U.S. metro newspapers—with seemingly no one in its way.
Then it offended one of its partners in the deal, setting off a battle that could help shape the future of local news in America.
Maryland hotel magnate Stewart Bainum Jr. had worked out a side arrangement with Alden Chief Executive Heath Freeman to buy the Sun, a paper Mr. Bainum grew up reading. Then, in Mr. Bainum’s view, Alden tried to raise the cost of a fee agreement that would substantially jack up the price, people close to the situation said.
Mr. Bainum told his advisers late on the afternoon of Friday, March 12, that he was worried he could no longer trust Alden, according to a person familiar with the matter.
That evening, the 74-year-old got on the phone with his bankers and decided to attempt a stunning 11th-hour move: his own bid for the whole company, which he announced by the end of the weekend.
WASHINGTON (AP) — These are busy days for Republican state attorneys general, filing repeated lawsuits that claim President Joe Biden and his administration are overstepping their authority on immigration, climate change, the environment and taxes.
The strategy harks back to what Democrats did during Trump’s presidency, heading to court in New York, California, Maryland and other states where they were likely to receive a friendly reception. Even before that, Republicans were frequent filers during Barack Obama’s White House years.
“This is something the Republicans have taken from the Democratic playbook, just as the Democrats had taken a lot of things from the Republican playbook during Trump’s tenure,” said New York University law professor Sally Katzen, who served in the Clinton White House.
The legal action reflects GOP opposition to Biden initiatives, but it also is providing the attorneys general, many with higher political ambitions, to showcase their willingness to stand up to Biden and unabashedly side with Trump.
Missouri Attorney General Eric Schmitt, seeking the Republican nomination for U.S. Senate in 2022, brags in a TV ad that he is “on the conservative front line suing to stop the Biden administration’s worst abuses.”
The main target of lawsuits filed so far have been executive orders issued by Biden.
But several states also have sued over a provision of the $1.9 trillion COVID-19 rescue plan that prohibits states from using their share of federal money to reduce taxes.
Chris Carr, the Georgia attorney general and new chairman of the Republican Attorneys General Association, said he and his colleagues have been cast in this role because Democrats control both houses of Congress and the White House.
“We’ve got a situation where President Biden says, ‘Look, I want to be more bipartisan in nature.’ But then he turns around and has issued more executive orders in the beginning of a term than any president in modern history, I’m told,” Carr said.
“Our job is to ensure the rule of law is upheld. It’s a natural tension we’ve seen throughout American history. How does the federal government stay in its lane?” he said.
It took only two days after Biden’s inauguration for the first legal fight to erupt.
Several other states have since followed with similar claims.
Just since the middle of March: • Texas, Montana and 19 other states filed suit in Texas to overturn Biden’s cancellation of the contentious Keystone XL oil pipeline from Canada. • Louisiana Attorney General Jeff Landry led 13 states in suing the administration to end a suspension of new oil and gas leases on federal land and water and to reschedule canceled sales of leases in the Gulf of Mexico, Alaska waters and western states. • Missouri sued over the restriction on state tax cuts as a condition of receiving money from the huge COVID-19 bill.
Earlier in March, Schmitt led 12 states in a suit that claims the administration lacks the authority to take account of the social costs of climate change. The president said on Jan. 20 that federal agencies must account for damages caused by increased greenhouse gas emissions, including changes in farm productivity, human health and property damage from increased flood risk.
In at least two instances, Republicans are trying to get the Supreme Court involved to keep in place Trump policies that Biden is reviewing or has indicated he will reverse.
Paxton is leading a push to get the justices to reimpose the Trump-era immigration rule denying green cards to immigrants who use public benefits like food stamps. A federal court has blocked the policy nationwide and the Biden administration dropped the defense of it.
Ohio Attorney General Dave Yost is leading a 19-state effort to keep the court from dismissing a case over the Trump policy that bans family planning programs that receive federal funds from referring women for abortions.
The administration and medical groups that had challenged the policy agreed to dismiss the case because the Health and Human Services Department shortly will propose a new rule rescinding the ban on abortion referrals.
Paxton’s predecessor was Greg Abbott, now the Texas governor. Abbott burnished his conservative credentials by frequently going to court over Obama initiatives. “I go into the office, I sue the federal government, and I go home,” he said in 2013, boasting then of having sued the administration 25 times.
By the middle of 2016, the Wall Street Journal counted at least 44 times that Texas went to court against the Obama administration.
The one thing that has changed since the last Democratic administration is that Trump was able to move appeals courts across the country to the right, adding six judges each to appeals courts that hear cases from Ohio and Texas and four to the court that includes Missouri. All three already leaned conservative.
Even the famously liberal 9th U.S. Circuit Court of Appeals in San Francisco, which hears appeals from Montana, became more evenly balanced in the past four years, with the addition of 10 Trump appointees.
“Republican attorneys general might take extra comfort from the fact that there were a significant number of conservative judges confirmed during the Trump administration, and there are a number of courts of appeals where the balance was tipped. So, it’s an even better shot than before,” Katzen said.
Microsoft Corp. is in advanced talks to acquire messaging platform Discord Inc. for $10 billion or more, according to people familiar with the matter, as the software giant seeks to deepen its consumer offerings.
Originally favored by gamers, San Francisco-based Discord offers voice, text and video chatting. The platform’s popularity has surged since the pandemic took hold as people stay home and connect online—as has that of other chat services, like Facebook Inc.’s WhatsApp and Signal Messenger LLC. Discord has been considering an IPO.
Microsoft, which has a market value of more than $1.7 trillion, has been on the hunt for an acquisition that would help it reach more consumers. Last summer, it held talks to buy the popular video-sharing app TikTok amid a high-profile geopolitical standoff prompted by the Trump administration, before abandoning the effort.
VentureBeat reported this week that Discord was exploring a sale and had entered exclusive discussions with an unnamed suitor.
