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Reviews

SEC Pursuing Broad Review of Stock-Market Structure, Chairman Says


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

AMC Entertainment Holdings Inc.

and

GameStop Corp.

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.

Write to Dave Michaels at [email protected] and Alexander Osipovich at [email protected]

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8



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Future

Alden Clashes With Billionaire Over Future of Tribune—and of Local News


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.



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Future

Stock-market futures slip, bond yields pop near 1% amid razor-thin Georgia races


Wall Street had Georgia squarely on its mind Tuesday night, with equity futures and bonds mostly in the crosshairs as investors eyed dual contests for key Senate seats coming down to razor-thin margins in early returns.

MarketWatch’s Victor Reklaitis reported that analysts are describing the Georgia races as “about as close as you can get,” and there are expectations that the winners won’t be declared until Wednesday morning.

At last check, tallies from populous Democratic-leaning counties, particularly in Dekalb, which could swing the vote tally, were looming.

Democratic challenger Jon Ossoff was trailing incumbent Republican Sen. David Perdue, with over 90% of the vote counted, after enjoying a handy lead earlier, according to data aggregated by the Associated Press.

In the other runoff, Democrat Raphael Warnock was also running slightly behind against incumbent GOP Sen. Kelly Loeffler.

The Senate races are runoffs from the November general election, when none of the candidates hit the 50% threshold required to be declared winner.

At stake for the markets is the prospect of a slim Democratic majority in the Senate if candidates can upend GOP incumbents.

Senate Republicans, if either Loeffler or Perdue wins Tuesday night, can be expected to block further coronavirus relief legislation and crimp any Democratic plans for expansive spending after President-elect Joe Biden takes office, experts said.

A Democratic sweep in Georgia, however, would give that party virtual control of that chamber because Vice President–elect Kamala Harris would cast tiebreaking votes as the chamber’s president.

Futures for the S&P 500 index
ESH21,
-0.64%

ES00,
-0.64%

were off 0.7%, while those for the Dow Jones Industrial Average
YMH21,
-0.24%

YM00,
-0.24%

were 0.3% lower, and Nasdaq-100 futures
NQH21,
-1.34%

NQ00,
-1.34%

were off 1.3% late Tuesday.

In the regular session, the Dow
DJIA,
+0.55%
,
S&P 500 index
SPX,
+0.71%

and the Nasdaq Composite Index
COMP,
+0.95%

finished the session solidly higher ahead of the political face-offs.

However, some of the biggest moves were emanating from the bond market, with the 10-year Treasury yield
TMUBMUSD10Y,
1.000%

knocking on the door of 1%, at around 0.985%, as prices fell, after rates finished at 0.955%, marking its highest 3 p.m. Eastern close since Dec. 4, according to Dow Jones Market Data. The 30-year Treasury bond
TMUBMUSD30Y,
1.762%

also was up nearly 4 basis points yielding 1.744% vs. an afternoon close at 1.705%, also its highest rate in a month.

For the bond market, Democratic wins could add to the bearish pressure on Treasurys as analysts say inflation expectations have risen in response as Congress may be more inclined to pass additional fiscal spending measures with a majority, which would weigh on bond prices, dragging yields up.

“It looks like a couple of the larger democratic counties haven’t been totally counted yet so my belief is this may very well swing to the Democrats,” Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities, told MarketWatch.

“If that does happen rates will continue to rise over the next few days. We could very well see 10yr yields near 1.2% shortly,” he wrote.

It is nearly impossible to surmise what outcome Wall Street deems is best suited to push stocks further higher in 2021. Last year, market participants had been wagering that a Biden presidential victory, coupled with Democrats achieving a majority in the Senate, would provide the best scenario for additional financial relief measures to help sustain the economy’s recovery from the Covid-19 pandemic.

However, a blue wave failed to manifest and markets surged into the final weeks of 2020 regardless.



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Future

US stock futures lose steam as election results trickle in


Dow (INDU)futures were down 45 points, or 0.1%, around 9 p.m. ET after having risen more than 200 points earlier Tuesday evening. S&P 500 (SPX) futures rose 0.2% and Nasdaq (COMP) futures jumped 1.3.%

Polls in 16 states and Washington, DC, closed at 8 pm ET, and stock futures appeared to fluctuate as election results from the key race in Florida rolled in.

Uncertainty is the enemy of markets. Investors are hoping that a decisive winner emerges, sooner rather than later. Crucially, that would mean the nightmare scenario of a contested election is avoided.

In short, election results hinting at a clear winner should boost futures, and vice versa.

US stocks posted strong gains during Election Day.

The Dow closed Tuesday up 555 points, or 2.1%, higher, its best percentage gain since mid-July. The S&P 500 closed 1.8% higher, its best day in a month. The Nasdaq Composite finished 1.9% higher — its best performance since mid-October.

Hopes for more government spending to help the economic recovery in the near-term boosted markets and riskier investments like stocks. The gains also reflected Wall Street’s bet that former Vice President Joe Biden will win the election.

Analysts at Goldman Sachs (GS) said Tuesday there’s a good chance the winner will be declared Tuesday night because swing states like Florida, Arizona, Georgia and North Carolina will report results quickly. That certainty would also likely be a boost to markets.

Investors are also closely watching the results in the race for control of the US Senate. If Democrats appear poised to retake control of the Senate, that could pave the way to robust fiscal stimulus and infrastructure spending — two things markets crave. However, it could also lead to higher taxes that would cut into corporate profits.

Looking ahead, Wendy’s (WEN), Allstate (ALL) and Hilton (HLT) report earnings on Wednesday.

— CNN’s Anneken Tappe contributed to this report.



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Gadgets

Samsung’s billionaire chairman died on Sunday. He once counted Warren Buffett as a shareholder


  • Samsung’s chairman, Lee Kun-hee, died on Sunday at age 78.
  • The boss of the South Korean conglomerate once counted Warren Buffett as a shareholder.
  • Buffett, a billionaire investor and the CEO of Berkshire Hathaway, made “hundreds of millions” from a rare overseas bet on Samsung, he revealed in a CNBC interview in 2018.
  • “It was a big, strong, good company,” he said.
  • Visit Business Insider’s homepage for more stories.

Samsung’s billionaire chairman, Lee Kun-hee, died on Sunday at age 78 after an extended illness. He once counted Warren Buffett, the famed investor and Berkshire Hathaway CEO, as a shareholder.

Lee’s father, Lee Byung-chull, founded Samsung as an exporter of fish, fruit, and noodles in 1938. Lee took the reins in 1987 and helped grow the South Korean company into a sprawling global conglomerate with interests in consumer electronics, microchips, home appliances, medical equipment, life insurance, shipbuilding, and theme parks.

Read more: GOLDMAN SACHS: Buy these 13 unloved vaccine stocks that have the potential to spike on positive treatment updates

There are clear similarities between Samsung and Buffett’s Berkshire Hathaway.

Both own scores of businesses across numerous sectors such as insurance, energy, manufacturing, construction, transportation, and retail.

Berkshire also holds billion-dollar stakes in Apple, Bank of America, Coca-Cola, American Express, and other public companies.

The similarities may have been a factor in Buffett’s decision to invest in Samsung, despite sticking to American businesses for most of his career. He revealed the rare overseas bet during a CNBC interview in 2018.

Berkshire bought a “reasonable amount” of Samsung stock when it was trading at about 1 million won ($886) per share, Buffett said. That price equates to 20,000 won following the group’s 50-for-1 stock split in 2018. 

The investor was drawn to the South Korean company’s low valuation and robust balance sheet, along with the prospect of share buybacks.

“It was very, very cheap,” Buffett said. “They had a lot of cash. They hadn’t done much buying of their stock but they’d talked about it.”

“It was a big, strong, good company,” he added.

Read more: ‘The road to financial implosion’: A notorious market bear says the Fed has set the stage for a 67% stock plunge — and warns of zero-to-negative returns over the next 12 years

Berkshire set its sights on South Korea because stocks were “ridiculously cheap” following its financial crisis in the late 1990s, meaning there were “a lot of bargains,” Buffett said.

The investor and his team ultimately cashed out after Samsung’s stock price surged about 80%. A weaker won also boosted their return in dollars.

“We probably made in the hundreds of millions,” Buffett said. “Might have been $500 million, $400 million, I don’t remember exactly,” he added.

The estimated return suggests Berkshire invested about $500 million to $600 million in Samsung.

Buffett’s wager paid off handsomely, but he may have sold too soon. Samsung’s shares have tripled in value since the time of Berkshire’s investment, and now change hands at more than 60,000 won each.



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