May 19th, 2012
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In an ideal world, your broker would help you get the best deal possible whenever you made a transaction. But unfortunately, you have to watch your broker closely to protect your own best interest. From high-commission products to nickel-and-dime fees, brokers are in business to make money — and if you’re not careful, you’ll be left footing more than your fair share of the bill.
Many customers have never heard of one source of potential revenue for brokers, but it’s an increasingly important part of the business. As competition among exchanges for stocks and other securities has heated up, exchanges have decided that a great way to entice your broker to place your trades with them is to offer cold hard cash for the privilege.
Making money that you’ll never see
It wasn’t that long ago that investors didn’t have many choices in where to buy and sell stocks. If a stock was listed on a given exchange, that’s where you’d typically go to trade shares.
The boom in new exchanges, however, has given investors — and, more importantly, the brokers who typically serve them — alternatives on where to place trades. In theory, that should be a good thing for investors. With multiple exchanges, brokers can route trades through whichever one will give their customers the best execution price.
To attract traffic, upstart exchanges started offering brokers a payment to place orders there. In some cases, exchanges then charged an extra fee to anyone who filled one of those offers. So in other words, brokers were rewarded for adding liquidity to the exchange but had to pay a premium if they reduced liquidity by taking out one of the orders.
Over time, the practice became commonplace enough that even NYSE Euronext (NYSE: NYX ) and Nasdaq OMX (Nasdaq: NDAQ ) started doing it. According to a recent article in The New York Times, during the first three months of 2012, the Nasdaq paid more than $300 million in rebates, while the New York Stock Exchange paid a somewhat smaller proportion of its overall revenue. A recent Woodbine Associates study suggests that rebates may cost investors as much as $5 billion annually.
The practice isn’t limited to stocks, either. For instance, CBOE Holdings (Nasdaq: CBOE ) offers rebates for certain types of options trades on its C2 platform.
What it means for you
In an ideal world, none of this would make any difference to you. In deciding where to place your trades, your broker would aim to get you the best deal possible after factoring in any rebates. If the broker earned a rebate, it would pass that money along to you in the form of lower commissions. Interactive Brokers (Nasdaq: IBKR ) , for instance, gives customers who use its cost-plus pricing structure the benefit of any rebates it gets from exchanges.
But some brokers keep any rebates to offset general expenses. For instance, TD AMERITRADE (Nasdaq: AMTD ) says in its order-execution FAQ: “The majority of exchanges and market makers provide incentives for brokers to route orders to them. Typically, this involves a rebate or payment to the broker for routing orders to that exchange or market maker. … This payment is used to offset the costs of doing business and ultimately helps to reduce the overall cost to our clients.”
If you’re not a frequent trader, then these small boosts in execution price — which often amount to less than a penny per share — probably won’t make a huge difference to your investing results. But even investors who never trade stocks at all can be affected. The Woodbine study pointed to mutual fund companies facing the same situation when they make trades for their accounts, and with much larger trades involved, those pennies add up.
Watch out
Trade rebates are just another way that brokers can end up having a conflict of interest with their clients. Making sure that you learn as much as you can about how your broker gets compensated will put you in a better position to understand your broker relationship. You may not be able to avoid paying slightly more, but it will at least give you a more accurate picture of what your true costs are.
Finding the best broker you can is important to your long-term financial success. So is making the best investments you can. The Motley Fool’s special report on long-term investing can help you figure out where to find the best stock prospects for the long haul, with three names submitted for your consideration. Let me invite you to get your free copy right now.
Do you need more help finding a broker that will do a better job of meeting your needs? Go to the Fool’s Broker Center and learn more about the brokers that cater to investors like you.
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The Steve Jobs Betrayal
You may already know that in the final year of his life, Jobs revealed a stunning betrayal — and told his biographer, “I will spend my last dying breath… and every penny of Apple’s $40 billion in the bank to right this wrong.” What was it that made Jobs so irate — and why could it make a few in-the-know investors some major profits over the coming months and years?
Enter your email address below to find out what made Jobs so enraged!
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May 19th, 2012
By Jessica Toonkel
NEW YORK (Reuters) – On Monday, 74-year-old Betty Tanguilig told her financial adviser to liquidate a $400,000 account and put all the proceeds into Facebook Inc IPO shares.
Her adviser, Alan Haft, agreed to sell only $46,000 of the $400,000 account, one of several the retiree has. But at about 6:00 a.m. EDT Friday, Haft heard from his brokerage firm, E*Trade Financial Corp, that Tanguilig did not get any IPO shares.
Tanguilig, a retired mother of eight, was furious. She has been on Facebook for many years and regularly logs in. “I had to have it,” she said.
But it turned out that missing out on the IPO shares, priced at $38, did not matter. The big first-day pop in Facebook’s share price that many analysts expected never happened. The highest the stock price hit on Friday, after opening at $42.05 per share, was $45.00. It closed at $38.23.
Advisers who spent many hours this week trying to secure shares for clients at the IPO price said it was all for naught.
“All that hype, all that work for Face-flop,” said one adviser from Wells Fargo Advisors, the brokerage arm of Wells Fargo & Co after the market close Friday.
Tanguilig still managed to get her stock close to her price. Haft secured $46,000 worth of Facebook stock for her at $38.10 – just 10 cents above the IPO price.
“If that stock had doubled in price, I never would have heard the end of it,” Haft said.
EARLY CRUNCH
Haft, a financial adviser with California-based Kings Point Capital LLC who has $200 million in assets under management, has been fielding calls from clients desperate to buy Facebook shares for weeks. E*Trade alerted Haft’s clients as to how many Facebook shares they got at around 7 in the morning, East Coast time.
“I started getting calls and texts from clients at 4 a.m. my time,” Haft said.
One Bank of America Merrill Lynch broker said she had colleagues in at the crack of dawn finalizing client orders after Merrill extended its deadline for entering allocations to 7:30 a.m. Friday because of a backlog of documentation approval.
The firm initially told brokers on Thursday they had until 3 p.m. EDT to submit their allocations after finding out earlier that day how many shares they were allotted.
“The system was just so inundated,” said the broker, who declined to be identified because she is not permitted to speak to the media.
Selena Morris, a Merrill spokeswoman, did not return an e-mail and call requesting comment.
SUBDUED AFTERNOON
Jeff Gonzalez, a 31-year-old advertising director, put in an order for 24 shares around 11:30 a.m. EDT, right after the stock started trading, but canceled it when the shares did not rise.
“I had thought we would immediately see a 15 percent jump and was planning to get in and out,” he said, adding that he still may buy the stock again in a few weeks if the stock starts trading in the $20 range.
About 20 of Haft’s clients got Facebook shares pre-IPO, but by 2:00 p.m. EDT a handful of them had already sold out.
Scott Barkow, a financial adviser with Raymond James & Associates, the brokerage subsidiary of Raymond James Financial, spent some of Friday calling up clients who were not able to get shares pre-IPO to see if they still wanted shares. A couple of them were no longer interested, he said.
A Morgan Stanley Smith Barney broker said that clients who had hoped to go out to dinner Friday night and brag to friends about getting into the IPO are likely disappointed.
“Now this isn’t good cocktail conversation,” the adviser said, adding that if the stock had doubled, the Facebook IPOer “would have been picking up the tab.”
Robert Romano, president of communications and press relations at Sci-Fi United, which reviews science fiction productions online, bought 76 shares Friday morning for between $38 and $39 per share. He updated his Facebook status to read: “Operation Facebook pays off my mortgage is commencing! Off to the races.”
“I don’t have an expectation that will happen anytime soon, but it’s fun to be part of something historic,” he said.
(Reporting By Jessica Toonkel; Additional reporting by Ashley Lau; Jennifer Hoyt Cummings; Editing by Gary Hill)
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May 17th, 2012
Please Subscribe! Sorry for the video glitches guys, there were a lot of "uums" and "ahhs" that i edited out.
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May 17th, 2012
NEW YORK–(BUSINESS WIRE)–
The Proxy Fee Advisory Committee (PFAC), formed by the New York Stock
Exchange, today published its recommendations for changes to the fees
paid by public companies to banks and brokers for the distribution of
proxy materials to shareholders who hold their stock in “street name.”
Composed of issuers, broker dealers and investors, the PFAC was formed
in September 2010 to review the existing proxy distribution fee
structure and make recommendations for change. Any changes to these fees
are subject to SEC approval.
Overall, the Committee’s recommendations will propose to streamline
proxy fees and make them more transparent to issuers as well as result
in a modest decrease in total fees paid of approximately 4%, although
some fees will increase and others will decrease. The impact on any
individual participant will vary somewhat depending on their
circumstances.
“Proxy distribution fees have been part of the NYSE’s rules since 1937,
and have been reviewed and changed periodically over that time,” said
Scott Cutler, Co-Head of U.S. Listings and Cash Execution and member of
the PFAC Committee. “The NYSE has long operated under the assumption
that these fees should represent a consensus view of the issuers and the
broker-dealers involved.”
The goals of the Committee have been to support the current proxy
distribution system, including continued support for the elimination of
mailings; to encourage and facilitate active voting participation by
retail beneficial owners; improve transparency of the fee structure and
ensure that fees are as fair as possible and aligned with the work
involved.
“The recommendations reflect a great deal of careful consideration by
the Committee, with invaluable support by the NYSE, and input from many
different stakeholders in the process,” said Paul Washington, Senior
Vice President, Deputy General Counsel and Corporate Secretary of Time
Warner Inc., and PFAC Chair. “The proposed fee structure is intended to
continue to support a world-class process that facilitates
communications with, and voting by, stockholders; and one that will be
flexible enough to encourage further efficiencies and voter
participation by retail stockholders.”
Recommendations of the Proxy Fee Advisory Committee
-
Streamline the proxy fee categories into three basic fee categories –
a nominee fee, a basic processing fee and a preference management fee
– to increase transparency.
-
Provide a more gradual tiering of the basic processing fee to smooth
the “cliff effect” that occurs between large/small issuers.
-
Reduce preference management fees for managed accounts to half the
normal rate, and eliminate all processing fees for managed account
positions of five shares or less.
-
Increase modestly the processing fees for special meetings and
contests.
-
Reduce by half the fee for annual meeting reminder notices, to support
improved shareholder communication.
-
Subject the Notice & Access fees to the proxy fee rules.
-
Allow issuers to stratify their NOBO lists, rather than require
issuers to pay for complete lists as is currently industry practice
(see below).
The PFAC also recommended that the NYSE:
-
Explore the impact of allowing issuers to request stratified NOBO
lists, including an extra fee for stratification.
-
Discuss the proposal to create an investor mailbox as a possible means
to increase voting participation by retail shareholders with
additional industry representatives so it can be determined whether
the proposed “success fee” is at an appropriate level.
-
Create an ongoing process to review proxy fees and services more
frequently going forward.
The Committee recognizes that there is a reliable, accurate and secure
proxy distribution process in place today. The Committee’s stated
purpose is to bring proxy distribution fees in line with the work
performed and add increased transparency. It should be noted that the
Committee’s fee recommendations do not attempt to take into account
potential changes to SEC rules that are discussed in the SEC’s proxy
plumbing concept release.
The NYSE will initiate discussions regarding the PFAC’s recommendations
with the SEC, after which the NYSE would expect to submit a rule change
proposal to the SEC reflecting the outcome of these discussions. Any
rule filing proposal would be published for public comment prior to SEC
approval.
To read the full Proxy Fee Advisory Committee report, please click here.
About NYSE Euronext
NYSE Euronext (NYX) is a leading global operator of financial markets
and provider of innovative trading technologies. The company’s exchanges
in Europe and the United States trade equities, futures, options,
fixed-income and exchange-traded products. With approximately 8,000
listed issues (excluding European Structured Products), NYSE Euronext’s
equities markets — the New York Stock Exchange, NYSE Euronext, NYSE MKT,
NYSE Alternext and NYSE Arca — represent one-third of the worlds
equities trading, the most liquidity of any global exchange group. NYSE
Euronext also operates NYSE Liffe, one of the leading European
derivatives businesses and the world’s second-largest derivatives
business by value of trading. The company offers comprehensive
commercial technology, connectivity and market data products and
services through NYSE Technologies. NYSE Euronext is in the S&P 500
index. For more information, please visit: http://www.nyx.com.
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May 17th, 2012
Following the third quarter earnings announcement on May 3, none
of the analysts covering
JDS Uniphase Corp.
(
JDSU
) have revised their estimates. The brokers have retained their
estimates based on the belief that the volatile macroeconomic
conditions, delays in carrier spending and other negative news has
already been reflected in the current valuation.
First Quarter Highlights
On a GAAP basis, quarterly net loss was $17.4 million or 8 cents
per share, compared with a net income of $38.6 million or 16 cents
per share in the year-ago quarter. Adjusted EPS of 5 cents missed
the Zacks Consensus Estimate of 7 cents.
Quarterly net revenue of $409.2 million was down 10.1% year over
year, well below the Zacks Consensus Estimate of $420 million.
Operating loss was $7.6 million compared with an operating income
of $12.6 million in the prior-year quarter.
Agreement of Analysts
Of the two analysts covering the stock in the last 7 days, none
of the analysts have revised the estimates upward or downward for
the fourth quarter of 2012. Similarly, for the first quarter of
2013, out of the two analysts covering the stock, none have revised
their estimates.
Similarly, for fiscal 2012 and 2013, out of the two analysts
covering the stock in the last 7 days, none have revised their
estimates.
Currently, the Zacks Consensus Estimate for the fourth quarter
of fiscal 2012 is 9 cents, with a projected annual decline of
43.75%. For the first quarter of fiscal 2013, the Zacks Consensus
Estimate of 14 cents indicates an annual growth of 35.00%.
Magnitude of Estimate Revisions
During the past 7 days, the current Zacks Consensus Estimate for
the fourth quarter of 2012 and the first quarter of 2013 has been
in line with the previous estimates of 9 and 14 cents respectively.
Similarly, for fiscal 2012 and 2013, the current Zacks Consensus
Estimate remains in line with the previous estimates of 38 and 77
cents,
respectively.
Earnings Surprises
The company has fallen short of the Zacks Consensus Estimates in
two out of the four previous quarters. In the first quarter of
2012, the company’s reported earnings were in line with the Zacks
Consensus Estimate, while it fell short by 2 cents or 28.57% in the
third quarter of 2012.
The estimates for the fourth quarter of 2012 and the first
quarter of 2013 are in line with the Zacks Consensus Estimates.
Similarly, fiscal 2012 and 2013 estimates are in line with the
Zacks Consensus Estimate.
Our Recommendation
Going forward, we believe that as a supplier of fiber optic
components for high speed communication network, JDS Uniphase will
benefit owing to the increased broadband penetration and rapidly
growing internet subscriber.
Diversification in non-telecom areas like commercial laser,
currency pigments, 3-D cinema and more will act as a growth
catalyst for the company. Additionally, the acquisition of
Agilent Technology Inc
‘s (
A
) Network Solution Division has increased its market size
considerably.
However, we remain concerned about the slowness of the U.S.
economic growth and a slow carrier spending situation in Europe and
U.S. which might act as impediments to the future growth of the
company. Recently, the optical gear manufacturing is going through
a consolidation phase which we believe might create headwinds for
JDS Uniphase.
Moreover, the company faces stiff competition from
Finisar corp.
(
FNSR
),
Oplink
Communications Inc.
(
OPLK
) and
Oclaro Inc.
(
OCLR
), which might jeopardize its growth.
Considering these factors, we maintain our long-term Neutral
recommendation on JDS Uniphase. Currently, JDS Uniphase has a Zacks
#4 Rank, implying a short-term Sell rating on the stock.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that
earnings estimate revisions are the most powerful force impacting
stock prices. He turned this ground breaking discovery into two
of the most celebrating stock rating systems in use today. The
Zacks Rank for stock trading in a 1 to 3 month time horizon and
the Zacks Recommendation for long-term investing (6+ months).
These “Earnings Estimate Scorecard” articles help analyze the
important aspects of estimate revisions for each stock after
their quarterly earnings announcements. Learn more about earnings
estimates and our proven stock ratings at:
http://www.zacks.com/education/
AGILENT TECH (A): Free Stock Analysis Report
FINISAR CORP (FNSR): Free Stock Analysis Report
JDS UNIPHASE CP (JDSU): Free Stock Analysis
Report
OCLARO INC (OCLR): Free Stock Analysis Report
OPLINK COMMNCTN (OPLK): Free Stock Analysis
Report
To read this article on Zacks.com click here.
Zacks Investment
Research
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May 14th, 2012
PHILADELPHIA, PA and REHOVOT, ISRAEL–(Marketwire -05/14/12)-
Rosetta Genomics Ltd. (ROSG), a leading developer and provider of microRNA-based molecular diagnostic tests, today announced the effectiveness of a one-for-fifteen reverse stock split of its share capital. The reverse stock split, which was previously approved by the Company’s Board of Directors, was approved by its shareholders at an Extraordinary General Meeting of Shareholders of the Company held earlier today.
The reverse stock split is intended to increase the per share trading price of the Company’s ordinary shares to satisfy the $1.00 minimum bid price requirement for continued listing on the NASDAQ Capital Market. As a result of the reverse stock split, every fifteen ordinary shares issued and outstanding prior to the opening of trading on May 15, 2012 will be consolidated into one issued and outstanding share, with a change in the nominal par value per share from NIS 0.04 to NIS 0.6. No fractional ordinary shares will be issued as a result of the reverse stock split and any fractional shares will be rounded up to the nearest whole number.
Trading of the Company’s ordinary shares on the NASDAQ Capital Market will continue, on a split-adjusted basis, with the opening of the markets on Tuesday, May 15, 2012, under new CUSIP number M82183126. Immediately subsequent to the reverse stock split, there will be approximately 1,241,874 of the Company’s ordinary shares issued and 1,238,642 of the Company’s ordinary shares outstanding.
The Company has retained its transfer agent, American Stock Transfer & Trust Company, LLC (“AST”), to act as its exchange agent for the reverse split. AST will provide shareholders of record as of the effective date a letter of transmittal providing instructions for the exchange of their certificates. Shareholders owning shares via a broker or other nominee will have their positions automatically adjusted to reflect the reverse stock split, subject to brokers’ particular processes, and will not be required to take any action in connection with the reverse stock split.
For more information regarding the Company’s reverse stock split, please refer to the proxy statement filed by the Company with the Securities and Exchange Commission as an exhibit to its Report on Form 6-K on April 23, 2012.
About Rosetta Genomics
Rosetta Genomics develops and commercializes a full range of microRNA-based molecular diagnostics. Founded in 2000, the Company’s integrative research platform combining bioinformatics and state-of-the-art laboratory processes has led to the discovery of hundreds of biologically validated novel human microRNAs. Building on its strong patent position and proprietary platform technologies, Rosetta Genomics is working on the application of these technologies in the development and commercialization of a full range of microRNA-based diagnostic tools. The Company’s miRview product line is commercially available through its Philadelphia-based CAP-accredited, CLIA-certified lab. To learn more, please visit www.rosettagenomics.com.
Forward-Looking Statements
Various statements in this release concerning Rosetta’s future expectations, plans and prospects, including without limitation, statements relating to the ability of Rosetta to satisfy the $1.00 minimum bid price requirement for continued listing on the NASDAQ Capital Market and the ability to develop and commercialize of a full range of microRNA-based diagnostic tools, constitute forward-looking statements for the purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including risks related to: Rosetta’s approach to discover microRNA technology and to work on the application of this technology in the development of novel diagnostics and therapeutic tools, which may never lead to commercially accepted products or services; Rosetta’s ability to obtain, maintain and protect its intellectual property; Rosetta’s ability to enforce its patents against infringers and to defend its patent portfolio against challenges from third parties; Rosetta’s need and ability to obtain additional funding to support its business activities; Rosetta’s dependence on third parties for development, manufacture, marketing, sales, and distribution of products; Rosetta’s ability to successfully develop its products and services; Rosetta’s ability to obtain regulatory clearances or approvals that may be required for its products and services; the ability to obtain coverage and adequate payment from health insurers for the products and services comprising Rosetta’s technology; competition from others using technology similar to Rosetta’s and others developing products for similar uses; Rosetta’s dependence on collaborators; and Rosetta’s short operating history; as well as those risks more fully discussed in the “Risk Factors” section of Rosetta’s Annual Report on Form 20-F for the year ended December 31, 2011 as filed with the Securities and Exchange Commission. In addition, any forward-looking statements represent Rosetta’s views only as of the date of this release and should not be relied upon as representing its views as of any subsequent date. Rosetta does not assume any obligation to update any forward-looking statements unless required by law.
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May 14th, 2012
TORONTO , May 14, 2012 /CNW/ – Toronto Stock Exchange, TSX Venture
Exchange, TMX Select and Montreal Exchange will be closed on Monday,
May 21, 2012 for the Victoria Day holiday. Natural Gas Exchange will
remain open for regular trading.
The Exchanges will re-open for regular trading on Tuesday, May 22, 2012 .
About TMX Group (TSX-X)
TMX Group’s key subsidiaries operate cash and derivative markets for
multiple asset classes including equities, fixed income and energy.
Toronto Stock Exchange, TSX Venture Exchange, TMX Select, Montreal
Exchange, Canadian Derivatives Clearing Corporation, Natural Gas
Exchange, Boston Options Exchange (BOX), Shorcan, Shorcan Energy
Brokers, Equicom and other TMX Group companies provide listing markets,
trading markets, clearing facilities, data products and other services
to the global financial community. TMX Group is headquartered in
Toronto and operates offices across Canada ( Montreal , Calgary and
Vancouver ), in key U.S. markets (New York, Houston , Boston and Chicago )
as well as in London and Beijing . For more information about TMX Group,
visit our website at www.tmx.com. Follow TMX Group on Twitter at http://twitter.com/tmxgroup.
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May 12th, 2012
It’s a bad idea to buy a stock without looking at its quarterly earnings statement or annual report, but many customers fail to do their due diligence when signing up with financial advisors or brokers, opting for little more than gut instinct or a recommendation from a friend.
That was how Steve Singer, an attorney and father of two from New Jersey, found his advisor. He says that while his current broker doesn’t typically manage portfolios under $1 million, she made an exception for him: “She was handling my mother’s cousin’s portfolio, then my mother’s, and at my mother’s request is now handling mine.”
But such an approach can yield mixed results. A new study by J.D. Power & Associates showed that while overall customer satisfaction with brokers is slowly increasing to pre-2008 levels, customers still aren’t crazy about their brokers’ fees, performance, and service.
When bad brokers and advisors happen to good people
When Maggie Welch’s broker told her to sell some of her stock holdings, she assumed he knew best. Yet he’s sold off several well-performing stocks, causing her to miss out on huge gains, while holding on to underperforming ones. He’s even bought the wrong stock with a similar name to the one Welch had requested. “It is very difficult for me to get him to listen to me,” she says, “and I’m very frustrated.”
Welch echoes a more pressing fear many customers have. “Things have gotten so bad that I’ve tried to take a more active role in my financial planning, but I only know enough to be a potential hazard to my financial well-being.” She’d like to find another financial advisor, but is finding it difficult. “No one can recommend an advisor and tax expert who will accept my paltry $197,000 portfolio.”
Debbie Klug was working with an advisor with whom she felt comfortable. “The first advisor asked tons and tons of questions, sent us — must’ve been eight or nine pages worth of questions and paperwork, wanted to know our goals, near and far-term expenses, that sort of thing. He asked the right questions.”
But when her advisor moved to another firm, her portfolio was too small to take with him. Klug followed his recommendation to go to another advisor, but her experience was totally different. “This guy’s strategy was ‘invest it all.’ He had us sell all the bonds that I had as my safe money and didn’t advise us that we’d get hit like a ton of bricks at the end of the year by taxes.”
Because she didn’t feel as though she was making any more money with him than with she would managing it on her own, she opened a Vanguard account, where she says she feels very comfortable. “If you’re not comfortable with somebody, don’t go there. You’re going to second-guess everything they do because you don’t trust them.”
Advising done right
Before you think all financial professionals are unhelpful, several customers shared stories of exceptional, long-term relationships with their financial advisors, spanning decades, states, and generations.
When Nan Langen Steketee married her husband Scott, she also married into his extended family’s relationship with their financial advisor, who had worked first with his parents a generation before. The couple, who live in Philadelphia, continue to work with the Toledo, Ohio-based advisor, who also manages accounts for Scott’s three siblings, the couple’s grown children, and Nan’s sister. The extended family is scattered along the East Coast from Boston to Atlanta, but Nan says all work well with the Toledo-based advisor on a variety of issues.
“She has advised us on loaning money to our children, helped us with risk decisions, and invested with social and environmental criteria in mind,” which Steketee says is a key criterion for her and her husband. “She has made wise decisions, although she didn’t prevent the 2008 market collapse!”
Don Canale had been less than inspired by his previous broker, a college friend of an employee, when he switched to a new broker. “There’s a day-and-night difference between the level of service,” Canale says. “From what I know of friends of mine who have had similar experiences, I got to be a big fan of this guy because he does a little bit more than everybody else.”
That little bit more included changing firms when Canale mentioned he thought the fees were a little high. His broker agreed and during their next quarterly meeting, he had switched to another firm with lower customer fees.
That high level of service has also been backed by some notable returns; during the 2008 crash, Canale recalls receiving a call. “He said, ‘Well, buddy, we’re up for the year.’ I said, ‘How much are we up?’ and he said, ’1%.’”
“It’s not a big gain,” Canale says, “but 1% is still better than a 30% loss.”
Stuck in the middle with you
Most broker/customer relationships fall somewhere between those extremes. Dan Abbas, an investor from Webster, N.Y., is working with a broker who meets his basic needs — with a little encouragement. “I am quite confident that he is doing a good job of keeping abreast of changes that might affect our finances, that he thinks a lot about alternatives, and is conscientious about doing what he feels is best for his clients. He is not always as attentive to details as I’d like, but when I point out something that does not make sense to me, he either explains it or corrects it.
“He is the first advisor I’ve worked with whom I feel really understands finances better than I do. He is not as sharp with the mathematical details as our previous advisor, but I keep him on track there as I am quite comfortable with the math.”
Singer, whose recommendation came from his family, says that while he’s relatively confident in his broker’s recommendations, he’s not necessarily loyal to her. “If she left tomorrow, I’m not certain I would follow her. I like her as a person, but I don’t know that I would go through the rigmarole of her new brokerage.” Singer says instead, he would most likely look for a recommendation of another broker within the same firm.
Advice from brokers
It would be easy to blame advisors or brokers alone for lackluster service, poor returns, or not meeting customer expectations. But, advisors see their customer relationships as a two-way street.
“Some clients will put you to the test,” says Frank Masselli, president of the Masselli Group and an industry speaker and trainer. “They’ll come in and say, ‘What do you have? What should I do?’ The best advisor will say, ‘I don’t know yet. I don’t know you well enough yet. I want to take the time to get to know you.’ It can be painful for the advisor and for the client.”
Carl Richards, a financial advisor, New York Times columnist, and author of The Behavior Gap, encourages investors and advisors alike to take in the bigger picture. “Nobody can make investment decisions in a vacuum; it all depends on the situation. … Good investment decisions can only be made in the perspective of something larger. An objective third party can help you determine your goals, make a plan, and at end of that process make sure the investments you choose reflect what you said you wanted.”
While it’s up to the financial advisor to give the best advice to his or her customer based on their needs, it’s ultimately up to the customer to determine what those needs are, and if a particular advisor is right for them. Research is critical, and to help with that research, we’ve prepared a checklist of questions to ask yourself and your broker before entering into any relationship — and for determining when it’s time to leave.
Click here to read three customers telling us in their own words how their brokers and advisors have come through or failed them.
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The Steve Jobs Betrayal
You may already know that in the final year of his life, Jobs revealed a stunning betrayal — and told his biographer, “I will spend my last dying breath… and every penny of Apple’s $40 billion in the bank to right this wrong.” What was it that made Jobs so irate — and why could it make a few in-the-know investors some major profits over the coming months and years?
Enter your email address below to find out what made Jobs so enraged!
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May 12th, 2012
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‘Dabba trading’ in the country’s stock markets are on the rise. Of late, a large number of stock brokers have started recording client trades merely in their books and not on the trading platform of any exchange. These orders are matched in accordance with the exchanges’ price quotes and settlement done at the end of the day in cash, say brokers.
Such activity has picked up, as a result of the rising cost burden and regulatory issues faced for brokers due to stringent norms put in place by the exchanges for derivatives trading.
The National Stock Exchange (NSE) recently asked stock brokers to discontinue depositing shares of the clients to fulfil margin requirements of the exchange. Also, delayed payment norms were made stricter.
Dabba trading is derived from Bucketing, which was infamously carried out in the US before the Securities and Exchange Commission was set up in that country. There too, to save costs and taxes brokers had set up bucket shops, where trading bids were collected in a bucket.
“Dabba solves many issues. For brokers, it is less of regulatory and tax hassles. For clients too, it is beneficial, as they save on statutory costs. This may continue till the markets return to the bull phase and traders are able to make large profits to make do with several trading costs involved,” said a trader at a Mumbai-based broking house.
According to a circular issued by NSE on April 26 for the derivatives segment, brokers must deposit their own shares, and not those of their clients, with the clearing corporation (CC). Alternately, when a broker funds a client’s margin against shares, he can collect interest from the client. However, stock brokers say this increases the cost of trading and clients may object.
Earlier, clients, eager to cover their cash holdings, put up shares as margin with brokers to take a contrary position in equity derivatives. Brokers deposited these shares as collateral with the CC, which could sell the same in case of default.
However, now brokers are required to give a commitment to the CC that shares deposited are their own and do not belong to their clients. Brokers say this circular needs to be revised as it is inconsistent with Securities and Exchange Board of India’s (Sebi) circular of 2008. Sebi allows collection and deposit of collateral from clients with the exchange.
While there is still confusion over the recent circular and stock brokers have taken it up with the exchange, many are not taking any chances. Further, NSE too, has not given any further clarification, which means brokers will have to comply with the new set of norms.
While the cost of equities trading, including brokerage, in the US and Europe is around Rs 500 on trades worth Rs 1 crore, it is as high as Rs 1,200 in India. This is the reason why the US markets are more liquid. Traders can make profit in India only after 28 ticks, while in the US and the UK, just one favourable tick on index futures can generate a profit. In the US, the spread on the S&P contract, or one tick, is 25 cents. So, if a trader gets just one tick right, he can take home 20 cents, as the trading cost there is just five cents.
Trading costs in India involve around Rs 800 in the form of the Securities Transaction Tax. While Rs 200 goes to the exchange, Rs 200 is paid as stamp duty and Rs 21 as service tax. Also, Rs 10 is collected by Sebi. In addition, there is a brokerage. If trades are delivery-based, they attract depository and demat charges as well. While it may seem minuscule in percentage terms, it is a major burden, as a number of trading ticks are required to make a profit.
Earlier, dabba or illegal transactions were done online. This was when exchanges did not pay too much attention towards modification of client codes in the futures and options segment. However, this kind of Dabba trading was put to a halt by Sebi by introducing stringent client code changes.
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May 10th, 2012
It’s been a rough few months for NYSE Euronext (NYX), owner of the country’s biggest stock exchange. In February, European regulators scrapped its planned $9.5 billion merger with Germany’s Deutsche Börse (DB1) over concerns it would create a monopoly in exchange-traded derivatives. NYSE Euronext’s first-quarter profit tumbled 44 percent, driven by a decline in trading volume. And in April, Facebook announced it would hold the most anticipated initial public offering in years on Nasdaq, NYSE’s arch rival.
That’s not to say things are much better at Nasdaq OMX (NDAQ), the second-largest U.S. equities exchange owner. Since 2000 its share of U.S. stock trading has fallen by a third, to 22 percent. Both exchange companies are contending with similar forces: an overall slowdown in trading, the rise of smaller public exchanges such as BATS and Direct Edge, and the increasing number of trades being executed “off exchange”—either at wholesale brokerages or on private trading venues known as dark pools. Since January 2008 the share of trades executed off public exchanges has increased, to 32 percent from 26 percent, according to market research firm Tabb Group. Nasdaq and NYSE “are getting a smaller bite of a shrinking pie,” says Sang Lee, an analyst at Aite Group.
NYSE has diversified, buying electronic exchange Archipelago Holdings in 2006 and the American Stock Exchange in 2008 and expanding into markets such as derivatives, which now account for 29 percent of net revenue. It’s exploring ways to make money by providing technology software and market data to other exchanges and brokers around the world. “Fifty percent of our revenue is no longer dollar-denominated,” says NYSE Chief Operating Officer Larry Leibowitz.
The exchange is also going on a PR offensive, with Leibowitz and Chief Executive Officer Duncan Niederauer warning regulators and the public about the dangers of off-exchange trading and urging regulators to take a closer look at dark pools. “After the financial crisis, we wanted to create a market with more transparency,” says Leibowitz. “Instead, it’s gotten darker and more opaque.”
Nasdaq shares NYSE’s concern about off-exchange trading. “Dark trading has real value for investors,” says Eric Noll, an executive vice president at Nasdaq. “However, we believe in the primacy of the lit market where all investors on and off exchange ought to benefit from unimpaired transparency and price discovery.”
Credit Suisse’s (CS) Crossfinder and Goldman Sachs’s (GS) Sigma X are the largest of about 40 dark pools operating in the U.S. The dark pools’ share of trading volume has more than tripled, to almost 14 percent at the end of last year from 4 percent in early 2008, according to data compiled by Rosenblatt Securities. The brokerage companies that operate them say dark pools increase execution speeds and lower transaction costs compared with public exchanges. Overall, off-exchange trading “has resulted in a much more robust and competitive market,” says Leonard Amoruso, general counsel for Knight Capital Group (KCG), a broker that operates a dark pool and also executes stock trades internally.
Most dark pools were set up in the mid-2000s, taking advantage of regulatory changes that encouraged more electronic trading. Initially they served mainly as havens for institutional investors to buy and sell stocks without letting other traders know what they were up to. As the dark pools handled more volume, they attracted high-frequency traders—speed-focused firms that use computer algorithms to buy and sell—taking more volume off public exchanges, says Aite Group’s Lee. “Their initial purpose was to take large block orders off exchange, but that’s gone by the wayside,” says Cheyenne Morgan, a research analyst at Tabb Group.
Public exchanges are subject to more regulatory requirements than dark pools are. For one thing, they must file extensive data on trading activity to the Securities and Exchange Commission. Exchanges also must treat all customers equally. Since dark pools are run by brokerages, they can discriminate, granting access only to certain firms and charging them different prices. The way Leibowitz sees it, if dark pools are going to function like exchanges, they should be regulated like them. “The bar either has to be raised for dark pools or lowered for exchanges,” he says. Knight’s Amoruso does not agree. “They’re two different business models,” he says. “They shouldn’t have the exact same rule structures as exchanges.”
Equity wholesale operations, which execute trades by buying stock themselves and selling from their own inventories, represent another challenge for public exchanges. Run by companies including Citigroup (C), UBS (UBS), and Citadel, they attract business from TD Ameritrade (AMTD), Charles Schwab (SCHW), and other brokers that process a lot of small orders from individual investors. Their appeal is that they can offer slightly better prices—a fraction of a cent higher for sellers and lower for buyers. SEC rules require public exchanges to quote prices in increments of at least one cent.
In October, NYSE asked the SEC for permission to provide prices in fractions of a cent so it can compete with wholesalers for retail traders. “We just want to be able to replicate” what the wholesalers do, says Leibowitz. The SEC is considering the proposal. Nasdaq says it may ask the agency for similar flexibility to allow it to compete for trades from individual investors. Knight Capital and the Securities Industry and Financial Markets Association, a lobbying group that represents big Wall Street banks, strongly oppose the plan. UBS has told the SEC it generally supports the NYSE proposal but believes it should also be approved for dark pools and other trading venues. “UBS welcomes competition,” says spokesman Christiaan Brakman.
Whether or not the proposal is approved, NYSE and Nasdaq will keep up their crusade against off-exchange trading. “The real way to deal with this is to take it up as a public policy issue,” Leibowitz says. “It’s not a major impact on our bottom line if we go from 25 percent to 27 percent” market share in equities trading. “This is about the quality of the public markets.”
The bottom line: The share of stock trading taking place off public exchanges has grown to 32 percent from 26 percent four years ago.
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