Among the Laws of Insider Trading, two have special places in my heart. One is the Second Law, which is that if you have inside information about a company, don't use it to buy short-dated out-of-the-money options on that company. This one is so important, and comes up so often, because that's how they catch you: Suspicious options trades the day before a big event are a giant red flag, and if you've never traded options before it can be a bit hard to explain why you suddenly got a hankering to do it right before a merger.
The other is the Fifth Law, which is that you should not insider trade by planting bombs at a company and buying put options on its stock. This one comes up infrequently, and is arguably not a law of insider trading at all, but it is nonetheless very important, because bombs are bad. Like, insider trading and stock manipulation are generally illegal and you shouldn't do them and if you do you might get in trouble. But if you just go around blowing things up with bombs you will get in much worse trouble.
That is: Violating the Second Law greatly increases the chances that you'll get caught, and violating the Fifth Law greatly increases the chances that, if you do get caught, you'll go to prison for a very long time.
Over the past month the booming $1.3tn market for leveraged loans, or those extended to highly indebted companies that are then often packaged up and sold to investors as bonds, has faced a tide of criticism from central bankers and financial watchdogs. (Financial Times | Oct 30)
The Federal Reserve
and two other agencies proposed a new approach meant to answer concerns that existing requirements ignore risk-reducing collateral and didn't allow enough netting of derivatives contracts with similar risks. The change would free up some of the bank capital demanded after the 2008 financial crisis. (Bloomberg Markets | Oct 30)
In January, Gary Shilling urged caution on stocks. By May, perceiving a high-risk environment, the economist and portfolio manager was holding the most cash ever. By summer, he was anticipating stock selloffs. Now Shilling is short on the aggregate stock market. Markets can lead to recession, he says, noting that the early signs of one have arrived. (ThinkAdvisor | Oct 29)
The big continue to get bigger, a new study shows, with the top 500 fund managers in the world growing assets by 15.6 percent last year - the most significant increase since 2009. (Institutional Investor | Oct 29)
Fannie Mae has priced more securities that support a transition away from the London interbank offered rate. The government-sponsored enterprise's latest Secured Overnight Financing Rate transaction includes $2 billion of six-month securities, $1.5 billion of 12-month securities and another $1.5 billion of 18-month securities. (National Mortgage News | Oct 26)
Cybersecurity news every Friday
The key to being safer online is actually a key
The best way to protect yourself against hackers and phishers is to turn on two-factor authentication - then get a YubiKey or Google Titan Key.
Singapore sets up world's first commercial cyber risk pool
As part of efforts to develop the region's capacity to deal with threats from cyber attacks, the pool will commit up to US $1 billion in capacity, and bring together both traditional insurance and insurance-linked securities markets to provide bespoke cyber coverage.
Volcker recalls another time the Fed clashed with the president
Paul Volcker, 91, has had firsthand experience with this, both in Lyndon Johnson's Treasury Department and as Fed chair during the Reagan administration, as he recalls in "Keeping at It: The Quest for Sound Money and Good Government" (Oct. 30, Public Affairs). Volcker, who was Fed chair from 1979 to 1987, is credited with ending an era of double-digit inflation by pushing short-term rates as high as 20 percent.