Well, maybe that’s a slight overreaction. But the practice is likely much more widespread than anyone had previously thought.
An eye-opening new study from professors at NYU Stern and McGill University looked at abnormal trading volumes of options prior to the announcement of large M&A deals, and compared the activity to the characteristics of confirmed insider trading cases. They found that roughly one-quarter of all public company deals from 1996 to 2012 might have involved some kind of insider trading, according to the New York Times.
How sure are they, judging from an analytical standpoint? “The probability of the unusual volume in the sample arising out of chance [is] about three in a trillion,” the authors note in their award-winning paper. The odds of you eventually being canonized are one in 20 million, as a point of comparison.
Other astounding points made in the report: less than 5% of the nearly 1,900 deals that fit the profile were litigated by the SEC, which took, on average, 756 days to announce the beginning of any legal action in those cases, according to the Times synopsis.
But not every M&A deal is ripe for insider trading. Those that attracted “rogue trading” include big deals involving all cash. The more liquidity and the higher the trading volume, the better chance one would have in skirting by, the authors suggest. Authorities were also more prone to chase after deals that were completed, rather than those that eventually fell through. And, as one would assume, they tend to gravitate to big names.
The average net of a “rogue trade”: $1.6 million.
Why Bankers Quit (eFinancialCareers)
Despite all the recent rhetoric, it appears that grueling working hours aren’t the main reason bankers wave the white flag. Rather, it’s all the dead ends that they encounter in their career path that make them call it quits.
Men Out For the Money Grab (eFinancialCareers)
When you ask a U.S. banker with itchy feet what they’re looking for a new job, the answer you’re most likely to receive is money and power. The chances are better, however, if that person is a man.
Citi Currency Chief Quits (WSJ)
Jeff Feig, Citigroup’s global head of foreign exchange, is leaving the bank for a job with Fortress Investment Group. Anil Prasad, Citi’s most senior currency banker, quit earlier this year.
Former Goldmanite Joins Alibaba (Forbes)
J. Michael Evans, the former Goldman Sachs executive who at one point appeared as a potential successor to CEO Lloyd Blankfein, is back in the spotlight. He’s been named an independent board member of soon-to-IPO Alibaba. Evans retired from Goldman last year.
Reason for Optimism or Outlier? (Fox Business)
Jefferies, which often acts as a barometer for the investment banking industry as a whole, reported a 55% increase in profit during the second quarter. Fixed income revenue was down just 5%, with advisory and equity and debt capital markets revenue more than making up for the shortfall. Who knows – maybe the big banks didn’t do so poorly themselves?
Corporate Debt Traders Still Be Hired (Bloomberg)
Despite the lack of market volatility, banks are still hiring corporate debt traders. Only 20% of global investment-grade corporate trades were completed electronically last year. Banks still need humans.
Walking Around Money (WSJ)
Reason 1,134 why you should want to work in private equity. The industry has $1.141 trillion in capital that it hasn’t yet invested. That’s some serious pocket change.
Buzz Around the Office
DYLBATO? (Washington Post)
In a likely attempt to better understand Internet communications, the FBI compiled a list of 3,000 common Internet terms, phrases and acronyms. It’s awesome. My personal favorites: BTDTGTTSAWIO (“been there, done that, got the T-shirt and wore it out”), IITYWIMWYBMAD (“if I tell you what it means will you buy me a drink?”) and SOMSW (“someone over my shoulder watching)
Quote of the Day: "I think there's a lot to be said for being yourself. You get up to the plate and you think this guy is going to throw you a fast ball, but he throws you a curve ball. You've got to be ready for the curve ball. I think being comfortable in your own skin is an important trait. It relaxes you. It calms you down and gives you the ability to deal with the unexpected." – Jimmy Lee, co-chair of J.P. Morgan’s investment bank, via Business Insider