The book “Dark Pools” By Scott Patterson shows why the big financial institutions are stealing from you. Patterson is author of the New York Times best-selling book, “The Quants”. and a staff reporter for The Wall Street Journal, where he writes about the government’s regulation of the financial industry.
Dark Pools explains a problem created by high-speed traders, called high-frequency traders that has been spreading across Wall Street. These traders jump in and out of stocks in microseconds (millionths of a second). These and dark pools which are sub-markets that mask buy and sell orders from public view, allow insiders to skim spreads off each stock order.
Recently a book on the same subject, “Flash Boys – A Wall Street Revolt” was recommended in a message at this site entitled “Flash Boys”. The book looks at the huge problem of how most of the Big Banks and Wall Street brokers systematically rip off their customers again and again. The book shows the advice that many financial advisers and institutions give is designed to make them, not you or me, financially secure.
If you have ever trusted a big bank’s investment advice, reading these books can make you really cynical. However this is also a story of great honor, integrity and good versus bad. Flash Boys tells how honorable traders on Wall Street gave up secure, seven figure incomes and took a huge risk, earning much less, to form IEX, a dark pool that operates in a more transparent and straightforward manner. The pool has introduced strategies to ensure trustworthiness. This gamble has paid off. IEX has grown steadily and at times has had more volume than AMEX. By November 2014, average daily volume was over 100 million shares a day.
“Flash Boys” and “Dark Pools” give us a glimpse of human nature, how systems are always abused by some and how there are also always some honorable people who fight the abuse. One prime problem on Wall Street is that the reward system is short term and slights the customer. Employees are paid bonuses based on the creation of short term profits for the bank, not the bank’s customers.
A CNN Money article (1) says that the bonuses paid to bankers on Wall Street in 2014 was over $27 Billion.
This is a global problem. For example a BBC article (2) says that in 2013 some bank’s paid their senior or risk-taking staff over $3 million each on average and that this type of employee earned on average almost 50 times average annual pay in Britain.
The root of this problem is that these bonuses are based on the bank’s profits for the year and the bonuses have nothing to do with the customer’s success.
The sun always shines somewhere and by looking for the people who prefer the good. Looking for integrity may seem simplistic but can often pay great rewards. An rewarding example is Merri’s and my position as customers and shareholders of Jyske Bank for so many years. From the first day we visited Jyske more than two decades ago, I liked the idea that Jyske’s management looked beyond the short term bottom line. Their core foundation is based on treating three stakeholders as equal, the shareholders, the customers and the staff through a chain of value.
Jyske’s chain of value at at jyskebankinfo/Ourfoundations
Part of Jyske’s policy includes paying good salaries, providing good staff benefits but avoiding all bonuses. This avoids any potential conflict between the staff and the customers.
In 2002 Merri and I invested in shares. We were visiting the bank with a group of readers. We had been in Copenhagen for several days and took the group out to the bank’s headquarters in the small charming village of Silkeborg. We visited the CEO (who has been a friend for many years) in his new modest offices, saw the bank’s new currency trading room and visited with the Jyske Invest Fund Managers. What impressed us was the conservative and balanced thinking throughout the bank. There were no staff limos or corporate jets. The CEO’s office was small with walls of glass so staff could see him at work. The bank worked for and talked about the long term view.
We invested in Jyske shares at DKK 96.50 on 2nd September 2002 and sold a portion in April 2006 at DKK 352.50. The share price of the remaining shares we hold (including in 2008) has never dropped below our purchase price. Today are over DKK300 again. The strong US dollar makes an investment in Jyske Bank attractive.
US investors can open Jyske accounts with the assistance of ENR Asset Management.
Get more information from Thomas Fischer at Thomas@enrasset.com
There are dark forces all around us. They have always been but their existence can create fear. That fear creates opportunity when you look for businesses that have integrity and long term strategic thinking.
(1) CNN article Big Wall Street bonuses are back