Securities Industry Commentator by Bill Singer Esq

May 7, 2020

Layoffs Start Turning From Temporary to Permanent Across America (Bloomberg by Shawn Donnan and Joe Deaux)

Instacart's Frantic Dash From Grocery App to Essential Service / The grocery delivery startup added 300,000 workers in eight weeks, but Covid-19 is still overtaking it in more ways than one. (Bloomberg by Ellen Huet and Lizette Chapman)

SEC Files Charges in International Ponzi Scheme (SEC Release)

Statement on Equity Market Data Governance Reforms (Statement by Commissioner Hester M. Peirce)
In seeking to vacate a FINRA Arbitration Panel Award, Petitioners cite in part the following ZOOM issues:

8. The FINRA Arbitration was held on December 17-19, 2019, and March 3-6, 10, and 12, 2020, before three arbitrators (the "Panel"): Chairman A. Rene Hollyer, Jr.,Professor Jill Gross, and Mr. Joel Finard. Pursuant to an agreement between counsel, all the hearings, except March 12, 2020, were held at the offices of Dominick's counsel in New York City. On the consent of counsel for both sides and the Panel, the March 12, 2020 hearing was held virtually via Zoom video conference, with counsel for the parties and the Panel at different locations due to concerns over the COVID-19 pandemic. 
. . .
42. During the last day of the Arbitration, March 12, 2020, the proceedings were held via Zoom videoconference due to concerns over the COVID-19 outbreak. Once again, the Panel was inattentive, with Arbitrator Finard looking at other screens, typing, and eating during the course of the presentation. Arbitrator Gross even blocked her screen during the hearing, preventing the parties from confirming that she was even participating. And at one point during closing arguments for WSI and Mr. Wunderlich, Chairman Hollyer walked away from his screen. The presentation resumed once Chairman Hollyer returned to his screen. (Tr. 2358-2359.) 

Bill Singer's Comment: READ these warnings about ZOOM usage:

Guest Blog: Riddle Of The FINRA Sphinx By Stephen Kohn ( Guest Blog /  April 22, 2020)  
On June 20, 2019 FINRA member firm Triton Pacific Securities filed a Complaint against third-party-provider of compliance services, Mission Critical Services based upon allegations that FINRA censured and fined the firm after it had relied upon MCS' compliance advice. In August 2019, MCS filed its Answer and asserted various Counterclaims. As set forth in part in the SDNY Opinion and Order:

For the foregoing reasons, the Court grants partial summary judgment to Triton and dismisses MCS's sole Amended Counterclaim. The Court further grants summary judgment to the third-party defendants and dismisses MCS's Third-Party Complaint. Finally, because the Court has dismissed the Third-Party Complaint, the following third-party defendants are also dismissed: Triton Pacific Adviser, LLC; Triton Pacific Investment Corporation, Inc.; Triton Pacific Capitol Partners, LLC; Triton Pacific Investment Group, LLC; Craig Faggen; Michael Carroll; Brian Buehler; and Wendy Poole. 

This litigation will now proceed on Triton's First Amended Complaint. The parties have already engaged in discovery and a case management conference is currently scheduled for June 19, 2020 at 11 a.m. See Dkt. 43. In light of the current public health crisis, that conference will take place telephonically on the date and time scheduled. The Court will provide the parties with dial-in information for the conference the week prior. 

The Clerk of Court is respectfully directed to terminate the motions pending at dockets 28 and 37 and dismiss the defendants specified above.
Without admitting or denying the findings in the SEC's Order,, Bloomberg Tradebook LLC agreed to be censured and to pay a $5 million penalty, an amount that reflects Tradebook's significant cooperation with the SEC staff. As alleged in part in the SEC Release:

[T]radebook routed certain customer orders - primarily orders entered by customers who paid relatively low commission rates - using an undisclosed arrangement that it referred to internally as the "Low Cost Router."  As part of this arrangement, Tradebook allowed three unaffiliated broker-dealers to determine the venues to which certain customer "immediate-or-cancel" orders would be routed for execution. Tradebook did not inform affected customers that a significant portion of their orders would be routed by an unaffiliated broker-dealer instead of by Tradebook. Between November 2010 and September 2018, approximately 6.4 million Tradebook customer orders were executed based on routing decisions made by these unaffiliated broker-dealers. This practice contradicted Tradebook's marketing materials, which represented that customer orders would be routed by Tradebook's own "advanced" technology, based on factors such as price and liquidity. Additionally, Tradebook provided unverifiable execution venue information to customers for more than a million orders routed using the Low Cost Router.
As the Bloomberg article notes in part, there's a:

worrying trend emerging from the stacks of layoff notices filed by businesses in California, Florida, and New York, where service industries have been hammered by lockdown orders, as well as politically important swing states such as Michigan and Ohio, where key industries such as steel and autos already faced headwinds going into 2020. Plenty of layoffs that just a month ago were labeled "temporary" are now tagged "indefinite" or "permanent." Alongside announcements of sweeping staff cuts by major employers such as Boeing Co. and U.S. Steel Corp. and the accelerating pace of downsizing in brick-and-mortar retailing, such notices are a sign that even as businesses continue to hope for a speedy recovery, they are starting to plan for a slow one.

Instacart's Frantic Dash From Grocery App to Essential Service / The grocery delivery startup added 300,000 workers in eight weeks, but Covid-19 is still overtaking it in more ways than one. (Bloomberg by Ellen Huet and Lizette Chapman)
Every so often, you come upon a old-fashioned bit of superior journalism, and here it is in all its faded glory. Bloombergs Huet and Chapman wring the crap out this story with an exhaustive yet balanced narrative that offers he-said-she-said coverage that shines a favorable light on the good but also turns the unwanted glare on the bad. When you're done with this story, you come away with the sense that you now know all there is about Instacart and the challenge of delivering groceries in the pandemic world. Bravo! As note in part by Huet and Chapman:

Some shoppers say that as their risks of exposure to Covid-19 have increased, they've received less support from Instacart than they did before the pandemic. The app crashes constantly, they say, and the help desk is overwhelmed, even after expanding from a staff of 1,200 to more than 18,000. Shopper Jennell Lévêque says it took her 12 hours to get a response to a question about an order, by which point she couldn't complete the job. In late March the company said its procurement team had secured a supply of hand sanitizer from a manufacturer in Louisiana. Lévêque ordered a 6-oz. bottle, but it took two weeks to arrive, and by then had popped open and leaked into its cardboard box. Instead, she used sanitizer she ordered from DoorDash and Caviar, the meal delivery services, as part of her work for them. Instacart says shoppers using its chat tool now average no more than 30 seconds waiting for a response and customer support generally is "back to pre-Covid levels."
With the inevitable pick-up in economic activity attendant to the Great Re-Opening, Aegis Frumento knows that increased human interaction will lead to more infections and more dead. Such is the trade-off between life and livelihood. We want both, but when push comes to shove, I will be quicker to sacrifice your life to my livelihood, and you will be quicker to sacrifice mine for yours, -- and there's no compromising between us. If you believe the economy must remain closed to protect your life, then you must be able to imagine what it is like to be stone broke with no financial lifeline. And if you want to reopen so you can make money, you should imagine what it's like to die alone in a quarantined ICU.
In a Complaint filed in the United States District Court for the District of Massachusetts, the SEC charged Damon Elliott and Piptastic Limited with violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder in connetction with an alleged scheme whereby over $9 million was misappropriated from at least 80 investors. Also, the Complaint names as Relief Defendants DSE Retail Limited, Paul Rose, Unique Asset Management Limited, and Sharon Elliott. As alleged in part in the SEC Release:

[F]rom at least January 2016 to May 2019, Elliott, operating through Piptastic, falsely represented to investors that he would use their money for an overseas fund that purportedly engaged in a trading strategy known as "spread trading" or "spreadbet trading," which involves speculating on the price movement of a security or other financial instrument. According to the complaint, Elliott instead knowingly misused investor assets for his own personal benefit, as well as that of his wife, relief defendant Sharon Elliott, and others including his associate, relief defendant Paul Rose. As further alleged, from at least 2019 through the present, when investors tried to redeem their money from Piptastic, Elliott lied about the status of the investments. Specifically, Elliott allegedly claimed that he had profited from spread betting and that the funds were safely held in trading accounts for the benefit of the investors. Elliott also allegedly provided fictitious account statements that purport to reflect the investors' preserved assets.

It's 2020. It's May. Great!!! -- it's time to re-visit, yet again, for another year and another month, the SEC's belated, belabored, and bedeviled effort to roll-out a new, single market system to provide real-time dissemination of consolidated market data for national market system ("NMS") stocks. Despite indications that the old Electronic Blue Sheet system is wheezing and dying a tortured death, hell, there's no reason to aggressively press for some modern, responsive alternative per a Consolidated Audit Trail ("CAT"). See, for example:
As such, we don't quite see progress. We see consideration. We see reconsideration. We see recommendations. We have discussions. We have pubic comment. We then embark upon further consideration, reconsideration, recommendations, discussions, and, of course, more public comment. I mean, for godsakes, if you don't want to do the heavy lifting necessary to improve the NMS and launch CAT, then why not stop with all the bull-shit, say so, and let's wait for the winds of politics to change and create a more nurturing environment. By now, it's all a bit too idiotic for words. Regardless of my cynicism, in part the SEC Release asserts that:

The Commission's order directs the equity exchanges and FINRA to submit a New Consolidated Data Plan within 90 days that includes specific governance provisions that the Commission believes will enable the plan to address concerns that have been raised about the governance of the existing Equity Data Plans and the provision of equity market data to market participants.

Following receipt of the New Consolidated Data Plan, the Commission will notice the plan for public comment. After considering any comments received on the New Consolidated Data Plan, the Commission will consider whether to approve the New Consolidated Data Plan with any changes or subject to such conditions as the Commission may deem necessary or appropriate. Until a New Consolidated Data Plan has been approved by the Commission, the current Equity Data Plans will continue to govern the collection, processing, and dissemination of equity market data.

Statement on Order to Modernize the Governance Structure of National Market System Plans for Equity Market Data (Statement by SEC Chair Jay Clayton)
Among Chair Clayton's observations [Ed: footnote omitted]:

Finally, there is one broader point I would like to address.  Some commenters asked about the relationship between this effort to improve the governance structure for consolidated data and the Commission's proposed rulemaking on Market Data Infrastructure. I want to be clear that the two efforts address distinct aspects related to the provision of consolidated equity market data.  Today's Order speaks to the governance structure for consolidated market data and is designed to ensure that conflicts of interest in NMS plan governance are appropriately managed, including by providing for broader representation on the new NMS plan's operating committee.  The Market Data Infrastructure proposal, by contrast, addresses the operational structure of the securities information processors ("SIPs")-including the content of SIP data products and the method by which NMS stock information is collected, consolidated, and disseminated.

I am pleased to support the staff's recommendation to require the equities exchanges and FINRA to propose a new, single NMS plan regarding consolidated equity market data.  I encourage the equities exchanges and FINRA to take up this task with purpose and commitment-the issues that need to be addressed and the path forward are well understood.  The time for investor and market-focused action has arrived.  Finally, and with respect, I also want to thank the staff who have carefully considered the comments received and worked tirelessly to prepare the Order.  Particularly during this Public Service Recognition Week, I want to commend the staff for its hard work, dedication, and thoughtfulness on this matter and every other, today and every day.
Among Commissioner Lee's observations [Ed: footnotes omitted]:

When this Order was proposed in January, I expressed my concern that the governance changes, standing alone, may prove insufficient to address aspects of this fundamental conflict because the new voting members would lack the voting power, and may lack the incentives, to affirmatively usher in needed reforms. Reforms related to, for example, the content and speed of the SIPs, conflicts disclosure and management, confidentiality with respect to SIP customer data, and fee transparency. I also expressed concern that a protracted, piece-by-piece approach may never yield the full package of needed reforms.

Because of the persistence of this fundamental conflict, I remain concerned and am committed to careful monitoring of the ultimate timing and efficacy of needed reforms, including those in today's governance order. With that said, however, it is clear that the Commission has made significant headway on numerous fronts toward improving the public market data streams.
Among Commissioner Roisman's comments {Ed: footnotes omitted]:

[I] find it difficult to discuss concerns with these plans without also talking about the proprietary data feeds provided by exchanges.  As I noted at the time of the proposed order, "I do see a role for the SEC to address the potential for the proprietary feeds to be the supply that meets that demand [for market data] to the detriment of the purpose of the [Securities Information Processors ("SIPs")] and under a governance structure where conflicts of interest exist." While there will be further work to establish the New Consolidated Data Plan that we are ordering today, I believe that today's action will ultimately improve the operation of the SIPs by promoting efficiencies, mitigating conflicts, and ensuring a broader base of input into the decision-making process. 

I appreciate the feedback we received on the proposed order during the comment period.  While some questioned our proposal and whether it was necessary, others asserted that we had not gone far enough.  After careful consideration, I believe we strike the right balance today in recognizing the regulatory responsibilities required of the self-regulatory organizations in operating an NMS plan while acknowledging market participants' concerns with the current structure. 

Statement on Equity Market Data Governance Reforms (Statement by Commissioner Hester M. Peirce)
Among Commissioner Peirce's comments:

As I expected, commenters had strongly-held and widely divergent views about whether to proceed with these reforms and, if so, how.  In light of these comments and after further consideration of the challenges users face with respect to the consolidated data feed, I have concluded that reforms to the consolidated market plan are appropriate.  Given the contentious nature of the issues, it is also appropriate for the order to establish parameters that should guide the plan participants in developing a new consolidated equity market data plan.  In particular, requiring that participants consolidate the three data plans into a single new plan should make distributing market data more efficient, eliminate duplicative costs, and streamline compliance and oversight.  Moreover, adding new voices to the operating committee should help increase transparency and accountability to the market as a whole.  Together with the conflicts and confidentiality amendments that the Commission approved earlier today, this order represents a significant, if incremental, step in improving our system for distributing market data.