Get Rich While Doing Good

Get Rich While Doing Good

Wall Street has worked hard to earn its reputation for bad behavior, from nearly bringing down the global financial system with subprime mortgages to signing up customers for fraudulent accounts.

But even as the bankers in the headlines were drawing the scorn of a generation of millennials, a large and growing group of portfolio managers have been quietly using their financial power to make the world a slightly better place. And in the process, they are making investors wealthy.

A whopping $6.6 trillion is invested “sustainably,” which means portfolio managers evaluate companies on the basis of environmental, social and governance factors, also known as ESG. It turns out that companies that aim to reduce greenhouse gas emissions, maintain high workplace standards, and have diverse boards also benefit from avoiding fines and lower employee turnover. Over the long run the companies, and their investors, thrive.

Over the 12 months ended in September, the MSCI KLD 400 Social index, a grouping of companies that put their best foot forward, returned 15.8%, edging out the Standard & Poor’s 500 index’s 15.5%.


ESG investing has an impressive history: Campaigns led by sustainable investors helped break apartheid in South Africa, and forced NKE, -1.14% (NKE) to clean up its supply chain. Nuns are rapping WFC, -0.47% (WFC) on the knuckles for its phony accounts scandal — they want a full report on what caused such behavior.

More investors are embracing this approach. From 2012 to 2014, assets invested sustainably in the U.S. ran up 76%, according to the Forum for Sustainable & Responsible investment. It wasn’t always that popular.

One reason sustainable investing has hype now is that the style of investing has evolved.

Religious investing/SRI: This old school approach screens out companies that produce or sell tobacco, alcohol, and arms. They tend to be based on religious or ethical values.

For example, socially responsible investors don’t like Big Tobacco companies such as PM, -0.33% (PM) or MO, -0.02% (MO), because their products can kill. They shun alcohol companies that practice questionable marketing tactics. In 2014, for instance, U.K. retailers got flack for pricing beer more cheaply than bottled water.

ESG investing: In recent years, sustainable investing has become more inclusive, not ruling out industries so much as looking for best-in-class companies within any given sector.

For example, MSFT, -0.35% (MSFT), DIS, -0.51% (DIS), or XOM, +0.00% (XOM) might score better on environmental factors relative to their competitors, because they voluntarily charge themselves a carbon tax. The tax incentivizes them to reduce carbon emissions, and their “taxes” go into a fund used for projects to build solar panels and wind farms. Supermarket chains such as COST, -0.97% (COST) might be favored over WFM, -1.43% (WFM), because it sells more organic foods. Even better, Costco lends money to farmers so they can buy equipment and land to produce even more.

As sustainable investing continues to gain clout, you may get more opportunities to choose mutual funds that follow this approach. For instance, such funds are more likely to appear in your 401(k) plan.

In the meantime, our sister publication Barron’s compiled a list of the Top 200 Sustainable funds, 50 of which beat the broader market. To take one example: The Parnassus fund (PARWX) has returned an average 20% per year for the past five years, handily beating the broader stock market. See our recent Barron’s cover story for a deeper dive into sustainable funds.

Keep in mind that not all sustainable funds are the same. Some managers are greener than others, and one fund may focus more on how companies treat employees, while another may be stricter about products sold. The important thing is that you can put your money where your conscience is and still retire with an (organic) nest egg.

Article and media originally published by Crystal Kim at

Nasdaq Preps ISE Migration

Nasdaq Preps ISE Migration

The market operator plans to keep ISE functionality while moving the three options exchanges onto Nasdaq architecture.

During a record low in options trading volume and volatility, Nasdaq plans to kickstart opening liquidity on the ISE by adopting a tweaked version of the process used by Nasdaq PHLX exchange.

“But that is not carved in stone,” said Kevin Kennedy, vice president and head of US options at Nasdaq.

The global exchange operator still needs approval from the U.S. Securities and Exchange Commission to introduce the necessary rule changes.

Kevin Kennedy, Nasdaq

Kevin Kennedy, Nasdaq

“We do not want to break new ground right now during the integration,” he added. “By in large, we are going to use the ISE rule set. Where we deviate, we will use a rule set that already exists.”

Nasdaq is still developing its proposed rule changes but is in regular communications with the regulator.

“We know when dealing with a regulator, communication is key,” said Kennedy.

At the same time, Nasdaq officials plan to have the openings for its ISE Gemini and ISE Mercury markets to be similar to those of the Nasdaq Options Market and Nasdaq BX Options Exchange.

“We look to give our market makers a bit of a breather on the other two exchanges to get their quotes in there fast,” he said.

The next step for Nasdaq’ ISE integration will happen on September 15, when it’s slated to release the migration specifications to market participants.

The exchange operator then plans to provide a migration testing platform in early December.

“Those dates are on target, and things are going well,” said Kennedy. “People are working around the clock to get this done in time. And for now, it’s going well.”

Kennedy’s team looks to complete ISE Gemini’s migration on June 1, 2017. The ISE and ISE Mercury should finish their migration by July 1 and August 1 respectively.

Throughout the process, ISE participants will need to maintain their connections to the ISE markets in Equinix’s NY4 data center before moving to Nasdaq’s Carteret facility after each switchover is completed.

It is an opportune time for Nasdaq to make the switch while the options market is in a doldrum, according to David Weiss, a senior analyst at industry research firm Aite Group.

“Volatility is down, and volumes are down,” he said. “The market seems to be waiting for both to return, which they will with a bang.”

Article and media originally published by Rob Daly at

HK Closing Auction

HK Closing Auction - A Calm Month Before Index Reviews

75-25 Auction Split in Hong Kong

After 1 month of Closing Auction Session (CAS) the last-minute and auction volumes in most names has remained stable. On average, 4.9% of daily volume in CAS securities (excluding ETFs) matches in the close auction and 1.6% in the last minute – creating a 75%-25% split as shown in the graph above.

However, these averages mask the fact that participation in CAS varies widely from stock to stock. There is a large group of securities which see negligible activity in the CAS.

Source: Credit Suisse Trading Strategy

Asia Accounts for More Than 50% of Daily Value Traded

At $309m, average daily value traded in frontier markets is tiny compared to developed (~$277bn) and emerging (~$59bn) markets. Pakistan, which accounts for approximately one-third of this total, trades the most, while as many as ten frontier markets trade less than $2m on average per day. Although the Middle East has the largest index weighting, it comes a poor second to Asia regarding value traded. Much of this is due to Qatar and the UAE getting promoted to emerging market status, but a slump in liquidity in Kuwait has also not helped.

Source: Credit Suisse Trading Strategy, Bloomberg, Jun 07- Jul 16


Level 2 Quotes - Nasdaq TotalView: Full market visibility to anticipate earnings volatility

The ability for traders to see the full depth of the order book on an exchange not only proffers greater insight and transparency on the supply and demand of individual stocks, it allows them to enhance their trading strategies, not to mention providing the ability to improve liquidity management.

Ordinarily, people think of Level 2 price data as the best way to ascertain the depth of the market. Level 1 simply shows the live best bid and offer on a company’s shares.

But it is a misnomer to suggest that anything over and above the current displayed BBO is Level 2. “It is a generic term. People think they are getting a full view of the market with Level 2 but they’re not. In Nasdaq terminology, Level 2 only provides the top price level for each and every market participant in the Nasdaq execution system, whereas Nasdaq TotalView® offers full depth – so it’s almost like Level 3,” says Brandon Tepper (pictured), Head of Americas Sales, Nasdaq Global Information Services.

Over thirty years ago, Nasdaq introduced Nasdaq Level 2 to provide the top-of-file position for Nasdaq exchange participants. Whilst this is still valuable in terms of helping participants track their quotation positions and comply with SEC and Nasdaq marketplace rules, Nasdaq TotalView® goes much further. It offers the full depth of the market at every price level in NASDAQ-, NYSE-, NYSE MKT- and regional-listed securities on Nasdaq® and displays quotes and orders not visible in the legacy Level 2 solution.

In fact, TotalView displays more than 18 times the liquidity of Level 2 data.

“Level 2 is a legacy term – we want to raise people’s awareness that they can get better data using Nasdaq TotalView,” emphasises Tepper.

Because of this enhanced granular view of the market, the bid/offer data contained within TotalView gives investors and traders a more powerful tool for managing their P&L. Users can follow pockets of liquidity over time, develop or refine their trading strategies, identify potential trade opportunities as well as analyse order patterns and levels of momentum throughout the market.

“TotalView has been around since 2003. It is Nasdaq’s premium equity data product. However many levels of price data are coming in to Nasdaq from market participants, that’s exactly what users see. Basically it’s a product that gives the most complete look available into the Nasdaq trading system,” says Todd Borneman, product manager at Nasdaq.

One of the key functions within TotalView is the Net Order Imbalance Indicator (NOII). Think of it as a supply/demand indicator. The NOII provides imbalance information on a specific stock during Nasdaq’s auctions at Market Open and Market Close. “The auction starts two minutes before the markets open in the morning and 10 minutes before the markets close in the afternoon,” confirms Thomas Maguire, product manager at Nasdaq.

“With respect to the Market Open and Market Close auction, we are able to show, in near real time, what the interest is in a specific security. The NOII shows you indicative prices of where the cross is, but it also shows the depth of interest on either side,” says Maguire.

There might be a significant imbalance on the buy or sell side for a particular stock, particularly during earnings announcement periods. As such, NOII helps to educate the user as to where the price of that security might be at Market Open the following morning, if they make an earnings announcement after the markets have closed.

Having that information at one’s fingertips could potentially enhance someone’s ability to gauge sentiment and interest in a specific security by the market as a whole. If the NOII is showing that there’s more of an imbalance on the buy side than there’s heavy buying interest; this could indicate that a company’s earnings announcement the following morning, for example, will be positive and present a buying opportunity. The opposite is also true if there is clear selling interest.

“It is information that Nasdaq has that is not published by any other exchanges. Reg NMS and SEC requirements stipulate that you have to publish the top price (or best price, which is the Level 1 information). The depth of market and NOII information that users have access to is completely proprietary to Nasdaq,” says Borneman.

There are different ways one can analyse the data. Not just the day of the earnings announcement, but the day after, or the days leading up to the announcement, to get an idea of how bid and offer volumes might increase, and what the market is anticipating, in respect to a company’s earnings announcement.

Take Apple earlier this year, for instance. For its fiscal 2016 first quarter, ended 26th December 2015, the tech giant announced a record quarterly profit of USD18.4 billion. Leading up to that announcement, the NOII would have revealed to TotalView users how the markets were anticipating that announcement.

During auctions, if traders or investors using TotalView have sizeable trade volumes to execute, it’s a great opportunity for them to make use of the buy and sell demand in the auction, and offset that demand. If they see 20,000 shares of a specific stock to buy in the auction that they were looking to offload, that is a perfect opportunity for them to enter a sell order into the auction and offset the buy imbalance being shown by the NOII.

“They will know with certainty that those orders will get filled because the NOII information is showing them an imbalance. It gives them certainty of liquidity. They’re not just going blind into the market hoping to sell 20,000 shares of a security, which would 1) affect the stock price and 2) not give any confirmation that there would be buyers in the market for that security.

“Portfolio managers that have orders to take care of know they can get them filled in our auction because we are giving them information during that auction that says where the imbalance is,” confirms Tepper.

Earnings season tends to produce volatility in the market as participants react positively or negatively to company announcements. By getting an idea as to how the markets will open or close, Nasdaq’s solution effectively helps users to anticipate potential volatility and position themselves accordingly.

“When there’s an earnings surprise after Market Close the auction next morning is intended to take the surprise out of where that security will start trading by showing you what market sentiment is leading up to Market Open,” adds Maguire.

Whether you are a hedge fund, a broker/dealer, even a retail investor, with TotalView the fact that you can see the available prices at the available size levels means that you know you can effectively execute an order based on actual supply and demand.

More information, in this context, really does equate to more effective decision making.

“I think the overriding message is that TotalView gives users additional information. Information creates knowledge and that’s what people use to make decisions about trading. It gives people increased visibility and information on order flow and trading in the marketplace,” states Borneman.

One could look at earnings announcements on stocks over multiple cycles and see how their stock price has performed based on whether they exceeded or missed their earnings targets for one quarter versus another. How did the NOII imbalance differ between quarters over 1-, 2- or 5-year time series?

In effect, building a picture over time with the full visibility of TotalView can help users to analyse patterns in historic stock prices and figure out how that might play out in the future.

“In January 2017, there will be no difference in cost between Nasdaq Level 2 and TotalView. We want to make sure that firms are benefiting from the extra information in TotalView as they will be paying the same price for both products next year,” concludes Tepper.

Article originally published by James Williams at

Execution Characteristics for the Asian Markets 2016

Average TouchSize vs Daily Volume (bps) and Average Trade Size (USD) for the Developed and Emerging Asian Markets

Avg Daily Turnover and APAC Composite Cost Index for Jan '15 - Jun '16

Average Daily Turnover (USD Bn) for Jan-Jun '15 & '16 and APAC Composite Cost Index for Dec '13 - Jun '16

Impact Costs for the Asian Markets Dec'12 - Jun'16

Impact Cost is based on the Credit Suisse EDGE pre-trade model and assumes a trade size of 1% ADV and a participation rate of 10%.  It indicates the additional price that traders have to pay due to market slippage.