The Last Look…
Posted by Colin Lambert. Last updated: October 30, 2023
The dissemination of market data is a strange thing, regulators the world over look for market manipulation – as they should – but in some cases, it could be argued, it is going on in full public view.
There are those who are questioning the use of social media channels by influential market identities to express their view. It was noted by a few people I spoke with over the past week that comments on X (Twitter) by Bill Gross and Bill Ackman actually moved the market, and this was, possibly, market manipulation.
I have to stress here that I don’t agree – it was to my mind, two honest and genuine views expressed by highly successful traders – they were not trying to the move the market. The trouble is, they did, and that raised eyebrows in some quarters.
This has also been a problem in crypto-land, ironically largely caused by X’s new owner Elon Musk – who can forget the Bitcoin rally (and slump) associated with one of the more random billionaires in the world sharing his insight?
The problem is that often these views have been made public after the position has been put onboard, or been taken off. As my friend and respected FX market veteran Steve Flanagan points out in our latest Voice of Experience, how regulators and lawyers look at markets and how practitioners do can be vastly different. In this case, is a regulator going to make the same knee-jerk reaction as some of my conversants and see manipulation?
There is also a historical angle to this issue. Many, many years ago, when a certain “personality hedge fund” was highly influential due to being one of the thousands of market participants to profit from the UK government’s failed experiment with the European Rate Mechanism, The Times newspaper in London was a particular favourite forum for said manager to express their views.
All well and good, but a few friends in the market and I noticed that when a certain view was expressed, for example sterling bullishness, the story’s publishing was followed by a small blip up and then a steady decline. We may have been cynical (I have to confess I still hold this view), but we saw such a story in the public domain as a reversal signal – the manager was looking to get out of the position and wanted a bit more cushioning for the market impact. That is probably more sinister than an influential investor discussing a position they are presumably taking for some time, or revealing that they feel the market is at a critical point.
The problem is that these influential voices can hardly tell the world what they think ahead of actually trading – they wouldn’t be successful for much longer! There is a feeling that certain regulators in the world actually prefer that sort of environment, which is nonsensical, not least because the end investors in those funds will be the ones most hurt.
There is also the issue that, whisper it, these ‘gurus’ may be wrong. They readily accept that they don’t have a monopoly on market wisdom and have no doubt suffered reversals in the past – and this brings me to the point of this column.
The problem is not the large investors sharing their views, it is with those who blindly follow them. By all means be influenced by such views, but it has to be accepted that you’re going into the trade quite late – and that is dangerous timing. There are legions of stories of disillusioned crypto-heads who felt they were hung out to dry by Musk – they weren’t, they just didn’t understand the market dynamics and the crucial aspect of timing.
This might read a little harsh, but at some level financial markets have to come back to the “consenting adults” theory. Yes, structures should be in place to stop abusive behaviour, and yes, end investors should have the same access to public information as their larger peers, but at the end of the day these investors need to take responsibility for their own actions.
Effectively what is happening is mirror trading on a grand scale, and the ethical concerns over that strategy have yet to be allayed, largely due to a lack of transparency over how well, and at what time, the “leader” actually trades.
One solution to what some believe is a problem is for these people to stop taking to social media and other public channels to express their view, become more like the UK’s royal family and studiously avoid anything controversial (and, it could be argued, interesting!) when commenting. One correspondent last week suggested they could be like central bankers and pick their words very carefully, but the big difference is central bankers largely don’t have billions of assets under management!
The shame is that the more people hear from influential minds such as Ackman and Gross, the more they can maybe understand the issues facing policy makers and markets more generally, but how do we do this without raising the inevitable questions of ethics? To me, it can only be achieved if it is publicly recognised that such behaviour is above board so that we “future-proof” any legal risk. I am not sure how we do that, or even if we want to, for while I believe the two Bills are acting honestly and genuinely, I can’t say the same about some other people in the industry who may also get their face (and views) in the media.