Tag Archives: Technology

Meet the woman fighting Wall Street’s Flash Boys

Wall Street veteran Sara Furber is heading up listings at IEX, the stock exchange made famous by Michael Lewis

Like many people on Wall Street and beyond, Sara Furber devoured Michael Lewiss Flash Boys, the best-selling book that argued high-speed traders had rigged the worlds biggest stock markets. Now, Furber has been tasked with proving that executives and investors really want an alternative.

Lewiss book told the tale of Brad Katsuyama, who, while working at Royal Bank of Canada, spotted what he saw as a gigantic ripoff in the financial markets and set up a company, IEX, he hoped would end it.

Last year, he hired Furber, a 20-year Wall Street veteran and managing director at Morgan Stanley, to head up the new stock exchanges listing business poaching business from the New York Stock Exchange and Nasdaq, arguably the two most powerful stock markets in the world.

Next month, Furber hopes IEX will be up and running with its first listing as the exchange takes on a market that has been dominated by the two giants. Giants, she and Katsuyama argue, that have allowed the financial markets to be controlled by the interests of a subset of traders more interested in making a very quick buck than in long term investors.

From the outside looking in it was hard to really understand the level of conflicts that existed and the behaviour that existed. Reading Flash Boys was a window into that, says Furber, sitting in an office 44 floors above downtown Manhattan.

Having spent a year here, she says the levels of complexity and the level of conflicts that exist in the system still exist and in fact there may be other ones that we are seeing as we get further into it.

As the fledgling exchange tries to make inroads, Furber will become one of Wall Streets most high profile women.

After two decades in finance she is a little saddened that that is the case. Women on Wall Street are an important constituency and I would love to see more of them, she says. But there has not been as much improvement as she would like to see.

There are still very few women at the senior ranks and it is still very difficult, she says. She wonders if part of it is the perceived demands of the job.

Sara Fuber. Photograph: Ali Smith for the Guardian

The biggest lesson she learned was that more responsibility didnt mean less freedom. I assumed the higher profile, more senior position I would have, the less control I would have to manage the life I wanted outside of work. Having children, family balance.

Looking back one of the biggest things I wish someone had told me is its inversely correlated. The higher profile, more responsibility roles, the more flexibility you have to structure your life the way you want. You have better people working for you, you have more authority, you are setting when the meetings are, what the agenda is. That control is really empowering.

Nobody looks at me for going to a parent teacher conference, she says. I dont think that level of autonomy exists at lower levels. Whether you are a man or a woman.

IEX has rent Wall Street. In 2014, an argument between Katsuyama and Bill OBrien, then president of the Bats exchange, on CNBC brought trading to a standstill as the IEX founder and Lewis argued investors were being scammed. I believe the markets are rigged and I also think youre part of the rigging, Katsuyama told OBrien. Katsuyama (and Lewis) were guilty of falsely accusing literally thousands of people and possibly scaring millions of investors in an effort to promote a business model, said OBrien.

Much of the disagreement centers on the need or not for the new exchanges most famous claim to fame: a 38-mile coiled cable designed as a speed bump to slow down the high-speed transactions that now dominate trading. The cable is designed to stop high-frequency traders (HFTs) using their algorithms to trade in and out of shares at speeds that allow them to take advantage of slower investors often those looking to make a long term bet on a companys fundamental worth.

If you are IEX or its supporters this is tantamount to scalping. IEXs critics charge its just how efficient markets operate in the digital age. Either way, its all very complicated. And thats the problem, says Furber. Financial complexity is not only too much for ordinary investors, its also too much for those on Wall Street.

Furber ran investor relations at Merrill Lynch during the credit crisis. One of the things that shaped my view incredibly was that there were a lot of people at that time saying: You just dont understand the risk, its very complex. As a smart, educated person, when people create a lot of complexity and opaqueness, we have to trust our gut. If you cant explain it, there is something fair about our sense of unease. What we are tying to do is create more transparency and simplicity because that creates better trust.

Whoever you agree with, Wall Street does have a problem. Over the last decade the number of listed companies in the US has halved and the number of companies doing initial public offerings (IPOs) is also in free-fall, down from about 300 a year in the 1990s to about 100 a year. Big companies like Albertsons, Bloomberg, Koch Industries are staying private. A new generation of tech giants, Airbnb, Pinterest, Lyft and Uber, are staying private for longer.

Part of the reluctance to join the stock markets is because the existing exchanges seem geared more interested in making money for traders than helping long term investors maximise their returns or companies raise money, says Furber.

The market structure we have today has evolved over the last 10 to 15 years and its being optimized for different participants than companies and investors, she says. It doesnt mean everything doesnt work for them, she says, but there are pain points.

NYSE and Nasdaq sell tiers of data and higher speed services to traders who can use that advantage to make quick returns that are unavailable to those that dont pay up. IEX wont do that.

Everyone says they are great in clients service but if your business model operates in a way that doesnt advantage them, I would question that, she says. On top of that there are a bunch of fees and rebates that IEX will do away with that she argues create financial incentives that arent aligning the broker all the time with their client.

But taking on the incumbent powers will not be easy. Nasdaq and NYSE dominate the listings market IEX has about a 2% market share of trading in US equities. The two exchanges have fought hard against allowing IEX to become an exchange and its speed bump, arguing it added unnecessary complexity. But the Securities and Exchange Commission gave IEX the go-ahead last June. One of NYSEs exchanges, NYSE American, is now offering a speed bump too.

It validates the problems that exist, she says. The current big exchanges still drive a significant portion of their revenues from selling tiers of data and tiers of speed. The people who can pay the most for that are still the people who can optimise those differences as competitive advantages, she says.

Imitation is the sincerest form of flattery, Furber says with a smile. It can also be the most deadly.

Read more: https://www.theguardian.com/business/2017/sep/18/wall-street-stock-exchange-michael-lewis-sara-furber

Streaming Video Company Roku Files for U.S. Initial Offering

Roku Inc., the maker of devices and software for streaming video that was an early challenger to traditional home-entertainment providers, filed for a U.S. initial public offering.

The company listed an initial offering size of $100 million, which it said is a placeholder used to calculate fees and will probably change. The company plans to use the proceeds for general corporate purposes including research and development and marketing, according to a filing Friday with the U.S. Securities and Exchange Commission.

Roku was an early mover in what is now a crowded market of home devices and streaming tools. It’s a specialist in an industry in which several technology giants, including Apple Inc., Alphabet Inc.’s Google and Amazon.com Inc., are now focusing intently.

The company, which has been losing money since it began in 2002, acknowledges the risk of the “highly competitive” market, according to its regulatory filing. While competitors may be able to afford to lose money on their devices, Roku said its advantage is in its neutrality. Unlike some of the other players, Roku isn’t competing with content providers by making original programming.

“Our mission is to be the TV streaming platform that connects the entire TV ecosystem,” Chief Executive Officer Anthony Wood wrote in the filing.

Roku said it made $11.22 in average revenue per user in the four quarters ended on June 30 compared with $9.28 at the end of 2016. The company said its growth strategy is to increase the number of active accounts and the amount of revenue it makes per user — money they make when consumers order a streaming-video service, or through advertising deals. Ads and subscription-revenue share make up about 40 percent of total sales.

Roku had 15.1 million active accounts using its streaming services as of June 30, according to the filing. For the six months ended June 30, Roku had revenue of $199.7 million, a 23 percent increase from the same period in 2016, according to the filing. 

Morgan Stanley and Citigroup Inc. are leading the offering, which will be listed on the Nasdaq Global Select Market under the symbol ROKU. The company will offer Class A shares. The company’s seven non-employee directors are venture capitalists and current and former executives in tech and media. All are men.

    Read more: https://www.bloomberg.com/news/articles/2017-09-01/streaming-video-company-roku-files-for-u-s-initial-offering

    SEC Is Studying Spotify’s Plan to Bypass IPO in NYSE Listing

    Spotify Ltd. executives have met with U.S. regulators scrutinizing the music company’s plan to skip a traditional share sale and list directly on the New York Stock Exchange, according to people with knowledge of the matter.

    Senior Spotify executives met with U.S. Securities and Exchange Commission officials last month, said the people, who asked not to be identified discussing private meetings. Regulators asked for the meeting to get details on the plan by the world’s largest paid music streaming service to do an end-run around an initial public offering — the conventional route to listing shares. The company has remained in touch with SEC officials since the meeting, the people said.

    Spotify aims to list late this year or early next on the New York Stock Exchange. With a stream of cash from its more than 60 million paying subscribers and awareness among investors, the company isn’t seeking to raise money or make itself known to potential stockholders — key IPO objectives. A direct listing also avoids underwriting fees and restrictions on stock sales by current owners, and doesn’t dilute the holdings of executives and investors.

    It also introduces uncertainty, since underwriters in a typical IPO set a price based on investor feedback and have buyers lined up. Even then, some new issues crater. Just a handful of companies have done direct listings over the past decade on the Nasdaq Stock Market. Spotify would be the biggest, and the first for the New York Stock Exchange.

    While standard share sales can move quickly through approval, it’s common for SEC staff to spend more time examining offerings that involve new types of structures or products. It’s possible regulators simply want a better understanding of how Spotify’s listing will work. The agency declined to comment.

    The company’s plan poses an early test for how far SEC Chairman Jay Clayton is willing to go to boost new U.S. listings.

    The agency has been weighing a proposed rule change at the New York Stock Exchange that would allow the listing to go forward. Clayton, a former Wall Street deals lawyer who took over the agency in May, has for months decried a two-decade decline in the number of public companies as “a serious issue for our markets and the country.”

    While he hasn’t yet laid out a comprehensive policy agenda, he’s widely expected to craft rules that would encourage more companies to go public and do so sooner.

    Spotify has hired Goldman Sachs Group Inc., Morgan Stanley and Allen & Co. to assess its options. The company has already raised more than $1 billion in equity and obtained a $1 billion convertible loan from investors led by TPG in March 2016.

    The conversion was tied to a public offering, with the terms growing more favorable to TPG the longer that takes. By choosing a direct listing instead, Spotify will have to reach a new agreement with the private-equity company.

    Spotify’s equity was valued at $8.5 billion two years ago when it raised $526 million. The company would be one of the largest consumer technology providers to go public in recent years.

    The music-streaming company’s unusual approach to going public is reminiscent of Google’s 2004 IPO, when the tech giant chose a rarely used Dutch-auction format. That approach, which also let Google pay its underwriters less, also drew SEC scrutiny. The complicated share sale suffered from a series of missteps.

    Among online music companies, Spotify has thrived while Pandora Media Inc. and SoundCloud Ltd. have struggled. Pandora has had four chief executive officers in the past two years and is raising money by selling a large minority stake to satellite radio company Sirius XM Holdings Inc. SoundCloud just fired 40 percent of its workforce and sold a majority stake to a pair of financial firms. Even Apple Inc., Spotify’s biggest competitive threat, is a distant second in paid streaming.

    Spotify has grown from 20 million subscribers in two years and had more than 140 million people using the service between the free and paid options as of July. The company reported sales of 2.93 billion euros ($3.45 billion) in 2016, up 52 percent from a year earlier, and its growth has lifted the entire music industry. Record sales have grown two years in a row for the first time since the late 1990s.

    Spotify will still have to convince investors that streaming music is a good business. The company lost 539 million euros last year despite its growth. It pays out more than 80 percent of revenue in royalties to music rights holders and streaming-delivery costs, leaving little margin for investments in technology and new staff.

    The company has dabbled in podcasting and video, content that could bring in new customers and advertisers while reducing the share of sales that go to the music industry, but hasn’t made a commitment to those areas.

    Before going public, Spotify must also sign a long-term licensing agreement with Warner Music Group, the smallest of the three major record labels. Vivendi SA’s Universal Music Group and Sony Corp.’s music division signed new deals with Spotify earlier this year.

      Read more: http://www.bloomberg.com/news/articles/2017-08-21/sec-is-said-to-study-spotify-plan-to-bypass-ipo-in-nyse-listing