Will Block Trading Get Busted? 🔎

The government just decided to launch an in-depth investigation of financial institutions for their block trading practices, which is funny because… they’ve been doing it for half a century. 🙄 And retail investors have been calling on the SEC to probe block trading for years.

Block trading has been around since the 1960s. The practice allows institutions to receive a large number of shares (a ‘block’) of a stock directly from a company. The institution then subtly distributes shares from the block to select investors at a premium, which keeps the share price up and prevents the market from figuring out what’s going on. 💀 This kind of transaction is especially prevalent in Silicon Valley and among new ventures. 

But wait, there’s more. Banks participating in block sales send out lists of available shares to families and hedge funds without a public mandate. This is the part of block trading that’s illegal, but difficult to catch because it can be accomplished in such a way that makes it a legal ‘gray area.’ Block sales are a huge problem because they can cause stock prices to plunge, and they allow elites access to high-profile IPOs before anyone else. 

Both the SEC and the Justice Dept. are probing Morgan Stanley and Goldman Sachs for block trading, claiming that it’s possible that these two banks provided insider info to hedge funds. 🔎 We’ll be keeping up with this investigation. 

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Risks To The Rate Cut Thesis

One of the big themes we’ve discussed for the last four months has been the Fed cutting rates in 2024. However, there’s been a major disconnect between the market’s expectations and the Fed’s guidance since November. That disconnect made today’s Fed decision and commentary tricky for the market to digest. Let’s talk about why. 🤔

First off, going into this year, the Fed fund futures market was anticipating six rate cuts during 2024. Meanwhile, the Fed’s guidance in December suggested the central bank was estimating just three cuts during the year, as it believes there are still upside risks to inflation.

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Pot Stocks Heat Up

Stocks and ETFs related to the cannabis industry soared today, heating up again despite their habit of disappointing long-term investors. 🔥

The industry’s renewed interest came after a top official at the Department of Health and Human Services (HHS) recommended easing restrictions on marijuana. The official wrote to the Drug Enforcement Agency (DEA) Administrator Anne Milgram, calling for marijuana to be reclassified as a Schedule III drug under the Controlled Substances Act.

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Powell’s Poetic Jackson Hole Speech

Fed Chair Jerome Powell’s highly-anticipated Jackson Hole speech initially sent the market indexes lower before rebounding to close the week mixed. 📝

Although he acknowledged the progress higher monetary policy has made on inflation, he reiterated that prices are still above the central bank’s target. As a result, the Fed is prepared to raise rates further and intends to hold policy at a restrictive level until confidence improves that inflation is sustainably moving towards its target. ⏯️

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Soundbites From Several Fed Speakers

The Federal Reserve’s Chairman Jerome Powell delivered his testimony to Congress today, providing an outlook for the economy and banking system. Several other central bank members also spoke, creating a lot of headlines. 

Let’s look at some key soundbites so you don’t have to watch the full three-hour video. 👇

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