Monday, May 16, 2011

Information Asymmetry: "Banks Woo Funds With Private Peeks" and a gustatory treat

From the Wall Street Journal:
One day in early March, the phone lines of hedge-fund traders around London and New York suddenly lit up. A stock that many of them had placed hefty bets on—Pride International Inc., an energy company in the process of being sold to a rival—was falling. The traders had no idea why.

They soon figured it out: J.P. Morgan Chase & Co. had hosted a meeting that day between a handful of hedge-fund traders and executives from a company that was considered a prime candidate to start a bidding war for Pride. One of those executives had indicated they weren't likely to make a bid.

The lunch meeting casts a spotlight on a practice that has long occurred in the shadows of Wall Street and the City of London—but which is now causing concern among regulators and some banks.

Investment banks vie for business from elite hedge funds by offering traders at those funds special access to senior deal makers and corporate executives at dinners and other gatherings. The traders sometimes pick up valuable nuggets of information that aren't available to other investors, according to people who have attended such gatherings....MORE
HT: MarketBeat who introduce a new feature:

Morning Links

Morning links, a new feature designed to share some interesting  reads, while subliminally calling to mind delicious sausage, has been delayed by a computer virus that has infected the entirety of the Dow Jones computer network. But here you go, better late than never:
  • The market is more rigged than a seven-masted schooner, with banks routinely giving hedge funds sneak peeks at inside information, write David Enrich and Dana Cimilluca, in a must-read front-pager.
  • Flash crashes in commodities get a thorough unpacking from Reuters’ Eric Burroughs. The verdict? Expect more flash crashes....