The Elephant in the Room

It hasn't been an easy return to work for many on the sell side, so far this month. Outside of new requirements regarding swap transaction reporting and dealer registration to consider, the possibility of enormous fines are hanging over nearly every bank's head following the London Interbank Offered Rate (Libor) scandal, which has been painfully unfolding over the past few months.

From past UBS executives being grilled, mercilessly at points, by the UK Parliament over perceived failures in control and compliance, to the mooted resignations at RBS, the issue looks set to run and run. Banks are at fault, of course, or at least, a significant subset of people involved in Libor, but it's important to also note the regulatory failure here. Yes, UBS may not have detected any wrongdoing despite two audits, as it claims, but the Financial Services Authority (FSA) also categorically failed in its duty and responsibility to provide effective oversight.

If Libor was a wholesale farce, as seems to be emerging, then the regulators need to take a long look at themselves. Yes, UBS, RBS, Barclays and whoever else are being pursued should have had better systems in place, but so too should the FSA. Then, perhaps, this problem wouldn't have spiralled out of control into as dismal a situation as it has.

Shorting Sentiment
A year ago, sentiment analysis was all the rage. We've published several features on it in Waters and run a number of stories, but it seemed to fizzle out when Derwent Capital Markets, the so-called 'Twitter Hedge Fund', quietly shuttered after a few months. We spoke to founder Paul Hawtin about that several months ago, and the reason why, but Derwent is back. Now known as DCM Capital, they released their new trading platform for retail investors today, based on the proprietary technology used in the fund and developed on the back of academic research into the matter.

Most people seem to be using sentiment as another stock research factor rather than a buy or sell indicator, but it'll be interesting to see the returns that day traders can make from it. As always, if you'd like to talk about this or anything else, give me a shout.