BlackRock Solutions will operate the network for the benefit of it’s own managers and a network of forty-six external clients. BlackRock, alone, manages $3.5t in assets across ten thousand portfolios, but the Aladdin Trading Network –the network’s working title– will also include sovereign-wealth funds, insurance companies and other money managers. For a small fee, participants can cross trades for corporate bonds, mortgage securities and other assets through the platform.

Fixed income trading has been a profitable mainstay of investment banks. The prospect of electronic trading through a crossing network is simultaneously laughable and terrifying. Given the vast investable universe of fixed income instruments, trading these instruments presents a far more complex problem than equities. GE has only one ticker, but it may have a dozen or more credit instruments associated with it, each with its own maturities, rates, claims, etc. Nonetheless, BlackRock is not moving forward on the basis of charity. They want to cut costs, and that means cutting into investment banking profits.

BlackRock’s magical, mystery service has many miles to go before we see the disruption people have predicted. They currently cross 3% of trades internally, and they hope to raise that number to 6-8% with Aladdin. What’s exciting is that they’re bringing forty-six external clients along for the ride.

–Pierre Leval, noting the obvious lack of specific standards for fair use in the Copyright Act of 1976 – § 107 · Limitations on exclusive rights: Fair use.

Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include—

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
(4) the effect of the use upon the potential market for or value of the copyrighted work.

The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors.

An apathetic public, however, is no a reason to stop. Just because insider trading is no longer shocking doesn’t mean we shouldn’t prosecute it to the full extent of the law. But the failure to shock is also not a reason to search for a response by expanding the definition of insider trading.

Charlie Gasparino, writing with Sital Patel, reports that recent remarks by SEC associate regional director and co-head of enforcement David Rosenfeld advocate expanding the definition of insider trading. Speaking at the February 2nd Directors Roundtable Institute session, Rosenfeld intended to address the spate of insider trading cases, but he revealed alarm at the thought of one on one meetings with management at analyst sessions or company employees participating in expert networks.

Observed one attendee, “Rosenfeld said the government’s view is that no employees should be talking to expert networks even though hedge funds and public firms have been using expert networks legally for years.” Said another, Rosenfeld found  “troubling” analyst meetings with corporate officials during “analyst days.” Both of these practices are part of primary research and described by mosaic theory as advocated by the CFA Institute. Did Rosenfeld just put the practice of research itself on notice?

in order for me to gain a competitive advantage, I try to slow it down. I simply stuff data into the market and because my machine originates this data, I simply ignore it and gain a computational advantage.

–Marc Elovitz, partner at Schulte Roth & Zabel: via Reuters