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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.
The Myth of the Sole Inventor, Mark Lemley, Stanford
Retail cannot be algorithmically driven. Great retail is all about that sense of adventure and discovery. The next wave on this space is really rich social interaction, using video, using media, to achieve that.
—Jules Pieri, founder of Daily Grommet, remarking on the implicit tension between algorithmic and human curation. Eli Pariser frames a similar tension with his notion of the filter bubble: via Bloomberg
The Economist drafted a typically cheeky and wonderfully entertaining gloss on the current state of expert networks. For the most part, they get it right, but they also get it wrong in important ways.
No, Wini Jiau is not a player in the expert network industry. She was a consultant whose information was the envy and downfall of the investment community and is alleged to have persistently acquired and sold material non-public information to a loose band of investors. The Economist would have done better to mention Don Chu, who did work at Primary Global and did confess to trading in inside information. Wini was just a consultant.
Yes, because of what may eventually be described as a systematic conspiracy by Primary Global to trade in inside information through a vast network of corrupt insiders, both alleged and confessed, eyebrows have been raised. Regulators, investors, and limited partners have awakened to the risks inherent in any research activity.
No, these risks are not particular to expert networks. Indeed, an example elaborated by the Economist actually suggests the opposite – that expert networks might serve as a kind of prophylactic to the kinds of funny-business to and for which we have recently seen many confessed and convicted.
The Economist suggests that compliance protocols and procedures are no match for those determined to do wrong. The piece conjures a cautionary tale of an investor, having been introduced to an expert through a network, rerouting their activities through an independent consulting relationship, “which enables them to buy tips without GLG ever knowing.”
It’s certainly possible, but isn’t it also an argument for expert networks. If expert networks are so darn difficult about compliance that an adroit and corrupt investor would choose to circumvent them, then shouldn’t “compliance chiefs” relish the chilling effect expert networks have on their employees’ baser instincts?
I did enjoy, however, their clever turn of phrase to a conclusion. Indeed, Rajat could have used some expertise in discretion. Though perhaps he could have learned it through the policies, procedures and systems of an expert network.
DealBook: How Far Will Insider Trading Inquiry Expand?
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