Disclaimer from the writer: All views and opinions are those solely of the author and for purely educational purposes only. Please do your own research before assuming, investing, or sharing.
Photo collage courtesy of Roshni Revankar. Image sources: Reuters, OpenSea logo, and Barron’s
I have 101 different things I want to talk about this week! But that will not be fun for me, because then I have to come up with 102 new things for the following week.
A pop quiz question before you read the rest of the piece: what is the name of the company spin-off from Automatic Data Processing in 2009 that is upsetting C-suites across Wall Street, but not enough for the Securities and Exchange Commission (SEC) to interfere?
Introduction
Why are we obsessed with building standards and making sure there is someone or something under control or regulated? What makes markets efficient? Why do people cheat? I unfortunately will never have the be-all, end-all answer to these questions (though there may be an answer to efficient markets, but we can let the experts argue about that, right?).
I have come to one understanding though: it’s a delicate coin toss of caveat emptor (buyer beware) or caveat venditor (seller beware) for more than a century, dating back to the early days of tulipmania.
A couple of months ago, I had some time to do reading on my own free will. I was recommended Fraud: An American History From Barnum to Madoff by Dr. Edward J. Balleisen, as I was looking to further my career in risk management in the finance industry. And what better way to understand our progress in risk mitigation than to trace the history of regulation in our country since the early 20th century. Dr. Balleisen traces the aftermaths of consumer and entrepreneurial pitfalls from the Gilded Age to the mortgage crisis of the Great Recession. The third eye view can help provide some light into where financial regulation can head towards in Industry 4.0.
These days, my morning news consists of Gensler, a new cryptocurrency regulation, new fraudsters, non-fungible tokens (tragically the real digital art, not my column), and of course the ominous gloom across Wall Street about sky-high valuations.
Gary Gensler is the current Chairman of the SEC and has made many, many, many commitments to bring back caveat venditor to the financial markets that may have been free-riding a little more than the eye can see. Especially in payment for order flow. And especially in the inherent asset risk of cryptocurrencies that are being gobbled up hot by retail and institutional investors, left and right. That’s why I will need to dedicate a column to understanding Gensler’s opinions on current financial transactions, money, and of course cryptos.
Once I see how Gensler views cryptos and current capital market environment, will I be able to make stronger opinions on where I think the market for NFTs is headed. On September 15, OpenSea, one of the most popular platforms used by digital art traders across the globe, announced that an insider (essentially an employee that had “fiduciary” duty to their clients aka digital art traders) used non-public information to sell high value front page artwork and pocket the profits, well before anyone in the market can view them.
This recent event shows that even a unicorn company (start-up IPOs with valuations >$1 billion), born from an industry built around decentralization, showcases the need to have regulatory oversight. Technical know-hows were able to showcase publicly the very real weaknesses in blockchain, paving the answer that for investor protection, these markets need to be controlled. But then, by regulating this realm, did we just come full circle?
What ended up being a casual holiday reading, turned out to be a pivotal perspective in which I view how financial markets are functioning today. That being said, Macbeth, The Alchemist, and of course Charlotte’s Web are just as valuable and probably more entertaining for your casual reads.
Answer: Broadridge
Ever wondered who prints, pdfs, and sends detailed shareholder reports on your favorite investment companies or fund reports to you? Yeah, me neither.
But turns out they are actually an important element of brokers’ fiduciary duty to their clients. Broadridge Financial Solutions single-handedly manages, “millions of trades a day involving trillions of dollars, [that] support communications that reach 75% of North American households.” Handling more than 90% of the investor communication market to date for many brokers, many fund managers across Wall Street believe that Broadridge has a “monopoly” in the communication industry for financial markets. According to a study conducted by Investment Company Institute, if a regular fund were to send investor reports directly to their clients they would incur a cost of not more than 5 cents.
However, Broadridge, by offering this seemingly mundane but significant task, is said to have charged funds the NYSE regulatory cap of 25 cents plus 10 cents for paper mailings to brokers’ clients. Revenues have steadily risen since 2017 at an average rate of 4.67%, while net income has risen 12.9% per year.
As of June financial data this year, they have seen $5 billion growth in revenue, with operating margin at 18% of revenues, a seemingly healthy margin. Photo courtesy of FT.
Broadridge, NFTs, or something else, it still begs the question: caveat emptor or caveat venditor?
Not Financial Times (NFT) is an Opinion column written and created by Roshni Revankar ’22 to share insights and research into her favorite companies, industry trends, and anything in financial markets that really irks her curiosity.
Be First to Comment