As we approach the halfway point of 2014, here’s a quick run-down of some of the biggest ongoing stories that dominated the discussion around financial markets.
- Michael Lewis’s book Flash Boys reignited discussion about the perils of high-frequency trading, whether or not US equity markets are “rigged” and what regulators should do about it.
The decline and fall of Wall Street trading
- Once a major moneymaker for banks, new regulations and somnolent markets have hammered the profitability of the bank trading business known as fixed income, currencies, and commodities, prompting widespread downsizing of US trading desks.
The tech-stock tumble
- Amid a largely unexplained shift in sentiment, the froth in US technology stock markets fizzled fast earlier this year, prompting a sharp selloff in technology shares that disrupted what had been otherwise a successful run for tech stock IPOs.
The valuation bubble
- Giant deals involving startups—such as Facebook’s $19-billion acquisition of WhatsApp—helped drive start-up valuations to fresh heights. And it’s not just traditionally well-connected Silicon Valley venture firms that are playing the game. Mutual funds, which manage money for average folks, are playing a bigger role in helping burgeoning tech companies such as Airbnb and Uber raise tons of cash before they become publicly-traded entities, something of a departure for these large asset managers.
- Last year was marked by JPMorgan Chase’s $13-billion settlement (paywall) that helped the giant US bank put a smorgasbord of problems behind them. However, the first half of this year has been notable for other pending big settlements at Bank of America and Citigroup, as well as a raft of fines at European firms. These include an $8.9-billion fine to be announced by BNP Paribas and a separate $2.6-billion settlement by Credit Suisse, which came with rare admissions of guilt.
- M&A is booming. According to Dealogic there were $1.7 trillion worth of deals announced through mid-June, topping the $1.2 trillion announced over the same period last year. Behind much of the recent surge has been a spate of so-called tax-inversion deals, in which companies seek mergers with entities in low-tax countries in order to take advantage of a US tax loophole. The US-based medical device company Medtronic’s $42-billion merger with the Ireland-based Covidien became the largest company to seek a tax inversion. That party may be over soon though: Regulators appear acutely interested in doing something to stop the flood of corporate tax revenue out of the US.