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Jay Clayton on uptick rule: Leon Cooperman right to be worried

Jay Clayton on uptick rule: Leon Cooperman right to be worried

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SEC-uptick rule SEC Chairman Jay Clayton coronavirus-driven volatility

 

CNBC transcript: SEC Chairman Jay Clayton speaks with CNBC’s Andrew Ross Sorkin on “Squawk Box” today on implementing uptick rule, the coronavirus-driven volatility and much more

WHEN: Today, Monday, March 30, 2020

 

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SEC Chairman Jay Clayton On the uptick rule

All references must be sourced to CNBC.

ANDREW ROSS SORKIN: Meantime, the New York Stock Exchange begins its second straight week of all electronic trading. And joining us right now on the phone is SEC Chairman Jay Clayton. Chairman, it’s good to have you on the phone again. It’s been quite a week, since we last spoke. Feels almost like a bit of a different world, even. But you've now seen the world, or at least the Exchanges operate, in the case of the New York Stock Exchange, completely electronically, with nobody on the floor. What are you seeing right now?

JAY CLAYTON: Well, Andrew, good morning. And good morning to morning to Joe and Becky. We have--we did have quite a week and it was a shift, I would say the culmination of quite a shift to telework for many of our critical market infrastructures, the exchanges, our central clearing parties and the like. I have to say that we're very pleased with the -- from an operational perspective with how that shift was accomplished. Of course, a lot of that is due to what I want to thank my colleagues at the Fed, and the Treasury for their, their amazingly quick intervention in the pockets of the market that were under particular stress, particularly at the short end of the curve. I mean, now we have a lot of 30, 60 day 90 day markets, in this country. Commercial paper. There are many others I could talk about, and we have an incredible shock—an incredible economic shock that we hope is 30, 60, 90 days, and the targeted intervention of the Fed certainly helped the operational side of the ledger.

ANDREW ROSS SORKIN: Chairman, one of the questions that we've been asked repeatedly over the past week and I know it's something you've been asked, so I'm hoping you'll respond to it, is about the uptick rule. And it came up again actually on our program on Friday. Investor Leon Cooperman had called into the program and actually talked about the uptick rule and what he thought was needed. I would just want to play it to you because I do want you to respond to it because I think it's probably one of the singular questions that at least we get. And I imagine you may to about the call for reinstating the uptick rule. Here's what Lee had to say:

LEON COOPERMAN: The area that really surprises me, I'm not looking to pick a fight with the SEC. But I'm absolutely surprised that the SEC has not weighed in here. In 2007 for some unexplained reason they removed the uptick rule, which aided and abetted a lot of these quantitative trading systems that are accentuating volatility in the market you're buying strength or selling weakness, so it works both ways. Okay. Certain countries have banned short selling. I'm not in favor of any short selling. I think short selling should be allowed. But we should have this uptick rule to slow things down is scaring the hell out of the public to scaring the hell out of the professionals, okay and the SEC should weigh-in, and to do something here.

ANDREW ROSS SORKIN: Chairman, can you -- can you speak to that? Because I know it's you probably get that, you know, a dozen times a day.

JAY CLAYTON: Sure. Sure. There are two points in Lee's comments. The first is, I totally agree with him that we shouldn't be banning short selling. You need to be able to be on the short side of the market in order to facilitate ordinary market trading. That's, that's an agreement. His point on the uptick rule is, do you have undue pressure on a stock that's moving down through short selling. We don't have the old uptick rule that Lee is referring to, but we did put in place and a lot -- a lot of people know this, an alternative uptick rule. And it's a rule that I believe more closely matches the electronic trading environment of today. Let me try to explain quickly how it works. If a stock drops more than 10% from its previous day's close. And it's important, it's the previous day's close. So, if we open down 4%.

It's only another 6% to go. But if a stock drops 10% from the previous day's close for two days -- for two days, you can sell short on the bid. So, if the bid-offer spread--I'm going to use numbers that are -- that are illustrative your spreads aren't this wide-- but if a bid-offer spread is 49 to 50, you can't sell short on 49. And we believe that this rule for single stocks in combination with our market-wide circuit breakers has actually worked to dampen the type of activity that Mr. Cooperman is worried about more effectively than the old uptick rule.

Now, there'll be plenty of times to examine that in light of the unprecedented volatility we've had in the last four weeks. But that alternative uptick rule is addressing the issue that Lee is -- that Lee is worried about. And he is right to be worried about it. We need, we need market integrity, but we believe what we believe we're taking care of it with this alternative uptick rule.

ANDREW ROSS SORKIN: Chairman, one of the other things that that you've done in recent days is extended some of the deadlines for certain disclosures for companies. So many CEOs are watching this program this morning, trying to understand what the new disclosure or deadlines mean. Also, investors trying to understand it. Can you explain what's happening?

JAY CLAYTON: Sure. Andrew we're going to have an earnings season that is anything but typical. We have many of our companies who are trying to do their cash flow analysis they have they have lots of uses, and many of their sources have been impaired or dried up. They have to figure out what their liquidity position. And our investors are thirsting for that information. They want to know how they're doing from a liquidity point of view, how they're doing from an operational point of view. And now, now that we have some, and I'm going to say some, insight into another 30 days of social distancing, and then something, how are they going to operate their businesses under the current social distancing and other rules and then how are they going to operate them going forward? All of those things, investors are thirsting for. In this country we have, we have a great thing for public companies. Investors get to know how management is looking at the business, both historically and forward-looking. Now, in an environment like this, that's not easy, because there's lots of routine things and other things in addition to all of those changes in the economy that reporting is going to have to deal with. So, what did we say to companies? We said, to the extent you're unable to get your reviewed financial statements together because the auditors can't get to your locations to do physical inventory or the extent you have other problems, we're going to give you more time. But in order for us to give you that more time, you're going to have to explain as much as you can to your investors at this time, including why you need more time. So, we're trying to be flexible, recognizing that investors and our markets thirst for the kind of information that--that I hope is going on in the boardrooms, and that I expect is going on the boardrooms of most good companies. How are we going to bridge this period to the other side?

JOE KERNEN: Hey, Jay. I am trying to figure out how to ask this question in just in a -- in a generic way a lot of people, a lot of people that have positions might go on media outlets to talk about the current crisis. Is there a difference in your view in calling for calm and saying wow these stocks are really cheap and knowing that that person has a position, and is talking about, you know, it could, if the market were to go up, they would help him? Is there a difference between that and coming on and talking about the market going down if they have a position where they benefit from it going down, are both of those things okay in the current environment, do you think?

JAY CLAYTON: Joe, you know, it's America, we love opinion. You guys are doing a great job of getting different views and trying to educate the public about our markets and their operation through this period. That said, there's a line where that ends, and bad behavior begins. Now, I'm not going to go into because every, every situation is facts and circumstances dependent. But do we -- do we like it if, to use the vernacular, somebody is talking, their book, particularly if they're active in the market and aren't disclosing it? No, we don't.

JOE KERNEN: Okay.

ANDREW ROSS SORKIN: And Chair. I think that he was very politely referring to Bill Ackman. But let me -- let me ask you, and I believe in that case--

JAY CLAYTON: Andrew, let me be clear. Andrew, Andrew, I'm not referring to anybody. I'm just saying that if people have physicians they're coming on, you know, they--let me just say as a citizen. Let's put aside, let's just say the general citizen if you're coming on and talking about the markets and you have particular trading positions, you probably ought to tell people.

ANDREW ROSS SORKIN: Right. And I should say, in the case of Bill Ackman, my understanding, and I can't speak to the segment itself. But I do know that that he had publicly disclosed in writing prior to those appearances, what his position around some of those hedges were. Let me ask you a different question

JAY CLAYTON: Yeah, let me jump in there and respond more generally to Joe's question.

ANDREW ROSS SORKIN: Yeah.

JAY CLAYTON: Because our enforcement division did put out some, some guidance here. And we are in volatile market times, and when you're involved in market times and there's uncertainty, that is a time when there is a great deal of asymmetric information, and what people would call material nonpublic information. We're telling companies and market participants, look, we know it's tough. But practice good hygiene. Make sure that if you're disclosing, you're doing it broadly. Make sure that you have controls over your material nonpublic information. The public needs to know that people are continuing their commitment to integrity here.

ANDREW ROSS SORKIN: Right. To that end, let me ask you about political leaders. One of the things that's happened in the last week is and there's a report out the FBI is investigating Republican Senator Richard Burr, related to some stock trades around the coronavirus and what he may or may not have learned in his role, in his job. What is your view of politicians trading stocks, period?

JAY CLAYTON: Andrew, we have the STOCK Act. And I want to be clear I'm not commenting, and we have a very rigid policy about not commenting about whether an investigation is happening or not happening or anything. It serves the public well serves us well, and it serves people else, it's America, it's good due process. But anyone who is privy to private information about a company or about markets needs to be cautious about how they use that private information. That's sort of fundamental to our security laws and that applies to government employees, public officials, etc. And the STOCK Act codifies that.

ANDREW ROSS SORKIN: Okay. Chairman, we always appreciate you calling into the program. As this progresses, I hope that we'll be able to continue this conversation. We appreciate you joining us this morning.

What do you think of the uptick rule? Comment below

 

The post Jay Clayton on uptick rule: Leon Cooperman right to be worried appeared first on ValueWalk.

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Supreme Court Rules Public Officials May Block Their Constituents On Social Media

Supreme Court Rules Public Officials May Block Their Constituents On Social Media

Authored by Matthew Vadum via The Epoch Times (emphasis…

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5 hours ago

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March 17, 2024

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Supreme Court Rules Public Officials May Block Their Constituents On Social Media

Authored by Matthew Vadum via The Epoch Times (emphasis ours),

Public officials may block people on social media in certain situations, the Supreme Court ruled unanimously on March 15.

People leave the U.S. Supreme Court in Washington on Feb. 21, 2024. (Kevin Dietsch/Getty Images)

At the same time, the court held that public officials who post about topics pertaining to their work on their personal social media accounts are acting on behalf of the government. But such officials can be found liable for violating the First Amendment only when they have been properly authorized by the government to communicate on its behalf.

The case is important because nowadays public officials routinely reach out to voters through social media on the same pages where they discuss personal matters unrelated to government business.

“When a government official posts about job-related topics on social media, it can be difficult to tell whether the speech is official or private,” Justice Amy Coney Barrett wrote for the nation’s highest court.

The case is separate from but brings to mind a lawsuit that several individuals previously filed against former President Donald Trump after he blocked them from accessing his social media account on Twitter, which was later renamed X. The Supreme Court dismissed that case, Biden v. Knight First Amendment Institute, in April 2021 as moot because President Trump had already left office.

At the time of the ruling, the then-Twitter had banned President Trump. When Elon Musk took over the company he reversed that policy.

The new decision in Lindke v. Freed was written by Justice Amy Coney Barrett.

Respondent James Freed, the city manager of Port Huron, Michigan, used a public Facebook account to communicate with his constituents. Petitioner Kevin Lindke, a resident of Port Huron, criticized the municipality’s response to the COVID-19 pandemic, including accusations of hypocrisy by local officials.

Mr. Freed blocked Mr. Lindke and others and removed their comments, according to Mr. Lindke’s petition.

The U.S. Court of Appeals for the 6th Circuit ruled for Mr. Freed, finding that he was acting only in a personal capacity and that his activities did not constitute governmental action.

Mr. Freed’s attorney, Victoria Ferres, said during oral arguments before the Supreme Court on Oct. 31, 2023, that her client didn’t give up his rights when using social media.

“This country’s 21 million government employees should have the right to talk publicly about their jobs on personal social media accounts like their private-sector counterparts.”

The position advocated by the other side would unfairly punish government officials, and “will result in uncertainty and self-censorship for this country’s government employees despite this Court repeatedly finding that government employees do not lose their rights merely by virtue of public employment,” she said.

In Lindke v. Freed, the Supreme Court found that a public official who prevents a person from comments on the official’s social media pages engages in governmental action under Section 1983 only if the official had “actual authority” to speak on the government’s behalf on a specific matter and if the official claimed to exercise that authority when speaking in the relevant social media posts.

Section 1983 refers to Title 42, U.S. Code, Section 1983, which allows people to sue government actors for deprivation of civil rights.

Justice Barrett wrote that according to the so-called state action doctrine, the test for “actual authority” must be “rooted in written law or longstanding custom to speak for the State.”

“That authority must extend to speech of the sort that caused the alleged rights deprivation. If the plaintiff cannot make this threshold showing of authority, he cannot establish state action.”

“For social-media activity to constitute state action, an official must not only have state authority—he must also purport to use it,” the justice continued.

“State officials have a choice about the capacity in which they choose to speak.”

Citing previous precedent, Justice Barrett wrote that generally a public employee claiming to speak on behalf of the government acts with state authority when he speaks “in his official capacity or” when he uses his speech to carry out “his responsibilities pursuant to state law.”

“If the public employee does not use his speech in furtherance of his official responsibilities, he is speaking in his own voice.”

The Supreme Court remanded the case to the 6th Circuit with instructions to vacate its judgment and ordered it to conduct “further proceedings consistent with this opinion.”

Also on March 15, the Supreme Court ruled on O’Connor-Ratcliff v. Garnier, a related case. The court’s sparse, unanimous opinion was unsigned.

Petitioners Michelle O’Connor-Ratcliff and T.J. Zane were two elected members of the Poway Unified School District Board of Trustees in California who used their personal Facebook and Twitter accounts to communicate with the public.

Respondents Christopher Garnier and Kimberly Garnier, parents of local students, “spammed Petitioners’ posts and tweets with repetitive comments and replies” so the school board members blocked the respondents from the accounts, according to the petition filed by Ms. O’Connor-Ratcliff and Mr. Zane.

But the Garniers said they were acting in good faith.

“The Garniers left comments exposing financial mismanagement by the former superintendent as well as incidents of racism,” the couple said in a brief.

The U.S. Court of Appeals for the 9th Circuit found in favor of the Garniers, holding that elected officials using social media accounts were participating in a public forum.

The Supreme Court ruled in a three-page opinion that because the 9th Circuit deviated from the standard the high court articulated in Lindke v. Freed, the 9th Circuit’s decision must be vacated.

The case was remanded to the 9th Circuit “for further proceedings consistent with our opinion” in the Lindke case, the Supreme Court stated.

Tyler Durden Sun, 03/17/2024 - 22:10

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Home buyers must now navigate higher mortgage rates and prices

Rates under 4% came and went during the Covid pandemic, but home prices soared. Here’s what buyers and sellers face as the housing season ramps up.

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March 17, 2024

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Springtime is spreading across the country. You can see it as daffodil, camellia, tulip and other blossoms start to emerge. 

You can also see it in the increasing number of for sale signs popping up in front of homes, along with the painting, gardening and general sprucing up as buyers get ready to sell. 

Which leads to two questions: 

  • How is the real estate market this spring? 
  • Where are mortgage rates? 

What buyers and sellers face

The housing market is bedeviled with supply shortages, high prices and slow sales.

Mortgage rates are still high and may limit what a buyer can offer and a seller can expect.  

Related: Analyst warns that a TikTok ban could lead to major trouble for Apple, Big Tech

And there's a factor not expected that may affect the sales process. Fixed commission rates on home sales are going away in July.

Reports this week and in a week will make the situation clearer for buyers and sellers. 

The reports are:

  • Housing starts from the U.S. Commerce Department due Tuesday. The consensus estimate is for a seasonally adjusted rate of about 1.4 million homes. These would include apartments, both rentals and condominiums. 
  • Existing home sales, due Thursday from the National Association of Realtors. The consensus estimate is for a seasonally adjusted sales rate of about 4 million homes. In 2023, some 4.1 million homes were sold, the worst sales rate since 1995. 
  • New-home sales and prices, due Monday from the Commerce Department. Analysts are expecting a sales rate of 661,000 homes (including condos), up 1.5% from a year ago.

Here is what buyers and sellers need to know about the situation. 

Mortgage rates will stay above 5% 

That's what most analysts believe. Right now, the rate on a 30-year mortgage is between 6.7% and 7%. 

Rates peaked at 8% in October after the Federal Reserve signaled it was done raising interest rates.

The Freddie Mac Primary Mortgage Market Survey of March 14 was at 6.74%. 

Freddie Mac buys mortgages from lenders and sells securities to investors. The effect is to replenish lenders' cash levels to make more loans. 

A hotter-than-expected Producer Price Index released that day has pushed quotes to 7% or higher, according to data from Mortgage News Daily, which tracks mortgage markets.

Home buyers must navigate higher mortgage rates and prices this spring.

TheStreet

On a median-priced home (price: $380,000) and a 20% down payment, that means a principal and interest rate payment of $2,022. The payment  does not include taxes and insurance.

Last fall when the 30-year rate hit 8%, the payment would have been $2,230. 

In 2021, the average rate was 2.96%, which translated into a payment of $1,275. 

Short of a depression, that's a rate that won't happen in most of our lifetimes. 

Most economists believe current rates will fall to around 6.3% by the end of the year, maybe lower, depending on how many times the Federal Reserve cuts rates this year. 

If 6%, the payment on our median-priced home is $1,823.

But under 5%, absent a nasty recession, fuhgettaboutit.

Supply will be tight, keeping prices up

Two factors are affecting the supply of homes for sale in just about every market.

First: Homeowners who had been able to land a mortgage at 2.96% are very reluctant to sell because they would then have to find a home they could afford with, probably, a higher-cost mortgage.

More economic news:

Second, the combination of high prices and high mortgage rates are freezing out thousands of potential buyers, especially those looking for homes in lower price ranges.

Indeed, The Wall Street Journal noted that online brokerage Redfin said only about 20% of homes for sale in February were affordable for the typical household.

And here mortgage rates can play one last nasty trick. If rates fall, that means a buyer can afford to pay more. Sellers and their real-estate agents know this too, and may ask for a higher price. 

Covid's last laugh: An inflation surge

Mortgage rates jumped to 8% or higher because since 2022 the Federal Reserve has been fighting to knock inflation down to 2% a year. Raising interest rates was the ammunition to battle rising prices.

In June 2022, the consumer price index was 9.1% higher than a year earlier. 

The causes of the worst inflation since the 1970s were: 

  • Covid-19 pandemic, which caused the global economy to shut down in 2020. When Covid ebbed and people got back to living their lives, getting global supply chains back to normal operation proved difficult. 
  • Oil prices jumped to record levels because of the recovery from the pandemic recovery and Russia's invasion of Ukraine.

What the changes in commissions means

The long-standing practice of paying real-estate agents will be retired this summer, after the National Association of Realtors settled a long and bitter legal fight.

No longer will the seller necessarily pay 6% of the sale price to split between buyer and seller agents.

Both sellers and buyers will have to negotiate separately the services agents have charged for 100 years or more. These include pre-screening properties, writing sales contracts, and the like. The change will continue a trend of adding costs and complications to the process of buying or selling a home.

Already, interest rates are a complication. In addition, homeowners insurance has become very pricey, especially in communities vulnerable to hurricanes, tornadoes, and forest fires. Florida homeowners have seen premiums jump more than 102% in the last three years. A policy now costs three times more than the national average.

Related: Veteran fund manager picks favorite stocks for 2024

 

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Default: San Francisco Four Seasons Hotel Investors $3 Million Late On Loan As Foreclosure Looms

Default: San Francisco Four Seasons Hotel Investors $3 Million Late On Loan As Foreclosure Looms

Westbrook Partners, which acquired the San…

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March 17, 2024

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Default: San Francisco Four Seasons Hotel Investors $3 Million Late On Loan As Foreclosure Looms

Westbrook Partners, which acquired the San Francisco Four Seasons luxury hotel building, has been served a notice of default, as the developer has failed to make its monthly loan payment since December, and is currently behind by more than $3 million, the San Francisco Business Times reports.

Westbrook, which acquired the property at 345 California Center in 2019, has 90 days to bring their account current with its lender or face foreclosure.

Related

As SF Gate notes, downtown San Francisco hotel investors have had a terrible few years - with interest rates higher than their pre-pandemic levels, and local tourism continuing to suffer thanks to the city's legendary mismanagement that has resulted in overlapping drug, crime, and homelessness crises (which SF Gate characterizes as "a negative media narrative).

Last summer, the owner of San Francisco’s Hilton Union Square and Parc 55 hotels abandoned its loan in the first major default. Industry insiders speculate that loan defaults like this may become more common given the difficult period for investors.

At a visitor impact summit in August, a senior director of hospitality analytics for the CoStar Group reported that there are 22 active commercial mortgage-backed securities loans for hotels in San Francisco maturing in the next two years. Of these hotel loans, 17 are on CoStar’s “watchlist,” as they are at a higher risk of default, the analyst said. -SF Gate

The 155-room Four Seasons San Francisco at Embarcadero currenly occupies the top 11 floors of the iconic skyscrper. After slow renovations, the hotel officially reopened in the summer of 2021.

"Regarding the landscape of the hotel community in San Francisco, the short term is a challenging situation due to high interest rates, fewer guests compared to pre-pandemic and the relatively high costs attached with doing business here," Alex Bastian, President and CEO of the Hotel Council of San Francisco, told SFGATE.

Heightened Risks

In January, the owner of the Hilton Financial District at 750 Kearny St. - Portsmouth Square's affiliate Justice Operating Company - defaulted on the property, which had a $97 million loan on the 544-room hotel taken out in 2013. The company says it proposed a loan modification agreement which was under review by the servicer, LNR Partners.

Meanwhile last year Park Hotels & Resorts gave up ownership of two properties, Parc 55 and Hilton Union Square - which were transferred to a receiver that assumed management.

In the third quarter of 2023, the most recent data available, the Hilton Financial District reported $11.1 million in revenue, down from $12.3 million from the third quarter of 2022. The hotel had a net operating loss of $1.56 million in the most recent third quarter.

Occupancy fell to 88% with an average daily rate of $218 in the third quarter compared with 94% and $230 in the same period of 2022. -SF Chronicle

According to the Chronicle, San Francisco's 2024 convention calendar is lighter than it was last year - in part due to key events leaving the city for cheaper, less crime-ridden places like Las Vegas. 

Tyler Durden Sun, 03/17/2024 - 18:05

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