Wednesday, December 31, 2008

Three brief items

1. Chicago Sun-Times solicitations.

The next best thing to a proxy fight is a consent solicitation campaign.

It is a more slow-motion, though. The shareholders seeking a material change solicit written consent to that change from more than 50% of the outstanding voting shares. This is often more difficult than winning a true proxy campaign, after all, in the case of a consent solicitation, inaction always amounts to a pro-management vote, a refusal to consent to the change.

Anyway: the Davidson Kempner hedge fund wants a new board of directors on the Sun-Times. They've sent a letter of solicitation that blames the incumbents for "the near total erosion of stockholder value."

On Thursday, December 11, the Chicago Sun-Times announced that the proxy-advisory firm Glass Lewis & Co. is taking its side.

2. Bullish report on Asian securities exchanges.

The consultancy Celent has posted a report on the Asian securities exchanges as businesses. It's pretty bullish.

The report says that a total of more than 14 trillion shares, with a value equivalent to $21 trillion US dollars, was traded on the major Asian exchanges in 2007. the top six of those exchanges account for 80% of that value.

The author of the report, Arin Ray, says: "The Asian exchange industry, following a worldwide trend, has undergone major changes in structure and governance model, and many exchanges have become publicly traded companies through demutualization. The exchanges are highly profitable and growing, with an average profitability of almost 50 percent.”

3. On Madoff.

When the Bernie Madoff story first broke I wrote here about the "payment for order flow" angle, postulating that Madoff's determined defense of that practice back in May 2000 should already have been a red flag to the observant.

I'm happy to report that I'm not the only one thinking along those lines. On December 24, the Financial Times ran a story by Greg Farrell under the headline "SEC inaction that helped fuel scheme."

The second graf of this story reads: "But it was the SEC's decision in the 1990s not to take a stand on the controversial issue of 'payment for order flow' that helped fuel the rise of Bernard Madoff Investment Securities, the successful broker-dealer operation two floors above Mr Madoff's private fund operation in Manhattan."

That way of putting it implies a government-centered way of looking at the world. There are lots of parties other than the SEC who missed this and shouldhave gotten it -- like the folks responsible for due diligence at the various institutions than invested in Madoff's operations.

Still, I do think the whole idea of payment-for-order-flow stinks. If the Madoff meltdown does help finally discredit it, that will be some slender silver lining.

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