Wall Street traders are freaked by Bloomberg message leak

Traders mostly shrugged off the Bloomberg snooping story. Then many users were alarmed when they found out messages had been posted online -- it's where many of them conduct most of their business.

By Cyrus Sanati

May 15, 2013: 12:32 PM ET 

Article from http://finance.fortune.cnn.com/

FORTUNE -- Bloomberg LP must go further to ensure their customers' sensitive data is truly secure. The company dodged a bullet last week as traders on Wall Street and in the City of London shrugged off reports that Bloomberg News journalists had access to a number of seemingly benign customer data points. But reports that confidential client messages exchanged over Bloomberg terminals had been accidentally posted online by the company have raised a fair share of eyebrows across the financial community and could ultimately threaten Bloomberg's main business, its terminal sales.

The Bloomberg terminal is an indispensable data and research tool used by the financial community to monitor the markets. One can do everything from see the pricing curve of some esoteric security, to checking airline flight prices, to reading and watching financial news. With subscription fees at around $20,000 a year per user, the terminal is also the firm's main revenue generator.

The terminal is used differently by each silo of the Street. Bloomberg sales teams have a function to monitor what their users are looking at to determine best how to structure and sell their product to each of these disparate silos. It had been around since the company's founding 30 years ago.

But news last week that journalists at Bloomberg's massive news division were using the function to snoop on financial professionals -- from investment bankers to the Chairmen of the Federal Reserve -- alarmed the media and the government. The information available to journalists, though, turned out to be relatively benign. Apparently UUID can show information on which of the 15,000 functions their clients were using along with statistics on when they last logged in.

"Nobody really cared that much that the Bloomberg reporters could see that stuff," a trader who works at a large asset management firm in London told Fortune. "It was always assumed that they could see it as some guys on the desk would start to receive calls from the Bloomberg reporters the second they logged in."

The company said on Friday that its reporters never had access to sensitive information like "securities-level data, position data [or] trading data." Bloomberg said it had cut its employees off from accessing the UUID function last month after Goldman Sachs (GS) complained that a reporter had been using the data to check on the whereabouts of a Goldman employee who hadn't logged into his terminal in some time. The company also said it was appointing a senior executive who would be "responsible for reviewing and, if necessary, enhancing protocols which among other things will continue to ensure that our news operations never have access to confidential customer data."

The Bloomberg drama would have probably ended there. The bulk of the traders and bankers Fortune spoke to over the weekend concerning this story said that the snooping scandal had become more important to journalists than the greater financial community.

But then came word Monday that a trove of Bloomberg messaging data had been found online. The data was old but contained user info, trading data, and sensitive communications between bankers, traders, and their clients. Bloomberg messenger is an email and instant messaging program. A great deal of trading and price discovery goes on in these chats -- especially in the opaque over-the-counter market. It is where essentially large parts of the financial industry conduct the bulk of their business. Bids and offers are sent between brokers and buy-side professionals, and deals are sealed all on Bloomberg chat. Bloomberg actively scans messages to help its customers seemingly keep records of their bids and offers.

"They have a system to capture your broker runs in Bloomberg and feed through into Excel," one fixed income trader told Fortune. "These runs come in every two seconds so it's a priceless tool for us."

Bloomberg employs an army of "message mining analysts" who, according to a recent job placement advertisement picked up by the Financial Times, "are responsible for ensuring that price information across Bonds, CDS, Loans and Mortgage products are properly picked up from individual messages and returned back to the client."

The key here is "returned back to the client." But with the cache of messages that were recently found online, some traders are concerned that their data isn't being handled properly and could fall into the wrong hands. There is also concern that the company may be using that information to help Bloomberg Tradebook or Bloomberg Pool, the company's growing broker-dealer and dark pool trading outfits, to gain an informational advantage over their clients.

"We give Bloomberg authorization to scan the runs but not to scan our deals," one American trader told Fortune. "If they were using that data to help their broker-dealer front-run us then I'd never use the messenger service and go back to doing all my deals on the phone."

Bloomberg's chat and messaging function is one of the stickiest parts of its terminal business as it is seen as a necessary component for various silos of the street to conduct business, especially in the fixed-income market, where the vast majority of trades are done over the counter as opposed to on an exchange. If traders go back to using the phone or start using another platform they deem to be more secure than Bloomberg messenger, then the company could see a huge drop in subscriptions. Traders in the oil and gas space, for example, never took to using Bloomberg messenger to conduct OTC trades; rather, they have always used Yahoo's free messaging system. So while Bloomberg messenger may be sticky, it isn't super glue.

Bloomberg said its clients voluntarily handed over the information, which was summarily posted online by accident several years ago. The company said it gathered the data for internal testing to improve its technology. Nevertheless the posting of the data combined with the snooping scandal has made a number of financial professionals uneasy.

"That's terrible," one hedge fund professional said upon learning that that trading data had been posted online. "If someone could see my IM [instant messages] and front-run my trades it would be a disaster."

There is also concern that Bloomberg could lose control of private text messages sent over Bloomberg chat. Financial professionals use the chat not just for trading and business but also to talk smack about everything from their bosses to their clients.

"Legal liability is a concern," a Wall Street trader told Fortune. "Nobody wants to be quoted talking about 'muppets.'" By "muppets" the trader was referring to an insult that Goldman Sachs employees in London supposedly use to describe gullible clients.

"Bloomberg itself has no right or place to use and misuse that information," a buy-side trader told Fortune. "I am vehemently opposed to this, and I think there can be very little dispute on this matter."

It could take just one broker-dealer to make the move from Bloomberg to one of its data rivals, like Thomson Reuters, to start a huge earthquake in the industry. Reuters's new Eikon terminal -- dubbed the "Bloomberg Killer" -- is arguably more user-friendly than the Bloomberg terminal and its 15,000 esoteric function codes.

So what should Bloomberg do? Apologies can get the company so far. As such, it should take bigger steps to ensure that Bloomberg's various businesses aren't sharing information both with the public and with each other. Bloomberg says it has beefed up its security measures since the trading data was posted online several years ago. But more can be done. Some traders have suggested that so-called Chinese Walls be erected around Bloomberg's various business units to prevent cross-contamination of information. Large banks have such walls erected between their investment banking and research departments. Allowing regulators or some sort of independent auditor to review, approve, and report on their security measures would also go a long way in the eyes of some traders.

"Bloomberg offers a fantastic service. and I feel if they come out strongly to assure their users this won't happen again and steps are being taken, I expect it to die down," one trader in London told Fortune. "But most commentary suggests this could plague them for some time to come -- which camp turns out to be right will largely depend on the strength of the Bloomberg response."

Cyrus Sanati

May 15, 2013: 12:32 PM ET 

Article from http://finance.fortune.cnn.com/

Seoul shares rise on revived foreign buying, autos

Mon May 13, 2013 10:17pm EDT
Article from http://www.reuters.com/article/

*Foreign buying renewed after two selling sessions

* Exporters win favour, defensives lag

May 14 (Reuters) - Seoul shares rose on Tuesday helped by a return in foreign investors and a solid rebound in auto and technology stocks, including Hyundai Motor and LG Electronics.

"Renewed foreign investor buying, encouraged by U.S. retail sales data, is boosting the market today," said Cho Seong-joon, a market analyst at NH Investment & Securities.

Cho added, however, that foreign money flows may change direction at any time, as the Vanguard Group related share sale is yet to be concluded in late June.

The Korea Composite Stock Price Index was up 1.16 percent at 1,971.27 points as of 0130 GMT.

Foreign investors were buyers of a net 95.7 billion won worth of stocks after two sessions of selling.

Data showed that U.S. retail sales unexpectedly rose in April, pointing to underlying strength in the economy.

Exporters rallied, with Kia Motors, which was the second most-heavily traded share on the main KOSPI, rising 4 percent.

Morgan Stanley was a top buyer of the shares.

Hyundai Motor shares rose 2.9 percent, poised to snap two sessions of falls, and LG Electronics advanced 2.4 percent.

Shares in Woongjin Group-related companies jumped after the Korea Exchange asked LG Chem late on Monday to clarify rumors of its interest in Woongjin Chemical.

Shares in Woongjin Holdings Co Ltd spiked 11 percent, while those in Woongjin Energy gained 3.2 percent.

Woongjin Chem shares are currently suspended from trading due to ongoing share consolidation.

LG Chem said it has mulled taking over Woongjin Chem but has not made any decision yet.

Defensive issues underperformed as demand for safer bets waned.

Shares in Lotte Chilsung, a beverage maker, fell 1.4 percent and KT&G, a tobacco-to-ginseng company, declined 0.4 percent. (Reporting by Jungyoun Park; Editing by Jacqueline Wong)

Mon May 13, 2013 10:17pm EDT
Article from http://www.reuters.com/article/

Analysis: Bullish yuan herd leaves China fundamentals in the dust

By Gabriel Wildau
SHANGHAI | Sun May 12, 2013 5:08pm EDT
Article from http://www.reuters.com/article/2013/05/12/us-china-yuan-speculation-idUSBRE94B0DL20130512

(Reuters) - Investors convinced China's currency is once again a one-way bet upward should think again: signs of slowing economic growth could cut short the yuan's rally.

Investors and companies have been pouring funds into China in recent months, helping send the yuan to a series of record highs.

But with evidence of a slowdown mounting, investors thinking of joining the rush into yuan would do well to remember 2011 and 2012, when fears of a Chinese hard landing sent the yuan, or renminbi, tumbling.

"Does this herald a return to the old status quo of one-way FX appreciation? Our medium-term answer is 'no,'" Paul Mackel, head of Asian FX research for HSBC in Hong Kong, wrote in an April 14 note to clients. The latest inflows, he wrote, were driven by financial inflows, including speculators betting the yuan will rise. "These expectations could reverse in the future should the domestic and external environments change."

A Reuters analysis of official data indicates that $181 billion in so-called "hot money" portfolio investment flows entered China in the first three months of 2013.

And that estimate may understate the true figure, since it doesn't include those inflows that many economists suspect have been disguised as trade payments.

The inflows have helped push the yuan up 1.1 percent since April. Though hardly dramatic by the standards of freely floating currencies, most analysts began the year forecasting gains of only 1 to 2 percent in 2013.

China's foreign exchange regulator responded earlier this week with new rules aimed at plugging holes in China's capital controls that punters have exploited to bet on appreciation.

The new rules spooked China's currency market: yuan traded outside China, or offshore yuan, suffered their worst one-day drop in 15 months on May 6, while yuan traded in China's more regulated currency market, or onshore yuan, fell by the most since December. But the currency quickly recovered to scale new highs on May 8 and May 9.

China's problems with hot money put it among the many emerging economies coping with the frustrations of rapid capital inflows from the United States and Europe, where central banks have pushed interest rates to record lows in an effort to revive growth, sending domestic investors in search of higher returns abroad. That has sparked concerns of a global "currency war," with central banks cutting interest rates to help keep their own currencies from rising.

In the past week, central banks in Australia and South Korea surprised markets with rate cuts, and New Zealand's central bank said it had been selling its own currency to stem its rise.

While the yuan's own exchange rate was once fixed, in 2005 China began letting its value fluctuate around a set rate. With its trade surplus ballooning and its foreign exchange earnings soaring, the question was not whether the yuan would rise or fall, but how quickly authorities would let the currency rise.

In late 2011, as fears that China's credit-boom would burst and send the economy into a sharp "hard landing," the market got its first taste of downside risk.

Even the most pessimistic forecast would have left China growing at a rate most countries would envy, but the fear of a sharp Chinese slowdown was enough to spook investors and cause a sharp drop in a seemingly unshakeable market.

Chinese companies that had sold dollars short during years when the yuan was a one-way bet rushed to buy them back, helping to speed the yuan's decline. Onshore yuan fell 1.3 percent through the first seven months of 2012, the currency's first bout of sustained declines since China's modern foreign-exchange trading system was launched in 1994.

The yuan's tumble appeared for a time to have cured the market of its faith in the yuan's perpetual ascent. But in August 2012, the market shifted again. As fears of a euro zone break-up eased and China launched a mini-stimulus program to revive growth, investors' taste for yuan returned.

When the yuan began rising anew in the fourth quarter of 2012, companies that had accumulated large dollar holdings earlier in the year scrambled to sell them, accelerating the yuan's climb. By late November, when confidence in the recovery peaked, China's onshore foreign exchange market ground to a virtual halt, as dollar bids disappeared from the market, forcing the central bank to step in to buy dollars itself.

The central bank was still buying dollars in the early months of 2013. Balance of payments data shows that it bought $157 billion in the first quarter, the most since the fourth quarter of 2010.

"Non-FDI capital flows have returned to China on improved global risk sentiment and signs of stabilization on the Chinese economy," Wang Tao, head of China economic research at UBS in Beijing, wrote in late April, using an abbreviation for foreign direct investment.

Currency traders say China-based companies have also been "over-hedging" their dollar holdings by buying forward contracts for yuan, fuelling the yuan's rise. A Reuters analysis of yuan purchases by companies shows that China-based importers and exporters are now buying yuan at the fastest pace since 2010.

But even as Chinese companies and global investors lay ever-bigger bets on the yuan's rise, worries about China's economy are stirring, threatening a 2011-style correction. GDP grew at 7.7 percent in the first quarter, down from 7.9 percent in the last three months of 2012 and well below analysts' expectations of 8.0 percent. Industrial output and fixed-asset investment also disappointed.

Purchasing managers' indexes, which gauge economic activity, also suggest China's manufacturing and service sectors were still weak in April.

If such indicators continue to disappoint, a 2011-style correction may not be far behind. The latest regulations, which target fake trade invoicing used to convert excess dollars to yuan, are also likely to bring reported export growth down to levels economists view as more realistic, given weak external demand.

That could sap confidence in China's economy and its yuan.

"It's going to be quite difficult for the renminbi spot exchange rate to appreciate much in the short-term. We think the recent moves have slightly overshot,' said Robert Minnikin, senior foreign exchange strategist at Standard Chartered in Hong Kong. "The data is not super strong," he said. "If anything, there's a risk that we could see a bounce in dollar-CNY."

(Editing by Wayne Arnold)

Gabriel Wildau
SHANGHAI | Sun May 12, 2013 5:08pm EDT
Article from http://www.reuters.com/article/2013/05/12/us-china-yuan-speculation-idUSBRE94B0DL20130512