NEW YORK (Reuters Blogs) -- If you want a good test of whether someone is an ideologue on the subject of bank prosecutions, just have them look at the recent agreement between Eric Schneiderman, the New York attorney general, and BlackRock. If they think it makes perfect sense, and that Schneiderman should have pursued this line of prosecution, and that BlackRock has been behaving badly, then they will never find a bank prosecution they don't love. Because this thing is an utter farce.
To read the New York Times coverage of the deal, the problem was that BlackRock was trying to get advance inside information on analyst upgrades and downgrades:
Analysts' changing assessments on the public companies they follow can make a stock plummet or soar, so receiving such information ahead of other investors can be highly profitable for traders.
As a result, regulatory rules require brokerage firms to limit the information flow from research departments to prevent the potential for trading ahead of analyst reports.
But if you read the actual settlement document, it rapidly becomes clear that that's not what BlackRock was doing at all. Although the AG seems to be doing its very best to obscure that fact.
The entity at the heart of this settlement is a quant-shop subsidiary of BlackRock called Scientific Active Equities, or SAE, which manages an impressive $80 billion. SAE, like all quant shops, constantly monitors a large number of information streams, and then trades when the streams display certain pre-set characteristics. It's basically a set of if-then rules: various patterns trigger various different buy or sell orders.