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Not surprisingly Matt Levine has already summarized the article in his succinct style. https://www.bloomberg.com/view/articles/2016-08-22/mirror-trades-and-tax

Not surprisingly Matt Levine has already summarized the article in his succinct style. https://www.bloomberg.com/view/articles/2016-08-22/mirror-trades-and-tax-tricks https://www.bloomberg.com/view/articles/2016-08-22/mirror-tr... If you are into Michael Lewis like books, there is a good book called the Quants that follows the path of 5 people in finance. One of them is Boaz Weinstein who became the youngest director ever at Deutsche and whose group made over billion one year as derivatives traders. The bank has been cleaning up the mess he left ever since. It failed last years banking stress test in no small part to Deutsche's involvement in the derivatives market. The IMF just named them as the most important net contributor to systemic risks, followed by HSBC and Credit Suisse. So next time someone tells you that american banks are responsible for screwing up the world. Point them at the Germans and the Swiss :) http://www.zerohedge.com/news/2016-06-29/imf-deutsche-bank-poses-greatest-risk-global-financial-system http://www.zerohedge.com/news/2016-06-29/imf-deutsche-bank-p...

deleted 10y ago
[deleted]
astrocat 10y ago
Matt Levine is always an immense pleasure to read.
- tomcam 10y ago
  Did not know about him before. Thanks!
hkmurakami 10y ago
The author of "Quants" also wrote "Dark Pools" for those who might be interested.
oxryly1 10y ago
So, how do they move the stock? Bags of stock certificates on international flights? It seems that shifting stock between business units might incur taxes or other regulatory concerns.
- jsmeaton 10y ago
  As far as I understand it it's a little like transferring electronic funds between accounts. The brokerage or exchange is the actual owner of the shares, but moves them electronicly between various accounts. Which leads to some weird voting rules.
- twistedpair 10y ago
  Equities and other securities are usually held in street name[1], not the current owner's name, and they are not physically moved around, but rather consolidated at clearinghouses. [1] http://www.investopedia.com/ask/answers/185.asp http://www.investopedia.com/ask/answers/185.asp
- JumpCrisscross 10y ago
  > So, how do they move the stock? In all likelihood, they never do. Russia Account buys $10MM of Stock in rubles; England Account sells $10MM of Stock in pounds sterling. Presumably England Account sold short, meaning it pays interest on its borrowed stock. Other than that, there is no carrying cost to maintaining the arrangement. Worst case: you deal with it if you're caught in a short squeeze. If these securities were bought on different exchanges, e.g. Russia Account bought the Russia-listed stock and England account bought the UK-listed version, they may never be directly reconcilable. One would have to negotiate "special delivery" off exchange with willing counterparties [1]. Otherwise, one could demand stock certificates in Russia, mail them to the UK, and deposit them in England Account to close out the short position. That seems like a lot of trouble to avoid paying short interest. Worst case: after withdrawing funds from England Account let it default on its short obligation if the price goes up, thus leaving Deutsche Bank to sort out the mess of reconciling England Account's loss with Russia Account's offsetting (hopefully) gain. [1] Actually, doing this on exchange seems sloppy. Sure, you get a bit more liquidity. But that doesn't seem like something you'd be worried about when putting in place a structure you expect to leave be into perpetuity. Doing this in the private, i.e. un-registered securities, markets would leave less of a paper trail and make moving the securities easier.
  - prostoalex 10y ago
binarray2000 10y ago
(Disclaimer: I am writing about 0.1% of Americans/Germans, not about 99.9%. And I assume you do to.) > So next time someone tells you that american banks are responsible for screwing up the world. Point them at the Germans and the Swiss :) Yes, that sounds plausable when we read the OP. And I am not here to defend Germans, but the largest shareholder of DB are Americans at BlackRock: https://www.db.com/ir/en/shareholder-structure.htm https://www.db.com/ir/en/shareholder-structure.htm (6.05% held by BlackRock Inc., New York)
- prostoalex 10y ago
  BlackRock is a provider of financial instruments (such as popular iShares ETFs) http://quicktake.morningstar.com/fundfamily/blackrock/0C000034YC/fund-list.aspx http://quicktake.morningstar.com/fundfamily/blackrock/0C0000... and is unlikely to call the shots at Deutsche beyond adhering to its voting guidelines during annual corporate elections.
  - Ntrails 10y ago
    As I understand it BlackRock signed up to the Stewardship Code - designed to ensure that asset managers take a role in the companies in which they hold significant interests. Ignoring/avoiding their responsibilities is not ok
  - MagnumOpus 10y ago
    No ETF or fund holder votes their proxy. So it falls to the Blackrocks, Vanguards and Fidelitys of the world to hold self-serving corporate boards to account.
jokoon 10y ago
Did deutsche bank bundled those subprime loans? Why are you faulting those banks?
rando444 10y ago
> So next time someone tells you that american banks are responsible for screwing up the world. I think you know this, but Boaz Weinstein is an American who worked for Deutsche Bank, in America.

deleted 10y ago

[deleted]

astrocat 10y ago

Matt Levine is always an immense pleasure to read.

tomcam 10y ago
Did not know about him before. Thanks!

hkmurakami 10y ago

The author of "Quants" also wrote "Dark Pools" for those who might be interested.

oxryly1 10y ago

So, how do they move the stock? Bags of stock certificates on international flights? It seems that shifting stock between business units might incur taxes or other regulatory concerns.

jsmeaton 10y ago
As far as I understand it it's a little like transferring electronic funds between accounts. The brokerage or exchange is the actual owner of the shares, but moves them electronicly between various accounts. Which leads to some weird voting rules.
twistedpair 10y ago
Equities and other securities are usually held in street name[1], not the current owner's name, and they are not physically moved around, but rather consolidated at clearinghouses. [1] http://www.investopedia.com/ask/answers/185.asp http://www.investopedia.com/ask/answers/185.asp
JumpCrisscross 10y ago
> So, how do they move the stock? In all likelihood, they never do. Russia Account buys $10MM of Stock in rubles; England Account sells $10MM of Stock in pounds sterling. Presumably England Account sold short, meaning it pays interest on its borrowed stock. Other than that, there is no carrying cost to maintaining the arrangement. Worst case: you deal with it if you're caught in a short squeeze. If these securities were bought on different exchanges, e.g. Russia Account bought the Russia-listed stock and England account bought the UK-listed version, they may never be directly reconcilable. One would have to negotiate "special delivery" off exchange with willing counterparties [1]. Otherwise, one could demand stock certificates in Russia, mail them to the UK, and deposit them in England Account to close out the short position. That seems like a lot of trouble to avoid paying short interest. Worst case: after withdrawing funds from England Account let it default on its short obligation if the price goes up, thus leaving Deutsche Bank to sort out the mess of reconciling England Account's loss with Russia Account's offsetting (hopefully) gain. [1] Actually, doing this on exchange seems sloppy. Sure, you get a bit more liquidity. But that doesn't seem like something you'd be worried about when putting in place a structure you expect to leave be into perpetuity. Doing this in the private, i.e. un-registered securities, markets would leave less of a paper trail and make moving the securities easier.
- prostoalex 10y ago

binarray2000 10y ago

(Disclaimer: I am writing about 0.1% of Americans/Germans, not about 99.9%. And I assume you do to.) > So next time someone tells you that american banks are responsible for screwing up the world. Point them at the Germans and the Swiss :) Yes, that sounds plausable when we read the OP. And I am not here to defend Germans, but the largest shareholder of DB are Americans at BlackRock: https://www.db.com/ir/en/shareholder-structure.htm https://www.db.com/ir/en/shareholder-structure.htm (6.05% held by BlackRock Inc., New York)

prostoalex 10y ago
BlackRock is a provider of financial instruments (such as popular iShares ETFs) http://quicktake.morningstar.com/fundfamily/blackrock/0C000034YC/fund-list.aspx http://quicktake.morningstar.com/fundfamily/blackrock/0C0000... and is unlikely to call the shots at Deutsche beyond adhering to its voting guidelines during annual corporate elections.
- Ntrails 10y ago
  As I understand it BlackRock signed up to the Stewardship Code - designed to ensure that asset managers take a role in the companies in which they hold significant interests. Ignoring/avoiding their responsibilities is not ok
- MagnumOpus 10y ago
  No ETF or fund holder votes their proxy. So it falls to the Blackrocks, Vanguards and Fidelitys of the world to hold self-serving corporate boards to account.

jokoon 10y ago

Did deutsche bank bundled those subprime loans? Why are you faulting those banks?

rando444 10y ago

> So next time someone tells you that american banks are responsible for screwing up the world. I think you know this, but Boaz Weinstein is an American who worked for Deutsche Bank, in America.