Category: Operational Risk

SEC Sues Morningstar’s Former Credit Ratings Agency

Mary Pat Campbell

Link: https://www.thinkadvisor.com/2021/02/17/sec-sues-morningstars-former-credit-ratings-agency/

Excerpt:

In a rebuke to the SEC lawsuit, Morningstar issued a press release on Feb. 17, saying that MCR “complied with the regulatory requirements in question” while the SEC’s position is “inconsistent with its own rules and … policies” and that the agency has “overstepped its regulatory limitations by imposing requirements that would regulate the substance of credit rating methodologies.”

In an accompanying position paper, Morningstar said that by questioning MCR’s use of qualitative factors in its legacy CMBS ratings model, the SEC is “attempting to dictate the substance of MCR’s rating methodology,” which it is prohibited to do by law. “If the SEC believes additional rules are required — consistent with the analytical independence of a credit rating agency — the agency should go through the rule-making process, not file an action against MCR.”

Author(s): Bernice Napach

Publication Date: 17 February 2021

Publication Site: Think Advisor

Recovering from the SolarWinds hack could take 18 months

Mary Pat Campbell

Link: https://www.technologyreview.com/2021/03/02/1020166/solarwinds-brandon-wales-hack-recovery-18-months/

Excerpt:

Brandon Wales, the acting director of CISA, the US Cybersecurity and Infrastructure Agency, says that it will be well into 2022 before officials have fully secured the government networks compromised by Russian hackers. The list includes at least nine federal agencies, including the Department of Homeland Security and the State Department. Even fully understanding the extent of the damage will take months.

“I wouldn’t call this simple,” Wales says. “There are two phases for response to this incident. There is the short-term remediation effort, where we look to remove the adversary from the network, shutting down accounts they control, and shutting down entry points the adversary used to access networks. But given the amount of time they were inside these networks—months—strategic recovery will take time.”

Author(s): Patrick Howell O’Neill

Publication Date: 2 March 2021

Publication Site: MIT Technology Review

Covid-19 Vaccine ‘Passports’ Raise Ethics Concerns, Logistical Hurdles

Mary Pat Campbell

Link: https://www.wsj.com/articles/covid-19-vaccine-passports-raise-ethics-concerns-logistical-hurdles-11614335403

Excerpt:

In Israel, a vaccine passport was launched last week allowing those who are inoculated to go to hotels and gyms. Saudi Arabia now issues an app-based health passport for those inoculated, while Iceland’s government is doling out vaccine passports to facilitate foreign travel. Last month, President Biden issued executive orders asking government agencies to assess the feasibility of creating digital Covid-19 vaccination certificates.

Proponents of the plans say they will enable battered economies to reopen, even as vaccines are still being rolled out, allowing people to enjoy leisure activities and go to work safe in the knowledge they aren’t harming others or at risk themselves. It could also act as an incentive for people to get the shot.

The concept is potentially fraught with pitfalls. It could discriminate against minority communities, who are less likely to accept the vaccines, according to national surveys, or young people, who are less likely to be given priority to receive them.There are questions about the ethics of granting businesses access to peoples’ health records.

Author(s): Max Colchester, Felicia Schwartz

Publication Date: 26 February 2021

Publication Site: Wall Street Journal

State’s Vaccine Plan Failed, Causing Disorder and Mistrust

Mary Pat Campbell

Link: https://www.governing.com/next/States-Vaccine-Plan-Failed-Causing-Disorder-and-Mistrust.html

Excerpt:

In the months leading up to the first COVID-19 vaccine shipments, Washington state health officials agonized over which residents should be vaccinated before others. They surveyed 18,000 people and convened focus groups, debating race, age and essential occupations.

But unlike some other states, the state Department of Health (DOH) neglected to plan for basic logistics that would have allowed for quick vaccination of those most vulnerable to the disease.

They didn’t enlist the National Guard. They didn’t centralize vaccine appointments. Key scheduling and reporting software arrived late. Providers were given vials but no strategy to process patients.

Author(s): MIKE REICHER, THE SEATTLE TIMES

Publication Date: 16 February 2021

Publication Site: Governing

GameStop Craze Puts Holders of Retail ETF on Wild Ride

Mary Pat Campbell

Link: https://www.wsj.com/articles/gamestop-craze-puts-holders-of-retail-etf-on-wild-ride-11613923200

Excerpt:

GameStop mania has spilled over into a popular exchange-traded fund, as the WallStreetBets craze reaches beyond shares favored on social media.

The fund, State Street ’s SPDR S&P Retail ETF, was created in 2006 to give investors broad exposure to mall-store firms. Its shares have surged 23% this year, far outstripping a 4% gain in the S&P 500, despite the uncertain outlook for retail. Behind those gains are the traders who congregate on social-media platforms such as Reddit’s WallStreetBets forum and whose enthusiasm has turned this mundane investment into a roller coaster.

On Jan. 27, GameStop soared 135%, driven by events such as Tesla Inc. Chief Executive Elon Musk tweeting “Gamestonk.” The State Street fund jumped 42% the same day. The next day, GameStop shares tumbled 44% and the fund, known by its ticker XRT, dropped about 9%.

Author(s): Michael Wursthorn

Publication Date: 21 February 2021

Publication Site: Wall Street Journal

Former SolarWinds CEO blames intern for ‘solarwinds123’ password leak

Mary Pat Campbell

Link: https://www.cnn.com/2021/02/26/politics/solarwinds123-password-intern/index.html

Excerpt:

Current and former top executives at SolarWinds are blaming a company intern for a critical lapse in password security that apparently went undiagnosed for years.

The password in question, “solarwinds123,” was discovered in 2019 on the public internet by an independent security researcher who warned the company that the leak had exposed a SolarWinds file server.

Several US lawmakers ripped into SolarWinds for the password issue Friday, in a joint hearing by the House Oversight and Homeland Security committees.

“I’ve got a stronger password than ‘solarwinds123’ to stop my kids from watching too much YouTube on their iPad,” said Rep. Katie Porter. “You and your company were supposed to be preventing the Russians from reading Defense Department emails!”

Author(s): Brian Fung and Geneva Sands

Publication Date: 26 February 2021

Publication Site: CNN

The R Inferno

Mary Pat Campbell

Link: https://www.burns-stat.com/pages/Tutor/R_inferno.pdf

Graphic:

Abstract: If you are using R and you think you’re in hell, this is a map for
you.

Excerpt:

I wandered through
http://www.r-project.org.

To state the good I found there, I’ll also say what else I saw.

Having abandoned the true way, I fell into a deep sleep and awoke in a deep dark wood. I set out to escape the wood, but my path was blocked by a lion. As I fled to lower ground, a figure appeared before me. “Have mercy on me, whatever you are,” I cried, “whether shade or living human.”

Author(s): Patrick Burns

Publication Date: 30 April 2011

Publication Site: Burns Statistics

Facebook political ad ban blocks pro-vaccine messages

Mary Pat Campbell

Link: https://www.politico.com/news/2021/02/21/facebook-ad-pro-vaccine-ban-470304?mc_cid=ca5c411eb5&mc_eid=983bcf5922

Excerpt:

Facebook’s efforts to police online ads for vaccine misinformation are unintentionally blocking messages from cities, health care providers and community and faith-based groups promoting Covid shots.

Paid-for messages from at least 110 groups aimed at raising awareness of how the vaccines work or where to get inoculated were flagged and sent to Facebook’s register of political messages, a POLITICO review of barred ads dating from last September shows.

….

Facebook acknowledged that it’s misidentified some ads and said it was restoring two — from the Centers for Disease Control and the Forsyth County, N.C. department of public health — to the ad rotation.

Author(s): DARIUS TAHIR

Publication Date: 21 February 2021

Publication Site: Politico

Federal Reserve Financial-Services Systems Disrupted for Hour

Mary Pat Campbell

Link: https://www.wsj.com/articles/federal-reserve-reports-several-business-lines-disrupted-by-operational-error-11614194912

Excerpt:

One of the services taken offline was the Fedwire Funds Service, which the Fed describes as “the premier electronic funds-transfer service that banks, businesses and government agencies rely on for mission-critical, same-day transactions.” Entities use the service to send or receive payments, settle positions with other financial institutions and to submit tax payments, among other activities.

Also affected were FedACH, an automated clearinghouse network that enables debit and credit transactions, and Fedwire Securities, which provides transfer and settlement services for securities issued by the U.S. Treasury, government agencies and government-sponsored housing enterprises.

The first service to be restored — at 2:17 p.m. ET — was the Fed’s central bank programs, which include setting interest rates and allowing financial institutions to review and manage the money they hold at the Fed, called reserves. Fedwire and FedACH were back shortly before 3 p.m.

Author(s): Paul Kiernan and Orla McCaffrey

Publication Date: 24 February 2021

Publication Site: Wall Street Journal

Robinhood and Redditors: Who’s robbin’ who?

Mary Pat Campbell
Robinhood and Redditors: Who’s robbin’ who?

Excerpt:

Robinhood is a broker. It is a FINRA-regulated broker-dealer. It relies on a clearing house to clear its transactions. The clearing house it uses is the National Securities Clearing Corporation (NSCC), which is a subsidiary of the Depository Trust & Clearing Corporation (DTCC). Thus, Robinhood is a “member” of NSCC. The NSCC is a “designated financial market utility” as defined in the 2010 Dodd-Frank Act. Thus, it is “a financial market utility that the Council has designated as a systemically important.” (“The Council” is a regulatory body created by Dodd-Frank. Its ten voting members include the Treasury Secretary, the Fed chair, and the comptroller of the currency.) NSCC is a provider of “financial market infrastructure” (FMI). As such, it must publicly promulgate rules for the computation of the “Clearing Fund” every “member” must maintain with it. While the FMI is responsible for designing its own rules for determining the clearing fund, they are subject to approval or rejection by the regulatory authorities. In particular, the SEC may prohibit any changes NSCC wants to make in its formula for computing the clearing fund of each member. The Bank for International Settlements (BIS) has promulgated a set of “principles” that member states should adhere to in regulating payment and settlement systems. These include, “An FMI should maintain sufficient financial resources to cover its credit exposure to each participant fully with a high degree of confidence.” 

Thus, the regulatory authorities require clearing houses to require members to keep a risk-adjusted balance with them as a guard against credit risk. In the case of Robinhood, the short squeeze drove this formulaic value up sharply. Robinhood didn’t really have much of a choice about how to respond. It had to both pony up more money for the clearing fund and act to hold off (to the extent possible) further increases in it. Robinhood had to borrow a lot of money to maintain its clearing fund.

Author(s): Roger Koppl

Publication Date: 2 February 2021

Publication Site: EconLib

What Wall Street’s ‘Short Squeeze’ Means for Investors and Regulators

Mary Pat Campbell

Link: https://knowledge.wharton.upenn.edu/article/what-wall-streets-short-squeeze-means-for-investors-and-regulators/

Excerpt:

The consternation over the stock price surges at GameStop and AMC is rooted in their disconnect with their financial performance – both companies are losing money, made worse by the pandemic lockdowns.

The other shoe is yet to drop for those who bid up the share price of GameStop, according to Indarte. “I think we’re going to see more pain felt potentially by the retail investors that are in effect bidding up the price of GameStop,” she predicted. “It’s hard to justify the prices that we’ve been seeing for the company, based on the company’s fundamentals.” In the latest quarter, GameStop reported a 30% fall in revenues to $1 billion and a loss of $18.8 million. Similarly, AMC has also shuttered most of its theaters, and recently secured $917 million in financing to stave off bankruptcy.

In addition to the soundness of its fundamentals, a company’s stock price can also be driven by investor sentiment, “but there is large heterogeneity between different companies for the importance of both,” according to Binsbergen. Much of the price discovery depends on the liquidity and the total market capitalization of the stock, he noted. Small and illiquid stocks are more susceptible to non-fundamental price movements than larger stocks, he explained.

Author(s): Jules H. van Binsbergen, Sasha Indarte

Publication Date: 29 January 2021

Publication Site: Knowledge @ Wharton

Robinhood, Citadel CEOs Grilled by Lawmakers in Wake of GameStop Saga

Mary Pat Campbell

Link: https://www.wsj.com/articles/robinhood-citadel-others-prepare-for-the-gamestop-spotlight-in-washington-11613655854?mod=djemwhatsnews

Excerpt:

Robinhood Markets Inc. Chief Executive Officer Vlad Tenev offered an apology for the company’s decision to temporarily curb trading in some stocks, including GameStop Corp. , on Jan. 28 amid extraordinary volatility.

“Despite the unprecedented market conditions in January, at the end of the day, what happened is unacceptable to us,” Mr. Tenev said after being questioned at a congressional hearing Thursday.

His apology came after House Financial Services Committee Chairwoman Maxine Waters (D., Calif.) interrupted the Robinhood CEO during his opening remarks. Her request was unusual as witnesses are allowed to make opening statements before taking questions from lawmakers.

Author(s): Paul Kiernan and Peter Rudegeair

Publication Date: 18 February 2021

Publication Site: Wall Street Journal