One particular section of Chapter 3 caught Bloom’s attention. There, the SEC suggested that “an alternative approach be examined” and posited that if well-capitalized specialists and supplementary market makers could have turned to a single “product” for trading baskets of stocks, the market damage—and volatility—may have been significantly smaller. Indeed, such a product might even have prevented the crash by providing a liquidity buffer between the futures market and individual stocks. “I walked into Nate’s office and said, ‘Here’s an opening we could drive a truck through,’ ” Bloom says. ... Of course, today we do have what the report refers to as basket-trading products. We call them exchange-traded funds, or ETFs, and they’re a $3 trillion global industry, with more than 6,780 products on 60 exchanges to choose from. In the U.S. last year, ETFs traded about $20 trillion worth of shares—more than the country’s gross domestic product. ... “We were essentially reverse-engineering what the SEC called for in their report,” Bloom says. “We viewed it as a product proposal being made by the regulators.”
Volatility was once merely a mathematical measure for investors of how sharply markets moved. Today, volatility is a complex multibillion-dollar market in its own right, played by everyone from sophisticated hedge funds to gum-chewing day traders. ... But Vix is also one of the finance industry’s biggest enigmas. This should be a moment of potential peril for markets, with US interest rates rising, heightened geopolitical tension and a populist outsider in the White House. Yet Vix has remained largely tranquil. ... the evaporation of volatility also reflects profound structural changes that have taken place since the financial crisis, such as the primacy of central banks and the big shift into exchange traded funds. ... the index’s inventor is unhappy about, given structural flaws that make these products ill-suited for retail investors. Constantly buying new futures is costly, and Vix futures are typically in “contango”, when longer-term contracts are more expensive than near-term ones. In practice this means that Vix ETPs are most of the time slowly bleeding to death.
Talking Tom Cat was an instant hit, launching a franchise whose titles have reached No. 1 in more than 100 countries on the App Store. Today, almost 350 million monthly active users support the apps, and Tom’s YouTube channel has more than 2 billion views. Unlike many mobile app creators, the Logins have proved adept at turning popularity into profit. Playing Talking Tom triggers an onslaught of advertising and in-game purchase offers, and Outfit7 earns more than $100 million a year. In early 2016 the Logins decided to cash out, hiring Goldman Sachs Group Inc. to find the most lucrative deal. ... The industrialists were willing to match the Logins’ asking price of $1 billion and let their team maintain autonomy. Samo and Iza signed away their company—having never taken money from outside investors, their stake was worth about $600 million. ... It’s hard to see the synergies between a maker of chemical solvents and a digital cat perched over a toilet. And curiously, the buyer, which had recently been renamed Zhejiang Jinke Entertainment Culture Co., had revenue of only $133 million in 2016, according to Bloomberg data pulled from regulatory filings, and its gross profit was $55 million. Jinke won’t say where the money to buy Outfit7 came from. ... The deal activity can best be understood as a consequence of quirks in the Chinese stock market. In China, industrial companies trade at valuations they’d never receive elsewhere in the world. ... some may trade at as much as 100 times their annual earnings—more than four times the multiple of General Electric Co. This means they can acquire companies at what is effectively a discount. ... Chinese companies are betting that by adding game studios that have better margins than a stodgy industrial business, their stock price will rise.