Chaos Factor: ARKF, 10Q, 10%

Summary

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Money Stuff: The Podcast

Episode: Chaos Factor: ARKF, 10Q, 10%
Date: September 19, 2025
Hosts: Matt Levine (Bloomberg Opinion) & Katie Greifeld (Bloomberg News)

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Episode Overview

This episode of "Money Stuff: The Podcast" dives into three central topics swirling through Wall Street and financial markets:

1. The mechanics and recent quirks in ARK Innovation ETF’s (ARKF) heartbeat trades and IPO allocations.
2. The debate over U.S. corporate earnings reporting frequency and its possible shift from quarterly (10Q) to semiannual (every six months) disclosures.
3. The recent boom in structured products, especially those promising high fixed returns or unique “autocallable” structures.

With Matt's signature blend of technical explanation and wit and Katie’s direct, news-anchor style, the episode unpacks complex market dynamics, critiques market practices, and debates regulatory mooted changes—all while maintaining an accessible and lively conversation.

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Key Discussion Points & Insights

1. ARK Innovation ETF – Heartbeat Trades & IPO Arbitrage

Background on Heartbeat Trades & ARK's IPO Activity

• Heartbeat trades involve dramatic, short-term inflows and outflows in an ETF, often coinciding with desirable new allocations (like hot tech IPOs).
• ARK (run by Cathie Wood), as an active ETF manager and celebrity tech investor, sometimes gets small allocations in hot tech IPOs, drawing creative arbitrageurs.

The Arbitrage Strategy

• Investors seeking only the IPO pop (not the rest of the ETF) attempt to isolate that exposure by:
  • Borrowing all the underlying stocks in the ETF and delivering them to the ETF provider to create shares.
  • Selling short all underlying stocks, holding the ETF during the IPO pop, then unwinding the position.
• This is operationally complex but aims to extract just the IPO allocation's upside.

Notable Quote:

"If you're long the ETF and short all of the stocks in the ETF, you're left only with the possibility of it getting an IPO allocation and the IPO going up."
— Matt Levine (05:36)

Risks, Rewards, and Impact on Retail Investors

• The tactic is relatively low-risk for arbitrageurs: they're hedged except for the IPO pop.
• It temporarily inflates the ETF’s assets:
  • Example: "It's like a $1-ish billion ETF, and someone pumped in on the order of $700 million... basically doubling the size." — Matt Levine (10:55)
• However, this means long-term retail investors may miss out on some IPO pop because arbitrageurs extract half of the gains.

Can ARK Stop This?

• Technically difficult. ETFs are designed for creations/redemptions.
  • Direct constraints are rare; authorized participants (APs) could be pushed back, but it's not industry-standard.
• This aspect makes ETFs susceptible to such engineering.

Quote:

"The point of an ETF is like, people can create and redeem... for this to make sense, someone has borrowed a big package of the underlying, delivered it to the ETF and gotten out these shares. Which is why you see this heartbeat look."
— Matt Levine (12:09)

Who’s Doing It?

• Likely a well-connected AP or a hedge fund acting via an AP. Suspects would include major ETF market makers: Hudson River, Jane Street, ABN AMRO, BofA, BNP, Virtu.

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2. The Debate Over Corporate Reporting Frequency (Quarterly vs. Semiannual)

What’s at Stake?

• Brief on-air banter about Katie’s work as a TV anchor highlights the ubiquity of quarterly earnings reporting (10Q filings).
• New political debate: Former President Trump floated (again) moving U.S. companies to six-month reporting cycles.

Key Arguments

• Transparency vs. Burden:
  • More frequent reporting increases oversight and transparency, potentially helping investors.
  • Less frequent reporting could reduce short-term thinking, possibly helping executives and encouraging more IPOs, especially from smaller or cool tech firms.
• Stock Market Dynamics:
  • Matt argues that less frequent reporting doesn’t inherently foster long-term thinking—markets price firms on long-term expectations, not just quarterly numbers.
  • Less reporting could mean more alternative data and information asymmetry, and possibly even more insider trading risk.

Quotes:

"There's no necessary reason that reporting every three months should encourage shorter-term thinking. It's just a mistake to think that investors only care about next quarter's earnings."
— Matt Levine (22:07)

"If you just stop reporting earnings, then you have less earnings volatility, you have less news-driven volatility, but you're just masking what is actually happening."
— Matt Levine (23:56)

Market Practice and Potential Effects

• In Europe: Many companies report every six months by law, but many still provide quarterly numbers.
• U.S.: Investors’ real appetite for information may not be as strong as sometimes posited—many love private markets or ETFs with daily holdings, but are happy without frequent company statements.

Quote:

"I do think there's this transparency barbell that's developed... ETFs killed mutual funds because people like to see the holdings daily. But in private markets, folks seem happy with much less."
— Katie Greifeld (28:42)

Economic and Policy Implications

• Lower reporting burdens could—at the margin—encourage more small-cap or tech IPOs.
• NASDAQ CEO Adina Friedman supports reducing public-company reporting burdens.
• Changing frequency could have subtle, unpredictable effects on market behavior.

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3. The Structured Products Boom

Context and Background

• "Structured products aren't boredom, they're storytelling." — Matt Levine (32:11)
• Their resurgence is often tied to offering retail investors complex exposure or tailored risk/reward via derivatives.

Mechanics of Structured Products

• Typical structure: Take $100 from a client, buy a Treasury bill for $96 (matures at $100), use the leftover $4 to buy weird options (e.g., S&P500 calls).
  • "Stocks that can never go down!" is the sales pitch, but the actual risk profile is complex.
• Many structured products are auto-callables, which:
  • Pay a high interest rate unless a triggering event (the market goes up sufficiently), in which case the note auto-calls and returns principal.
  • If the market crashes badly, investors can lose substantial amounts.

Quote:

“You get 10% interest every quarter unless the stock market goes up, in which case I pay it off early... One other catch is if the stock market goes down 20%, you lose all the money.”
— Matt Levine (34:28)

Why Now?

• Higher interest rates make the products more attractive: more “room” to split returns between safe investments and risky payoffs.
• Both buying and selling options can be attractive depending on macro rates.

Quote:

“There are products for all environments... If rates are low, it’s exciting to go to a customer and say, I’ll pay you 8% a year... That’s option premium, not real yield.”
— Matt Levine (36:02)

Who Buys Structured Products?

• Traditionally, they’re “sold not bought”: Clients buy them after advisor pitches, not because they wake up wanting to sell exotic options to a bank.
• Recent development: ETFs focused on structured products, so individual investors can self-serve.

Market Risks & Bank Practices

• For banks, this business is lucrative, “prints money most of the time,” but can crash violently in a market crisis when risk is mismanaged.
• Banks are now offloading more risk to hedge funds, keeping their balance sheets cleaner.

Notable quote:

"It prints money most of the time and then usually they find a way to lose money when markets are crashing."
— Matt Levine, quoting Ben Ifert (37:25)

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Notable Quotes & Memorable Moments

• Katie on chaotic trades:

  “I just want to talk about the ARK Innovation ETF and whatever the heck is going on with these IPO trades.” (03:52)

• Matt on the essence of ETF arbitrage:

  “It’s a widget you can take down and be like, I’m going to extract the IPO value out of this ETF … it’s not purely her [Cathie Wood’s] investment vehicle. It’s also a property of the market.” (14:05)

• Matt’s take on reporting cycles:

  “It is an odd thing to care about in the scheme of things. Yeah, but it marginally increases the power and reduces oversight over corporate executives.” (21:17)

• Katie on product marketing:

  “Structured products aren’t bought, they’re sold. That can apply to a myriad of things, but it also applies here.” (36:19)

• Matt summing up bank behavior:

  “Banks are now offloading their structured note risk to hedge funds because that’s what banks do with everything now.” (38:27)

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Timestamps for Key Segments

| Time | Segment | |----------|-----------------------------------------------------| | 01:35 | Host banter & show setup | | 03:52 | ARK ETF heartbeat trades & IPO arbitrage | | 10:25 | Impact on Cathie Wood, retail investors, and ARK | | 13:03 | Can ETF sponsors stop heartbeat arbitrage? | | 14:05 | ETFs as market “plumbing” | | 15:18 | Who is performing the trade? Suspect list | | 20:04 | Reporting frequency debate—quarterly versus semiannual | | 22:07 | Does frequent reporting actually promote short-termism? | | 23:56 | “Volatility laundering” & alternative data usage | | 26:30 | Would less frequent reporting change company behavior?| | 32:01 | Structured products: What and why? | | 34:28 | Mechanics of auto-callable structured notes | | 36:19 | “Structured products aren't bought, they're sold” | | 37:25 | Bank and hedge fund roles in structured products |

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Conclusion

This episode of Money Stuff Podcast provides a sharp, nuanced look at three timely intersections of market structure, regulatory policy, and financial innovation:

• How ETF design invites clever, sometimes democracy-defeating financial engineering around hot IPOs.
• The perennial regulatory and philosophical debate over how much information companies should be forced to disclose (and why).
• The cyclical but ever-inventive boom in structured products, their sales narratives, and the shifting risk between retail, banks, and hedge funds.

All delivered with deadpan, skeptical wit, and enough practical explanation for both finance professionals and curious laypeople—a clear showcase of why Money Stuff remains a must-listen for students of markets.

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Transcript

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[Matt Levine]

News so you're on vacation next week?

[Katie Greifeld]

I am. I'll be in the mountains of Colorado.

[Matt Levine]

Skiing.

[Katie Greifeld]

Yeah, you know, the snow isn't great this time of year, but you know, love of the game.

[Matt Levine]

What are we gonna do for money stuff.

[Katie Greifeld]

We should do something.

[Matt Levine]

We should have some mailbags.

[Katie Greifeld]

We should have some mailbags. I will log on to Zoom for an hour and we'll take questions from the audience.

[Matt Levine]

Okay. Not live.

[Katie Greifeld]

Not live. But that would be fun. Maybe one day.

[Matt Levine]

Right? So if you want Katie to answer questions with Matt with me, send them to us now.

[Katie Greifeld]

We need them. Should we tell them where to send questions?

[Matt Levine]

I believe it's moneypodlumberg.net Mm, that sounds right. Whoever really knows?

[Katie Greifeld]

Yeah, just yell them into the sky and it'll get to us.

[Matt Levine]

Definitely don't DM me on Twitter.

[Katie Greifeld]

Do you still go on Twitter?

[Matt Levine]

Not never, but I don't look at my notifications or DMs anymore. So I'm pretty much.

[Katie Greifeld]

It's kind of sad.

[Matt Levine]

It's really sad. This is like, you know, especially 20% of my life for years that's the thing. Like years and years during the pandemic.

[Katie Greifeld]

It scratched so many social itches. I don't know. I still go on all the time, but I don't tweet as much anymore.

[Matt Levine]

I don't. I'm not like performatively quitting, but I still like tweet my columns when I remember to, but I don't read it anymore.

[Katie Greifeld]

I used to tweet a cat. Like my Friday cat.

[Matt Levine]

I remember some of your Twitter shticks. I feel like you had good Twitter shticks.

[Katie Greifeld]

I did have good shticks.

[Matt Levine]

Do you still do it?

[Katie Greifeld]

No. And like yesterday on Fed Day, usually I tweet time for the best day of our lives with a photo of your own palette. I haven't done that in a while. Feel like, you know, no longer the.

[Matt Levine]

Best day of our lives.

[Katie Greifeld]

No, yesterday.

[Matt Levine]

Yeah, yesterday was the best day of your life.

[Katie Greifeld]

No, it was fine. I mean, they cut. They cut 25 basis points, which is pretty cool. Would have been awesome for the chaos factor if they either held rates or cut 50 basis points.

[Matt Levine]

Yeah, yeah, yeah. You want just like expectations.

[Katie Greifeld]

Want to burn the world down.

[Matt Levine]

Yeah, yeah, yeah.

[Katie Greifeld]

But I really just want to talk about.

[Matt Levine]

This is going to be. What's the first thing a clanging is transition. I just want to talk about whatever is on the piece of paper in front of me.

[Katie Greifeld]

I really want to talk about the ARK Innovation ETF and whatever the heck is going on with these IPO trades. That was pretty good.

[Matt Levine]

It's been weighing on you.

[Katie Greifeld]

It has been. Every day I wake up.

[Matt Levine]

None of that. Hello and welcome to the Money Stuff podcast, your weekly podcast where we talk about stuff related to money. I'm Matt Levine and I write the Money Stuff column for Bloomberg Opinion.

[Katie Greifeld]

And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.

[Matt Levine]

Katie, I gather that you're fascinated by Ark ETFs.

[Katie Greifeld]

I open my eyes in the morning, horizontal embedded, and I just think about heartbeat trades. Yeah, but this isn't strictly a. I.

[Matt Levine]

Don'T know exactly what the qualifications are.

[Katie Greifeld]

If you take a look at the chart of inflows and outflows, it looks like a heartbeat, but I don't think that there are taxes involved.

[Matt Levine]

It's not a tax heartbeat, but it's a different kind of heartbeat. Right. So ark runs some ETFs. Cathie Wood, famous ETF active manager. And because they're like active ETFs, and because she's a celebrity tech investor, they get to invest in hot tech IPOs, which hasn't been a thing for a long time, but it's coming back, right? There's been some hot tech IPOs, some of which have gone, gone up a lot. And so this ARK ETF gets to get smallish allocations in some hot tech IPOs. And if you think those IPOs will go up, you'll be like, oh, I'd like to invest in this ARC ETF to get my tiny slice of exposure to that. But if you're really tidy minded about it, you're like, well, I don't want all the other stuff in the ctf, I just want to this IPO exposure, I can't get the IPO exposure myself because I am not on the list of people who get allocated shares in these IPOs. But I can get exposure to the ETF because anyone can get exposure to the ETF. And then the further thought you could have is I could hedge my exposure to everything else in the ETF by for instance, shorting all of the stocks that are currently in the etf, which it discloses. So that I'd be left with. If you're long the ETF and short all of the stocks in the etf, you're left only with the possibility of it getting an IPO allocation and the IPO going up. And so it seems like people are doing some sort of trade like that. And the best way to operationalize that trade is not to buy the ETF and short the stocks. The best way to do it is to borrow all of the stocks that are in the etf, deliver them to Ark, to the ETF to create the etf, get back shares of the etf. Now you have the ETF and you're effectively short the underlying slice because you borrowed them and you know, give them to Ark. And then when the IPO happens, you reverse the trade, you deliver back the shares, get back the underlying stuff, you deliver the underlying stuff back to your share lender and you're left with only the popped ipo.

[Katie Greifeld]

Yeah, I guess what I don't understand about this is how big of a gamble is it to do this in the ARK Innovation etf? Like I wonder if the person or whoever was behind this trade knew for sure that they're getting allocated some of Klarna or some of Bullish.

[Matt Levine]

My impression is that in Bullish it was pretty telegraphed that Ark was getting some of it, but I'm not sure. These are trades that have been going on and they went on with the IPO of Bullish. A while back and then Klarna last week and Robin Wigglesworth at the FT has been reporting about it. But my impression is that the main, the flagship Ark Innovation ETF got an allocation in Bullish and not in Klarna. Another Ark ETF got an allocation in Klarna.

[Katie Greifeld]

Ark folks.

[Matt Levine]

Yeah. So people did this. I mean, no one really knows, but it looks like this trade, right? It looks like the trade is you heartbeat in, you borrow the underlying shares, you heartbeat into the ETFs, you take your stuff out the next day to capture the ipo. It looks like people did that with Ark Innovation around the Klarna ipo and there was no allegation. And so it just like missed. It's not a huge risk because you're long and short the same thing, basically.

[Katie Greifeld]

I'm just wondering, I wonder if we'll start to see this pop up in other sort of shiny active ETFs.

[Matt Levine]

Sure. I don't know how many shiny active ETFs there.

[Katie Greifeld]

There's not a ton, but there's definitely some that you might think would get allocated.

[Matt Levine]

Yeah, like in general, you know, index funds don't buy IPOs because they're not in the index. And so you don't see, you know, the traditional ETFs. You don't see this as a big thing. But like someone like Cathie Wood, who is an investor in sort of speculative tech companies, it does make sense that she would be interested in buying an ipos. And it does make sense that someone would notice that and be like, I can create my own IPO allocation by, you know, engineering the ARK ETFs.

[Katie Greifeld]

Yeah. Because for example, there's an ETF dedicated just to buying IPO stocks, like recent.

[Matt Levine]

IPO stocks, but which accomplishes nothing whatsoever. I know, but the trade here is the ipo. Pop.

[Katie Greifeld]

Yes.

[Matt Levine]

Trade here is not Klarna. This, it's the ipo. Pop.

[Katie Greifeld]

Yeah.

[Matt Levine]

One day.

[Katie Greifeld]

Yeah, I don't think they're getting allocated IPOs.

[Matt Levine]

I mean, maybe that's the next step. Right? You're like, hey guys, I buy all the IPOs. You want to allocate me an IPO. But traditionally the way you get allocated an IPO is like one, you are a big investor who pays a lot of commissions to a bank and two, you are a long term investor who creates a good relationship with the management of the company. So the company is like, I want those people to own 7% of my stock, so I'm going to allocate them in the IPO and then you have a nice relationship where you are a long term holder, you own the stock, you have a nice mark to market gain because they sold you the stock at the IPO price. Those are the people that the banks and the companies want to allocate at the IPO. Someone whose business is I buy recent IPOs and then sell them when they're no longer recent. It's not that good.

[Katie Greifeld]

Yeah. And it's also a smaller fund. I think it's in like the hundreds of millions.

[Matt Levine]

Right. Like when you're a bank and a company and you're allocating the ipo, you're in many cases literally sitting down with a list and going through it and being like these guys are good, you know, and you don't want to have a thousand names on that list and get to like, oh, we're going to give this guy 50 shares, right? Yeah, you want to be efficient, Right. So if you have a big investor, you give them a big, big slug of shares. So. Right. Because Cathie Wood is a celebrity, because the ARK Innovation ETF is pretty big because she is a long term supporter of like some of the company, like.

[Katie Greifeld]

Her five year time frame, like she's.

[Matt Levine]

A good institutional investor to have in your stock. And so it makes sen that she gets allocated IPOs. But it's not obvious that every active ETF would also have the same benefit.

[Katie Greifeld]

This isn't something that I've sought comment on, but I do wonder how Cathie Wood and the ARK team feel about this trade.

[Matt Levine]

Oh yeah, assuming this trade is what it seems like, which is someone massively inflating the assets of these ETFs by.

[Katie Greifeld]

Billions of dollars, by billions of dollars.

[Matt Levine]

For like a week in order to extract a large chunk of the IPO pop. Right. Like the ARC F trade was like on the order of like, you know, it's like a 1 ish billion dollar ETF and someone pumped in on the order of like $700 million. I might be a little wrong about that, but it's like that kind of thing. It's like basically doubling the size of the etf. When you do that, you now own half of the ETF and then you take your money out. So you take out half of the etf. It also means you take out half of the essentially the IPO shares. Right. So the person doing this or the people doing this are extracting kind of half of that IPO pop for themselves. Meaning that the long term retail investors who love Cathie Wood and are you know, invested in the etf, don't get that half of the. Of the ipo, Pop. That just goes to someone who is.

[Katie Greifeld]

Yeah.

[Matt Levine]

Just doing this arbitrage. So they must feel bad about it. Yeah, it's not good. It's not like what they want. Yeah, they do extract, like an extra two days of management fees.

[Katie Greifeld]

But can they stop it, though?

[Matt Levine]

You know, when I wrote about it, I was like, you call them up and you say, I'd like to pump a billion dollars in. And you say, yes, because that's life in the ETF business. Like it is. The point of an ETF is like, people can create and redeem.

[Katie Greifeld]

You can't gain it.

[Matt Levine]

There are ways to. I believe, you know, most ETFs, like, have ways to limit, you know, creations and redemptions.

[Katie Greifeld]

I don't know. I mean, you can't stop money flowing in or out. But not every inflow or outflow has to result in a creation or redemption.

[Matt Levine]

Yes, it does. That's what an inflow is.

[Katie Greifeld]

No, but people always say that it doesn't necessarily always create a creation or redemption.

[Matt Levine]

What would it do?

[Katie Greifeld]

Like, if enough people are netting each other out.

[Matt Levine]

Yeah, but net inflows create creations.

[Katie Greifeld]

Yeah, net inflows. But I'm saying they can't stop people.

[Matt Levine]

Trading on the exchange. But this is not a trade on the exchange. This is a creation.

[Katie Greifeld]

Yeah, okay.

[Matt Levine]

I mean, for this to make sense. It's a creation for this to make sense. Someone has borrowed a big package of the underlying, delivered it to the ETF and gotten out these shares. Which is why you see this heartbeat. Look where the assets of the ETF increase a lot.

[Katie Greifeld]

Yeah, okay, fair. Okay, then how would they limit that?

[Matt Levine]

One answer is, like, the person doing this is either an authorized participant in the etf, like someone who has a relationship with Ark, who can create and redeem shares, or they're like some hedge fund working through an authorized participant. Because, again, you have to do creation. So, like, these assets are coming into the ETF from someone, and the ETF can say, hey, knock that off. Yeah, or you'll stop being an authorized participant. Right.

[Katie Greifeld]

Yeah.

[Matt Levine]

It's one fairly straightforward approach. I assume most ETFs have some other way to, like, limit creations to avoid getting too big or, you know, I.

[Katie Greifeld]

Don'T know if they do.

[Matt Levine]

I don't know either.

[Katie Greifeld]

There was a recent example of this. You had this one very popular small cap funds, Ticker Caf, which ended up switching indexes. Because I think at one point, like, for its holdings, it held like more than 20% of the outstanding shares.

[Matt Levine]

You should be able to stop that.

[Katie Greifeld]

Yeah, but you can't. Like, you have to, like, switch your strategy.

[Matt Levine]

Yeah, I don't know if they can stop it. I mean, I haven't yet.

[Katie Greifeld]

I don't know either. But you do touch on the fact that this is the thing.

[Matt Levine]

Like the Ark ETFs are like a modern wrapper for, like, Cathie Wood running an investment fund. But, like, also, ETFs are plumbing. Right. And we've talked about, like, portfolio trades in the bond market. Right. Like, an ETF is like a piece of plumbing that allows people to do bond trades. Right. This is like a portfolio trade. Right. This is like, it's a widget that you can take down and be like, I'm going to extract the IPO value out of this etf. And so you can just do it. And it just operates independently in the stock market and has its own set of rules. And, like, you know, Cathie Wood is actively managing it, but it's like, it's not purely her investment vehicle. It's also this, like, you know, property of the market.

[Katie Greifeld]

Yeah. That's an interesting way to look at it, that it's basically just a portfolio trade, but in equities, it's almost the.

[Matt Levine]

Reverse of a portfolio trade. Right. A portfolio trade is like, you have a bunch of bonds and you go to a market maker and you're like, I want to sell this bunch of bonds. And the market maker is like, well, you can probably squeeze most of them into an ETF and I'll take the rest. And you can sort of like, squeeze your stuff into the ETF here. It's like, I want to extract exactly one security from the etf, and it's the reverse of the portfolio.

[Katie Greifeld]

I want the needle. Forget about all the hay. Yeah.

[Matt Levine]

And you can just do it.

[Katie Greifeld]

Yeah. I was going to say you do touch on the fact that this is a fun whodunit, like, who is doing this? And has to be a fairly small universe of potential suspects.

[Matt Levine]

It seems to me that the most logical person to do it would be one of the authorized participants who can trade directly with the fund. But maybe that's like, a little too confrontational, and it's like someone trading through an authorized participant.

[Katie Greifeld]

Yeah. Let's see. I don't want to name names necessarily, but, I mean, you look at some of Ark's filings, it looks like their APs, or at least the busiest APs are Hudson River, Jane Street, ABN, AMRO, bank of America, BNP, Virtu, et cetera. So right.

[Matt Levine]

The normal people.

[Katie Greifeld]

Anyway, if you're the one behind the ARC trade.

[Matt Levine]

Right.

[Katie Greifeld]

I think write to moneypodlumberg.net I feel.

[Matt Levine]

Like at this point this has been pretty widely rumored and praised and if someone was going to claim credit for that, they would have been like, yeah, we did that. I feel like there's probably some reason not to claim credit for it also. It's imitatable right now. Anyone can do it.

[Commercial/Advertisement Voice]

That's true.

[Matt Levine]

I don't know how many opportunities there will be to do it.

[Katie Greifeld]

Seems like a lot of squeezing for not like enough juice.

[Matt Levine]

But I don't know, you know, it's like a few days of stockpile cost for potentially like low tens of millions of dollars of gains. It's like it's real. I will say though that if I had to guess, I would say that this trade became exciting when there was that rash of IPOs that went up 100% and then they actually did it on bullish IPO which did well and Klarno, which did fine. And then I think we talked about this. The IPOs earlier this year had huge pops because no one had seen an IPO in years. And now it's like StubHub went public this week and went down. So it's not as exciting a trade now if you're not expecting 100% pop in every IPO.

[Katie Greifeld]

That's true. So maybe it was just a brief sweet moment in time, but it'll be fun to see if this continues and if it spreads.

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[Katie Greifeld]

So you know how I anchor a financial news TV show?

[Matt Levine]

I've heard rumors.

[Katie Greifeld]

Okay, well surprise. That's what I do when I leave this room. It's called the close. It's from 3 to 5pm Daily. This isn't just a plug. I bring it up because after the closing bell, usually companies report their earnings. And because the US follows a quarterly earnings schedule, that means that there's almost always earnings to break on air. Which is exciting and I look forward to it. But maybe now, instead of doing that four times a year, I'll only do it twice a year.

[Matt Levine]

More time with your horse. No more time on air. You still have to beat him. Just killing time on air. Yeah, unlike now.

[Katie Greifeld]

I bring this up.

[Matt Levine]

Yeah, you bring it up because President Trump. Trump is just randomly out there being like, yeah, hey, if the SEC wants to, we could move to six month reporting for companies instead of reporting every three months.

[Katie Greifeld]

I'm surprised he cares.

[Matt Levine]

You know, someone mentioned it to him so he truthed about it. It just doesn't that he cares. Cares.

[Katie Greifeld]

It seems like a off the beaten track issue for him.

[Matt Levine]

He tried it last term.

[Katie Greifeld]

He did.

[Matt Levine]

Back before the unitary executive. It is an odd thing to care about in the scheme of things. Yeah, but it marginally increases the power and reduces the oversight over corporate executives. Right. Like if you only have to report every six months, then you have more time to do stuff without anyone paying attention to it. Yeah, it's probably good for like the lifestyle of corporate executives.

[Katie Greifeld]

Well, I was going to say I love this topic because I can honestly see both sides of the argument. One being, okay, the quarterly reporting schedule. Investors like transparency, that's been proven. We should have as much information as we possibly can. But then on the other side, three months is arbitrary and I could be persuaded that it does incentivize shorter term thinking on some level.

[Matt Levine]

Yeah, I think a lot about this. There's no necessary reason that reporting every three months should encourage shorter term thinking. It's just a mistake to think that investors only care about next quarter's earnings and the shorter the reporting cycle than like the less long term they'll care about. Like that can't be true. Right. Like companies report every three months and they report guidance and they report like, you know, their investments for the long term. And like people understand that.

[Katie Greifeld]

I think you're being really generous.

[Matt Levine]

Like everyone loves to say that the US Stock market only rewards short term thinking. And like, you know who really loves to say that is Elon Musk.

[Katie Greifeld]

Yeah.

[Matt Levine]

Who's like, got a, you know, trillion dollar company and did for a long time before it made money. Right. And like even now its valuation is entirely based on like, ooh, robots in the future.

[Katie Greifeld]

Yeah.

[Matt Levine]

It's just like false to think that the US stock market only cares about next quarter's earnings. Right? Yeah, there's just like no reason to think that now.

[Katie Greifeld]

Yeah.

[Matt Levine]

It is the case that like there is volatility around quarterly earnings. Right. Like people do look at quarterly earnings and use them as a data point to extrapolate future earnings. And if you have bad earnings this quarter, people are good, maybe they're not going to have good earnings in the long run. Right. And so like there are like high frequency data points, but it's not logically entailed that if you report every three months, then people only pay attention to three month earnings. Right. And that's clearly the case that yeah, long term bets get made.

[Katie Greifeld]

Yeah. It just does introduce volatility into the stock price. And you could see a CEO who's getting beaten up on his earnings call, maybe doing things to minimize that.

[Matt Levine]

Yes.

[Katie Greifeld]

But his or her earnings call, I.

[Matt Levine]

Think about Cliffhans point about volatility laundering where you know, if you have a private investment that doesn't get mark to market every day, it is in some sense less volatile than most public stocks.

[Katie Greifeld]

Yeah.

[Matt Levine]

But only in the sense that you don't look every day. Right.

[Katie Greifeld]

Yeah.

[Matt Levine]

Like it's not economically less volatile. It's just like you see the price of one thing every day and you don't see the price of the other thing every day. Yeah, it's a little like that where like if you just stop reporting earnings, then you have less earnings volatility, you have less news driven volatility, but you're just masking what is actually happening. And the other thing is, I'm not sure you get less stock price volatility. Right. Because you still have trading. Right. It's just like if definitive financial statements and guidance get reported every six months instead of every three months, then you have a six month window where people are trading based on other stuff. Right.

[Katie Greifeld]

Body language.

[Matt Levine]

Body language. TV appearances, TV appearances, rumor. People talk a ton about alternative data, right? Like sophisticated hedge funds are constantly using information other than quarterly financial statements to build their models of like how a company is doing. Right. They're, you know, looking at credit card data or famously satellite pictures of parking lots to see how many people are coming to the stores. And if you get rid of some of the quarterly financial reporting, then those pieces of data will be relatively more valuable. They will still exist, hedge funds will still trade on them, but you won't. There'll be a lot more information asymmetry because some people will have information about how companies are doing and other people won't. And then the other kind of trading that could happen in six months is insider trading. Right. Because the more time you have between announcing news, the more opportunity there is to knowing the news yourself.

[Katie Greifeld]

That'd be great for this podcast. Look, it wouldn't be great for my TV show having fewer earnings reports, but.

[Matt Levine]

And more insider trading. Yeah, it'd be fun to have the insider traders on.

[Katie Greifeld]

I like to imagine that this goes through, that the US moves to companies only needing to report every six months and think about what that would happen. Because in Europe they are mandated to only report every six months, but many still file quarterly reports. So I wonder if the companies who report more frequently would get rewarded for that from investors. Whether you would see companies like switch around and what the psychological effect would be from that. Like if you were reporting on a quarterly basis and then went to a six month basis, you know, would that be taken as, oh, shoot, there's bad news coming and they're delaying it.

[Matt Levine]

Yeah, Like, I think if you're a normal company, it's a little hard to reduce the frequency of your reporting. Right? I mean, I think you think about who would report six months. Like some of it is like, you know, Trump brothers backed crypto treasury companies, right?

[Katie Greifeld]

Where it's like American bitcoin, baby.

[Matt Levine]

I do think another part of the answer is like part of the reason people talk about this is some form of like it is too burdensome to be a US public company these days. And that is part of why big cool tech startups are staying private longer. And you know, ordinary people can't invest in them in their 401ks and all that stuff. And so it is possible that like, if you went to like Sam Altman and you were like, hey, would you take OpenAI public? And he was like, I have to report every quarter. And you're like, no good news. You only have to report every six months. You might be like, okay, fine, I'll do it. Right. Like, I think it's a pretty marginal benefit. But there's probably some quite cool tech startup that would feel like, you know, by saving money on reporting costs and also by just having less frequent reporting and less frequent like shareholder interference, it would change the bargain of whether or not it's a good idea to go public. Right?

[Katie Greifeld]

Yeah.

[Matt Levine]

So like some new public companies would report on a six month schedule.

[Katie Greifeld]

Well, to that point, Adina Friedman, who is the CEO of NASDAQ, posted on LinkedIn basically that they supported the reforms to reduce the burden on public companies because I mean, you have heard that trotted out as a reason for why companies are staying private.

[Matt Levine]

So it's always hard for me to imagine that like the costs of like having your accountants do your reports every three months is what's giving, you know, stripe private. But like I do, there's probably, at some margin that's probably true, trueish. And I say stripe. Right. But like, in fact, like the problem is that it is hard for smallish companies to go public and this is perhaps a material cost savings.

[Katie Greifeld]

Yeah, we need more small caps and.

[Matt Levine]

The sort of thing where it's one thing for a big existing public company to say, okay, we're going to six month reporting, but it's another thing for a smallish company to come public saying we're only going to report every six months. And everyone's like, okay, that's fine.

[Katie Greifeld]

Yeah, I sort of stated it as a fact that investors like information and want transparency. But I do think there's this transparency barbell that's developed for investors where you think about ETFs, for example, and part of the reason why ETFs have just killed mutual funds is because people like to see the daily holdings. But then you think about what's going on in private markets and folks seem perfectly happy to try and plow into that. So I don't actually think that I can state it as a fact that investors like as much information as possible.

[Matt Levine]

Well, there's different kinds of investors, right? I mean, active asset managers who are making investing decision want to make informed investing decisions, right? But no, right? I mean, if you talk all the time about the retail love for SpaceX and Stripe and OpenAI, those people aren't getting financial statements at any frequency, right? That's just like, sure, I trust you, right? So it makes sense.

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[Katie Greifeld]

To $15 per month required new customer.

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[Katie Greifeld]

And I'm Karen Moscow.

[Matt Levine]

Here to tell on demand news report delivered right to your podcast feed. Bloomberg News now is a short 5.

[Katie Greifeld]

Minute audio report on the day's top stories.

[Matt Levine]

Episodes are published throughout the day with the latest information and data to keep you informed.

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[Matt Levine]

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[Katie Greifeld]

So you're always getting the latest stories and developments.

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[Matt Levine]

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[Katie Greifeld]

We have seven minutes to talk about structured products and what a boom.

[Matt Levine]

What a boom. Yeah. I don't know. I love structured products.

[Katie Greifeld]

I know you do. Why do people who aren't you love structured products? Like, why are we seeing this boom? Are we just bored? Is the s and P500 not enough?

[Matt Levine]

The structured products aren't boredom. They're like storytelling. The simplest structured product, the product that I think it was like the paradigm structured product is like, if you give me $100, I can take $95, give or take, and buy a Treasury bill. $96, okay, you can buy a Treasury bill, right? That will mature at a hundred dollars in a year, right? And then I have $4 to do something weird with, right? The simplest weird thing is I spend those $4 on like an at the money call option on the S and P, right? And so I say to you, if you give me $100, I'll give you back some percentage of the return of the S and P. Or like this is return of the S and P up to some cap or something in a year. But I'll always give you your $100 back. If the S&P crashes 50%, you still get all your money back, but you get S and P upside, right? And all I've done is I've bought a call option, I've bought a Treasury bill, and you're like, oh, wow, stocks that can never go down. And so I write about this periodically. That's the simplest structured product. That's not the main structured product of the current boom. But that story of you're going to give me money, I'm going to park boasted in T bills and I'm going to use the rest to buy weird options to give you some weird payoff profile. There are people whose job is to sit in a lab cooking up that sort of thing. And then there are other people whose job is to put a nice story on that. So we're talking about this Bloomberg big take about the boom and structured products. And they talk about half of structured products in America are auto callables. An auto callable is an installment put purchased by a bank from retail investors, right? And so if you're a bank, you have a lot of people who want to buy index puts from you. And you're like, where will I get index puts? And you go to the lab and you're like, I would like to cook up an installment index put product that I can Buy from somebody. Maybe I could buy it from like an insurance company or Berkshire Hathaway or something. And then you're like, no, no, I can buy it from retail investors. If instead of saying I'm going to buy an installment index put from you, you say, I'm going to sell you a bond that pays you 10% interest. Amazing. And it pays you 10% interest every quarter unless the stock market goes up, in which case I pay it off early and then no problem. It's auto called. Right. One other catch is that if the stock market goes down 20%, you lose all the money.

[Katie Greifeld]

Oh, no, right.

[Matt Levine]

That's just an installment put. Right. But like, instead of saying that, you say this is a note that pays. A very high coupon gets called early in certain circumstances. And it's the losses of the stock market in circumstances. Like, that's like a great trade. It's like you're not selling excitement, you're selling, look, you get 10% a year, you can't lose. Worst thing that happens probably is you get paid off early. No problem.

[Katie Greifeld]

No problem.

[Matt Levine]

But then there are other products too that are like the reverse, that are like, we pay you if the stock market goes down. Right. Because you put any set of options into this thing. And so you have like this unlimited range of like stories and payoff structures that you can sell to retail investors. And this article quotes a guy like a financial advisor saying that his clients said him, this sounds illegal. It sounds too good to be true.

[Katie Greifeld]

Yeah.

[Matt Levine]

Because you could like you do like, why are we seeing a boom in it? There are two kinds of structured products go on. There are selling options and buying options. Right. So like the auto callable is like the bank is buying an option from the customer. The one that I started with the, like, you get the S and P, but you can't go down. That's the bank is selling an option to the customer. This thing I started with that only works if you can buy a Treasury bill for significantly less than $100 because then you have money to buy options with. So like in a very low interest rate environment, it is hard to do really cool structured products because you just don't have a lot of like.

[Katie Greifeld]

I find that exciting to work with because we've now entered theoretically a rate cutting cycle.

[Matt Levine]

Yeah. So there are search parties the other way. Right. Where like, if rates are low, it's very exciting to go to a customer and say, I'll pay you 8% a year. And the way you get 8% a year is it's not interest, that's option premium. So there are products for all environments.

[Katie Greifeld]

Yeah. I do think it's interesting they also quote someone in here saying that, you know, structured products aren't bought, they're sold. That can apply to a myriad of things, but it also applies here.

[Matt Levine]

People say that about many, many, many things in finance, but I think they most say it about structured notes and.

[Katie Greifeld]

They mean it here. Yeah, but what's interesting is that now you have.

[Matt Levine]

Because no one, no retail investor is like, you know, what I would like to do is sell installment puts to a bank.

[Katie Greifeld]

Well, now you have an auto callables etf. It launched in June. So there are theoretically investors out there who are just buying this on their own, who aren't necessarily having it being.

[Matt Levine]

Sold advisor sold etf.

[Katie Greifeld]

Yeah, but it now exists where you don't need to have an advisor sell this to you.

[Matt Levine]

Yeah, but you look at the description of that and it's like, oh, you got a 10% yield.

[Katie Greifeld]

Yeah, that's true. Maybe you plug it into Investopedia and figure out what an auto callable is.

[Matt Levine]

10% yield.

[Katie Greifeld]

Yeah. I'm sure there are plenty of folks who just sort by yielding.

[Matt Levine]

Right, right. It's a 10% yield.

[Katie Greifeld]

Don't worry about the rest of it.

[Matt Levine]

The other thing I think is interesting about structured notes is like, I think of like the auto callables business as banks buying crash insurance from retail so they can sell crash insurance to other investors. But the overall structured notes business is a. Is a bigger business. And the article quotes Ben Ifert saying, everybody loves this business. It prints money most of the time and then usually they find a way to lose money when the markets are crashing. That's the banks. It is true that selling structured notes is a way to make a lot of money. Like the edge on these trades is like 1 to 3%. But somehow banks end up with positions in these notes that sometime blow up in crises. Which is not what's supposed to happen with the auto call, which is really supposed to be the banks buying crisis insurance from the retail customers. But again, there's lots of different profiles and some of them are more the bank selling crisis insurance.

[Katie Greifeld]

What would you say your favorite structured product is?

[Matt Levine]

I mean, I do like the autocallable.

[Katie Greifeld]

Just because it's like so do a lot of people, it seems like.

[Matt Levine]

But the other thing in the story is that like the banks are now offloading their structured note risk to hedge funds because that's what banks do with everything now.

[Katie Greifeld]

Yeah. Another theme we've talked about.

[Matt Levine]

Yeah, the bank has a relationship with the customer, but like they're not going to take all this risk on their own balance sheet. So they'll find some hedge fund to take the structure, note risk.

[Katie Greifeld]

Cool.

[Matt Levine]

All right.

[Katie Greifeld]

Unfortunately, that's all the time we have.

[Matt Levine]

So we'll see you next week.

[Katie Greifeld]

Send in questions please. Yeah, they're not good enough. Maybe I just won't open the top. Yeah, yeah, we'll see. Be skiing.

[Matt Levine]

And that was the Money Stuff Podcast. I'm Matt Levine.

[Katie Greifeld]

And I'm Katie Greifeld.

[Matt Levine]

You can find my work by subscribing to the Money stuff newsletter on bloomberg.com.

[Katie Greifeld]

And you can find me on Bloomberg TV every day on the close between 3 and 5pm Eastern.

[Matt Levine]

We'd love to hear from you. You can send an email to moneypodlumberg.net Ask us a question and we might answer it on the air.

[Katie Greifeld]

You can also subscribe to our show wherever you're listening right now and leave us a review. It helps more people find the show.

[Matt Levine]

The Money Stuff podcast is produced by Anna Mazarakis and Moses Ondahn.

[Katie Greifeld]

Our theme music was composed by Blake.

[Matt Levine]

Maples, Amy Keen is our Executive producer.

[Katie Greifeld]

And Sage Bauman is Bloomberg's Head of Podcasts.

[Matt Levine]

Thanks for listening to the Money Stuff podcast. We'll be back next week with more stuff.

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