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12/08/2010

Responsibilities of Stock Exchanges

Goh Eng Yeow wrote an article in the ST on 6 Dec expressing concern on the role of high speed trading and the interests of small traders. High speed trading as an instrument used by big funds to take advantage of sophisticated computer technology is giving the funds an unfair advantage against the small traders. With the aid of high speed computers, the fund is able to tap into the system to know the queues of buy and sell and more, and could then come to a quick decision to buy and sell to its favour. When funds are trading in a big way, high volume and high speed, against the small investors or the rest of the investors, the losers are obvious. What then is the position of the stock exchanges on this new development? There are some fundamental responsibilities and roles which the stock exchanges are governed by its own regulations to uphold and to protect investors. Among these are: 1. Provide a level playing field. With the participation of high speed trading, is the playing field level? Is there an unfair advantage in favour of high speed traders? 2. Churning is against the regulations of stock exchanges. 3. Buying and selling without change of ownership is a violation of stock exchange regulations. 4. Buying and selling and creating a false market through such actions is also a violation of stock exchange regulations. 5. Is the trading of big funds transparent to the small investors when transparency is a hallmark of a proper stock exchange? How could stock exchanges protect the interests of investors and maintain the integrity of the system without compromising on its own regulatory role with the introduction of high speed trading? Is there a problem here?

17 comments:

Matilah_Singapura said...

When you say "protect investors", what do you mean?

You impose certain regulations, some investors benefit, others get penalised.

I don't see why (morally or objectively) any stock exchange should change their operations just to "protect small investors".

What makes "small investors" more special than everyone else?

No on forces anyone to "play" on the bourses. It is silly to voluntarily play the exchange, then complain that the rules are "unfair". Go home lah!

The whole idea of capitalism IS to have an "unfair" advantage. Those who have such "unfair advantage" win the opportunity to -- for a limited time and i a limited context -- "call the shots", and try and get as Big" as possible.

However if the market moves against them - they also lose THE MOST.

Capitalism has never been and can never be a "fair" game or "equal" or "level playing field" (what? are you making money or playing soccer?!?). It has always been about exploiting one's advantage to the fullest -- be it skill, capital, tenacity, speculative ability etc.

What planet you living on man?

Anonymous said...

Alas, this is not the only area of unfair advantage in favour of the big players. We have to wise up and go along with the system. The whole system is invented precisely to cater to their advantage.

This is not only happening here. Take the USA for example. When the big banks got into serious trouble, the Government and Federal Reserve go out of their way to bail them out, using public money. The smaller banks were left to fold by the hundreds. What is fairness? What is responsibility? It is all a sham.

I never believe there is fairness in anything started by humans, run by humans, used by humans to feed their greed.

Chua Chin Leng aka redbean said...

Stock exchanges not only have a moral obligation to provide a fair trading platform, level playing field, it is its fundamental and legal duty to do so. The casinos are also regulted to maintain a certain amount of fair play.

When the stock exchanges ignore this fundamental principles, then it is worst than a back street gambling den.

They have been policing the industry, watching the players like a hawk, to prevent cornering of market, syndicate activities, and rules agains churning, creating false marekt etc etc. They cannot pooh pooh away these responsibilites just to make the market appears to look good.

Matilah_Singapura said...

redbean:

> Stock exchanges not only have a moral obligation to provide a fair trading platform, level playing field, it is its fundamental and legal duty to do so. <

Alamak. Now you confuse "moral" and "legal".

Stock markets fundamental role: to remain profitable for the owners.

"Moral"? Please lah. Whose morals?

"Legal" -- imposed by the state. Sometimes good, often politically motivated. "Legal" is too broad -- you have to hone into specific laws to judge whether they are objectively necessary or just bullshit.

"Legal" can also act as an advantage to one group (type) at the expense of another group.

> The casinos are also regulted to maintain a certain amount of fair play.

Political. No casino needs to be "regulated" because no one is forced to play. You go there: you pasa.

> then it is worst than a back street gambling den. <

What's wrong with back street gambling den? They answer the market call of demand. The ones who are "fair" earn a reputation, the ones who cheat also earn a reputation.

The fact that these dens exist shows you that markets are demand driven, -- markets couldn't care less about government regulation.

Which is the way it is supposed to be.

On Greed:

Greed is part of human nature. Unregulated markets means that the greedy lose money and have no "claim". You play -- you win, ypou lose -- your business. Everyone who plays in any market does so for self-interest.

Why should the "self-interest" of one type be elevated to a level at the expense of the "self-interest" of another type?

Market action will get faster and faster. In a way, that is good: more efficient re-allocation of capital and re-valuation of assets.

Let's say as a bourse owner you do slow it down: institutional investors (your big customers) will fuck off and take their capital elsewhere where they can once again be "fast", and your exchange will lose money.

Good lah, you want to cater to 5 sen 10 sen investors, carry on. While they are trading slow-slow, they'll get wiped out by the "fast money" exchanges elsewhere.

The good thing about capitalism is that dinosaurs and dinosaur ideas are quickly replaced. "Creative destruction".

Wally Buffet said...

"The whole idea of capitalism IS to have an "unfair" advantage."

Absolutely.

Investment is a zero sum game. It is like a casino and in lots of ways, unlike a casino.

I win because someone losses. And vice versa.

The recent structured derivatives debacle is a case in point. When you lose, you cry blue murder. When you gain, you quietly squirrels your money and laugh all the way to the bank.

The Stock Exchanges supposedly regulates stock markets. Similarly, the police force also has the job of ensuring a crime free society. Yet, there will always be people working around the system to gain an unfair advantage. That's life.

I always advocate that if you can't afford to lose knowing the pitfalls and the unfairness, don't invest. The pillow would be a good place to keep your money.

In my books, the stock exchanges of the world are just there to give a semblance of order to the whole shebang of monkeys lifting the wallets of the little guys dreaming of making some pitiful gains from "stock investing".

Matilah_Singapura said...

wally:

>Investment is a zero sum game. [...]
I win because someone losses. And vice versa. <


That is the nail on the head which is behind the reason for every punitive regulation in the book -- the fact that making speculative choices is somehow "unfair" to the losers, and all winners should therefore be "penalised" so that every one is equally poor.

Let's talk "morality", since people like that: I call this JEALOUSY/ ENVY, pure and simple.

Chua Chin Leng aka redbean said...

Gambling dens are gambling dens. caveat emptor. Stock exchanges are set up by the chenghu who is morally upright, honourable, responsible and pledged to maintain some fair play no matter how farcical it is.

When chenghu is downright obnoxious and operates gambling dens, that it is a problem. Why do you think casino free buses are stopped from plying to and from heartlands?

Chenghu cannot be seen as hypocrits and practise head I win tail you lose. They will pay for it, sometimes earlier, sometimes later.

Anonymous said...

I would like to believe the moral factor was the reason they stopped the free shuttle bus services from the heartlands to the casinos.

But one thing strikes me as odd. Why allow them to operate in the first place and then make a total turnaround? Suddenly they found their moral compass? Nah!

And I am sure those frequenting the resorts would not see any reason to complain about the free shuttles. If someone wants to gamble, what is a little inconvenience getting there?

Were there other reasons, like feedback from the mainstream transport operators that the shuttle buses were taking away more than their share of commuters. Or that the circle line nearing completion needs more ridership? Many reasons. We can only guess.

Wally Buffet said...

The most powerful chenghu cannot stop a little assange of minileaks from running rings round their necks, how else do the lesser chenghus of the world really and effectively and TRULY police the wonders and complexities of money making from thin air by the Magicians of Wall Street?

Realty, as they say, is stranger than fiction.

Hehe.

Matilah_Singapura said...

Like I said, you believe in cheng hu too much. ;-)

The peh si get the cheng hu they deserve lah.

Why is it "obnoxious" to run/ own a gambling den?

Who is to say "gambling is immoral"?

Fair play? Got such thing ah?

Where? Can show me or not? ;-)

Chua Chin Leng aka redbean said...

No comparison Wally, no comparison. You cannot compare apple with oranges. A $3m talent is very different from a $300k talent.

It is important that the danger of hi speed trading and derivatives be talked about everyday so that when the tsunami hits, no one can say, 'I don't know! No one tells us to.' Or the Americans are doing it, so must be good, ala the toxic notes.

Many American and European gurus are raising the red flags on these two demons. There are dangerous.

No say ok lah. If not, toxic bonds will be in the market again.

Matilah_Singapura said...

I say redbean, the whole of one's life is "caveat emptor" man.

If you expect a govt to "look after you" -- considering the many bullshit myths there are out there (and there are alot) -- I would say, your life is gonna get pretty screwed, and you will be scratching your testicles looking for "someone to blame".

...hmmm... blame god...no cannot, he doesn't give a fuck anyway...I know: "IT'S THE GOVERNMENT'S FAULT!!!".

Vote opposition!! Now!!

C'mon, get real lah.

Matilah_Singapura said...

Where would market excitement be without "dangers"?

Don't like derivatives and toxic shit?

Go short lah!

Chua Chin Leng aka redbean said...

'Got such thing ah!'

Got, got, right here in the red dot. Everything done must be morally correct.

I can only hope that they are not so morally correct for once, then I can go to the casinos without being poorer by $100 at the entrance. It is all for our own good.

Wally Buffet said...

The whole thing boils down to one truism.

A sucker is born every minute. Without them, where do these crooks get their money? Remember, it is a zero sum game?
No suckers equal no profit equals no high speed trading, dark pools, derivatives etc.

Kiasuism and avarice is why people are queuing up to buy the recent slew of property launches. The developers are in actuality making a last ditch effort to clear stocks before the final curtain falls on the current show and in preparation for the next big money making cycle again. Along the way, lives will be ruined and there will be collateral damage but who cares?


Hehe.

Chua Chin Leng aka redbean said...

Cannot say like dat lah. The chenghu cares. If now why $100 levy to enter casino? Why no free buses to casino, why curbs on property speculation?

The Chenghu cares!

Matilah_Singapura said...

relac lah brudder. Because there is nothing you can do -- beyond any of our control.

Orleidi establish fact: Cheng hu in Singapore is A #No 1 money maker. OK? Any which way can "makan", they makan. Before you can even lose your first 100 dollar at the casino, they take your 100 bux - or you don't get to drink free soft drink or even smell the aircon air.

Cheng-hu in Singapore is A #1 investor -- big time, very big time. Rest assured they have "financial interests" in software development for the finance industry.

Shhh... don't tell people ok? Good.

Toxic derivatives: How you think this will end? someone, some how, someday is going to have to pay. It is not possible to avoid an "ugly" ending to this.

Faster Capitalism (kin kin liu lai!): Inevitable. Software written by young dudes who grew up playing "Tour of Duty" and "World of Warcraft". Don't worry -- will get even faster.