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1/04/2012

Turning Pareto upside down

The recent tightening of regulations on trading high risk instruments and products through the SGX is ruffling some feathers, of the investors and brokerages. It is quite a complicated exercise to safeguard the interests of naïve and ignorant investors in sophisticated, highly geared derivatives and foreign shares. The new regulations have made monitoring, administration and its execution quite a formidable exercise, and with many loose ends yet to be tested.

What has Pareto got to do with this change? The bread and butter business of the remisiers is trading local stocks and other legitimate and well established instruments. This is the forte of most remisiers. They know the business, the stocks, the companies and the happenings in the industry.

As for high risk and highly geared derivatives and other queer instruments, including foreign shares, they are a totally different kettle of fish. Not many of their clients are sophisticated enough to want to dabble in them regularly. Occasionally there will be a few never say die commandoes who may have heard something or given a tip by someone and wanted to go in for a quick punt. The business generated by these unfamiliar stuff is pretty small and in between. It may not be more than 5% of their business, or not at all.

And when foreign shares are concerned, it is sheer impossible to know what they are. Clients could technically ask to trade stocks from Australia, Indonesia, Philippines, Japan, Taiwan, Korea, Hongkong, Shanghai, all the other countries of Asean, Europe and the US. The number and spread of stocks are simply insane to know. Even the big funds or brokerage would not have enough specialist staff to know what they are dealing with or even claim to know the stocks of a particular market. There is just no superman to know any one market or all the markets even if he is full time on it.
Get the picture? The local remisiers who are pretty familiar with the local companies and stocks are not allowed to advise their clients in the trading of these stocks. They are supposed to be order takers, dumb key board operators in a way.

In the case of foreign stocks and derivatives, which most remisiers would hardly have a clue or only superficial knowledge, they are expected to advise their clients on how to trade these alienand unfamiliar stocks and queer derivatives. Get me now?

There is no excuse for any remisier to not know about these Specified Investment Products or SIPs, when they are expected to give advice to their clients. Now, how can one be an expert in the stocks and derivatives around the world? I don’t think any brokerage or international funds have such an expertise and definitely not in one particular trader. It is simply an impossible requirement.

Even if the remisiers are willing to attend all the training needed, to gear themselves on these foreign shares, it will be at least 10 years by the time he gets to attend all the training sessions. Here comes Pareto. Why spend so much time on an activity that is hardly 5% or less of one’s business, so as to be qualified professionally to give advice to clients? Or can one simply give advice on something he does not know?

Can there be such an animal in existence that is capable of providing professional advice to clients on all the overseas stocks and all the highly sophisticated instruments at the same time, and still spend 90% of his time managing his clients trading on local stocks, even as an order taker?

I doubt a super computer can do a proper job.

3 comments:

Anonymous said...

Can there be such a super animal in existence ? YES - they are all in SGX & MAS. They're better than even super computers!

Matilah_Singapura said...

Where got problem? You can always pay foreign ex-spurts who are specialists in specific fields of these exotic instruments and foreign entities.

Companies spending zillions on training are dumb companies. Most of the time the people with the knowledge and skill are out there. Hire them

Anonymous said...

One Big Con Job lah. Retail Sinkie getting smarter, SGX will have to devise more devious plans to con uncles and aunties.