The lesson from Stanchart and Barclay
Two giant banks, with world reputations to maintain, were caught with their pants down for playing dirty. And they were not the only two. Stanchart was reputed to have accepted Iran’s money to the tune of $310b when there was a sanction against it. Barclay and many big banks were rigging the Libor that undermined the integrity of the whole banking industry.
Yes, they cheated for the sake of profitability, like drug smugglers cheating with their lives. The latter faced the death sentence if caught, but they kept coming. Nothing is going to deter them from risking their lives to make money. And nothing is going to keep men in high position from their fraudulent and greedy ways to make money.
There is a saying that nobody will go into business to make losses. People will risk their necks and lives just to make money. The stock exchange is claiming how much it has cut trading cost to boost business and equity trading. Cutting cost seems to be their preoccupation and raison d’tre for a blooming stock market. There were some early gains for the exchange, but for how long? Does the cut in trading cost led to a more vibrant market or is it a corollary to the early demise of the stock market? At the rate it is going, the cut in trading cost is immaterial. The vibrancy and participation in the stock market is zilch or nearly there. The volumes reported were mostly clocked by computers. The traders and retail investors have gone into hibernation or dead.
How would cutting of trading cost help in reviving the stock market? Why was it that the market was so vibrant and the industry doing so well when trading cost was so much higher? Is there a correlation? The economists were the champion of liquidity, pumping more money into the economy to keep it growing. Why remove the liquidity in an industry that needs the commission to lubricate and pay for the jobs it supported by cutting cost, cutting the fuel it needs?
From what is happening, the lower trading cost is putting an end to the industry and it is only a matter of time before the sun set on this once lucrative and active industry. The trading cost is not a real issue in a healthy market. The trading cost is only material to those who need to capitalize on small margins and marginal cost to make money at the expense of small retail traders.
Is low trading cost a gimmick or a deadly concoction that will send the stock market to the graveyard? Many traders and retail investors are already there, dead and buried. Obviously the low trading cost did not do them any good. In fact they could be the direct victims of low trading cost.
What do you think? Still sleeping like Rip Van Winkle?