11/05/2012

How to save the Stock Exchange





How many people believe that the Stock Exchange is in the pink of health? I think no one knows, or no one believes that it is dying, that it can go on a standstill the moment the computer traders decided to call it a day. But no, the truth is that the Stock Exchange is doing fine, doing roaring business, volume increasing, especially derivatives, and will be the biggest stock exchange soon, over taking Hongkong and Tokyo. The daily trading volume is in the billions and expanding, I think. I also agree that it will be a very big success. All the talks about retrenchment and remisiers going out of job or earning less than $2000 a month is bullshit. How can remisiers be earning less than a clerk or a taxi driver? Cannot be lah.



I think, despite the Stock Exchange doing so well, there are some things that can be tweaked to make it even better, with real trading and more retail participation instead of computer trading among themselves with no change of ownership. This boils down to a return to the basics. A stock exchange must not be turned into a casino for the thugs to do what they like. A stock exchange is for investment, long term, medium term and short term, and not for gambling or day trading only. A stock exchange must provide a level playing field for all players big and small. A stock exchange must operate a system that is fair to all players and no one must have any special advantage against others, to plug their computers into the system, to corner the market, ram shares up and down. I think these are all stated in the Rules and Regulations and by laws, no unfair competition, no insider trading, etc etc.



I cannot imagine any stock exchange would allow such violations to go on, or design its trading system to violate its own regulations and by laws. If it does, everyone will know unless the market players are all like the proverbial 4 monkeys, see nothing, hear nothing, do nothing and say nothing. If such is the case, then one can commit murder and rape in broad daylight.



There is a genocide going on in the New York Stock Exchange at the moment. But the regulators’ hands are tied as the big bankers and funds are preventing any laws to be passed to make their looting, rape, murder and arson a crime. So what they are doing at the moment is all legal, no crime.



Our Stock Exchange has adopted all the latest technology and practices of the industry and is the finest in the world, with the fastest computers that can service all the algos and computer tradings with or without retail participation. This is progress. Soon it would not need any retail participation at all. And this is what I think need to change. Retail participation may be bad for a world class super speed stock exchange that can handle millions of trades per second. The slowness of the retail and their small trades are really an irritant. So is the existence of things like remisiers, or key board operators, with little value add to the advanced and leading edge system that cost hundreds of millions.



I say if someone woke up one day on the wrong side of the bed and decided that remisiers and retail traders are needed even in a sophisticated world class stock exchange, and commission is really necessary to feed the backroom staff in the brokerage, below are a few suggestions that I think may help.



1. Separate the trading of ordinary stocks and warrants from the covered warrants and derivatives. The ordinary stocks and warrants should be traded in a closed system like before, for the small time retail traders and remisiers that are too slow and unsophisticated. The covered warrants and derivatives can continue in the present system and can be further expended to cater to the big funds and their high speed computers and algos on their own without the retail as a hindrance. They will be very happy trading among themselves instead of wasting time with small retail traders and the irritating remisiers. It is also a kind of levelling the playing field and the big funds will be most happy to take on competitive players of the same size. The volumes will shoot to the sky definitely.



2. Scrip lending must be stopped. Short selling is ok as long as traders are able to cover their own trades. But it is just not nice to ask someone who owns 1 million DBS shares to lend his scrips to a short seller for $2000 and see his share value sold down by $1m. Can investors be that stupid?





3. Variable commission rate must be normalised to prevent anyone from taking advantage of paying minimal or no commission to beat other players. Can such thing really be in practice, that big funds or proprietary traders been taking advantage of negligible commission rate to make profits against small traders that have to pay higher commissions? Cannot be right ya?. Level playing field and the regulations would not allow any party to have special advantage. If not, insider trading should also not be an offence.





4. Commission needs to be standardised and raised as this is the blood line that pays the salary of the all the remisiers and administrative and support staff, including the CEOs and operations managers of the brokerages. Without commission or little commission, who is going to pay for their salary and the overheads? See, commission is very important to keep the industry going.





5. The teeny weeny bit size is good for the machines to churn their trades. Is churning an offence? This, couple with negligible or no commission means that the computers can trade in the millions and to make profits by one single bit either way. On the other hand, the greedy little traders need several bids before they can make a little profit. The system should be modified to increase the bid size to the previous levels for the big funds and their machines to make bigger profits in a separate system detached from normal stocks. It is good for them and the small traders as well. Who does not want to make bigger profits unless, unless, the small bid size is specially designed to favour the big computer traders. This definitely cannot be. The system is definitely designed to be fair to all. Let’s make it fairer for the big computer traders by increasing the bid size, let them make more money from the small retail traders who are expert enough to trade derivatives with them without the aid of high speed computers plugged into the system. I am so thoughtful for the big computer traders.





6. Oh, no lunch break and continuous trading. I think the remisiers would not mind having a lunch break when the stocks and derivatives are traded under two different systems. Before I forget, the ordinary stock and warrant trading system must be a closed system and no one is allowed to plug in their computers to gain an advantage over the less sophisticated and cheapskate small traders that cannot afford to invest in high speed computers and software. When this system is back in place, the remisiers can afford to make less with lesser trading volumes and be quite contented. The computers and their algos can continue to trade in a separate derivative system without lunch breaks and churn as much as they like. Who cares? Anyway computers need not have to eat or to pee. In fact the Exchange should provide a non stop 24 hours trading system to please the algo and computer traders, but just spare the remisiers as they are human beings and need a break every now and then.





These are just some minor changes that I think could make the stock exchange even better and healthier. This is free advice, no need to pay big consultation fee unless a comprehensive and detailed proposal is needed.

17 comments:

oldhorse42 said...

My remiser from DMG just told me that he has quit. Cannot survive on this environment of low volume and meagre com.
Had he stayed in his previous job as a structural enginer for a stat board, he would still be working in a comfortable job.

Anonymous said...

The stock market is waiting to be buried. The whole industry is going to collapse. Playing the fiddle when Rome burnt.

Matilah_Singapura said...

Humans should be banned from trading. Only hi frequency trading machines are allowed.

Then sit back and watch the fun.

Chua Chin Leng aka redbean said...

This I can agree. How can human beans stand a chance trading against computers? It is pure cheating.

patriot said...

If it works in US, it surely works in Sin.
Sinkies know that the Americans are the most advanced and role model for the World.

Here, me am in full concurrence with M_S in his Comment above.

patriot

Matilah_Singapura said...

Hi frequency trading is not cheating. It is using the stock exchange for its rightful purpose: gambling.

Anyway, people should get with the program (no pun intended). Software-driven systems and solutions run nearly every aspect of our lives. So why not stock market shenanigans? Software RULEZ!

The finance sector's job used to be the most efficient way to allocate capital resources to their rightful uses, for projects which enhanced and guaranteed human existence, by economic growth, trade and social order (jobs and financial security). However not anymore. The financial sector -- the most HEAVILY REGULATED INDUSTRY -- is a space for robbers, thugs, fraudsters and gamblers...all crafty and ever-ready to loot the unsuspecting, right under the noses and often with the blessing of the government.

I sold out EVERYTHING 6 years ago -- just before the Big Shit. I don't own _one_single_stock_. All the greedy suckers who bought me out are in negative territory :-) They would have fared better if they took their money to a roulette table and bet on red or black. :-))

Anonymous said...

Haha. ..

When the SGX is closed.
Safe it will be for many a soul.
Nobody loses means everybody save.

Matilah_Singapura said...

Casinos will never close. Unless they are forced to.

We are neurologically wired to gamble. Can never lose if you own the casino.

Anonymous said...

It is just like saying that USA will never be brought down despite the financial crisis, so the Stock Exchange of Singapore will never collapse. They just will continue to operate, either in boom or in doom.

Anonymous said...

They will continue to operate with the computers generate trades to give the impression that the market is alive but in reality it is long gone and no amount of resusitation can revive it. How long are the leaders going to put on this deception that things are ok?

Matilah_Singapura said...

The market will never die lah.

Humans are hard wired to seek profit by "short cuts".

And too many people are so confident that they are "right". Die, die, they won't change their mind.

... and lastly...we are EMOTIONAL, not rational monkeys, i.e. EMOTION drives our actions, not reason.

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