Open letter to MAS's Consultation Paper

Below is my letter to MAS in response to their open call for feedback from stakeholders in the stock broking industry.

PM Lee Hsien Loong
DPM/Finance Minister Tharman Shanmugaratnam
The MD MAS R Menon
CEO SGX Magnus Bocker

5 Mar 14

The Stock Market is NOT fine. It is no longer a level playing field and has been redesigned for unfair trading in favour of computer trading. (This two line statement is a summary of this paper)

This is an open letter to the above gentlemen and will also be posted in my blog, www.mysingaporenews.blogspot.sg/.

The Stock Market is not fine contrary to what was stated in the discussion paper issued jointly by the MAS and SGX. The condition of the stock market is dire, in a state of denial and slipping into a coma. Yes, the trading volume gives an impression that it is healthy and active. The revenue and profit of the SGX suggested that all is fine and presumably the market will continue to function in this manner for a long time to come, with the SGX chalking up good revenue and profit as it gets along. It is NOT. There are hardly any retail traders in the market. Why?

The Stock Market is not only the SGX. It has other players and stakeholders. And all is not fine except for the SGX and the computer traders. Some of the front line soldiers, the remisiers, are earning less than what a cleaner or security guard is getting. Younger remisiers have already left the industry or seeking employment. Only those that could not find alternative employment are sticking it out and waiting for the broking houses to ask them to leave.

The retail traders have fled from the market.

With this pathetic level of commission, the broking houses too would not be able to sustain their operations at the current scale and would soon have to downsize and retrench staff. The supporting staff will have to go and overhead cuts. Some may want to get out of the business too.

For companies listing in the SGX, soon they will realise that it is a waste of time when the value of their shares are near to worthless. It is a joke that the prices of stocks in the main board of a regional financial centre with big ambition can be less than 5 cents or even worse, less than 1 cent. And this is not an exception.

What is happening to the Stock Market? What are the causes that led to this dismal state of affair? Some stakeholders will still swear that it is fine. They will not want to see the elephant in the class room. What is that?

The culprit that is causing the demise of the Stock Market is not contra trading as they would want you to believe. Excessive contra trading and speculations need to be moderated but not to be wiped out. They are the soul and spirit of a small market. Without contra trading and speculations you will have a market the size of a pea.

The Stock Market today is not the traditional stock market that we knew before. All the principles and fundamentals of a traditional stock market have been violated and cast away. The Stock Market we have today is nothing but a casino in disguise but without the strict regime, regulations and controls of a casino.

The SGX has been reorganised and redesigned to allow computer traders using high speed sophisticated computer systems to trade against unsophisticated investors or even big funds still trading on fundamentals and believing that they are investing in the long term. Rules and processes have been changed to facilitate computer trading to be more effective and efficient, taking full advantage of computer power, time and speed, and financial resources to cream the market, to trade against investors without the benefits of these computers. Continuous trading with no lunch breaks, small board lot size, minimum bid size, script borrowing, keying in of short positions, etc etc were all created to favour computer trading against other traders.

High speed computers of computer traders are plugged into the SGX system to have access to information of other traders and their positions and simply trading against them with no regards to the fundamentals of the stocks. Computers trade for profit by buying and selling against the rest of the investors, often depressing prices of stocks against their real values. They have cleaned up the traders, big and small, and not many are left with money to lose.

Put it simply, computer trading is unfair trading, unfair advantage. It violates all the fundamentals, principles and regulations of the SGX to provide a level playing field and fair trading to all the players. How could this be allowed by the SGX? This is criminal.

I am not making any suggestion or recommendation as to how to save the Stock Market. The solutions are obvious but no one wants to see or do the right thing. The invitation for the public, the uncles and aunties for their recommendations to improve market activities, but creating an unfair and uneven playing field, reflects two things. One, they do not see anything wrong with the current system. Two, they are not serious.

The problems in the industry and the Stock Market are very serious and highly technical. You need experts and professionals who can understand what is happening and the complexities of the market mechanism to know what is wrong and what are needed to put things right.

If you get the picture, and see the problem and want to do something about it, it is best to set up a COI of experts who not only know what they are doing but have the heft and confidence to change what really need to be changed. You would need people like Paul Volcker or some real foreign talents who are critics of the existing flawed stock market system to tell the truth about the unfairness of the system. The advocates of the system will not volunteer to tell you what is wrong with the market and the system. They will say it is fine. This is how far I am prepared to comment.

For a ‘nobody’ to make suggestions is not only rude but a waste of time when the believers and converts of the current system could simply throw the paper into the waste bin. You need a COI of professionals to make real changes, failing which you can wait to bury the Stock Market in a year to two.

If you have bothered to read this far, there is some hope that the stock market industry can be saved. And I thank you for your patience and trouble to hear me out.

Thank you.

Kopi level - Green


Anonymous said...

The premise of your letter and arguments is all wrong.

You keep talking about "level playing field"
- as if "they" care

You must appeal to their self interest
- you must show that if your recommendations are accepted ... then how that will lead to higher pay for the MAS officials
- and since MAS officials have a higher pay ... then Ministers must also have a higher pay since the work of Ministers is more important to the nation.

You ask poor people to do "national service". This is acceptable.
But when you talk to higher ups ... you must talk about how to increase their salaries under the guise of "the greater good"

“Remember your place in society before you engage in political debate…
Debate cannot generate into a free-for-all, where no distinction is made between the senior and junior party…
You must make distinctions -
What is high, what is low, what is above, what is below,
and then within this, we can have a debate, we can have a discussion…
people should not take on those in authority as ‘equals”

Anonymous said...

RB, I share the same sentiments for some time now about what's going on and your words underscore my exact thoughts. Unfortunately, I doubt very much G/regulators or the exchange will do the right thing. And the right thing is pretty obvious. It is very frustrating and hot under the collar to see screwed policies hurting ordinary citizens but those in charge dont seem keen to set it right. One wonders why.

Chua Chin Leng aka redbean said...

Agree with you. There are two points I am making. The situation at this point is to save the stockbroking industry. So not the right time to talk about increasing their salary. In fact saving the stock market will save a lot of people of their million dollar salaries. Or they will be retrenched, sacked or get a pay cut. Not forgetting the investors can take a class suit against the SGX.

The second part on how to increase their salary will come if they are willing to pay me a consultancy fee: )

Anonymous said...

Aiyo, no need RB to write letter to tell them lah, as if they don't already know the points RB raised.

For one, they are not daft, u know.

But they still call for open feedback as a matter of good practice and PR lah.

Anonymous said...

Just as you have now and before written about the failings of SGX I have also commented before that the American government and its big business institutions like the banks, stock markets, real estates, insurance and conglomerates have always been run by sophisticated crooks, rogues, scoundrels and charlatans. These Americans crooks and scoundrels have been spreading like cancer all over the world and causing great damage and suffering to the people and economies of every country they descended upon. The American crooks and scoundrels have been in town for quite many years and they have been embraced by the authorities as foreign talents not knowing or ignoring that they are destroying the life line of Singapore's economy and survival. Well, can any thing be done when Singapore, I mean the authorities are aping the American crooks' system in total.

Thursday,6th March,2014.

Anonymous said...

RB did the right thing by addressing to the PM and DPM. So no one can cover up and the the PM and DPM cannot say they did not know.

This fiasco is hundreds of times worst than the Lehman bonds and toxic notes. The Blumont thing is peanuts. It is the whole market that is going down and the billions that have been robbed from the innocent investors by the computer traders.

Anonymous said...

RB is wasting his time. Nobody cares. The remisiers are not bothered. The broking houses are not bothered. The investors and funds that are losing their pants are not bothered. The listed companies are not bothered.

You think the govt bothers?

Anonymous said...

Yes, but how will helping the stockbroking industry benefit the Minister?
redbean must be constructive in his criticism.
Must show how helping the stockbroking industry can help support another pay increase for the Minister.
Otherwise it's just talk cock sing song.

Anonymous said...

You wanna save the stock exchange or the remisiers?

Your feedback sounds to me like a pitch for the unsuccessful remisiers rather than faulting the SGX.

That job should go to the Society of Remisiers, no?

Anonymous said...

There is a big wayang going on and no one wants to say or see the big white elephant in the classroom. Everyone pretends everything is ok and just go scratching at the mosquito bite.

If MAS is still not going to do something, it shall be ultimately responsible when the stock market collapses.

Bring back Koh Beng Seng. He is the man that can save the SGX.

Anonymous said...

Southernglory, they have bern modelling after the u.s. buying their useless toys and following, there should not be a surprise in you, just as long as their pay gets fatter, do they really care.
The Remisiers are to be a bunch of relics, stuff into one corner, RB, if you ever get a reply for your forsaken message which is most likely place in the, "when i have time, i'll read section", do let us know.

Maenwhile, kopi's to you, thicken with curry sauce.

Pinky poo

Anonymous said...

Aiyo, of course save the remisiers lah. RB is also a remisier, read his blog u don't know meh?

But as a matter of good PR, how can RB put it that way, tio bo?

In fact, based on the letter, I would say RB will also make a good politician. But being a smart Sinkie, of course cannot be an opposition one lah. And to be PAP one, u need to get invitation card, so not so easy lah, even if you want to. Hahahahaha.

Chua Chin Leng aka redbean said...

Thanks Pinky Poo for the kopi. Level still a bit low.

For too long, Sinkies have lost the way and thinking that their future is in good hands. They have forgotten that when their interests are violated, they must stand up to fight for it. No one is going to fight for them. The politicians, like you guys are saying, are more concern with their million dollar bank accounts.

Would anything come out from this letter of mine? Maybe I will ask another question. Who is going to answer when something worse than the Lehman bond case pops up? Can those people responsible claim ignorance again, 'I dunno leh, not my problem'. Then quickly set up another COI to investigate?

The mess in the SGX is now made known to them and let's see how they handle it. Nevermind, I expect my letter to be in the waste bin. Quite normal. This is not the first letter that I wrote. They didn't even have the courtesy to acknowledge my past letters. Still waiting to see if they acknowledge receiving this letter.

Anonymous said...

RB should join the opposition.

Anonymous said...

/// They didn't even have the courtesy to acknowledge my past letters. Still waiting to see if they acknowledge receiving this letter. ///

Who will want to acknowledge receiving your letter?
Acknowledge means they have to give you a name.
Once you have a name, they you can anyhow suka, suka go and follow-up with this name.
Like that how can?

SGX problems likely started when Koh Beng Seng fell out of favour.
And LHL's "disclosure based regime' became the flavour of the month at SGX.
Here is the link which tells you when the "strategic U-Turn at SGX started. See page 4 under Financial Supervision:

Here is the alleged "smoking gun" paragraph:

"MAS has also, since 1998, been reviewing and updating its approach to regulating and supervising the financial sector. First, we have instituted a fundamental shift in emphasis away from “one-size-fits-all” regulation of institutions to risk-focused supervision, and from merit-based regulation
of products to a disclosure-based regime."

So "structured products" investors ... please pay attention.
The government is employing a "risk focused regulation regime".
NOT a "merit-based regulation of products".

And if you still don't fucking understand the significance of what you are reading ... you really deserve to lose all your money.

Anonymous said...

Agree with Anon 945.
Rb damn naive to think that SGX is set up for the small fishes(retail investors) to feed on. Shall we say in nature, big fish actually and naturally eat small fishes to be fed and grow. No difference for any commercial entities. SGX like any commercial houses is only interested in bottomline. If higher volume (transactions) generated by computerised tradings means more incomes, what are remisier and other middlemen? Go and be taxi driver, security guard or cleaner, who cares!

The Letter to them will be ignored.

Anonymous said...

Big fish eats small fish, small fish eats planktons. If there is no plankton, all the fish, big or small will disappear as well.

Who is the naive one? You know what is logical thinking? TSorry too deep for you. Take it that I have not said it.

Anonymous said...

Remisiers, middlemen who couldn't earn a living and loser Sinkies were already part of the 40% who did not vote PAP in 2011. And their situation then was very bad, maybe even worse than now.

By making lots of winner foreigners into new citizens since 2011, I believe the 40% can even be reduced by next GE.

Anonymous said...

"Big fish eats small fish, small fish eats planktons. If there is no plankton, all the fish, big or small will disappear as well."
Anon 1:47 pm

U talking about plankton in the small Sinkie sea? Ya, then I think not much left.

But not in the ocean outside. Just open up the Sinkie sea to the ocean lah. Then you can get all the plankton you want. All kinds too.

Chua Chin Leng aka redbean said...

I agree with you. The remisiers will fall into the opposition camp at the way things are moving. Many may become taxi drivers and security guards.

Chua Chin Leng aka redbean said...

Anon 1:58, not all remisiers are down and out. Some are still having incomes that would put what you earned to shame and a waste of time for the hours you put in.

Anonymous said...

@ Anon 147
Between Socrates and Thracymacus, me thinks both were as good in that neither claimed to have more depth in intellect. They lacked conceit which make them great.

Stock Trading Tips said...

Taking part in international trade fairs could help, if want to take your business to the foreign markets.

Anonymous said...

Looks like RB is the only one talking about this. The rest of the remisiers and stakeholders do not bother or are very happy with the situation.

RB should not waste his time on this.