Market transparency. By Bill Cara

Hint...There is none!

I would like to provide a preface to below post by Bill Cara . I have known Bill for many years. He is one of the most knowledgeable traders I know. He has worked all ends of Wall St and to be honest, his choosing to side with public interest likely put him on the outskirts of Jamie Dimon levels of authority and acclaim. He has always championed for social equity and put a spotlight on the corruption of the system. For this effort we should all be greatful. For our apathy, ignorance and obedience, we should be ashamed!

I myself remain cynical that anything will ever change without some revolution. Even a crash would simply give another opportunity for the establishment to collect more assets and wealth and laws protecting them. That is also why I scoff when we all fight amongst ourselves regards to red vs blue, Trump vs Biden. It’s all a distraction.

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Market transparency. By Bill Cara

How can bank customers believe in the integrity of financial markets when their bank agents, advisors, and custodians are trading against them? In a word, they cannot. They do not. They put up with it because it is what it is—a system including legislation, regulations, and guidelines that primarily serve to protect the bank’s capital, enabled by their conflicts of interest.

If the public could see behind the curtain, people would demand that legislators end the fraud. Regulatory fines are nothing more than lip service to the hundreds of millions of us who these double-dealing banks defraud daily. Legislators should resolve this fraud simply by stopping the sell-side from acting as their customers’ agents, advisors, and custodians. Level the playing field. Sellers vs buyers, the way a financial market should operate.

Twenty-five years ago, the executive director of Canada’s leading regulator invited me to represent the public interest in a formal hearing regarding implementing rules for electronic trading. In a meeting of the leaders of stock exchanges and Big Data, I stood alone in addressing the chairpersons of each of Canada’s provincial securities commissions. Using an NYSE-halted stock that week as my case study, I pointed to each man, one by one, to say that he was being defrauded. We could not trade that halted stock, but banks could and did. Unfortunately, the banks owned every man on that tribunal and have for many generations.

We need transparency. Without it, we have continuous fraud. We need a new Securities Act that eliminates conflict of interest and all that goes on behind the curtain.

Please think about that this weekend. I believe there will be a market crash soon, resulting in the loss of trillions of our hard-earned capital. The phoenix amongst us will be our bankers. The compensation of their corporate directors and managers will barely change while tens of millions of the banks’ customers will lose their pensions and homes. Many will take their lives. That is sad but true. I have seen it happen in almost every decade from the 1960s. For certain, it will happen again and fairly soon.

Nobody expects life always to be fair. But it should be bloody well better than what bankers have given us.

In this Market Transparency blog, I referred to my presentation to the nine executives of the Canadian Securities Administrators (similar to the SEC). The Ontario Securities Commission Executive Director selected me as the sole representative of the public interest in that formal hearing to decide the future of electronic trading.

My presentation was precisely what I have always argued in public: All investors should be treated uniformly, with no one investor having an advantage over others. There should be a single, continuously operated exchange. Access to capital markets should be via cash accounts only. A separate system should manage margin (i.e., encumbrances) because financial systems differ from market systems. To facilitate real-time trades, investor/trader accounts should be maintained by independent custodian organizations that verify proof of funds on a private and confidential basis. Computer technology makes all this possible. The result is that no sell-side organization, i.e., a bank, can trade against its customer, knowing the resources of the customer, providing market access to the customer (based on its own rules and internal decisions), advising the customer as to the appropriateness of the trading decisions, entering the trade orders along with its own private and confidential trade orders, and act as asset custodian and record-keeper for its customer. The conflicts of interest enshrined in this system facilitate fraud as the day is long. It must be stopped, and it can be stopped if governments were to enact appropriate legislation and subsequently require their regulatory agencies to develop uniform policies, procedures, and guidelines that treat all investors/traders equally.

Other requirements not included in my presentation but which I have long argued for include all trading and reporting data to be available in real-time to all investors/traders and that exchanges be operated in the cloud so that High-Frequency-Trading operations and banks cannot physically align their computers next to exchange computers giving those parties micro-second advantages over all other competing investor/traders. Moreover, when securities fraud has been successfully prosecuted, no banker should be able to hide behind the skirts of the organization. Everyone who commits fraud should receive an appropriate felony conviction regardless of employment or self-employment status.
 
When I made my presentation verbally, I was told that my filed notes had been “lost.” From that, I presume the video file of my presentation at this formal hearing was also “lost.” Unfortunately, we live in a world that is controlled by money. Those who hold the money, even other people’s money, are the ones who make the rules. In our society, the banks control the money and hence control so-called democratic governments. The banking system’s power dominates the personal principles many of us hold dear. I had hoped in my lifetime that society would change. Alas, that dream will soon be dead.    

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