Is it me or are we seeing a rather extreme dichotomy gripping the securities trading industry? We are witnessing major, lofty market reforms in the US and Europe just as major firms are leading a scandal parade. It’s like watching rats navigate the New York subway system far better than the humans who designed it.
Simultaneously, in a parallel universe, the Commodity Futures Trading Commission (CFTC) has finally approved new, controversial parameters for swaps trading, and the Securities and Exchange Commission (SEC) at long last has given the nod to the Consolidated Audit Trail (CAT), an IT platform for keeping an eye on U.S. equities trading. We are very lucky that in the meantime we didn’t have another “Flash Crash” that was much worse than the first one.
Both regulators are trudging ahead on other fronts oblivious to the time lag and discrepancies between what they do and the reality of the marketplace. Might they one day want to actually enforce their rules and regulations to prevent the scandals that are continually rocking the industry? Or would they rather have another committee meeting?
But inept regulators are not entirely to blame. If firms are hell bent on ripping off investors (or inadvertently themselves), then there is little that regulators can do even if they had the resources, IT and intelligent staff in place. Is the problem not in the stars but in ourselves as someone once suggested? The human factor in all of these scandals can’t be denied. Overheated egos, breath-taking incompetence, and good old-fashioned greed are at the heart of these fiascos. The last time I checked there are no regulations or technologies that can stop the dark side of a human being once he or she has decided upon a hideous course of action.
I also don’t know of any law, regulation or technology that can fix investor confidence once it has been shattered by the actions of once trusted firms and the inaction of once competent regulators.
I do know that once faith in the system is gone we are all in danger.