Saturday, April 4, 2009

The Market - A Bucketshop.

So, a fellow on Bloomberg was talking about Bucketshops this morning.

We modernised ourselves into this ice age.

Wikipedia on the Bucketshop.

Basically, they were businesses on the sidelines that would play bets with customers on the stock market, but were not actually connected to the stock market. It's as if I were to bet someone $50 on LDK to go up, and vice versa, but neither of us would actually ever trade a share of LDK, and certainly we wouldn't be regulated as if we were actually trading in the market. It's very close to what has happened with Derivatives in the last 10 years. A great many of them, Trillions of Dollars had no fundamental basis in any physical ownership of ANYTHING whatsoever. They're side bets, pure and simple, and many of those making the wagers had no ability to pay up in the case of losses. The idea of running bucketshops didn't stop when they were outlawed... it was expressed later by those that led the US Government to deregulate via the Gramm-Leach-Bliley Act, and it was implemented by the "Derivatives Desk."

Of course, the Bucketshop is illegal, but the insideous concept finds its way even into the regulated markets, by way of the DTCC. Is the DTCC just throwing your trades in a bucket in the back room? In some cases, at least, it certainly is; only, we the customers don't ever get to look behind the curtain to see for ourselves. Does the share that my brokerage claims on my account really represent a legitimate link to a physical asset? All I know is what my broker tells me. If my broker were a bucketshop, would it be obvious to me, the customer? Would they admit it?

The DTCC needs to get cracked open. Let's find out what's going on in there. The Investing Public has the RIGHT to know how the DTCC handles their PROPERTY.

Related Posts by Categories

Widget by Hoctro | Jack Book

No comments: