[TheNegotiator]

It's possibly a little early to be thinking about this right now, but it seems to me that the brokerage and clearing industry is likely to come under much scrutiny in the light of the current goings on at MF Global. People are sure to be worried about their money even if they aren't with MF Global and are likely to reassess the amount of margin they leave with their clearer. If MF can go down, why not anyone else right?

So my question to you guys is what exactly would you want to see change in the industry, with your clearer, or even with your broker? Anything small or large can be pointed out. Voice your opinions!!!

[TheNegotiator]

Well, let me point out one thing to start with. In an attempt to mitigate risk directly associated with leaving money with a clearer, you'll likely see people attempting to spread their money better. They'll likely leave less as a percentage with clearers they perceive to be more risky and put more money with those they see as safer. This in itself could alter the risks if people tend to do the same and more money gets piled into certain places. What it could mean though is clearers and brokers see money moving and they want to hold onto it. So what'll that mean? Incentive in all likelihood. Low commissions, better service maybe.

One thing I'd like to see is online flexible automated access to accounts. I much prefer to be able to work this way for example with online banking, but then when I need to I can still get hold of a person to speak to. Maybe this is available for some.

[SIUYA]

In this day and age with instant transfers and computing power you actually wonder why we need clearing firms.
The exchange sets the margins, the platforms (broker) charges access to the exchange, and we as the customer should allow the exchanges to be able to debit and credit an account held with a bank which might actually be safer.
That way you know exactly what margin is required - it goes directly to the exchange - if you day trade - you might need a minimum amount at the exchange that the broker can monitor.
The only real difference is that you have instant access to your money and only require the minimum to trade.
Now people might say you can keep the minimum at your broker - yes thats true and thats exactly what you should do, however if you trade larger size and hold positions transferring funds all over the place is not efficient. Plus this might only work effectively with exchange margined zero sum game products - in equities it already does as you can hold the equities in your own name, and you assume the equity risk.....
(now obviously various jurisdictions and antiquated banking systems and other various regulatory reforms make this probably impossible, but as I see it the technology should not be an issue.)....just an idea.

Regards what they can do - just the above - totally segregated accounts. If a company fails, equity holders and bond holders dont get bailed out - no problems, but client money should be segregated....totally - many say they have but in reality dont, and the reason for this is largely as they take the clips for funding that pays for the reduced brokerage and access to margin. (this is generally not needed when margins are set by the exchanges - unless the broker gives you extra leverage)
One issue you will always have if fraud is involved is that only through internal processes can fraud usually be picked up - as by its very nature fruad is deliberately hidden. The speed with which MF revealed its problems and the collapse also highlights the issues in regulating compnaies such as this when fraud may/may not have occured....and thats why CEOs and others in charge of the firm should be held more liable for such events - in this case I think they might be.

[TheNegotiator]

So maybe the issue is just down to lame regulators and lower personal consequence for executives? I just don't know though. I think that if we're not careful, rather than think of what can be done to change things properly, there'll be a swing in the other direction. Where as before there was less and less, maybe going forward there'll be more and more regulation. I don't see that as automatically a good thing.

[SpideySense]

Capitalism is about life and death; success and failure.

Look at the new product growth cycle with large numbers of companies jumping on mid cycle then failing when things tighten up.

Its a good thing.

Trying to fix capitalism by bailing companies out ... that's the bad thing.
Trying to fix capitalism by regulating the wrong things ... that's stupid as well.

Capitalism ... productive but not always pretty.
Democracy ... not as bad as the alternatives.
Prison ... the right place for a number of finance industry execs.

[SIUYA]

a good description of the system flaws....and why if they are serious they can fix them.

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not to be confused with capitalism (which I support) and corporatism (a whole other kettle of fish affecting more than the finance industry)

Basically - the things you need to regulate most is the amount of leverage and the accounting for risks.

These things allow/encourage people to time and time again take risks with money they dont have - (note - while leverage is fine, excessive leverage is not.). Too often accounts take into consideration the idea of values - not of exposures to risk, and they can too easily be hidden.

I have said it before and I'll say it again - there should be no such thing as creative accounting..... fraud is very hard to stop (it appears this may have occurred in MF), and its encouraged when people get access to the instruments that allow them to massive leverage themselves with little personal risk, but when its encouraged under the guise of "its legal" then it makes the head spin.
To those who defend these practices and system are the ones that allow it to continue, how often have you heard "everyones doing it".....
regardless of how many protests there are......
(an accountant once tried to defend creative accounting once under the argument - these are extremely complicated issues that often we dont follow - WTF...k ...scary)

The accountants are to blame

So as to the question of can it make the industry change....probably not if the core problems are not addressed.....

(disclaimer - blaming accountants is in jest, but there is a practical point that the issues supposedly being regulated are in my belief not the real issues which will cause lasting beneficial change)
Plus....these guys are arguing over how much of a short fall there is....thats scary - everything should be reconciled quickly and easily these days so its either there or its not (referencing client account balances which were MEANT to be segregated and given every client gets instant access to their supposed balances what was MF doing?)....now the lawyers and accountants are involved watch them milk the teats.

[TheNegotiator]

How can things really change when you have these greedy money ossessed guys willing to sell their own Grandmother if they think they'll make a good profit? Operating within the technicalities of the law is a big problem. People purposely sail so close the the wind that much of what they do shouldn't be legal. But they will always attemp to exploit the system. So the only way to stop them is to closely monitor what's going on. Trouble is, the money to do this just isn't there for the most part.

[SIUYA]

Originally Posted by TheNegotiator »

How can things really change when you have these greedy money ossessed guys willing to sell their own Grandmother if they think they'll make a good profit? Operating within the technicalities of the law is a big problem. People purposely sail so close the the wind that much of what they do shouldn't be legal. But they will always attemp to exploit the system. So the only way to stop them is to closely monitor what's going on. Trouble is, the money to do this just isn't there for the most part.

exactly - no matter the regulations, no matter the types of controls at the front end....some people are either frauds, or are tempted enough and incentivised enough to commit fraud....hence you need to head them off at the pass, not through regulation just saying you cant do this and that, as it will be ignored, but through checks and blanaces that make it harder to get away with things....such as good/better more transparent and accurate accounting standards, total segregation of accounts, checks on PL AND Cashflows at the same time.
You cant stop fraud - you can only make it harder to commit, easier to pick up and when committed leaving less damage.
Silly example in case; a programmer stealing the rounding error off millions of bank accounts....most people wont notice, there is no leverage involved, only really picked up by looking at the accounts.....
still fraud, but less damaging :0