Saturday, December 18, 2004

LaBranche and Fidelity Latest to Have Wrist Slapped

Late Friday (12/17/2004), it was revealed that the NASD was looking into imposing (even more) disciplinary action against the LaBranche for violation of federal securities laws as well trading regulations (read about that here:

In other news the same day, Fidelity (one of the most vocal critics of Regulation NMS and a company that uses its deep pockets to lobby the politicians at the SEC) announced that 16 of its employees were being disciplined (read about that here: for illegal actions.
To be sure, the house that we call the US capital markets is in shambles and it is high time its structure get rebuilt.
Consider the steel industry for a moment. Through the decades the US government has had what are called "anti-dumping" regulations. When a country breaks these rules, ocassionally the US Government imposes tariffs. This is a form of an ex post facto penality - the same kind of retrospective penalities the NASD and SEC impose on rule breakers in the US capital marketplace. For many reasons, these tariffs actually damage the industry. You can read about that here:

This is essentially what is happening in the US capital markets. Punishments are being dolled out to those guilty of crimes, but these penalties have no real impact on the marketplace. Fines assessed to companies hardly make up for the illegal activities they've committed. It's like fining Barry Bonds for using steroids while he still is able to maintain the all-time record for home runs hit in a season (while on steroids). The damage is done and the penalties that are imposed are merely a method for the oversight bodies to tell the public that they've caught those guilty of breaking the rules. The same way a monetary fine to Barry Bonds is a drop in his bucket, fining Fidelity and LaBranche is in no way damaging to their stakeholders -- the fines are merely a niftly public relations ploy by the oversight bodies.

So, in the last two years we've seen fine after fine, firing after firing, and still more crimes being committed. The actual structure must change if there is ever going to be a fair marketplace. One more metaphor: When a house is infested with asbestos and is in shambles, it is usually most efficient and reasonable to raze the house and build a new one (read: re-build the structure).

To be sure, the house that we call the US capital markets is in shambles and it is high time its structure get rebuilt.


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