The Challenges Faced by Anyone or Group attempting to Form New Exchanges Intended to Control Abusive Manipulations.

The Challenges Faced by Anyone or Group Attempting to Form New Exchanges Intended to Control Abusive Manipulations.

I have had to good fortune to have a series of very challenging jobs under incredibly educational bosses of great bandwidth and throughput.  I am where I am today for what I learned from these bosses and jobs.

A person I have been a good friend to has caused me to be informed that some bright senior people from the Securities Industry are looking to open new Exchanges to create new ethically clean markets, by either full ground up formation, or by taking over previously existing but failed exchange initiatives.

I caution them now that they probably can't understand the problems they will encounter with such an effort.  I can appreciate their desire to see the moral and legal corruptions of our current markets corrected, and I would support anyone undertaking such an effort.  Conversely, I have to say without qualification that the obstacles facing such efforts are literally Herculean.  Even if this were led by senior executives from the industry, these people don't have the diversity of professional experience or

The Challenges Faced By Anyone Trying to Build New Exchanges, New or Re-Invented.

I have been informed by several parties that various initiatives are underway to create new exchanges either from whole cloth, or on the bones of previously failed efforts.

The problems such parties face are daunting.  What do they include?

• First, they must consent to the jurisdiction of the SEC and FINRA, whose malfeasance have so damaged or destroyed thousands of companies, costing millions of investors Billions of dollars.
• Two, they must put a infrastructure in place that doesn't simply convey the previous venality to the new entity.
• Three, they must realize that to be in some form that can be effective, they must root out the people and laws who have so corrupted our markets.
• Four, they need everything from an order entry system, to honest clearance and settlement, to legitimate brokerage/investment banking functions.
• Five, they must eliminate the absolutely internecine conflicts of interest currently extant, by which everybody pays and everybody gets, much like other histories of entire nation states that were corrupt from the bottom to the top.
• Six, they must find people who don't know just what is going on, as they would never take on such a task, or face the stupidity and venality of our marketplaces.
• Seven, they must cut out all organizations and individuals who have engaged in the practices that destroyed thousands of companies, beginning first with the ignorance and corruption of our swinging door between our regulators and our industry leaders.
• Eight, they must systematically engage in a strategic effort to bring our systems core operators in line, or destroy them and their leadership.

What kind of organizations are involved?  Start with the people who actually are real entrepreneurs.  They have to read the riot act to their shareholders and counsel.  Then you must clean up order entry, settlement and clearance, compliance (including the SEC and FINRA most directly), brokerage, investment banking, truly objective research, deal structures, accounting, reporting, and much more.

While all of these entities have mutual interests and conflicts, you can't make an exchange or exchanges plural successful  without similar entities being put in place as the infrastructure blocks necessary to support investment activity.  If any one of these entities is out of line ethically, a figurative rotten apple, then the entire barrel is ruined.  The problem today is that the entire batch of barrels have been unable to control the manipulators who would destroy individual investors. 

This country's power elite have sought out consolidation of every function and industry that could effect their ability to maximize their profits.  You can't name a single industry, from exchanges, to all related functions of the market whose organizations haven't been driven together like cattle. 

Anyone who has ever studied risk management knows a core basic part of that activity is DIVERSIFICATION.  When there are 50 of something, it is much safer in the view of those in control to have only 5 such entities, no matter how much someone may argue that the 5 will be more economically efficient than the 50 could ever be.  We have seen this psychotically compelled consolidation of banks, brokers, exchanges, clearing firms, accounting orgs, communications processes, etc., for as long as I have been in the industry, dating back over 40 years. 

What happens when one fails?  If it is a Lehman Brothers, it is a catastrophe. The same with Bear Stearns.  I can recite dozens of examples.  Can you?  If not, you aren't ready to open an exchange.

And if you do manage to create the very complex elements needed in a form of elementary integrity, you have at best one chance in five of success. 

Should someone try?  Of course.  Should they do it with the eyes wide open?  Absolutely.  Everyone who knows the history of the past five decades of Wall Street will be betting actively against you, seeking to find a way to break in and steal what they can, knowing that our regulators and justice system will never punish them.

If you are successful in opening an exchange, does someone bet on that exchange's success continuing, or as in the past, do they bet on regulators and legislators changing the entire rule base it was built on like a kind of amorphous quick sand. 

In closing, I leave you with the old line most applicable here:  CAVEAT EMPTOR.