Registered, Listed & Regulated OTC Disclosure – or Bust!

Dear Contra_Folk,

Dare even pick one new act of regulatory change, or political legislative offering of any of the above-noted transparency recommendations (yes, without participant exemptions or clearing corps)… yeah, we dare you.  Let go once and for all.

So, we are taking the above trades, citing a lack and complete absence of any of the above policies likely ever being fully implemented.  These much needed legislative and/or regulatory reforms would finish the now purposefully intended halt to financial regulatory reform, limit some of the abusive power found in market makers involving over-the-counter securities, derivatives and synthetic swap instruments… but alas, no such luck.

Noticing Royal Taxpayer of Canada Capital Markets Division and its conservative Cdn risk management – funny, turns out Mr. Conservative is the only Canadian dealer of U.S. large block program trading on the NYSE – 7th overall from Global Top 20 (Source: WSJ Disclosed Market Data for the week ended April 23) for only they are seemingly allowed unrestricted access to taxpayer protected deposits available for large block program trading.

Program trading (computer quants) encompass a range of portfolio-trading strategies involving the purchase or sale of a basket of at least 15 stocks, which made up 21.7% of NYSE average daily trading volume that week.  Playing with weekly bets of $112,900,000.00 for such a conservative organization may not be possible without full taxpayer support towards inadequate risk management as they continue to have an implied ‘too big to fail’ Cdn. taxpayer put-backing.

Now we Capitalists must test its inflatable bubble-making limits.

Canadians are gullible to think, and secondly to trust, that the Bank of Canada and its Big 5 iBonker voting members, which is not incidentally run and headed by an ex-GoldenSlacker type, and recently voted TIME Magazine’s top 100 Most Beautifully Influential, that they should never be required to have any hard rules for managing risky leverage ratios along with firm trading risk management regulations because, well, they are simple, sleepy Canadian capitalists without any governing need to protect taxpayers from profit & reward minded risk takers.   Even better is that it has developed a Self Regulatory Organization (SRO) hierarchy environment resulting in electing insider nominations for plum executive and board level rule making positions serving to under-regulate Cdn. iBonker risk(s) in perpetuity.

Darkness = Profit Margins

For insisting on (de-)leveraging controls, say to start 4:1, that will restrict risk abilities and yes stakeholder, and yes even ibonker’s own ‘bonus’ returns.  So sad, too bad.  After the taxpayer bailouts of your type of non-managed Risk Capitalism, one could argue that your lobbying voices should be too faint these days to even be recognized as appropriate input in any democratically led advanced society.

Thus, hard leverage rules will avoid lifes “too big to manage” liability damage from the temptations of 60:1 leveraged catch-up from last week’s trading desk losses, and some newly hired, independent contracted, SRO-type forensic Ph.D. Cops with a 1.25% finder fee compensation structure will do one hell of a compliance clean up job with the trust issue “du jour” found on Wall and Bay streets.

Pick Me, Please Pick Me

Do something, or do nothing….it’s our political choice.  Move along now ya hear says the ibonker élite.  Pssssst, hey Buddy, ya you, the ignorant non-politically active middle class (semi) voting taxpayer lemming, look over there…. for it is really illegal immigration reform that is the root of all your unemployment and social evils.

Bait and Switch – Next Up: Environmentalism vs. Oil Drilling Reform

Back to economics, with higher capital reserve ratios, and most importantly, enforcement of new hard-ruled Risk Management Legislation to force the spin-off of the “Go Big or Go Home” capital markets divisions from the stale and stable deposit taking taxpayer protected banking service, Capitalism could work once again… like in the times before 1999’s repeal of the Glass-Steagall Act, keeping and protecting Taxpayers’ risks relatively controlled from ibonkers and unscathed from 1933-1999.

But iBonkers would rather continue unmitigated of course, and better yet expand and encourage this kind of regulatory malpractice by doing nothing legislatively to restrict Cdn. iBonkers global expansion into the murky darkness of foreign lands…ever more around the World, allowing very lucrative risk taking profits from domestically impossible shareholder returns – in yet an ever increasingly excessive, and unabated, risk taking approach in an unknown and often hostile foreign market environment.  All of which is unbeknownst to its Citizens, who are left purposefully ill-informed, but yet with all the associated and implied sovereign-type taxpayer provided capital guarantee of iBonker liabilities – and all for free.

Heads we Win.  Tails we Win.

Confident that the Cdn. ibonkers (RY, BMO, TD, CM, BNS et al) who still have dark hidden access to unlimited Cdn. taxpayer subsidized cost of capital assistance through backdoor lending at 0.25%-2.25%, and with CDIC and CMHC taxpayer protection on real estate loan portfolios for ibonker risk funds deployed (Cdn 90% insured type GSE’s), will no doubt put themselves into another ‘Stanford ABCP’ concentration situation of being a leading lender in what will turn out one fine day to be another “severe lack of proper judgment of the true risks” type situation involving excessive risk taking to make Q3 numbers beat street expectations and meet ibonker bonus levels.

What Me Worry

Maybe it will be another ponzi-type high yield scheme, or perhaps it will just be as simple as loan book concentration in a cash-strapped markets of Cdn residential mortgages with inflated $450,000-$750,000 average residential selling prices without reasonable (say -15%) FMV loan loss model provisioning.   An event could  be from assuming the unknown, untold, collateral liabilities of US Regional Banks, which are being purchased under the dark cover of Friday nights, or maybe even a large US proprietary trading firm, my how exciting, or maybe they will just blow themselves up with a leveraged-up accounting, repo 105 type, off-balance sheet program trading bet that goes wrong… alas, we will never know (100% useless auditor opinions and agency ratings) until, well, after it has happened.

But for now it seems we would rather close our FinReg legislative eyes to the future, and instead hope the banskster’s bubble gives us a second chance along the way.

Blowing Bubbles While Squeezing Lemons

Likely being forced to assume US banks’ liabilities (even with a haircut mind you), it still smells of free Cdn. taxpayer Greek-style risk capital assistance, backdoor through Cdn. ibonkers to the aid of US regional bankers and the bankrupt FDIC, and again without changing any of the drunk driving rules of Capitalism 2007.

This is a movie we have all seen over and over again, one which has an exciting and climatic ending to ensure we stay tuned to witness the surprising twists of another repricing event.  Since we all agree we collectively cannot stop the next bubble or crash, we can however easily control how much we risk by prudently managing systemic and firm specific risks.  Worst case, we agree to lose a finger or toe, but not a vital leg or arm of the taxpayer.

Trading desks could be limited and labeled as either a simple Market Maker, or as a more complex Principal Agent Dealer, you should have to pick one side of the trading world, but not both sides where the biggest risk taker wins the table!

A simple bookie style of gaming the trading system with simple risk analytics makes the house always win in Vegas.  The same principles can be easily instituted regarding asset allocation of proper risk perimeters, and along with negative correlation of managed liability/asset class risk(s), Gmen we would have a fine “reset point” for the regulators to restart from.

The sextillion dollar question is:  Will we ever have leadership that forces ibonkers to reduce leverage ratios, fix accounting games by criminal proceedings, create new government Ratings Agencies, instill pay-for-performance hurdle rates for true SEC enforcement activity, re-institute permanent risk reduction walls between taxpayer deposits and hedge fund-like risk taking, and allow unencumbered sunlight into the dark swap trading underworld by putting all trades on an open and transparent exchange for all to see, all while simply adhering to the rules of risk equals return?  Nope. Hardly Likely.

Making Lemonade,


About ContraManFund

Fictional (maybe not if you are an accredited investor) trading of a long/short contrarian-driven investment model portfolio based upon current economic environments and counter-intuitive trends. Legal Disclaimer The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions. NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES. The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility. Please consult your own investment advisor before making any investments anywhere, and always do your own due diligence before undertaking any individual investment.
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