Can We ‘TRACE’ JP Morgan’s Business?
By Larry Doyle on July 18, 2009 at 8:01 AM in Banks, Credit Card Companies, Current Affairs, Economy, Sense on Cents (Larry Doyle blog)
On Wall Street, information is everything!! Access to the information is invaluable. Why? Given the speed with which markets move, any early hint of developing news is priceless in terms of the ability to transact quickly and profitably.
Why is ‘high frequency program trading’ viewed with such skepticism? Select participants with advanced computer programs gain access to market flows prior to other participants and are able to act on it. That playing field is not level. I shared my disdain for this practice in writing, “Why High Frequency Program Trading Smells.”
What other battles are being waged by Wall Street firms looking to defend their turf at the expense of consumers and investors? Credit cards and credit derivatives. Which Wall Street firm has the greatest combined exposure to these businesses? None other than JP Morgan Chase.
The Financial Times highlights how JP Morgan Chief Hits at Credit Card Rules:
Jamie Dimon, chief executive of JP Morgan Chase, on Thursday hit out at strict rules on US credit cards, saying they would cost the bank’s lossmaking card unit up to $700m next year.
While Mr. Dimon is railing on new legislation aimed to protect consumer interests in the credit card space, he conveniently avoids mentioning how both JP Morgan Chase and Bank of America are already implementing procedures to skirt that legislation. How might these financial behemoths do that? Shift from fixed rate credit cards to variable rate. I exposed this maneuver a few weeks back in writing, “Banks Build Better Mousetrap.”
Dimon continues his defense of JP Morgan’s franchise:
He singled out the credit card provisions, which from February (2010..LD’s edit) will constrain lenders’ ability to raise rates for risky borrowers, and rules that propose to move most derivatives trading on to exchanges as two contentious areas.
The tough stance by JPMorgan reflects Wall Street’s new-found confidence in lobbying regulators and the government. After keeping a low profile during the crisis, many of the banks that repaid the bail-out funds are becoming more aggressive in Washington.
In regard to derivatives activity, JP Morgan has a dominant position in the market. Why? Their strong capital position, enormous balance sheet, and strong credit rating make them an attractive counterparty for customers. Make no mistake, JP Morgan has a license to ‘print’ money, and a lot of it, across the entire derivatives platform.
While Washington will tout how they are increasing regulation of the derivatives space, this business is truly multi-pronged. There are plain vanilla derivatives in more highly liquid sectors of the market. These ’standardized’ derivatives will most certainly move to an exchange to create total transparency. Value added for customers will be minimal only because these markets are already fairly well defined and exposed. JP Morgan and other Wall Street firms will cede this ’standardized’ space while they fight tooth and nail to maintain their enormously advantageous position in the area of ‘customized’ derivatives.
There is little to no transparency in the world of customized derivatives and as a result the bid-ask spreads are very wide. Cha-ching, cha-ching. Jamie and his friends on Wall Street are working extremely hard to keep it this way.
In their defense, it is likely not functionally feasible to move many customized derivatives to an exchange. What should regulators compel them to do? JP Morgan and every other financial firm on Wall Street should have to report every derivatives transaction to a system known as TRACE, which stands for Trade Reporting and Compliance Engine. This system currently only covers transactions within the cash markets and not derivatives. What does that mean for investors? No transparency and price discovery for investors in the customized derivatives space. As such, Jamie and friends can keep those bid-ask spreads nice and wide and ring up huge profits in the process.
I won’t make many friends on Wall Street, and perhaps lose some of my current friends, but TRACE should be implemented across all product lines. For those involved in the markets, please access the TRACE system to gain a wealth of pricing data while keeping your brokers and financial planners honest!!
LD
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The speed of this fascist takeover of America is frightening. We the Peopls simply MUST vet bho the fraud and his Chicago/Wall Street/GE junta and wake up the rest of Middle America before it’s too late.
We are so used to instant gratification and letting others do our hard work for us that our childish desires for immediate goods and services and our lazy assumption that others will carry the load for us will destroy us–this year–if we don’t act now.
Time to find out, stand out and speak out.
Go, Middle Class–while we can!
Well, you may not be making friends in the circle of folks trying to manipulate the market and abuse loopholes to intentionally game the system, but at least you’ll be known for integrity and fairness.
JP is interesting. I think they are definitely playing games to better their position. They supported Obama, giving big bucks and when they took the bailout, I think that was what many viewed as candy, in line for their giveback. When Obama announced the controls and pay for companies who took bailout money (after the fact) they I believe were pretty outraged.
They realized a bit more about the man than they were believed prior. lol That’s why they couldn’t wait to pay it back and make an announcement that they only took the money to cushion them during these shaky times and we are good and strong and able to pay it back. (in so many words)
I’m disappointed they will be going here. They seemed to be one of the few that were being a bit smarter in their decisions. This may be seen as a money maker, but it surely doesn’t make it right. Kinda’ like trapping someone and making them foot the bill because they have no choice. That’s not a choice, is it?
Obama is just trying to play favors to every special interest. He wants to give some-some here and say “this is for your support”…and then he makes a step later that takes a huge chunk out…giving some-some there, saying “this is for your support” and telling the others “you have to give me something back”.
Obama’s like the side effect of drugs. They claim it’s for this medical problem, but it really only “improves conditions” for maybe 20 percent of the people ,but in increases more problems and risks at much higher numbers in other areas by 400 percent, than if you took this drug at all, clearly destroying any “improvement”.
Maybe we should just call Obama what he is, a drug. lol
Obamium.
LOL Linda, I’m afraid that particular “word” has been reserved for the next element discovered in the “periodic table of the elements.”
How about “O-caine” or “Obamajuana”?
Oh, lol, that’s good. Obamajuana….they’re taking their hits of Obamajuana.
My comment is stuck in ***SPAM FILTER***
Please free me.
“…Wall Street’s new-found confidence in lobbying regulators and the government…”
New found confidence that they can team up with them to screw the rest of us! Sort of like this “humorous” take on it?
h/t The Big Picture
http://borowitzreport.com/article.aspx?ID=7047
J P Morgan
Goldman Sachs
They’re just making money the old fashioned way–
By every devious conniving unethical scheme the greedy rapacious predatory mind of man can conceive . . .
Bonus time!
And here comes Cap N Trade! The financial cenobites are drooling all over themselves in anticipation . . .
Yep. Right now Obama didn’t get his way of 100 percent of the Carbon permits being sold on the market/Wall Street, only 15 percent they get to manipulate…but the ones being given to the businesses, like Coal, are allowed to sell their too.
No doubt that will change.
How ironic… TRACE should be used by FINRA…
Soon acronyms will outnumber legitimate words in the English language.
A WISE person once said:
WISE=Weisenheimer In Serious Error
It’s called ‘trading dark’ or ‘dark pool trades’.