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The Old Reality is Still the New Reality


The Old Reality is Still the New Reality



Dodd Frank Illustration

 
I sat at my desk last week wondering what went wrong. Was I experiencing some type of trading depression? I checked my models, macro numbers, company profits, software, pricing etc. Some of my option contracts were either worthless or were on their way to being worthless.
 
The pricing of the contracts were not in-line with the actual underlying price of the securities that I was trading. The options' pricing per contract were either priced 40% or more above what the underlying security was worth or priced 40% or more below what the securities were worth.

This old reality was still the new reality even after all of financial fixes implemented to fix these same problems that contributed to the financial meltdown in 2007-2008.  The new Dodd-Frank Wall Street Reform and ConsumerProtection Act which was supposed to clean up many of the abuses in the financial system such as accountability, transparency and pricing unfortunately is not working.

Sophisticated computer driven algorithms, trading groups arbitraging on different exchanges, unregulated billions in dark pools of money trading silently in the background from undisclosed traders, lax oversight of the Options Clearing Houses are still causing a nasty mix of asset mispricing, and investor angst, especially in the options and derivative markets here in the U.S..

Mispricing of assets costs everyone, especially small investors billions in dollars daily. It prevents, many whom may want to invest from not investing due to fear; it contributes to misallocation of investors’ money from flowing to real companies to instead flow to zombie or otherwise bankrupt entities’ and finally it contributes to financial fraud on such a large scale that regulators may seem overwhelmed or incapable of tackling the problem.

I am proposing tougher regulation with teeth, not less, that will help alleviate asset mispricing. So that small investors like myself can confidently make better decisions in the financial markets without being fleeced of our hard-earned money.
 
By Rick Walter

Write to Rick Walter at invest@ucsinv1.com

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