The Old Reality is Still the New Reality
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| Dodd Frank Illustration |
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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