Thursday, October 31, 2013

How to run a stock market to the ground?


Stock markets around the world have been profitable institutions for centuries. As a collector of commissions and fees for listing and trading, it is like an evergreen ATM, always making money. The Great Depression could have temporarily halted the trading activities of a stock market, but they still picked up and ran again. It is quite near impossible to run a stock market to the ground. It would take tremendous ingenuity or stupidity to be able to do so.
 

After twenty years in the industry I have discovered how a stock market can actually be run to ground zero by a special recipe. Let me try to put this into simple steps for anyone who has the chance to do it, like how to assemble 炸蛋, fried egg, DIY online.
 

1. Invite all the big funds to play in the market.
 

2. Consult them on how to fix a system so that they can take full advantage of their high speed computers to make profits from the small investors.
 

3. First thing, allow them to hook their computers into the exchange system so that they would know what other traders/investors are buying or selling. Don’t tell people this is unfair. Better still don’t tell anyone if possible. Don’t talk about it is the best.
 

4. Reduce the commission to as low as possible, even free if can, so the big funds can trade in very big volumes without cost or with minimum charges. Then they can play big big and pay more fees to the exchange while making a killing at the same time. The small investors are there to be cannon fodder and dispensable.
 

5. No lunch break so the computers can keep on running throughout the whole session. Having lunch break is very disruptive to the computers and troublesome for the operators. Then bluff the broking houses no lunch break increases trading volumes, continuous trading means more time to do business.
 

6. Create a system to allow the funds to borrow scrips just in case they oversold some positions and need to cover for a short while. So the funds can long or short to make money either way. The trick is to protect the big funds while they eat up the small traders.
 

7. Deregulate, have as little rules as possible. No rules better still. If got rules, pretend to have dementia. Some say one eye open one eye close.
 

8. If the funds violate trading rules like churning, buying and selling without change of ownership, cornering the market, creating a false market, just ignore. Pretend not to know, not to see. Pretend nothing is wrong. The big funds must be given the fullest support to generate volume and liquidity in the market and of course to make money.
 

9. Make the small traders pay higher commission rate so they cannot get out quickly without losing or cannot make profit unless the price has moved several bids. This will allow the big funds to hold them captive and take advantage of small changes to make money, like push up one bid, push down two bids.
 

10. There is no need to provide a fair and level playing field. Bring in the HFT to make profits by skimming the differences that the small investors cannot see and not chance to see. It is a given that the HFT is sure to make profits like the big funds. No need to care where or who pay for their profits. Zero sum game? Sure.
 

These ten simple steps will definitely run a stock exchange to the ground in double quick time. All the small traders will be scooped up and hung to dry without knowing what has happened. And when there are no more small traders to slaughter, move on.

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