Endemic problems

As if the financial community were not already beset with endemic, chronic problems, now it must contend with a broken stock dealer business.

Brokerage firms are at the heart of the investment industry, and if it is not repaired, it adversely affects the entire economy.

Brokerage firms are essential to implement the free enterprise system. Not only must it contend with all kinds of bad practices, but now it has the added burden of rogue traders.

Too many brokers engage in dirty tricks, placing their personal orders ahead of those from outside that sector, over-trading an account, buying inappropriate items, not at all acting in the best interest of clients.

All of this should be addressed, but more recently rogue traders have come to the forefront.

It is very difficult for a business head to take what could be a hundred data points and start to draw any conclusion about a particular “desk” or trader. The objective is to help predict bad behavior.

The industry is reeling from huge numbers of fines for the actions of employees who rigged markets, cheated clients and aided criminals. They should be turning to technology to police themselves better. Failure to do so will provide ammunition to those who want stricter legal limits of what is acceptable in this industry.

Government probes are essential to review fraudulent mortgage bond sales and market manipulation.

In a long-overdue move, the industry should hire compliance investigators, perhaps set up surveillance units to improve operations.

Thus, all kinds of data should be collected to see if employees are trying to engage in “monkey business,” relying on technology to determine malfeasance.

Obviously care must be taken to monitor employees’ actions and yet not to stifle all initiatives. It seems that a firm’s culture will determine the type of individual that is hired. The head of a major U.S. bank admonished his sales organization to sell a particular product even though he was aware that it was a piece of junk.

Clearly trading firms must have a new attitude.

Is it too much to hope that as in many parts of our culture, morality will override greed?



Bruce Whitestone