I hold in my hand a remarkable document. It’s a printout of a purchase. Detailed, itemized and precise. The prices on the document are exactly as stated on the corresponding reference guide I chose the items from. This exact amount will soon appear on my computer screen efficiently and correctly.This document is a credit card receipt from a restaurant. The bill was for $26.17 and wouldn’t you know; I just went to my online account, and there it is, $26.17.
To you this may not seem remarkable or even worth mention, but to me as a financial professional for over 30 years it is extraordinary. This slip of paper that you fold over and put in your wallet is a record of the integrity of a transaction; a stated price, a commitment, a contract. It is this common place transaction that has been lost in the world of finance. I look at this slip of paper and see the primary reason for the perception of the lack of integrity in my industry.
You traders out there, ask yourself this. If you went to your screen right now and saw a stock offered at $26.17 are you sure that you would buy it at that price? Alternatively, would you try to get it there and hope for the best? So I must ask. Why would a transaction as simple as buying a lunch be so much more efficient than buying thousands or hundreds of thousands worth of equities?
For reference or dare I say, the tipping point, I often think back to the Goldman Sachs Abacas trade congressional hearing vaudeville reality show that ran for a few weeks back some years. I don’t watch much reality T.V. since most of it is scripted. I do remember this one since I came away with two questions that I haven’t gotten a satisfying answer to. The first question is. Was this trade concocted in the back room of the Badda Bing or a board room downtown? The second question is. Why didn’t anyone inquire about the price of the trade? Here was a multi-billion dollar transaction executed by a publicly held company and no one asked how the actual transaction took place. No reference to the quaint old notions of intrinsic value, bid, offer, price. Where did it print? Why do I have to produce a receipt when returning jeans at Target but no trader was asked these basic questions?
The answers to these questions aren’t nearly as relevant as why they weren’t asked. We have our theories of course. There is no limit to the opinions as to why Wall Street has become less and less accountable. Perhaps I’ll share mine in an upcoming article.
Theories are fine, but doubtless a basic fundamental to the industry, any industry, has been lost. The integrity of the transaction! Without this basic rule of commerce all else is lost. The slippery slope has been ridden down, and we are fighting it out in the mud pit at the bottom, a place where the big guys are more likely to win.
I recently spoke to a hedge fund trader and used the phrase “the tape,” as in “the trade hit the tape.” The guy looked at me like I had one eye in the middle of my head. “What the hell is the tape”? He asked.
That is where we are. The horse has left the barn; the genie is out of the bottle, and unpleasantness has hit the fan.
Perhaps it is time to set aside the debate about the virtues of Dodd, Frank and Volcker. Let’s restore the tape first. The technology is there. Restore it or ask our dear leaders why they haven’t.
John Nuckel is a financial advisor working with private clients in N.Y.
His novel, The Vig, is available on Amazon.com and Kindle.