MF Global Debacle-Singapore Moral Chapter

What is the difference between gaming and proprietary trading? The most obvious is on how you place your bets. In gaming, it is primarily based on instinct. There are some theorems that by card counting in the game of black jack, you are almost guaranteed in placing a winning bet but let's leave this controversial practice aside for the time being as casino operators have proven that they are guaranteed to be winners the world over.

In proprietary trading, it is usually based on a whole lot of analysis on the predictable and visible The little left that is not predictable and blind corners, human instinct and experience complete the process and a bet is made. Perhaps this is why a gaming license is needed to operate a legitimate casino but for proprietary trading, the amount of control that the monetary regulators ( MAS is the case of Singapore is both the central bank as well as banking regulator ) depends largely on your funding source. If funded by sophisticated investors with no retailing to the general public, MAS does little to control proprietary trading as well as protecting their investors in the name of free market. MF Global melt down is now common knowledge but little is mentioned that they also have a Singapore branch. Before I forget, the local press did mention that SGX has frozen their operations here for exchange traded products to reduce SGX counter-party risk. How about their positions in non-exchange traded derivatives and the like and their local investors and counter-parties? SGX stands for Singapore Exchange and also operates as security and exchange regulator of the stock market. A bit like NYSE and SEC all rolled in one in USA for efficiency and not to possible defray conflict of interest.

Singapore has been showcased the world over as a miracle economy that managed to achieve spectacular growth in the face of adversity starting with a tiny island state with no natural endowment of mother nature except for her people and geographical location along the major maritime trade lanes of East and West. The one and only ruling party since her independence is the well known Peoples' Action Party ( PAP ) and till date, they still hold more than 2/3 of the seats in parliament enabling them to change constitution, laws and policies almost unilaterally. To add injury, being a parliamentary system, there is the party whip to keep their own members of parliament in line. PAP's success both in winning the mandate of the populace at every election as well as making and keeping Singapore successful is based on a pragmatic moralistic meritocracy strongly espoused by the founder of PAP Lee Kuan Yew and I suppose accounts partly for their choice of all white 'uniform'.

Hong Kong is big in proprietary trading but has no legalized gaming and the same goes for major financial centers like New York, Chicago, London, Tokyo and Frankfurt. Cities known for big league legalized gaming like Macao, Los Angeles, Atlantic City and Monte-Car-lo have limited proprietary trading. If we combine casino gaming or what Singapore government white washed label as 'Integrated Resort' and proprietary trading in the financial center into the same gaming sector, this might place the city of Singapore uniquely in the gaming capital of the world. Well done PAP.

Peter Lye aka lkypeter
Safe Harbor
Please note that information contained in these pages are of a personal nature and does not necessarily reflect that of any companies, organizations or individuals. In addition, some of these opinions are of a forward looking nature. Lastly the facts and opinions contained in these pages might not have been verified for correctness, so please use with caution. Happy Reading. Copyrights of all contents in this blog belongs to Peter Lye unless stated otherwise.

Cheaper Stock Brokerage?

Of late, the competition in stock brokerage has intensified drastically with non-clearing members offering brokerage rates unheard of previously. As with all cheap things, there is always a catch to it. If you are thinking of fattening your trading profits or reducing your trading losses, do read the fine print carefully. The list of clearing members in the case of Singapore is available at www.sgx.com The differential between trading with clearing and non-clearing members are mainly as follows:

1. For trades with clearing members, stocks would be placed in a custodial company or custodial division of the stock exchange that would also have a common modus operandi with companies providing share registrar service. Trades though non-clearing members are normally held in a separate custodial company normally owned by the non-clearing member as well. Some do use the custodial services not owned or operated by them.
2. Voting rights at annual or extraordinary general meetings are non-existent for the smaller retail traders as the custodial company is listed as the owner of the shares. If you are a big player, arrangements can be made for the custodial company to proxy it back to you. If you are in the habit of collecting nicely printed annual reports for your coffee table, there will be none in this case. The situation is similar to trading using CPF and SRS funds.
3. The custodial fees charged by the custodial company are standard and transparent and same for all clearing member. The custodial fees and fees structure varies widely and this is where the savings on brokerage fees can get wiped out. The fee structure for custodial fee can be broadly classed into transaction fees for buy and/or sell and a custodian charge levied based on a mix of quantity and value of share as well as the custodian period.
4. Switching between clearing members is seamless because of a common custodial operator so the clearing members fight tooth and nail for customers especially institutional and private clients. Switching from a non-clearing member either to a clearing or another non-clearing member can be a nightmare as any existing open positions would have to be unwound in one way or another and this is most probably not where anyone wants to be in. The switching cost can be very high and the process tedious. Once the non-clearing members have you, they have you for good ad infinitum because of this switching nightmare.
5. The security of the custody is normally more secured because the common custodial service has a more protective legal framework to guard owners interest in case of liquidation, bankruptcies or dissolution. For non-clearing member, the protection element varies. After Lehman Brothers, no one is too big to fail.
6. Most non-clearing members tend to be larger and international geographically and might hold non-clearing or clearing memberships in markets outside of Singapore. Very useful for trading across markets.
7. These non-clearing member also tend to have more products especially forex based products that can lower your forex transaction cost by offering more competitive forex rates on spot or forward hedging options as well positions in multiple currencies on demand or fixed tenure. Only applies to the more sophisticated traders.

Before making any brokerage decisions, you cannot be too careful especially with non-clearing members and only trading on the local market not that I have anything against them.

Peter Lye aka lkypeter
Safe Harbor
Please note that information contained in these pages are of a personal nature and does not necessarily reflect that of any companies, organizations or individuals. In addition, some of these opinions are of a forward looking nature. Lastly the facts and opinions contained in these pages might not have been verified for correctness, so please use with caution. Happy Reading. Copyrights of all contents in this blog belongs to Peter Lye unless stated otherwise.