With so much talk about "Perfect Market Hypothesis" around after the recent Nobel prize awards, TMM started to wonder what a perfect market would actually look like and swiftly came to the conclusion that it is all in the eye of the beholder. Considering that the regulators are now stamping their authority on western financial markets we thought it probably best to start with the Regulator's Perfect Market Hypothesis as they are driving future direction.
Regulator's Perfect Market Hypothesis
Market overview -
The market will be permitted to function on condition that:-
The market is not and has no derivative.
The market carries no risk for small investors
The market carries high returns for small investors
The market transfers risk away from the State to the large investor, unless that large investor is a State pension fund.
The market directly funds investment in national infrastructure.
The market is environmentally friendly.
The market generates significant tax revenue.
The market supports more regulatory and reporting staff than it does investors or operatives.
The Market will be bound by regulations flexible enough to be interpreted freely by the regulator but stiff enough to mean that breach is necessary to allow normal market function.
Information Dissemination -
Any person or body analysing the market will be deemed unfit to participate in the market.
Any analysis on the market shall be submitted to and be the sole property of the regulator for them to release at their discretion.
Information relevant to market direction will only be released at 9am each morning, two hours before market open.
No form of communication involving any aspect of the market is permitted other than that issued by the regulator.
Pricing information will be published daily to those who can produce evidence of having completed 200 hours community work in the prior month.
All trades will be executed on an Exchange.
No electronic trading will be permitted.
The Exchange floor will be populated by randomly, yet inclusively, selected people weighted towards those from disadvantaged backgrounds.
The market will trade between the hours of 11am and noon local time.
The Exchange will be run by a Utility company operating under a state umbrella.
Only one trade will be permitted per day per counterpart.
The Exchange will demand collateral of 110% of the face value of any open position and said margin will receive a rate of return of Libor -10% or −10% whichever is lower.
All trades will be subject to a 5% "Tobin" tax
Trades will be submitted to the Exchange that will then decide on the size and direction of the trade thus eliminating any advantage of proprietary knowledge.
Each trade will be manually examined for signs of malfeasance by a team of 10 regulators and only released for settlement once committee approval has been sanctioned.
Failure to report a trade due to regulator error will be deemed the responsibility of the investor if they are in the highest tax band.
Each trade will be published in 6ft high letters upon the residence of the transactor, together with their open position.
Price action -
The Market will be permitted to rise on condition that -
All the population own it (Apart from Hedge funds, bankers and anyone else deemed morally reprehensible at that moment).
The rise creates greater tax revenues.
The rise does not create Inflation.
The rise does not create social inequality.
The rise does not create deflation.
The rise does not create a bubble (to be deemed as such at the discretion of the regulator) .
The market will be permitted to fall on condition that -
It is solely owned by investors deemed as morally corrupt.
Hedge funds are bound to buy at the previous high from small investors.
Profits from the sales are used to create more nurses and teachers.
It is about to go up again.
The market will not be referred to as a market but as a "growth and employment scheme designed to reduce risk whilst enhancing living standards, social mobility, equality and diversity through mutual participation and synergistic interactions"