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Rigged Sales of Financial Instruments

A comparatively simple scheme to create profit and gain without market risk from a CFTC press release. However, conspiracy between and among trading agents is clearly not outside the realm of practical reality. While the prevention and detection of criminal activity is beyond the capacity of casual investors and traders, the presumed comparative effectiveness of the SEC and CFTC (and FBI) is what makes capital markets in the U.S. a suitable place to trade and invest in financial instruments. Those that pooh-pooh regulation should be careful that they do not get what they wish for. A U.S. capital market without regulation is an invitation for systemic and massive fraud, as well as deficient price discovery. Regulators – more so than regulations as these are merely official statements of wishful policy at worst and/or potential tools to assure compliance at best – are the uncredited support for the reputations of market makers, advisers, brokers, etc.

Regulators should minimize the risks of information asymmetry adversely affecting the unprivileged, the exercise of unfair influence of well-heeled firms, undetected sweetheart deals and other rigged transactions, etc. When the regulators lose credibility (e.g., the SEC and Madoff), the effects are potentially catastrophic. Notwithstanding the lack of a solution to the predicament of who guards the guards, the existence and strength of independent, motivated regulators with the big picture in mind (e.g., the capital markets may not be the ideal venue for so-called broken windows law enforcement) make the U.S. a desirable market for safe and sound investment.