Friday, March 20, 2009

It's time for a single, all-long market

The time for regulation and nationalization of many activities is upon us. An overlooked market that deserves nationalization is that of all-long trades, where no credit risk is born by the exchange. Private exchanges for trades of shares have become affordable, though they remain oligopolistic (ie. they are still charging too much). Other forms of trades remain very expensive: currency and bond trades are a good example of this.

The logistics behind an all-long trading platform have become trivial and cheap because of the advent of computing. I would suggest that two all-long trading platforms be created and maintained: one by the US and one by the EU. The platforms would be all electronic and would be offered to everyone. Obviously only very liquid securities with large capitalization would be traded on these platforms. Trade costs could be kept very low (0.01$) and fractional ownership of securities should be allowed.

Banks would no longer be able to charge disproportional fees for currency transactions. Low transaction fees and fractional ownership would render many ETFs obsolete, saving carrying costs.