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For most people, any talk of markets - and especially of the future of markets - means the direction of prices in those markets. But that is only one way of relating to markets, and it isn't the one used by the people who administer or regulate the markets themselves.
Those were precisely the kinds of people who gathered in Tel Aviv last week for the International Organization of Securities Commissions annual conference. Present, too, were people whose business is to operate, manage and market markets - because markets are, first and foremost, trading platforms in which anonymous parties meet each other and transact via automated systems.
Market people are those who create the systems and manage the operational framework. On the basis of that foundation, and on the strict assumption that the systems will work, the traders who engage in buying and selling (referred to by academics as "the price-discovery mechanism") can do their stuff. After all that, all the rest of us get to speak of the market going up or down and express opinions as to whether it will rise or fall tomorrow, next week or next year.
As recently as one year ago, mentioning all this would have been silly: the financial equivalent of noting that drinking a cup of coffee is predicated on pouring water from the tap into the kettle and, subsequently, having recourse to a facility where undesirable substances can be washed away by flushing. Plumbing, in other words, was taken for granted in the financial world, as it is in the physical one.
Indeed, most traders and even the managers of large pension funds and investment houses had virtually no idea how the financial "plumbing" worked. The twin areas of settlement systems and payment systems - without which neither money, stocks nor any other financial instrument could change ownership, location or form - were as arcane to most of the people in the securities business as the workings of an internal-combustion engine or a laptop computer. The only thing that mattered was that when you switched them on they worked.
That naive innocence is now lost, along with so much else of the pre-crash era. All the "master of the universe" traders and brilliant fund managers now realize that there is something much more fundamental than picking the right stock or picking the right moment to buy or sell it: namely, the ability to trade at all, to complete the transaction in whatever is deemed the "normal" procedure and time frame for that market.
If you like, what has changed is the realization that the critical thing about a cup of coffee is the certainty that the when you open the tap, water will flow - potable water, at reasonable pressure. Compared to that, the specific aroma of the coffee, the blend of beans from which it was ground, or even whether the growers are being exploited by Western agribusinesses, is really very small, er, beer, as the British say.
There were people who warned that the greatest danger was not of a "crash" in the sense of sharply falling prices, but of the markets simply seizing up and ceasing to function - so that there would be no prices at all. Prof. Niall Ferguson, in a brilliant lecture to an internal Merrill Lynch (RIP) forum back in 2005, explained how the "first age of globalization" ended in 1914 not in a slump a la 1929 but in the markets closing completely between August and December. His warnings, needless to say, were in vain: indeed, in the case of Merrill Lynch, "deaf ears" would be a very generous description to use.
That is why one of the main themes of last week's conference was almost overt self-congratulation by the participants. They were applauding not the sad fact that prices went down but the happy one that despite the unprecedented volatility and uncertainty gripping the financial world in the wake of the bankruptcy of Lehman Brothers and the near-collapse of AIG, virtually all regulated securities markets remained open throughout.
Ester Levanon, CEO of the Tel Aviv Stock Exchange, was one of several speakers to relive the extraordinary pressures of those dramatic days and weeks in September-October and to emphasize the unavoidable conclusion: In a word, regulated exchanges remained open and functioned well, while unregulated or over-the-counter trading systems collapsed.
It is therefore clear that one of the direct results of the financial crisis of August 2007 to March 2009 - even if there are no further slumps in prices - will be the extension of regulation and oversight to markets that previously relied on "self-regulation" (that term itself has become a kind of sick joke). Markets that cannot be brought under the remit of a regulatory agency - if they survive at all - will be pushed into a regulatory "outer darkness," and those who insist in using them will be looked upon askance, as either fools or criminals.
Perhaps that's not nice and perhaps it's not even justified in every case, but in the new era of "better safe than sorry," of preferring over-regulation to "light-touch" regulation, and of stringent application of many rules rather than the negligent application of few, that is how the game will be played.
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