When Wall Street Whines...Don't Listen

As part of financial-regulation reform, congress is pushing for derivatives—the complex financial instruments behind many of the recent debacles—to be traded on centralized exchanges, where data and activity could more readily be seen by investors. Predictably, Wall Street opposes calls for change. JPMorgan Chase CEO Jamie Dimon told analysts that such proposals could cost his bank from "$700 million to a couple billion dollars," and industry players warn that investors would suffer if trading becomes more transparent. But history has shown that banks often don't know what's good for them.

In the 1930s, banks opposed the creation of the SEC and FDIC, which laid the groundwork for the industry's remarkable growth over the next 80 years. In 1975, over the howls of Wall Street, the SEC did away with fixed commissions. Yes, profits from executing trades were pinched, but the discounters that sprang up as a result brought in millions of new investors. In 2000 and 2001, the SEC ordered exchanges to switch from the archaic method of pricing stocks in eighths, to decimalization, or prices in pennies. Market makers objected, but customers got better treatment and equity trading boomed. More recently, the SEC forced firms to post corporate bond-market trades on a central clearinghouse. The result: Wall Street wails, a better trading environment for investors, and higher volume. Meanwhile, whether it was the erosion of the Glass-Steagall Act or getting license to increase leverage, the few times that Wall Street has gotten its way, catastrophe has followed.

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