October 10, 2018
the OTC desks have a better measure of the market than any exchange-specific reference price, whether individually or indexed across multiple exchanges?
This means larger players in an Obscured/Dark portion of the market can exploit retail participants inexperience via an information gap. Game theory encourages implicit collusion between players with full knowledge of market structure against players with limited knowledge of market structure.
Don't require a NAV derived from limited access insider information of OTC bid ask etc., require full disclosure to the retail public of all information from which the NAV is derived as the price of admission. If OTC desks want to play with any SEC sanctioned actor they should be required to disclose as close to all historical bid ask spreads and executed transactions as possible while not excessively infringing on the identities or privacy of individual participants transacting across those desks.
The fact that John Q Public can only speculate at wildly varying estimates of order flow of the obscured portion of the market ensures that when opportunities to induce panic selling or euphoric greed by creating and perpetuating false narratives and suppressing or propping up price to fully exploit the lesser informed, that these manipulative endeavors will be more more exploitative, more effective, and more frequent.
Inordinate focus on KYC/AML and Custody will prove to be wasted energy, focus on regulatory details that encourage a free market to be more transparent and therefore more fair will aide the greatest number of participants.
Don't protect individuals from risk or from themselves. Protect them by encouraging the games they choose to play are conducted with an aim towards fairness.
-J.P.