Justice Against Stock Broker Misconduct

It is easy to see why many people enjoy crime shows like Law and Order; there are heroes who put their lives on the line confronting bad guys, there is a nefarious villain, there is a victim with whom to sympathize, there is justice to be served. However, sometimes it is not easy to see who is the bad guy when a crime is committed, or if a crime has even been committed at all. When the financial crisis of 2008 affected millions throughout the US, it came to light that brokerage firms were misleading their clients and bundling together a bunch of subprime loans that crippled the US economy. Broker misconduct, in general, can devastate large portions of the population and investors, and there are a number of ways they can do it.

This article from Business Insider goes over a history of market misconduct and lists several ways that brokers can cheat the market to line their own pockets. The FMSB, or the FICC Markets Standards Board, wanted to analyze legal cases relating to market misconduct in order to find out why this illegal behavior kept happening. According to their research, there were 250 cases just between 2000 and 2017, but they wanted to go further back. They ultimately compiled for analysis 400 cases stretching back 200 years, but Mark Yallop, the chairman of the FMSB, said they could have easily analyzed 4000. What they found were 26 distinct behaviors of misconduct that kept repeating over and over again, without regard to geography, which showed incredibly similar results to an analysis undertaken by the US senate committee in 1934. Their analysis also shows that even under stricter regulation, the misconduct kept occurring. For example, the Myanmar Stock Exchange had only been open for 16 weeks before they found instances of brokers trying to suggest that there was more demand for a commodity than there really was. This is called “spoofing,” and is just one of the 26 listed ways that brokers can engage in misconduct.

Considering how similar the findings were to the US Senate Committee findings, it is striking that malpractice of this sort has been allowed to continue and has not received more attention. With better regulations and oversight, it is possible that the 2008 financial crisis may never have happened. Of course, nothing can be regulated completely, and there will always be those who seek to cheat the system. In cases like these, there should be harsher penalties for those engaging in misconduct.

Brokerage firms are incredibly vital portions of our modern economy, so it is often impossible to shut down all illegal activity without drastic side effects, but considering how much damage a greedy banker can do to millions of people, it seems logical that they should face jail time and more serious punishment for misconduct.

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