Reference no: EM131206060
Assignment
The Regulatory Origins of the Flash Crash9
On May 6, 2010, the stock market suddenly swung a thousand points. Nobody really knows why. But Dennis Berman, in the Wall Street Journal, has a clue: Maybe the regulators did it. He notes that it results from 1975 market reforms aimed at eliminating market makers who were increasing trading costs by increasing spreads:
By the time the last big market reforms were issued in 2005, the intent was to "give investors, particularly retail investors, greater confidence that they will be treated fairly," the SEC said at the time.
But now those greedy market makers have been replaced by machines, leaving nobody with the responsibility to step in at a time of distress like the flash crash. So according to Berman, we have traded cheaper up-front costs for unknown back-end ones. That is exactly what is spooking the same investors the SEC vowed to protect in 2005.
Congress is now thinking of fixing this system, apparently suggesting that maybe investors are not, in the words of Delaware's Senator Kaufman, "best served by narrow spreads." And we'll undoubtedly get a regulatory fix, perhaps in the form of the Dodd-Frank bill enacted in 2010. But will additional regulations solve matters? Berman quotes Vanderbilt's William Christie: "It's kind of like a balloon-you squish one side, and it pops out the other."
Exercises
1. Could it be possible that a government regulation led to the flash crash? Explain.
2. What does it mean "it's like a balloon"? What is like a balloon? Why is it like a balloon?
3. Explain why government regulations to restrict some activity occurring in a free market typically end up making matters worse.
4. Who supported the Dodd-Frank bill? Who opposed it?
|
Determine the voltage across each capacitor
: For each configuration of given figure, determine the voltage across each capacitor and the charge on each capacitor.
|
|
What are critical challenges associated with valuing a firm
: What are the critical challenges associated with valuing a firm with significant intangible assets? Should valuation approaches be adjusted to accommodate the differences? If so what differential approaches should be taken?
|
|
Determine the given 100 ms after the switch is closed
: For the network of given figure, determine the following 100 ms after the switch is closed: - If the switch is moved to position 2 one hour later, find the time required for vR2 to drop to 20 V.
|
|
Why these concepts will be useful to you in your current
: Describe the three (3) most important concepts you have learned about marketing in this course. Explain why these concepts will be useful to you in your current or future position.
|
|
What does it mean it is like a balloon
: What does it mean "it's like a balloon"? What is like a balloon? Why is it like a balloon? Explain why government regulations to restrict some activity occurring in a free market typically end up making matters worse.
|
|
How many topological orderings does it have
: Consider the directed acyclic graph G in Figure 3.10. How many topological orderings does it have. The algorithm described for computing a topological ordering of a DAG repeatedly finds a node with no incoming edges and deletes it. This will eventu..
|
|
Find the voltage across and charge on each capacitor
: For the circuits of given figure, find the voltage across and charge on each capacitor after each capacitor has charged to its final value.
|
|
Contrast mechanistic and organic organizations
: Do you think it's ethical for a prospective employer to delve into an applicant's life by means of interview, test and background investigations? What if those investigations involved looking at your Facebook page or personal blogs? Explain your p..
|
|
How would you implement it to ensure compliance
: Why is a code of ethics an important part of every business from an employee standpoint? Once you have written the code of ethics, how would you implement it to ensure compliance?
|