Securities Markets Basics and Ignorance

                

There is a general ignorance among many members of Congress and the public, including the media, about financial market operations.

                                       

When a financial company on Wall Street creates a form of security and places it up for sale, it is technically a market-maker, not an adviser and, therefore, has no fiduciary responsibility. Neither is it a broker, unless it sells the security.

                       

Up to fairly recent SEC admonitions, brokers have had no fiduciary responsibility. They do have to sell what is deemed ”suitable” for the customer. Therefore, a broker cannot sell risky securities, for example, to widows and orphans without their express risk knowledge. They can sell suitable risks to highly sophisticated investors.

                       

Market-makers deal with seasoned institutions who know risks. Market makers frequently sell short, in the event markets fall, often with both selling and buying positions at the same time, as a hedge.

                       

Advisers, on the other hand, generally give advice and suggestions only. They are not market-makers, nor are they brokers.

                       

Something for politicians to learn, while they point fingers at “double- dealing.”(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)