From: "Istvan Oszaraz von Keszi" <vkisosza@acs.ucalgary.ca>
Date: Thu, 21 Apr 94 04:48:04 PDT
To: cypherpunks@toad.com
Subject: Re: Dirty Laundry...
In-Reply-To: <199404182020.AA04865@access3.digex.net>
Message-ID: <9404211150.AA57749@acs5.acs.ucalgary.ca>
MIME-Version: 1.0
Content-Type: text/plain



> Oh, I wanted to point out one other fact about swapping tickets: It's
> illegal. But it is not clear that it is illegal to just place bets
> on both sides of the market. 
 
Yes, it is prohibitted to be both long and short the same
contract at the same time.  It creates a false open-interest
position.

(i.e.  It presents an illusion to the market that a position is
open when in point of fact it is a "scam" transaction, it is
misleading to participants in the marketplace.)

As to the idea of swapping tickets, it ignores normal audit
procedure.

Trading procedure is as follows:

(With thanks to Bruce M. Collins, V.P. Equity Arbitrage Group,
Index Products Research, Shearson Lehman Hutton Inc. and James A.
Schmidt, V.P. Equity Arbitrage Group, Shearson Lehman Hutton
Inc.)

A customer decides to hedge a position.  The trader phones
directly to the floor of the appropriate exchange and places the
order with a floor broker.  The floor broker executes the order
on the floor, and phones a report back to the trader, where the
order ticket is written and the customer account number is
reported to the floor.  The wire operator books the trade to the
customer's account and sends a hard copy confirm to the firm's
branch where the customer is located.

On a nightly basis, the operation area of the brokerage firm will
match all trade tickets to the hard copy confirms to verify the
contract.  The buy/sell, price, quantity, account number,
open/close will all be checked for accuracy and commissions
calculated for each ticket.  In addition, operations will send
details of the all the trades to the Clearing Corporation which
then matches buy and sell orders across brokerage house
inventories, and in the event of discrepancies adjusts contracts
and dollars where necessary.

Prior to sending the customer a confirm, a trading desk clerk
will match trade tickets and reports with the hard copy customer
confirms to verify the account.  On properly matched trades the
confirm is sent to the customer.  If a correction is necessary,
the clerk will adjust the trade and again verify all trade
information on the confirms the next morning.

Finally, the firm's margin department will settle all contracts.
A check is issued on a sell to the customer, or on a buy the
customer will deliver an escrow receipt from his bank.  In
addition, the margin department will assign operating
requirements for any opening short positions and issue and margin
call that may be necessary for new or existing positions.
(This is performed on a nightly basis.)

So, in short, yes a broker can swap tickets, however it does
leave a full audit trail.  Swapped tickets provide no anonymity.
In this regard, the problem is the same as that of remailers.  

There are additional issues as well, money laundering usually
involves laundering cash.  Firms will not routinely accept cash
deposits for margin.  Funds must be on deposit, and freely
available in order for the firm to settle it's daily accounts.