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Comment by t-3 | Hacker News Reader

I support the idea, but I don't think it will make much of a difference because there are bound to be too many loopholes to be effective. I think stock market reform would be more effective - ban calls and puts and other forms of speculation. Speculation invites manipulation and incentivizes unethical actions, especially when paired with power and information. The best, but least realistically possible, thing would be to fix the problems with regulatory capture in the SEC and other oversight and enforcement agencies that are supposed to be punishing politicians.

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I take as dim a view as anyone of hyper-financialization: the incentive for a sophosticated market participant to market high complexity instruments to cless sophisticated counter parties is clear and pernicious. If we had allowed the CFTC to regulate OTC derivatives products in the 90s we'd be living in a different timeline.

But standard American and European options contracts are neither complex nor uniquely suited to speculation. These instruments are so fundamental that in many treatments you use them as the atoms from which to build more familiar instruments (theres a great MIT OpenCourseware about the martingale construction of an equity from binaries and calls, British guy, forget his name). You can explain such instruments to a precocious child and they've been in use by merchants and farmers and all kinds of people into the mists of antiquity.

It gives responsible financial regulation a bad name to be like "its the puts and those damn calls!"

The purpose of stocks is to raise money for a company. The purpose of the stock market is to give those stocks liquidity.

The further away from this basic framework we go the more dangerous it gets. Derivatives are not inherently antithetical to the basic framework, but they present new options and opportunities for market distortion that can't be ignored. We've seen how badly things can go, numerous times. And that doesn't even address the problems you get with wealth concentration, especially when your currency is untethered to some sort of commodity and can inflate more freely.

I'd like to see some real changes, but the problem is that the people who would make changes are so tied up with the market itself that any changes are superficial and often merely present new avenues of chicanery. It's not likely anything will be done, and when the next collapse happens, no lessons will be learned.

Options are literally just insurance plans for stocks.

Just like car insurance or home insurance. They are called options, because when you get in a car crash you have the option of calling your insurer, because you purchased insurance. When your stock crashes, you have the option to call the counter-party to cover the loss.

If options were called "insurance contracts", they would still be the same thing, and probably more understandable to the public.

Options and futures are very good price discovery mechanisms. Forcing people to only take long positions is not a good solution. Speculation is not a problem, nor is utilizing asymmetric information in markets, since this all comes out as the price. The problem is that congress has a government enforced monopoly on a large quantity of various types of important information.

Why is it one or the other? Why not both? Maybe this ban can have a small dent, and some other laws have other dents too, when added together makes at least some difference.

Kind of similar to how Spain is fighting vacation rentals. Yes, each individual new law and change won't immediately fix the problem, but each enacted change makes a small difference and currently we seem to be moving in a really great direction to eventually have at least that particular problem solved.

I never suggested it was one or the other, I just don't think this approach will be effective because it's filled with obvious loopholes and the existing laws aren't enforced anyway, but I am generally of the opinion that a smaller legal code is better, because people have to be able to know it to follow or enforce it.

Options can be used for speculation but they are also frequently used to reduce risk/exposure. Covered calls and married puts are just a couple of such strategies frequently used by retail investors. We shouldn’t ban those tools just to prevent political corruption. We should be enforcing the law when it comes to insider trading and market manipulation much more effectively.

That's silly. Futures are an essential part of commodity trading and market liquidity. We don't need to kill market functions to prevent blatant political corruption. Just limit congresscritters to blind trusts. Done.

"And other forms of speculation"...

Like buying the stock? You're not talking about reform - you can't remove speculation from the stock market without banning stock markets entirely.

I agree that market manipulation (especially by those in power) is an enormous problem. Can we hope to truly fix that? Or are we just going for damage control by banning derivatives or the entire stock market?

Historically, speculative instruments such as options as well as short selling have been outright banned in many countries. The British options trading ban in the 1800’s lasted for over a century.

> I think stock market reform would be more effective…

Not disagreeing that reforming the Stock Market is important, but the discussion is more generally about removing money from politics.

The legislation is trying to stop insider trading by legislators. Stock market reform could mitigate much of it (although I don't know that it's something that causes any kind of real-world harm, it provides incentives for legislators to do even more unethical things, like manipulating the markets). Removing money from politics is much, much broader and way more complicated.

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