Behavioural Consequences – The UK Bond Market Rigging Scandal

Health Warning: The UK Bond Market rigging issue is all behaviourally driven. We express a personal opinion in this post and do not endorse or condone breaking any jurisdiction’s sovereign laws.

We would like to contribute a very short thought piece on this issue. Our premise basically goes like this and is grounded in behavioural theory:

2012 Behaviour Matrix copy
2012 Behaviour Matrix copy (Photo credit: Robin Hutton)

Take away any sensible incentive (by over regulating the market participants) and you create the disincentive for cheating behaviour to manifest. Simple.

It is a natural competitive behaviour to ‘cheat’ or try to cheat a system that becomes ‘badly’ designed, as in the case of the highly over regulated bond market and an environment of very low yields.

We find is amazing that the popular press only tend to focus on one side of the equation and distort the real issue and underlying drivers that lead tot cheating behaviour.

Illustration for Cheating Français : Illustrat...
Illustration for Cheating Français : Illustration d’une antisèche Español: Ilustración de una chuleta Deutsch: Illustration zum Schummeln (Photo credit: Wikipedia)

The rule of law should be the overriding guiding principle and helping to design markets and market participant behaviours based on properly incentivised interactions is part of any regulatory system. In the recent past, we have forgotten to bear this in mind…

…and then we act surprised when market actors (participants) misbehave?

theMarketSoul ©2013

Related articles

Transaction Cost Economics is ruining everything!!!

…or is it regulation and process not taking into consideration Transaction Cost Economics?

This post is really a little rant.

We just tried to contact a well known global financial services institution in London in order to enquire about the opening of a corporate bank account.

We have a few why questions and cannot figure out if it regulatory or process driven.

1. Why can’t we get the correct number to call off the web site?
2. When we get through to someone and identify the product/service we require, why are we given the incorrect follow up number to call?
3. Once we get through the automated call processing system, why can’t the customer services representative do a simple thing for us, by transferring us to a supervisor or competent person with authority to speak to?
4. Why are the customer services representatives so wedded to a pre-prepared script.
5. Why have the management consultants who designed these systems not taken into consideration the basics of Transaction Cost Economics(TCE)?

…we think the rant should end there; but more on TCE to follow in future posts.

theMarketSoul (c)2013