If it's merely a political decision, then politicians have spoken loud and clear for the last 30 years. Unfortunately, they haven't spoken on the side of longer time tics.

I am quite comfortable with the fact that this is a political problem. Because, as I have noted elsewhere, political problems are somebody's fault, and can be rectified by removing the somebody whose fault it is and replacing him with someone who isn't a problem.

Firstly, there is the physical constraint from the volume flow of transactions. With millions of market participants performing one or two transactions every day or every week only, for example, the total number of transactions in a single day is still huge. So there has to be constant activity to balance the books, unless you can limit the number of market participants to a handful.

Not the regulator's problem.

Ban OTC transactions and enforce a Tobin tax on all on-exchange transactions. Then you don't have to care whether a transaction takes place to balance books or to shift ownership around.

Secondly, modern replication strategies require frequent rebalancing of portfolios down to the smallest time interval possible.

Modern replication strategies are a bug, not a feature.

But, again, not the regulator's problem. Under a Tobin Tax scheme, individual participants can have precisely the amount of liquidity that they are willing and able to pay for.

- Jake

Friends come and go. Enemies accumulate.