Ban OTC? How are you going to do that?

Same way you do with gambling, price fixing cartells or any other contract the government wants to get rid off. Ban the action and give it suitable punishments, make it possible for government to seize assets if the action is revealed, and refuse to let the criminals use the governments resources to uphold the contracts.

Illegal activities will always still happen, but it will be riskier and less profitable. And thus probably less common.

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Ban OTC? How are you going to do that?

Simple. You cannot legally change ownership of anything that is traded on an exchange without notifying the exchange and paying the Tobin Tax.

The same way that you cannot legally change ownership of a house without notifying the local zoning authority and paying stamp duty.

Private agreements that, at some future point in time, securities that are traded on exchange will change hands should be similarly unenforceable, unless they are registered with the exchange. Precisely the same way that I cannot hold you to a promise you make to sell me your house at some agreed-upon time at some agreed-upon price, unless the contract has been signed and notarised.

Contracts between private third parties require the government to enforce them. So if the government ceases to enforce certain kinds of contracts, they cease to have meaning as contracts and become much vaguer kinds of promises. Private enforcement of such promises is what's known as "blackmail" and it is usually frowned upon in polite society.

Why? A replication strategy is only a sequence of trades, such as any person might do. The difference is in the player's mind. Whereas a casual investor has no idea what the end result of his investment strategy will be, beyond a nebulous hope of increasing his wealth, the replication strategy is designed to create a specified function of the underlying stock.

Yes, and that's the problem. It works on the stock price to generate revenue, rather than the underlying cash flow.

Which is a bug, not a feature.

And Tobin concerns exchange trades only, right? What private companies agree between each other about what they will or will not do on the exchange is not covered, right?

Correct. But if such agreements are not enforced by the state, the first time any party finds itself in a losing bet he can simply walk out without further discussion.

- Jake

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