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Posts Tagged ‘know your customer’

JP Morgan – Madoff : Lots of ‘CYA’ But Little ‘KYC’

Posted by Larry Doyle on January 8th, 2014 7:46 AM |

Oh what a tangled web we weave when first we practice to deceive.

All too often we have heard senior level individuals from an array of financial institutions and regulatory agencies say that they too were deceived by the master swindler Bernie Madoff.

That sort of lame excuse might work for a naive young teenager duped by an online scam artist trying to make a quick buck. It certainly does not and should not hold any water for senior level bankers running an institution like JP Morgan. Why is that? (more…)

“KYC” and “Suitability” Violations Occur All Too Often on Wall Street

Posted by Larry Doyle on October 26th, 2009 9:33 AM |

“We’re in the moving business, not the storage business!!”

If I had a nickel for the number of times I heard that line on Wall Street, I’d have a lot of nickels. That statement would coarse across many trading floors to push salespeople to sell, sell, sell and sell some more.

The sales process on Wall Street is not supposed to be the ‘boiler-room’ operations as so often depicted in films and books. Wall Street sales is not supposed to be a mere “dialing for dollars.” Prior to engaging prospective clients, salespeople and sales managers are obligated to address certain requirements. What may they be? The two primary requirements are:

1. KYC, an abbreviation for “know your customer.” This requirement addresses the need to fully understand the client’s business, its source of funds, its investment objectives, and much more. This requirement is extremely important, but regrettably often not fulfilled. Instead of “KYC,” many salespeople and sales managers view customers more from the standpoint of “he has money, I like him.” Given that shortsighted view, Wall Street often violates the second cardinal rule of sales.

2. Suitability addresses the requirement that an investment product meets the objectives of the customer. Interpreting this requirement is not as easy as some may believe. Where is the line drawn? What product may fit? What products definitely do not fit? All too often, the topic of suitability is addressed after the fact rather than prior to sale. Why does this happen? (more…)

LD’s ‘Rules of Trading’

Posted by Larry Doyle on September 2nd, 2009 3:17 PM |

I loved my 15 years worth of trading experience on Wall Street. I thrived on the energy, competitiveness, and discipline critically important to generating long term profitability.

While many media outlets focus on the energy and competitiveness involved in trading, rest assured the real key to successful trading and investing is discipline. In my opinion, this characteristic receives far less focus and attention than it deserves.

I believe discipline is both an intrinsic and acquired trait. In fact, often the real benefits from a disciplined approach are the lessons learned from being undisciplined. Believe me, I learned many of these lessons early on and throughout my career on Wall Street. I accrued plenty of losses in the process.

How did I develop and maintain a disciplined approach during my 23 year Wall Street career? Very simply, I kept a written list of ‘trading rules’ on a piece of paper typically taped to my computer terminal.

High five to AS with whom I developed these rules back in the mid 1980s. These rules not only helped me generate profits, but more importantly kept me from making trading mistakes and thus avert losses.

Let’s review the rules that I applied to trading mortgage-backed securities in the 1980s and 1990s. In many respects, I continue to apply a semblance of these rules today.

LD’s Rules of Trading

1. Market Goes in the Direction Which Hurts the Most People
I would check the stochastics regularly to monitor when the bond market (typically the government bond market) was approaching an overbought or oversold condition. Assessing this measure is decidedly more challenging currently given the presence of Uncle Sam in the marketplace.

2. Never Short a Specified Bond
How often I would see traders short specified bonds without any appreciation for the available float. Initial short sales may appear to be profitable only to turn into nightmares when the trader had to find the bond for delivery to the buyer.

3. Never Set Up for a Trade
This rule specifically addresses a trader’s inclination to establish a trading position based upon color from a client that the client himself planned to enter into the trade. Experience taught me that often the client would find a reason not to execute the trade and now the trader was stuck with the position. (more…)






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