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Desperate kingdom of liquidity

Morgan Stanley has launched a new single dealer, over the counter platform for institutional users… Morgan Stanley Matrix.

Matrix is an elegant system and looks like it is designed to compete in certain product classes against Barclay’s Barx… and multi-dealer platforms like Tradeweb for interest rate swaps… or RFQ-hub for more exotic products…

Users can get Morgan Stanley economic analysis, visualization tools and streaming data … for some products there are executable prices and some are “request for quote” where you send a message to the trading desk to provide you with a current bid or offer…

The Matrix platform joins the parade of single-dealer and multi-dealer platforms that float in the great over-the-counter ether…

I had a nice conversation yesterday with the government relations person for one of the major exchanges in the “overflow” room at the House Financial Services Committee hearing about the differences between the regulatory oversight of exchanges and the OTC markets… we exchanged observations as we listened to members of Congress probe the witnesses about derivatives trading and clearing.

My hope is that efforts to reform the financial system will include more trueing up of the differences between these two areas. Traditionally the argument has been that OTC markets need minimal oversight because only “institutional investors” participate in those markets. But the cruel truth is that many of those “sophisticated” investors are representing thousands of small investors on an aggregated basis. And the darkness of those markets have punished investors large and small.

The epic size of the government bailouts suggests that the darkness of unregulated markets concentrated risk to such a degree that only the government had the means to backstop and guarantee failing market participants. Would empowering a “systemic regulator” make the concentrated risks of the OTC markets more manageable? Or are other approaches to regulating Matrix, Barx, Tradeweb and all their OTC brethern a more sensible approach?

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