From: Andrew.Probert@f20.n772.z3.fidonet.org (Andrew Probert)
Newsgroups: k12.ed.business
Subject: finance and economics 1/
Date: Sat, 02 Jan 93 01:02:00 PDT
Organization: FidoNet node 3:772/20 - IBM NZ Ltd Gate, Auckland

G'day, Paul. I am really sorry about my delay in answering your last
message to me, however, I got caught up in the Christmas hassle, and
haven't been able to find time for BBSing for the past week or so.
I found your most recent two messages to me interesting. I will address
each point as it arises.

CH=8>I am glad to know that you are a lawyer and consumer
CH=8>advocate.

First, Paul I should make it clear to you that I am not as of yet a
qualified lawyer. Instead I am still a student of law and economics at
University. My real bent in economics is on what might be called the
micro side of things, ie looking at human behaviour on an individual or
small group level. This has tied in very nicely with my legal training.
However, my degrees have been oriented towards the business side of
things, and I have found the area of financial economics intriguing. The
analysis of share market bubbles ( ie the fundamentals vs bubbles
debate) is particularly fascinating. I have recently been getting into
the mathematics of Chaos theory as a result. Its wonderful stuff.
You say that

CH=8> My name is Paul C. Y. Huang,
 CH=8> is Paul C.  Y.  Huang, afincancial consultant and teacher
 CH=8>living in Taiwwan.  I received my education from the
 CH=8>University of Chicago with a M.A.  degree in Economics. CH=8>Now I
 am a consultant with the Taiwan Stock Exchange, and CH=8>manage the
 Taiwan Institute of Finance and the Future's CH=8>Astrological Center

I find this very interesting. Its seems that the University of Chicago
is a sort of Mecca for economists. A lot of the economics lecturers at
the universtity have done graduate degrees there or at the universtity
of MAdison-Wisconsin at some point. Moreover many of the economists who
wrote the textbooks that I use teach at the University of Chicago or of
Madisoin-Wisconsin.
Are you versed in Chaos theory in your line of work? If not there is a
really good book on the subject for economists that has just come out,
that I can let you have the details of if you like.

Tell me, how old is the Taiwan stock and futures exchanges? From the way
in which you have been speaking it seems like they are not particularly
old. Surely this is not so. With Taiwan's famous roaring economy I would
have thought Taiwan had had such exchanges for at least a couple of
decades.
Noow I will address the main points of your message.
You said:

CH=8>At the Taiwan Stock Exchange, we are considering CH=8>to start up
an "Investors Protection Fund". We have spent a CH=8>lot of time in
thinking about the following questions: 1. CH=8>How should the fund be
initially funded? 2. In case of CH=8>compensation to investors, how
would the spent-fund be CH=8>replenished? 3. How can we use "fidelity
insurance" of CH=8>securities brokers to give investors further
protection in CH=8>case of brokers' fradulent activities?

Have you come up with answers to these problems, and if so what are
they? Also, what exactly would the fund be designed to protect the
investors against? Fraud and negligence on the part of brokers? Or would
its coverage extend to investments in shaky corporations where the
investor did not have the information to realise the unsoundness of the
investment, and yet there is not enough evidence to show fraud on the
part of the corporation or broker nor any real evidence of negligence?
If the latter is the case I would think that at least some of the
investment insurance fund should be drawn from the investors themselves.
Are you talking here about a protection fund set up by brokers and
financial advisors to protect clients against the misdemeanours of
member brokers ( something like a Law Society Fidelity Fund)? Or are you
talking about a scheme which investors themselves actively take part,
say by buying into it?
If you are talking about a Fidelity Fund set up by some stockbrokers
organisation then I would have thought that the way to keep a fund in
money was to have a periodical levy of all members according to
seniority of position in the business. This is what is done with the
Fidelity Funds of lawyers. Of course the real issues would be:
1. To ensure that all financial advivers and brokers belong to the
society and so are liable to pay the levy, at least if they want to
practice in the business.
2. To clearly define the occasions on which money will be paid, and to
arrange for a proper management of payouts, ,including an appeals
provision.
3. To correctly assess the sum at which the levy should be set.
Such a scheme for lawyers has recently come under stringent by both
lawyers and the public in the past year or so here in New Zealand. The
lawyers think they are paying too much for the misdemeanours of a few,
and wish to close down the fund, whereas the public believes the fund's
coverage and size is not big enough. The end result will probably ber a
fund much restricted in scope.
I should think that if this is the sort of protection institution that
you are putting into place, you will run into problems persuading
memeber brokers and advisors to pay up.

If instead you are contemplating a sort of insurance scheme then I would
think that it shoud be kept in money and managed inthe same way any
other insurance business is managed.
>>> Continued to next message
___
 * SLMR 2.0 * Unable to locate Coffee -- Operator Halted!


--  
uucp: uunet!m2xenix!puddle!3!772!20!Andrew.Probert
Internet: Andrew.Probert@f20.n772.z3.fidonet.org