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And each side of a transaction carries that 6percentt fee, cutting into profit.
An asymmetry arises when one side of a transaction knows something that the other doesn't.
Amateurs nearly always have less information to go on than whoever is on the other side of a transaction.
If a bank's trading desk offers to take the other side of a transaction desired by a firm's customer, determining whether that is a short-term trade for the bank's own benefit or real market-making is a judgment call.
Advocates of this approach say that they can surmount any potential ethical concerns by ensuring that consultants and lawyers work on the same side of a transaction, and by carefully complying with rules that govern conflicts of interest and ethics.
Of course, there is always someone on the other side of a transaction; in general, it's a financial institution or professional investor, ready to take advantage of the mistakes that individual traders make.
Similar(44)
They provide a vital service to players on both sides of a transaction by – among other things – organizing information, building reputations, and benchmarking companies against their competition.
Unlike directors, who are expected to refrain from self-dealing, they are free to act on both sides of a transaction in which they have an interest.
Cross trades, however, also involve a potential for abuse because an adviser to two clients on opposite sides of a transaction is in a position to favor one client over the other.
It allowed banks to profit from both sides of a transaction: receiving a deal fee from the seller for selling a company, and an equally lucrative lending fee from the buyers.
When directors of a Delaware corporation are on both sides of a transaction, they are required to demonstrate their utmost good faith and the most scrupulous inherent fairness of the bargain.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com