Rap, Rapped ... Again

Earlier this year, Martin Rapaport was criticized for raising prices too dramatically, after weeks of not raising them at all in response to market speculation.

Now, five months later, he’s being criticized for lowering them, as some argue there wasn’t enough volume to warrant his two separate decreases (which happened last week and three weeks ago.)

The recent controversy isn’t too surprising, as Rapaport inevitably gets flack when his list goes down. That’s not necessarily fair; to have credibility, a list must go up as well as down. About a month ago, traders in India asked him to freeze his list in light of the crisis. Obviously, that is not going to happen. Nor should it. But, considering his list has been around some 30 years, it’s striking how disputed some of his calls were this year, and that his list is as controversial as it’s ever been. (See this statement from a Belgium group.)

As one person just wrote to me: “He’s been way too aggressive this year. We need more consistency. What is his policy statement? When the market is booming, he decides to freeze the boom by drastically increasing the price list. Then, when there is hardly any activity in the market, he decides to reduce prices. How does he decide this? Does he want real prices to trade above the list or below the list? And does he have set amount of time before he changes prices from now on?” (These are interesting questions, and I would love to hear Martin weigh in on them.)

When one person has such a major impact on what goes on in the market, you can’t make everyone happy. People have been complaining about his list, and following it religiously, since its inception.  And, even these days, where there is a lot more information available, the Rap list—which, as we all know, represents one man’s judgement of the market—remains the leading market force on prices.

Rapaport is an institution, and that’s not going to change.  Regardless, many now tell me they think the future is  in computer-generated, non-opinion-based price lists, based on what’s put on trading networks and other accessible information.

Rapaport has already unveiled an automated list based on his Rapnet service, and his competitors, Idex and polishedprices, have variations of them as well. An automated system won’t solve every problem – for example, you still have the question of whether a small volume of trades should impact listed prices. They could show a lot more volitality, which always makes people uneasy. And prices will still fall, which people will object to under any circumstances. Maybe that’s why, for all the complaints about "the list," none of the automated lists over the years have really taken off.

Even so, the right, well-accepted system might avoid a lot of these controversies — you can’t yell at a computer for lowering prices. And it would, in theory, be a lot more transparent. (That’s assuming transparency is what the trade wants. Which is another question altogether.)