Overall US equity volumes for 2012 declined 18.5%, averaging about 6.5 billion shares a day. Interestingly, as quiet as equity volumes were last year, the volume of chatter around the markets was louder than ever. Several events in 2012 caught the public’s attention, and not in a good way.
Equity markets have a long history, and they often have been referred to as a well-oiled machine. But a number of malfunctions and investigations across trading venues have thrown a monkey wrench in the works. From the botched Facebook IPO, to Knight’s rogue algorithm, to the various dark pool investigations, each incident was damaging in its own right; but collectively, they have made it clear that some measures must be taken to address the current structure of the equity markets and boost market confidence.
[Related: “Changing the Equity Market by Fixing Broken Windows”]
Perhaps the lack of volume has put unbearable pressure on trading venues to come up with new and creative ways to amass liquidity. Brokers and exchanges are constantly trying to figure out any way possible to bring liquidity to their customers, and now the ways in which they attract and aggregate that liquidity are coming under scrutiny. Innovation is a good thing -- but not when it hurts investors, and this is at the heart of regulators’ concerns.
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5 Comments to "The Year of the Snake: Is Radical Change In Store for the Equity Markets?":
crammond1964
16 January 2013
one of main issues are its pryamid of command .. At a TABB debate yesterday it was pretty clear that regulators are totally unwilling or unable to interfere with exchange structure !
Therefore if one exchange allows "abuse = libor then regulators are unable to act at source . It appears no one is in charge overall therefore making manipulation go undetected longer .
I find it strange how ANY sane regulator allowed "dark pools " to exist and predict these to be the problem in 2013 as I believe HFT is now history ; and not a good or legal one .
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asussman
16 January 2013
I believe 2013 is going to set up the coming years for the next evolution in US equity market structure. So, while we may see a concept release or even one or two minor proposals this year on equity market structure, I do not think any radical changes will come down from regulators. The snake is just beginning to molt.
Comments (159)
groenfeldt
16 January 2013
Pragma has just published some interesting research on HFT and commented on fragmentation and regulatory direction -- see my post
http://www.forbes.com/sites/tomgroenfeldt/2013/01/16/high-frequency-traders-and-current-market-structures-penalize-investors/
Comments (12)
rethink
16 January 2013
At a minimum, it appears the fragmentation pendulum has swung as far left as it is going to. It wouldnt surprise me to see consolidations between venues ahead of actual regulation.
Comments (1)
icetiger01
16 January 2013
Somehow it appears that many if not all of the people who write for and comment at this site don't have a clue why individual investors have pulled out of the market. In my 3 years in the market since retiring it has never been a "well oiled machine". Have you not heard of the flash crash on May 6, 2010 when it was the individual investors who lost more than the 200 million dollars Ms. Schapiro estimated in her speech? Have you not heard about something called direct digital control in which a computer adjusts downward the temperature of a reactor (read a stock's price) by adjusting the manipulated variable of the amount of cooling water circulated (read the number of shares a naked short seller offers for sale)? Have you not read Senator Kaufman or R. T. Leuchtkafer's comments on market structure. Did you not read the recent report by Kirilenko stating that HFT's hurt investors. Individual investors are not as stupid as market "professionals" would hope. Ms. Schapiro at least had a clue as to what was going on way back in September 2010 when she spoke to the Economic Club of New York -- even if the SEC has done nothing about it.
Comments (1)