I like to see competitors come together for the greater good of the business they love. Anyone who has been involved with trading/investing on a day to day basis for a long period of time has to love it. There is a lot of bullshit that is involved in this business.
I don’t pretend to understand how to fix stocks. But there are two really good articles from some insiders. I believe their motivation is to help the business and it is an uneditorialized look at the problems. Of course, getting the discussion going is just the start. If you let people into the debate with ulterior motives it will fizzle out, see OWS.
Mr. Ritholtz asks the question, What is Driving Investors? Hint: Many Things. Each and every point is valid. I would summarize all of his points into one sentence. Fear/survival has overtook greed. When businesses contract there is always less fat. There are probably several reasons for hedge funds that are down a little folding up but competition is one of them. Rules have reduced the mechanical edge. Reasons for the decline according to Mr. Ritholtz are:
- Secular Cycle
- Psychology
- Risk On/Risk Off
- Poor Returns Across All Asset Classes
- Deleveraging
- Wall Street Scandals I,II
- Trendless Economy and Markets (I believe the point he makes here is better than the title.)
- HFT
- ETF’s
From FADIV, Market Structure/Reg NMS. This author gives a brief history of how we got to this point and some reasonable changes to make. He says to bring the risk back. I would argue there is no such thing as a risk free market but I do know that if people do not “think” they have an advantage they will not play. My thoughts on HFT has always been that they will destroy themselves or each other. But the question is, will there still be a market by them? Here are FADIV suggestions:
- Create 20 price points instead of over a hundred, bring risk back into the formula of trading.
- Allow institutions like JPM , Merrill, Morgan Stanley, ect to become market makers
- Make all the Exchanges and ECNs compete on an even playing field
- Upgrade technology to match that of High Frequency Traders
- We need transparency. A qoute of 23.01×23.02 1×1 does not show any transparency
Once again I highlighted these two articles because I believe there is not an agenda behind them other than their love of the market. No blame game or whinny tone. None of the problems and suggestions are easy and without cost. They require a massive shift with many people already dug in. But as they say, the best time to plant a tree is 20 years ago and the second best time is today. It will not fix all of the problems but at least it creates different ones.
Also check out this post by TRB.
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