Venue consolidation could improve US investor confidence
US market participants believe new
regulation to reduce the fragmentation of equity markets would minimise the
types of technology glitches that have occurred this year.
The call for action was part of a survey by
consultancy TABB Group, titled ‘The sky is falling’, which polled 260 market
participants on the level of confidence they had in US market structure.
Almost half (47%) of the buy-side thought new
regulation was necessary to revive investor interest in US equities, compared
to 21% for exchanges and 29% for brokers. Trading venues and sell-side firms
saw the performance of US equities relative to other markets as a more
substantial factor that would reignite confidence.
Looking at the type of action regulators
should consider, the largest proportion of sell-side firms (30%), buy-side
firms (36%) and trading venues (38%) all claimed a reduced number of equity
trading venues would restore conviction in US stocks. A further 31% of buy-side
called for policy makers to slow the market down to minimise market structure
Two-thirds of buy-side traders urged
regulators to implement new rules with six months.
So far this year, the US equity markets
have been beset by a spate of technology errors that have eroded investor
confidence. Most recently, Knight Capital came close to extinction after its
market-making system sent duplicative orders to the New York Stock Exchange,
leading to US$440 million worth of losses for the firm. Around 58% of the asset
managers and hedge funds questioned by TABB considered the Knight incident to
have a medium or significant impact on market structure confidence.
The hotly anticipated IPO of Facebook was
delayed for around 20 minutes after Nasdaq OMX had trouble setting an opening
price for the stock, while BATS Global Markets was forced the cancel its own IPO,
the first stock to have been issued on its own new listings service, after a software
According to the TABB study, one-fifth of
buy- and sell-side firms questioned considered the Facebook IPO to have the
same impact on long-term investor confidence as the Madoff scandal from