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The Whipping Post

The Whipping Post

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Published by Adam Sussman
The recent rash of market malfunctions me reconsidering the efficiency of US equity market structure
The recent rash of market malfunctions me reconsidering the efficiency of US equity market structure

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Published by: Adam Sussman on Aug 20, 2012
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2012 The Tabb Group, LLC, Westborough, MA USA
May not be reproduced by any means without express permission. All rights reserved.
The Whipping Post
By Adam Sussman, Partner & Director of Research 
I am often an apologist for our market structure. I believe in theefficiencies of electronic trading and competition. I have a deep affectionfor U.S. equity markets but perhaps this affection is a bit misplaced. Myapprenticeship in equity trading was at Datek Online, where our missionwas to bring retail investors the same type of cost structure and tradingtools that were only available to institutional players.But like another famous claim of Mission Accomplished, we may havecreated as much danger as freedom.The events over the last two years – and 2012 alone – must force anyone with even themost basic level of skepticism to question the current state of U.S. equity markets. Ourintermediaries are failing us.It is simply astounding that the type activity that occurred yesterday at the opening bellwent on for minutes upon minutes without some real time intervention from regulators,exchanges or brokers. All I keep saying to cheer myself up is thank heavens it was justmoney.As an industry, it seems we are not collectively implementing measures that wouldeffectively protect our public from this kind of egregious error.If limit up/down would have dampened the impact, then shame on us for moving at asnail's pace toward its reality.Single-stock circuit breakers do not kick in until well after the market open, wild swingsthat occur at the open do not trigger the halts. And ironically, the original expiration datefor the single stock circuit breaker pilot program was Tuesday, July 31.A cancellation tax would not have done the trick, right? If anything we should have paidfor those orders to be cancelled.Constraining dark pools is unlikely to have ameliorated the issues that occurred in thelast few months.Market access? Nope.
August 2012 

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