The electronic marketplace. Oh joy. Forgive me if, as an admittedly biased old auction market floor trader, I just do not see the legitimate advantage gained through algorithmic transactions that take place in microseconds because milliseconds are just too slow in the modern era.
You know, back in the day, if a floor trader did a lousy job, there was heck to pay. The trader's client actually knew when he gave you an order, and how long you had it. You had to beat the average price of that stock over that time frame often enough to keep that client.
Flash forward. I don't think half of these kids on modern trading desks would even begin to understand if they were handed a poor execution that had been handled. Speed is all that matters.
For a year or actually for several years, while volatility slumbered, nobody listened to those of us who actually did know that there was a fairer way to treat the public.
Now, as volatility has exploded, it has become all too apparent that the speed of not only execution but also the speed with which these algorithms can cancel one side or the other, causes excessive imbalances, and thus overshoots in both directions.
It's a small wonder that 20 years ago, when folks found out that you worked in the stock market that they would automatically ask you questions about what you did. Now, not so much. In fact, nobody cares. If I were to ask my neighbors if they invest, they might say, "Oh yeah... I have a 401K," or the more financially educated among them might offer something like, "I think I'm in a tech fund."
Something is going to have to change in order to re-establish the public trust, and to indicate that markets can function well, in a stabilized fashion more often than not.
I understand that we cannot go back to open outcry, though there was nothing like it for competitive kids like myself. However, perhaps it is time to re-examine the centralization of one point of sale for each security, slowing down execution.
I love the idea of a speed-bump.
Lastly, what's wrong with trading in nickels or dimes instead of fractions of pennies? Maybe if actively traded stocks were traded in nickels, an actual book could build up with transparent bids and offers of significant size. That might restore faith to the process of price discovery. Ahh, price discovery...
Does anyone remember laughter?
Makes sense to me.
(This commentary originally appeared Dec. 7 on Real Money Pro, our premium site for active traders. Click here to get great columns and trading ideas each day from Doug Kass, Tim Collins, Paul Price and other experts throughout the market day.)
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