We need a new stock market exchange that is a transparent, retail-trader friendly alternative to the manipulated HFT-dominated pseudo-market we now put up with.
CHS: Your book poses this question: what can we do to restore the integrity of our stock markets?
Scott: This is essentially the role of the SEC, and it’s pretty clear that they’ve dropped the ball. In part this is due to the dramatic speed of the technology revolution that has completely overhauled the market. It’s easy to forget that just 10 years ago humans dominated trading. While, as I show in Dark Pools, the revolution had already begun in the early 2000s – sparked in many ways by Josh Levine and The Island ECN he build – it remained in its infancy. But now it’s clear to anyone paying attention that the market has been transformed, like a VW Bug turning into a Formula One race car, and the SEC doesn’t know what’s going on under the hood.
This conclusion isn’t up for debate. Mary Schapiro as much as admitted to Congress last year that she and her agency can’t surveille the market. That really is worrisome for obvious reasons. So what are they waiting for? It’s true that recently the SEC approved the so-called consolidated audit trail, or the CAT, which is billed as a giant eye in the sky for the market. But it’s still in the planning stages and who knows when it will actually be implemented—or whether it will actually be able to capture what’s going on.
CHS: While there are various regulatory “tweaks” that could be put in place (requiring a holding time of 1 minute for all securities, for example), I wonder if we don’t need a more fundamental “re-set” that asks what role the market should play in finance and the economy inhabited by everyday investors.
Scott: I think there are a lot of people in the industry wondering about whether there needs to be a massive overhaul. But it’s probably not a good idea for that to be imposed on the market by the SEC. The uncertainty would be potentially destabilizing. And I just don’t see it happening.
I think the change needs to come from within the market and needs to be imposed by its most important users—I mean, not the high-frequency traders, who are running the show at the exchanges in many ways—but the institutions, the giant mutual fund companies, the pension funds, the long-short hedge funds. They need to exert pressure on the exchanges to stop giving advantages to high-frequency firms.
Part of the problem is that many of these firms haven’t been paying attention to the changes, and again I point to the speed with which they have taken place. But more are waking up – I hope in part because some of them have read my book.
Resistance, Revolution, Liberation: A Model for Positive Change (print $25)
(Kindle eBook $9.95)Read the Introduction (2,600 words) and Chapter One (7,600 words) for free.
We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.
The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution.Rather than being powerless, we hold the fundamental building blocks of power. We need neither permission nor political change to liberate ourselves. A powerless individual becomes powerful when he renounces the lies and complicity that enable the doomed Status Quo’s dominance.
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