We were recently made aware of a certain brokerage firm’s newsletter, in which they try to downplay the market structure shenanigans that have been happening with increasing frequency. They claim that clients are asking them whether tech glitches, hiccups, mini flash crashes, and broken trades are happening much more often, or if it only seem that way due to more media coverage. Their answer to those clients is that it only seems that way, as media and pundits focus attention on it, and they scare people unnecessarily.
This brokerage firm cited NYSE data that showed that according to one metric – broken trades as a percentage of trade volume, our markets are safer, as that statistic has fallen sharply since 2004.
This metric is a joke, because today, trades only get broken if they breach wide “clearly erroneous” thresholds. This metric is a joke, because that NYSE data referenced would ignore all micro flash crashes, where stocks move 3-5% and back within one second. This metric is a joke, because exchanges were not capable of executing 1000 trades in a second until after Reg NMS (2007). Talk about manipulating data to suit your viewpoint!
Seriously, here you are – sitting and enjoying $8 trades, nice tight spreads, and added liquidity – and these troublemakers, pundits, and media jokers continue to point out tech glitches du jour, mini flash crashes, and market structure mayhem! How dare they! What should you do? I guess that brokerage firm would like you to:
– Ignore those 2012 IPO Malfunctions.
– Ignore Nanex’s Month By Month Catalog of “Events” (by the way, most of these were never picked up by the media).
– Ignore the fact that Knight, one of the industry’s bedrocks and most sophisticated brokerage firms was nearly put out of business due to a faulty market making algo.
– Ignore the Wall Street Journal: Nasdaq Cancels Trades Over A Firm’s Bad Data.
– Ignore the Wall Street Journal, and concerns about Order Type Abuse.
– Ignore the Wall Street Journal, who point out that there is a Dark Pool/Exchange hearing coming up, headed by Senator Reed.
– Ignore the fact that exchange volumes are down nearly 40% in three years.
– Ignore the fact that even the Investment Company Institute has written the SEC to complain about investor treatment at stock exchanges.
Instead, listen to that brokerage firm. Just look away – because there is nothing to see here.