Tagged: Broken Markets

Knight Time

Some were forced to do it themselves.

In the wake of Knight Capital’s technology glitch – if you missed it, a linchpin in trading markets was nearly undone Aug 1 by faulty trading software – some brokers who normally route order flow to Knight for handling had to execute their own trades.

They’re not as good at it. No question. But a curious thing happened. We observed a measurable increase in share of market for rational money. More volume acted like rational investment the days following.

Why? How? Today, money often puts compliance before investment considerations. Say you’re a mid-tier broker-dealer whose client is a small Midwest municipal pension fund. The fund puts a modest percentage of resources into a trading portfolio and directs trades to you because your firm’s president golfs Fridays with the mayor.

Before we continue, breaking news: I’m in New Orleans next week to sit down with JOE SALUZZI, co-author of Broken Markets, for a candid chat on what ails markets today. I’m also moderating a wild brawl of a panel discussion on the hot topics in IR today. If you’re not in the Big Easy next week, well…you’re not where you should be.

Back to our story. Market rules require that you as a broker execute trades in something similar to the amount of time that Morgan Stanley does, which is hard to do without more risk to your firm’s capital base (meaning your money takes the other side of trades if nobody else is there). Face it. A family brokerage in Bloomington, IL, isn’t going to host its servers right next to the Nasdaq’s in Trumbull, CT, like Morgan Stanley. (more…)

Broken Markets

Our good friends Joe Saluzzi and Sal Arnuk, proprietors of Themis Trading and experts on market structure, have at last written a book about markets. They guest-blog today at the Market Structure Map.

We’re out this week Riding the Rockies from Gunnison to Fort Collins, covering 450 miles and some 25,000 feet on pedals and small seats. Assuming we survive it, we’ll tell you about it next week. Meantime, read this, and buy the book, Broken Markets. Every IRO, every executive, should read it.

Mark your calendars: Plan to attend the NIRI Southwest Regional Conference Aug 15-17 in New Orleans. I’ll be there, where I’ll interview Joe Saluzzi on the state of modern markets.

Now, Joe and Sal:

Trust and confidence in the stock market has been shattered in the past few years.

Events like the May 2010 Flash Crash, the failed BATS IPO and the Facebook fiasco have frustrated investors, leaving them wondering “what the heck is going on?”

In response, they have pulled their money out of domestic equity mutual funds week after week.

Since the Flash Crash, nearly $300 billion has been withdrawn from domestic equity mutual funds, according to the latest report from the Investment Company Institute. (more…)