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Themis Trading co-founder Joe Saluzzi on the impact on retail investors of the current market structure.
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Start the FaceBook situation is -- a lasting effect on the market and market psychology investors.
Are now putting less money into stock investments this drawback is really not unique to FaceBook -- we really have to be honest about that.
Markets also saw a reduction in cash flows after that flash crash of may have 2010 David and I were anchoring that very moment when the market drop not notify.
The flash crash -- have memories -- that had just.
Pretty much been taken out of folks who have memory until FaceBook came in and then they saw other problems retail investors are really taken it on the chin.
-- Lucy is the co-founder of theme is trading and author of -- markets how high frequency trading and predatory practices on Wall -- -- destroying investor confidence and your report -- -- coauthor along with -- sell my partner -- on -- -- endless.
It very simply very concretely what's wrong right now with the way -- or -- what's the single -- biggest problem.
All I'll say one words fragmentation is over third this thirteen stock exchanges and over forty dark pools there's many destinations used to be pretty much you know what -- in the NASDAQ in the New York Stock Exchange.
Now there's many destinations -- with competing interest which create decent competition good what you would think so except when it comes to stock markets in the sense of this this is the base of our.
And economy if you wanna think about that -- and what they're doing is they're creating -- my new pricing arbitrage is amongst destination it's okay not amongst Coke vs Pepsi is and I bet.
I can trade on New York vs NASDAQ can get a millisecond advantage over someone so what's happened -- There are two cheers and investors now.
They're the haves and the have nots -- -- who want to buy access.
To this type of system where you can create your own quote -- you do would you call -- -- -- computers get access to data feeds.
Okay the exchanges give you all of these kind of perks.
-- the have -- using the money to do that you know lots of money union software engineering needs some -- you -- a -- he can't just walk in there yourself and do it tomorrow.
There's basically creates two quotes is the quote that I frequent traders see some of the quote that the retail investors -- Which did SEC has defined there are separate quotes which means that if you can see it better you can take advantage of.
Let's talk about this high frequency issue these again as you -- you just throughout -- terms but co locating.
People can actually buy a space near -- -- so that they can have how millisecond of an advantage to -- literally scalp -- And be able depending on the trade which sometimes they only hold for a few seconds those folks this is not about.
I really believe in that Intel are -- -- -- are some other democratic us.
It's it's simply about but again do you -- -- step in front of what some might call evolution right well and that's what they'll say this is just the evolution of market makers and we would -- just -- the opposite.
You've kind of given this extra access to create these two tiered approach and co location is one thing in the way the other side will argue that.
We'll be speaking regulated and put -- in one spot and if we didn't do it this way in the just go across the street.
-- kind of half baked argument in that sense that the exchanges and make a lot of money -- co location facility.
It's not cheap to go rent space in -- New Jersey where they're located which New York Stock Exchange has built an operation perhaps slowly and this is this is big business here so do you question is do you want you for profit stock exchanges.
Kind of cutting costs here and doing things so that they can get their own bottom line increase but a -- what.
-- at what cost is that the cost of the retail invested in the FaceBook IPO -- you know blow up because maybe somebody missed something because they were cutting costs I don't know.
But what you've created is a market structure which has nothing to do it investing.
Okay now let -- -- -- -- and let me be specific here how could some or all of -- -- target about have played into what went wrong with FaceBook the FaceBook it seemed it was certainly a technical issue similar to the -- IPO which you remember a couple of months back when bats exchange blew up.
They had a problem going public as well software issues happen hardware issues happen but now you've built a stock exchange around.
Potential bugs -- -- blow up and then you've creates you know problems like the flash Chris thank you talked about before -- systemic risk issue.
And we went down hard and we got lucky that it bounced back it had a closed down there who knows what could happen in the world you know the global economy and -- global markets take over from there.
So we're saying in the much in the book is basically listen.
You've gone too far the regulations by the way have helped create this this is of the most ironic part.
Regulations that the SEC put in place over the last fifteen years created this fragmented -- -- -- kind of -- that's why does that not surprise I.
You talk about unintended consequences so they don't things to address it in the past couple years since the flash Crist but nothing really of substance there's actually a few proposals out there now that they have and a meeting with things like get rid of flash orders will -- -- -- Regulating dark pools not nothing going on there.
Is something called an audit trail they haven't done anything there so they need to kind of get their act in the opinion we think the market will solve itself but you -- kind of level the playing field folks if you.
Invest in stocks you need to read this book it's called broken markets just -- Lucy is the -- thank you very -- -- it does make you feel very small actually as a retail investor.
It's it's when we open up the hood of the car it was a miles around this engine is pretty complicated and you really need to know if you're investing money you to know where it's -- retail investors come back.
Did when you build back trust and confidence.
Charles good to see --
