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High-Speed Trading Glitches Hurting Investors?

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    Former NYSE CEO Richard Grasso on the impact on investors of high-frequency trading.

  • Duration 6:49
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It's frustrating to take a look at what's been going on here may 2010 we add the flash crash.

A trillion dollars -- worth of capital lost like that.

Eventually was also right but it was a very scary -- Knight Capital Group that company lost 440 million dollars.

Again like that very quickly we had the FaceBook IPO that when -- -- Disappointing.

And now we're told that many flash crashes happen every single day on a daily basis what do we do about.

Let's start with may ten.

How does it censure -- very very global consultancy business go from 42 dollars a share.

21 fraction of a -- Back to 42 in less than an hour the answer is because the machines have gone wild and no one is in control.

And the answer is not to rule out categories -- trading gets to regulate them.

Many of the high frequency trading firms are nothing more than a re creation.

Of the old specialist system there electronic market makers.

They are conducive to the market functioning smoothly they should be regulated the SEC should.

Gordon if you will cordon them off from everywhere -- -- Dick you know how this works.

They issue hundreds of buy and sell orders at the same time it has nothing to do with the underlying stock.

Expectation for earnings what competitors might be doing it's completely removed put your finger right on the problem.

Why are there.

Hundreds of different types of Warner's -- When you want to buy you wanna sell you want to buy or sell at a specific price.

Maybe you put a couple of different variations of that the Securities and Exchange Commission has a responsibility.

To the investing public.

To hold up to stop sign and say wait a minute.

We made a mistake not the incumbent commission but the commission seven years ago when they formulated what became regulation.

And MS we made a mistake.

All right let's fix it lets fix it with the Internet shiny judge now now now.

You have to let markets function but the structure of the market.

And the definition of the difference between electronic market makers high frequency traders OK that's got to be the SEC's responsibility.

And they -- not getting -- without say it one of the problems -- one of the reasons why.

They're not being funded the congress is not giving them adequate money to go win there and rewrite.

-- the market.

Let me ask you about this -- I think these two things are connected.

New York Stock Exchange.

He's -- on five million dollars by the SEC for giving some of these traders better information more information -- -- other investors.

Now the -- is the question.

Did the exchanges the old fashioned exchanges and let's face it that's what the NYSE is at this point don't they.

They're paying for volume.

They're desperate for volume they're losing volume you said yourself that they that you had 84% of the market not any -- my different.

Isn't that the problem in -- -- Unforgivable.

The CEO of the New York said that he felt that it was an oversight technologically.

Look when you read that SEC release on the fine.

Noticed at the very very end it said without admitting.

Nor denying.

But they took a five million dollar penalty the the reality is we've got to step back the same way you regulate markets for the benefit of public users.

And look at for instance how you -- customer funds.

Another reason -- that the that the investor is running out of the market today look at MF global the cardinal rule of Wall Street.

Customer funds are never to be never to be touched all of a sudden a billion dollars evaporates.

Unforgivable.

Well you know what the SEC.

I think with the right funding.

OK and I know Mary Schapiro a long time she's a terrific regulator -- Smart woman.

If she had the right funding and she could build a staff to do the things I'm talking about.

These markets would invite the public back in Jerry and you -- -- The public would benefit because of those rates of return -- him -- -- people said this about the SEC forever.

That there -- underfunded undermanned short -- the people don't have the experience they need let me tell you how I see the market should work.

And it was actually sent -- by me but -- senator.

A democratic senator has said -- the capital markets are public good.

Much like a highway we need to have clear rules about the speed limits and who can use the hov lanes -- to make sure make it clear what the rules of the road are.

Do you agree with that I agree with that night at a couple of those caveats to it number one.

Time when you're on that highway.

And doing 200 miles an hour near Ferrari I -- -- -- get a hospital's -- You have to slow down even though that -- can do 200 miles an hour is about rules it's about common sense and it's about.

A very simple test Jerry.

What we're about to do with a rule with a piece of technology with a market structure is it right for the least sophisticated user.

For that if you will smallest of small investors take care of that person they'll be back in the market -- and everyone will benefit.

I don't traders only this week that speed kills do you -- A fast price is not the best price you know.

A fair prices what everyone seeks just because as I said -- a moment ago you can go 200 -- Ferrari you don't do it.

On a public street in Manhattan okay and that's the answer.

Basically you don't want the free market to become a free for roll market and at times that's what it's become.

Great stuff I have to ask a question on that totally different topic.

Tax -- get in coming out big changes to the tax code what's the impact on the markets if nothing changes I think it's gonna be huge I think it's gonna be huge just thought.

Just just trim back the clock for the last two years we've been telling investors.

Dividend paying stocks with dividend growth.

If all of a sudden your tax on dividends goes from 15%.

To 39% what do you think's gonna happen a lot of selling by the way Jerry.

No one of the great great tragedies.

Of this exit from the equity market is where -- the money go it went into fixed income.

If you are investors who watch every night are in long bonds when rates return to their norm.

They're gonna lose more money in bonds than they ever lost in the equity market.

So we got let's say great conversation.

Great advice Dick Grasso thanks so much for coming -- pleasure to -- really appreciate it much much.

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