jueves, 17 de septiembre de 2015

jueves, septiembre 17, 2015

Dick Grasso: Today’s Markets Aren’t Fair

Turmoil in August was a sign something was awry with capital markets, former NYSE chief Richard Grasso says

By Bradley Hope

Former New York Stock Exchange Chairman Richard Grasso. Former New York Stock Exchange Chairman Richard Grasso. Photo: Richard Drew/Associated Press


The former head of the New York Stock Exchange says modern markets have sacrificed fairness for speed.

Richard Grasso, chairman and chief executive of the NYSE from 1995 to 2003, said in an interview to be broadcast Sunday for the television show “Wall Street Week” that the market swings last month were a sign something was awry with the capital markets.

“A fast market is not necessarily a fair market, as evidenced by that Monday open,” he said in a clip of the interview viewed by The Wall Street Journal, referring to the tumultuous early trading on Aug. 24.

The action that day has drawn scrutiny from regulators, exchanges, institutions and everyday investors—and sparked discussions about how to tweak the market to prevent similar problems.

There were nearly 1,300 trading halts, most of them in the first part of the day, and some stocks dropped rapidly before recouping losses in a matter of minutes.

“Frankly, some of the things that went on that day need very close scrutiny,” Mr. Grasso said in an interview Friday with the Journal. “A day like that, where Facebook FB 0.08 % ’s shares go from $86 to $72 to $84 in a matter of minutes will cause the public to lose confidence in the markets.”

Mr. Grasso stepped down from the NYSE in 2003 after a controversy over the nearly $140 million he received in retirement pay, deferred compensation and benefits that year.

He led the NYSE at a time when it was the dominant venue for trading stocks, handling roughly 80% of all transactions. Members of the NYSE earned high salaries, and the exchange reflected their wealth, featuring a high-end Luncheon Club where traders dined on steak and oysters amid artwork and wild game mounted on the wall.

For the most part, Mr. Grasso is no longer involved in the securities market. He serves as a member of the advisory board of the Delaware Board of Trade Holdings Inc., which is aiming to build a stock exchange for startups.

Some market observers said Mr. Grasso’s views were out of date. David Weisberger, managing director at the market-analytics firm RegOne Solutions, said it cost investors much more to trade stock during Mr. Grasso’s era, because specialists on the floor of the exchange had more control over trading.

“The market now is far more egalitarian than it’s ever been,” he said.

Mr. Grasso also criticized how exchanges sold proprietary feeds of stock-trading data to some clients, while many in the market relied on a slower feed.

“Creating an advantage to an institutional user or a particular type of trader that disadvantages the retail investor is bad for the country, bad for the markets and bad for your business,” he said in the television interview.

Exchanges have said the proprietary feeds contain information that only some market participants are interested in, such as the full list of all orders to buy or sell a stock at certain prices. They say such data is too voluminous and fast-changing for an everyday investor to use for trading.

On Friday, NYSE, a part of Intercontinental Exchange Inc., Nasdaq Inc. NDAQ 0.82 % and BATS Global Markets Inc. all declined to comment. Jeffrey Sprecher, chairman and CEO of Intercontinental Exchange Inc., also has repeatedly said the U.S. stock market is too complex and has called on participants to agree to simplify it.

Mr. Grasso added in the television interview that Regulation NMS, which stands for national market system and was designed to link all the U.S. markets, was a “sad, sad experiment.”

The regulation, which was passed by the Securities and Exchange Commission in 2005 and implemented in 2007, was designed to ensure investors got the best price available on any public U.S. market. It knitted together all the exchanges and trading venues across the country to create a single, though disparate, market. It required transactions be conducted at the “national best bid or offer,” meaning each venue had to continuously check the prices available at competitors to verify a transaction was compliant. It also meant the NYSE no longer had a monopoly on trading in its own listed stocks, helping spur a host of competitors.

The rules contributed to market hiccups like last month’s swings because they allowed for a major expansion in the number of places where stocks could trade, he said.

“No one anticipated 60 different venues where an IBM IBM 0.80 % or a Microsoft trades,” he said during the television interview.

Mr. Grasso told the Journal that he recommends a broad-based review of the markets as a first step toward addressing the problems he sees. He said such a review would involve participants from across the exchanges and regulatory agencies and would focus on “how to modernize the oversight structure to reflect what the market has become.”

Mr. Grasso said in the television interview that a good rule of thumb for market changes was to ensure that “little old grandma in tennis shoes” also benefited.

If “you’ve taken care of her, you’ve taken care of everyone else,” he said.

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