On Sunday, Sept 11, 2015 Richard Grasso the former head of the NYSE criticized the way the markets are processing orders. In a surprising statement, he is shedding light on what many have suspected (or known) for a long time; the markets are manipulated. Although his comments are not that direct, they do show market manipulation by a few is costing the public.
It is known that the majority of the public does not understand the machinations of the stock market. Fueled by Mass Marketing campaigns aimed at future retirees and savers, the public believes that the stock market is a good place for their money to grow. Visions of active senior citizens playing golf or enjoying travel become the suggested promise of these campaigns. However, they are rarely the result and many who have trusted their hard earned savings to money managers and 401ks are being left disappointed or at best underwhelmed, or in some cases the short fall is being funded by Government bailouts.
Sooner or later the public will respond by not investing in these markets and fuel opportunities elsewhere. Some of those opportunities will be born in less centralized institutions. One such scenario is playing out right now with apps like Kickstarter and Indie Go. Entrepreneurs now side step traditional Venture Capital with these new venues. One reason, Venture Capitalists are notoriously bad business operators. In fact if you (or your pension fund) has invested in a VC fund you probably have lost over 20% of your investment over the last 10 years. Today its even worse, in fact the holy grail of VCs, the IPO has shown that in early 2015 VC tech companies brought to market had lost over 4% at a time when the S&P was up almost 18%.
Now, Richard Grasso criticized the way modern markets prioritize speed over fairness in a rare interview to be broadcast on Sunday.
“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 trading on Aug. 24. There were nearly 1,300 trading halts that day and some stocks dropped rapidly before recouping losses in a matter of minutes.
Grasso, who was asked to step down from the NYSE in 2003 after a controversy over his almost $140 million pay package, also criticized how exchanges sold proprietary data feeds for the prices of stocks 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 interview.
Exchanges have argued the proprietary feeds were fair and served to help some participants understand details of the market at a more granular level.
The fact that a prominent figure in global stock markets, such as Richard Grasso is telling the public this now shows he realizes the potential damage which can occur. The question remains will it be regulators who make the changes necessary to keep confidence or will it be the public investor who votes not to invest and deal a potentially fatal blow?
