High-frequency trading and so-called dark pools and other market structure developments have eroded public confidence in equity markets, NYSE Euronext Chief Executive Officer Duncan Niederauer told lawmakers today.
“The public has never been more disconnected,” Niederauer said in Washington at a House Financial Services subcommittee hearing called to examine ways to ensure “orderly, efficient, innovative and competitive” markets. “The citizenry has lost trust and confidence in the underlying mechanism,” he said.
Lawmakers and regulators have been reviewing innovations such as high-frequency and algorithmic trading since a May 2010 market plunge temporarily erased $862 billion in U.S. equity value. The Securities and Exchange Commission implemented circuit breakers to halt trading when a company’s shares move 10 percent in five minutes. SEC Chairman Mary Schapiro has pushed for a marketwide surveillance system.
Representative John Campbell, a California Republican, told Niederauer and executives from Getco LLC, Invesco Ltd. and Knight Capital Group Inc., that events such as the May 2010 plunge, and innovations like dark pools and high frequency trading leave the public suspicious of Wall Street.
“The public increasingly believes that there are a lot of big people doing funny things behind closed doors that they don’t understand and can’t control and therefore they can’t participate equitably in this game because it’s not a fair or level playing field,” Campbell said.
Niederauer, 52, who runs the biggest U.S. stock exchange operator, responded that “what used to be an investors’ market is now thought of as a traders’ market.”
“We convinced ourselves along the way that speed is synonymous with quality and in some cases it might be,” he said. “In other cases, it clearly isn’t.”