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March 2, 2012

Fear of Falling

By Michael Scotti

This month's cover, "Fear Factor," is not a feel-good story. But it does offer the "cold, hard facts," as they say on TV. Our feature examines investors' declining appetite for stocks and portfolio risk. The story is obvious to every reader of this publication. Who hasn't felt the pain of this move away from stocks?

With a few exceptions, equity trading volume has declined continuously since March 2009. Editor Peter Chapman analyzes why both pension funds and retail investors have shunned stocks. Pension funds are lightening stock allocations, seeking alternative investments. Retail investors are finding "safety" in bond funds and in international index stock funds.


One stat from the piece really stings: The last decade, beginning in 2000, was the worst 10 years for investors ever. No wonder they have cold feet. Peter's story details the numbers behind the current stock-trading downturn. There are also charts to further illustrate this depressing trend. The final quote in the story, however, is upbeat. A mutual fund CEO says, if the market continues upward, then investors might be more likely to increase their stock allocations. We shall see.

Since the market meltdown three years ago, much has changed. The rise of high-speed trading has placed its mark on the industry. This issue also features a discussion with Keith Ross, an early partner of Getco, a marquee firm among high-frequency shops. Today, Mr. Ross runs PDQ, an alternative trading system with a unique twist on the auction system, featuring delays and safeguards against the HFT crowd. He has interesting comments on rapid trading in "Word for Word."

A consolidated audit trail is on the way. The Securities and Exchange Commission sometimes wants to see your trade. This audit trail, also known as CAT, stems from the "flash crash" in May of 2010. It will allow regulators to monitor orders and see how they interact in the market. The hope is that such a trail would give regulators the ability to track down trades that destabilize the market. Although its approval could happen at any moment, it will take time before it is running-experts say late next year or in 2014. You can read more on CAT in this issue.

Clearing Quarterly & Directory is now included inside Traders Magazine and no longer a stand-alone publication. There are some interesting stories, including a Q&A with maverick CFTC commissioner Scott O'Malia on Dodd-Frank and the clearing of OTC derivatives; plus our cover story on whether clearing houses make trading derivatives any safer. Enjoy the issue.

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