Faith in Stock Market Waning, Tabb Says

The Flash Crash. BATS Global Markets withdraws its IPO, due to a technical glitch. Facebook’s IPO gets disrupted. Then, in July, a market maker nearly self-destructs with a flood of erroneous orders that cost it $440 million.

Is it stock markets themselves that are self-destructing?

Perhaps. In any event, according to Tabb Group, financial institutions are getting skittish. Very skittish.

In a survey of market participants between August 6 and 13, the industry consultant found that only 2 percent of broker-dealers, asset managers, hedge funds, execution venues and their arms suppliers rate their confidence in markets as very high.

Imagine, then, what individual investors must be thinking.

By way of comparison, that compares to 12 percent of professional market participants who had a very high opinion of markets after the Flash Crash in May 2010.

On the other end of the scale, 26 percent say they have a very weak level of confidence, up from 3% in 2010, according to Adam Sussman, a TABB partner, director of research and author of the firm’s report on the survey, titled "The Sky is Falling: US Equity Market Structure Confidence Survey Results."

"There’s concern that cracks in the system exposed during the 2010 Flash Crash and the recent rash of technology-specific issues are exposing the industry to unacceptable risks," says Sussman.

The survey found:

The Knight trading snafu had a medium impact on market structure confidence

More than 50% of participants have not changed their investments

Reducing the number of venues is the most popular avenue to pursue to improve market structure

 

This originally appeared in Securities Technology Monitor, a sister publication of Traders Magazine