Baseball hall-of-famer Satchel Paige once said his teammate James "Cool Papa" Bell was so fast, he could turn off the lights and be in bed "before the room got dark." An exaggeration, of course, but just think if the legendary speedster Bell had been a floor broker back in his day. He could have made a nice living, giving customers the fastest turnaround time in the business. I bring up speed because this month’s cover story outlines how the speed of trading continues to ramp up.
The drive to greater efficiency and speed was also the gist of a fascinating Sept. 10 Wall Street Journal story by Matthew Futterman. He wrote about how pro football teams last season scored more points and had fewer turnovers than at any time in its history. Why? "The NFL’s high-speed, high-scoring offenses are a reflection of a law of nature–the tendency of all things to evolve toward efficiency," Futterman wrote. Arguably, this same principle applies to trading.
Last month I called for a review of the equity marketplace. To clarify, I don’t believe the U.S. equities markets need to be overhauled. But new rules and technology have fueled a high level of complexity that make it difficult for investors to understand what goes on. This was highlighted by the misinformation and widespread lack of understanding that came to light during the public debate on high-frequency trading and flash orders this past summer.
After my column went to press, Sen. Ted Kaufman, D-Del., also called for a review of the equities markets. You can read about how Kaufman drew his conclusions in a story in this issue, but I’d like to explain how I came to mine. Basically, my analysis of news stories and op-eds prompted my call. Also, you might recall the SEC’s Best Executions sweeps in the late 1990s, when the regulator needed to learn why institutions still paid a nickel when they could execute for a couple of pennies on ECNs, at the dawn of self-trading. The sweeps, however educational for the Commission staff, did not yield a report for public consumption. A report now about some of the new trading issues we face in an electronic world could educate both the SEC and investors. Lastly, rereading the words of former SEC Chairman Arthur Levitt Jr. from May 6, 1997, clinched it for me. In a speech to the Securities Industry Association in Chicago, Levitt said that "it’s essential for all of us–the SEC, the SROs, and the firms–to take a step back from time to time and re-evaluate how business is being done."
The SEC this fall is expected to publish a concept release to explore various controversial topics that should generate much-needed industry feedback. Let’s see where this leads.
Michael Scotti
Editorial Director
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