As the saying goes, “the more things change, the more they stay the same.”
The structure of the U.S. stock market has certainly changed quite a bit since May of 1792, when twenty four stockbrokers met under a buttonwood tree in lower Manhattan to form what would become the New York Stock Exchange. Over the next 222 years, through panics and crises, economic booms and technological advances, the U.S. stock market has continuously adapted to fit the times. We’ve gone from floor traders controlling orders to an automated system reliant on computers; from only the ultra-wealthy being able to buy stock to Americans of all income levels buying stock for as little as $7/trade.
But one thing remains the same: throughout its evolution, the U.S. stock market has always been a critical instrument for growth and innovation throughout our economy.
Last week, Securities and Exchange Commission (SEC) Chair Mary Jo White gave an important speech on market structure in which she outlined a number of proposals to address market instability and so-called “high frequency trading”, amongst other things. Chair White’s speech comes in the midst of a fierce debate over the structure of our nation’s equity markets as they have become more complex and fragmented in recent years.
We welcome these initiatives from the SEC and are particularly encouraged by Chair White’s commitment to ensure that any new SEC rules are “informed by clear-eyed, unbiased, and fact-based assessments of the likely impacts.” As markets have become more technology-driven, they have also delivered a number of benefits to investors in recent years. As Chair White noted, trading costs associated with large orders have declined by about 10% since 2006, and spreads across all areas of the market are as narrow as they’ve ever been. Such efficiencies bring broad benefits to institutional investors, pensioners, and retail investors alike.
As the SEC contemplates these new rulemakings, the agency would do well to keep in mind the Hippocratic Oath: “First, do no harm.” New rules should not negatively impact the liquidity and efficiency of our markets, and the SEC should reject the notion that the markets are a zero sum game and go about picking winners and losers. The agency should also continue to go about this initiative in an open and transparent manner to ensure that they receive all the necessary input before proceeding with any rulemaking.
There is no question that our markets will continue to evolve over time as technology and other circumstances change. The only question is whether they continue to serve as a positive force for economic growth and innovation, and we look forward to working with the SEC to ensure that they do.