New Study Examines Recent Changes to U.S. Market Structure and the Impact on Investors
JERSEY CITY, N.J., Feb. 23 /PRNewswire-FirstCall/ -- Knight Capital Group, Inc. (Nasdaq: NITE), today announced the release of "Equity Trading in the 21st Century," a study that examines the impact of recent innovations in the U.S. market structure, the measurable dimensions of market quality and the effect these changes have had on both institutional and retail investors.
The study, commissioned by Knight Capital Group and authored by professors James Angel of Georgetown University, Larry Harris of the University of Southern California, and Chester Spatt of Carnegie Mellon University, shows how innovative trading systems such as dark pools, flash orders, and indications of interest (IOIs) have benefited all investors and ultimately enhanced the capital formation process.
Among the findings, the study shows that technological innovations have led to major improvements in market quality. Execution speeds have increased, making it much easier for retail investors to monitor execution quality. In addition, retail commissions have significantly dropped and bid-ask spreads have narrowed.
"The U.S. equity markets have dramatically evolved in recent years," said Larry Harris. "Technological innovations help investors do what they have always done, only now in more advanced, beneficial, and cost effective ways. As the research and data show, the markets are better now than they have ever been – in virtually every dimension."
The study touches on some of the issues raised in the recent U.S. Securities and Exchange Commission Concept Release that requests public comment on the current equity market structure.
"Trading volume has dramatically increased, from nearly three billion shares per day in 2003 to nearly ten billion shares per day in 2009," said Chester Spatt. "In addition, the nature of trading has changed as 'high frequency' trading or 'algorithmic' trading has become a large part of the overall trading volume. As a result, automated traders have provided increased liquidity, supplementing and displacing traditional liquidity suppliers."
The study also provides recommendations for market improvements. Specifically, the researchers express concerns over the implementation of the "make or take" pricing model and suggest that the SEC require that all brokers pass through fees and liquidity rebates to their clients. In addition, the researchers agree with the SEC's concern regarding brokerage firms that provide "naked access" and support the proposed rule that would require such firms to have appropriate risk management policies in place to prevent a catastrophic trading meltdown.
"Despite the high quality and strength of the markets, we can always improve them," said Jim Angel. "As technology and innovation improve how we execute trades, it is appropriate and necessary for regulators and policymakers to review current practices and apply common sense rules to protect investors and ultimately enhance market structure."
James Angel is an Associate Professor at the McDonough School of Business at Georgetown University. Larry Harris is a former Chief Economist of the U.S. Securities and Exchange Commission and current Director, Center for Investment Studies, at the USC Marshall School of Business, where he holds the Fred V. Keenan Chair in Finance. Chester Spatt is a former Chief Economist of the U.S. Securities and Exchange Commission and current Director, Center for Financial Markets at Carnegie Mellon University, where he is the Pamela R. and Kenneth B. Dunn Professor of Finance.
To download a full copy of the study, please go to http://www.knight.com/newsroom/researchandcommentary.asp.
About Knight
Knight Capital Group, Inc. (Nasdaq: NITE) is a global capital markets firm that provides market access and trade execution services across multiple asset classes to buy- and sell-side firms. Knight's hybrid market model features complementary electronic and voice trade execution services in global equities and fixed income as well as foreign exchange, futures and options. The firm is consistently ranked as the leading source of off-exchange liquidity in U.S. equities. Knight also provides capital markets services to corporate issuers. Knight is headquartered in Jersey City, NJ with a growing global presence across North America, Europe and the Asia-Pacific region. For more information, please go to www.knight.com.
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SOURCE Knight Capital Group, Inc.
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