New Rivals Pose Threat to New York Stock Exchange

Source: New York Times

For most of the 217 years since its founding under a buttonwood tree on Wall Street, the New York Stock Exchange was the high temple of American capitalism.

Behind its Greco-Roman facade, traders raised a Dante-esque din in their pursuit of the almighty dollar. Good times or bad, the daily melee on the cavernous trading floor made the Big Board the greatest marketplace for stocks in the world.

But now, even as the Dow Jones industrial average topped 10,000 for the first time since the financial crisis sent it tumbling, the exchange and its hometown face an unsettling truth: the Big Board, the symbolic heart of New York’s financial industry, is getting smaller.

Young, fast-moving rivals are splintering its public marketplace and creating private markets that, their critics say, give big banks and investment funds an edge over ordinary investors.

Read more: http://www.nytimes.com/2009/10/15/business/15exchange.html?hp

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This is scary. It's "greed is good" capitalism run rabid. Greedy clever vultures are making incredible sums of money shuffling paper. Or in the 21st century, shuffling zeros and ones. Somebody has to stop this.

The electronic markets for financial instruments is no different than any other industry where automation and competition ultimately match and overwhelm advantages from quality, features, longterm relationships, specialized knowledge, locality, or anything else and leaving price as the primary competition. Any advantages gained by redefining the product space through R&D to create a new class of product or to subsume an existing one is soon lost as remaining competitors follow suit.

For a while consumers benefit as high-quality products are available at low prices from fewer suppliers needing much fewer employees. The products last longer and likely cost more to repair than to replace. Gone are TV repairment, most auto service stations that fixed tires and made repairs, and much more.

Any product or transaction that can be delivered electronically over the net will quickly loses its perceived value -- music, video, software, financial transactions, newspapers -- the resulting changes happening even faster.

Once there remain just a few suppliers with tiny margins depending on volume to meeting their fixed costs, then any significant disruptions to their volume are fatal, probably to all remaining suppliers because the market reaction time is much too long.

In the case of the electronic financial markets, automated trading is so fast that any trader whose computer is any distance from the market's computer can not respond fast enough to overcome the delay imposed by the speed of light in fiber between the two computers.

Economic "Duck and Cover" anyone?!


BTW An important societal risk to failures by all remaining suppliers with little warning can involve software or specialized data collections or other data which remains crucial to significant infrastructure and activities into the future, but have no current ability to generate enough new sales to continue operations and to preserve things that are almost impossible to replace.

We are seeing the devil. It's cunning, swift and automated. Giant financial firms use propriety software (and sue competitors who hire someone who "knows the code") to make unimaginable profits at the expense of every American with money in the bank. Or Americans with no money, for that matter.

It's the equivalent of inviting a known "card counter" to join you for an evening of blackjack. You're dead before the first card is dealt.

I fond it interesting that my OP got 6 recommendations, but only one comment, yours. Are that many DUers playing duck and cover? You know, putting your head between your legs so you can kiss your ass goodbye?

They can rot, their competitors can rot, I don't care, it sounds like a good thing to me if they all cease to function.

are one of the greatest inventions known to man. their benefits to society are enormous. and pure electronic markets are about the most democratic institution on earth. i am a faceless, nameless order in the DOM. no regard for race, sexual orientation, gender etc.

anybody, with a little bit of capital can participate and the market offers ultimate choice. you have complete control over what stocks you choose to buy or sell, and get to participate in OWNERSHIP

I have worked for broker-dealers and I am quite familiar with stock markets, and they are the biggest rip-off in the world, like Las Vegas without the integrity or regulatory oversight.

there has NEVER been a 20 yr period in history where dollar cost averaging into a broad index of stocks did not give a positive return.

in most 20 yr periods, the return has beaten most other asset classes.

the stock market has helped me, and my parents and my grandparents.

I suggest you plunge big right now. Put all you have in, trust to "dollar cost averaging". You seem to think this is like physics or something. Well it's not, when you have global hegemony, it pays off, you can't really fuck up. And when you lose it, then it's gone, and you can fuck up, in fact you may find that nothing you can do works out in the long run, it's all shuck and jive and "fuck you Jack, I've got mine."

why would i plunge big NOW , after the market has had a huge run up.


here's a hint. buy panic, and sell euphoria.

or put another way, buy what people hate (because it's cheap) and sell what they love (because it's expensive)

this philosophy got me into a gold fund (MIDSX) back in 1997 when EVERYBODY hated, or didn't even consider gold. i DCA'd into it for several years. it offered a phenomenal return. NOW, all the nimrods are screaming "gold" when it has already risen 400% from those levels. lol.

in my longterm investing, i take the buffet/graham approach. i look for VALUE.

right now, i am NOT seeing a lot of value.

in fact, i posted the other day, how i took some shorts the other day, as the dow peaked 10,000. feel free to research that. today was quite profitable on the selloff. i said puts were cheap at that time, too. puts on the bank index ($BKX) were also profitable. with the amount of implied volatility contraction we had seen, those were a no brainer. i also note that on today's weakness, the banks led the selling. as go the pig, so goes the poke (a floor trader taught me that).

the stock market, and such markets in general (note that iirc futures markets were invented in scandinavia), are amongst the most democratic institutions on earth.

you can whinge like a loser about how it's all rigged, bla bla, or you can use it to build wealth. i prefer the latter.

What happened to the long-term buy-and-hold bullshit? It's a casino. You are a dealer. I am not a sucker.

you would see that short term trading (i TRADE futures primarily) and long term investing are two different things.

i do both.

i set up different accounts for different strategies. my futures trading account is run very differently than my longterm accounts. some futures trades literally last a second or two. those are TRADES, not investments.

i LOVE bubbles. bubbles offer immense opportunity. the more irrational a market gets, the more opportunity it presents.

as a contrarian, i initially had trouble in my futures account, in buying into trend days. my urge was to fade. not a good idea.

the stock market helps people build wealth. it's done it for me, and my family.

i see all the whingers here maligning it. fine. don't like it. put your money in your pillowcase. i love the stock markets.

I'm not saying you cannot make money in Las Vegas.

I'm saying the game is rigged, and that suckers will be cheerfully be taken to the cleaners, and if you are whom you say you are, then you know that perfectly well.

"i LOVE bubbles." Indeed, I love them too, but that has nothing to do with where Joe six-pack ought to put his scarce extra money. Chumps get taken, and that is what the stock market is really all about.

vegas is rigged against you. unless you count cards in blackjack skillfully. the odds are that given sufficient n, you will LOSE>

i managed to do very well playing poker online, fwiw, which is a negative sum game (cause of the rake) but that's only because i had more skill than my opponents.

poker is a zero sum game. stocks are NOT.

the stock markets are NOT that way at all. (futures markets are)

in fact, they are the exact opposite. the bias is up and thus taking a longterm approach with consistent investing has ALWAYS yielded positive results. in EVERY 20 yr period.

like i said, the stats don't lie.

there has NEVER been any 20 yr period where DCA'ing into broad stock basket has not yielded positive results

joe six pack (i'm a cop./ i work with a lot of them) do very well in the stock market by using DISCIPLINE and every month investing a set amount.

chumps are those who, without sufficient skill, try to time the market. i lost a lot of money learning how to trade. trading is hard. it took a while to become profitable

investing is not hard. it's not rocket science.

DCA into a broad basket, or a low expense mutual fund EVERY month. and hold . hth

(asset allocating towards greater cash position as one approaches retirement is prudent)

Large banks became suddenly insolvent and had to get transfusions from the government. There is no certainty at all as to when, or if, those losses will ever be recovered. As a matter of simple fact, for many of the losers, they will never be recovered.

"i lost a lot of money learning how to trade. trading is hard. it took a while to become profitable"

You make my case for me. You tell people to trust the markets, and then you admit that trust got you nowhere but losing. You want them to be chumps, but you admit being a chump didn't work for you.

are completely different. trading IS hard.

investing isn't.

like i said, DCA'ing in any 20 yr period in history has yielded positive results.

period.

you keep ignoring that.

i say that the trend of the market, since its inception has been up.

feel free to take a look at a longterm (20, 30 , 40 yr chart) and you will see that.

in the short run, to quote jp morgan - it fluctuates.

i tell people to do what works. it works for me. it worked for my parents. it worked for my grandparents.

DCA'ing over a long period of time has ALWAYS worked.

hth

I suggest you read Charles McKay's "Extraordinary Popular Delusions and the Madness of Crowds". History is in fact full of people losing their shirts in markets, committing suicide, starving, and the like, and never recovering from it. Your self-serving Mary Poppins happy talk is not convincing, and it is not history.

and you still can't deal with facts.

again, THERE HAS NEVER BEEN A 20 YR PERIOD IN HISTORY WHERE DCA'ing HAS NOT BROUGHT POSITIVE RESULTS

you ignore that, because it goes against your prejudices. you can't accept it. i know cognitive dissonance is painful

the market is (contrary to efficient market hypothesis, a theory so stupid only an economist could come up with it) often very inefficent.

for the trader, that results in opportunities. i can sit all day and make NO trades. i wait for an opportunity where i have a definable edge, and risk/reward are appealing. and then i pounce. with a hard stop to protect losses when the trade goes against me. that's TRADING not investing.

you can't refute the 20 yr claim, so all your whinging is refuted by EVIDENCE.

is the market a sure thing? of course not

but since it has ALWAYS been profitable over any 20 yr period, that makes it a better choice for investing.

hth

Even as the health insurance companies draw down on health care reform, another showdown is just beginning in Washington. On Wednesday, the House Financial Services Committee will begin marking up the first legislation to try to curb Wall Street's casino. And if you think the health insurance companies are packing heat, wait till you see the firepower the banks will unleash to frustrate reform.

The Committee will focus on two core reform measures. The first, the regulation of derivatives, goes to the heart of the current collapse. Derivatives are the exotic instruments that Warren Buffett warned were "weapons of financial mass destruction." Derivatives have been traded with little regulation, over the counter, in private deals. This allowed companies like AIG essentially to open a casino on top of an insurance company, and take bets without the prudence required of a Las Vegas bookie. When AIG went belly up and threatened to bring down the entire financial house of cards, taxpayers ended up with a bill totaling over $180 billion and counting.

The reforms call for standardizing derivatives, trading them on a public exchange, with transparency, so prices can be compared and holdings regulated. Common sense, one would think. (for a good summary, see the estimable Harold Meyerson's piece)

But the five largest American banks -- in rough order of declining solvency: Goldman Sachs, Morgan Stanley, JP Morgan Chase, Bank of America and Citigroup -- hold fully 95% of derivatives -- with a notional value of over $290 trillion. In the first six months of the year, they made about $15 billion trading in these things. Not surprisingly, they have leveled their guns at the very notion of a public exchange. They enlisted companies that use derivatives to hedge against foreign exchange risks and the like, arguing that the reforms would raise costs all around. They have largely succeeded in the congressional cloakrooms.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=103x488891

for reform, especially in the area of arcane derivatives. i trade derivatives myself (futures and options) but those are transparent, UNLIKE many of the more esoteric products that got many banks in trouble.

is the market flawed? of course.

could it be made more transparent and more fair? sure

is it a great institution? yes

and you still haven't addressed the 20 yr thang. hmmmmmmmmm....

You sound like a chump to me, but I wish you well anyway, you're as good as anyone, as Bill Gates for sure. And I now have done with you, we are not going to convince each other. You obviously think that if you just invest in the right way, then it just cannot fail, and I think that is poppycock.

i never said one can't fail

i said there has (for the umpteenth time) NEVER BEEN A 20 YR PERIOD IN HISTORY WHERE DCA'ing has been a failure.

never.

i NEVER said it was a sure thing. there IS NO SURE THING

if one believes, as many of the DU chicken littles do, that the current recession is actually the beginning of the decline of america and its capitalist system, then feel free to invest in whatever you want.

i know game theory, and i know the markets. they made money for 3 generations of my family

my grandfather was a smart, honorable man- NYPD captain (which is especially impressive considering he was a minority and did it back in the day), peace corps volunteer, WWII pilot, etc.

he told me that i should open a mututal fund account when i graduated college and invest a set amount EVERY month. he said "you won't regret this".

god knows i haven't.

that was smart advice.

saying the market is rigged, and joe six pack is doomed if he invests is contrary to evidence and history

"Past performance is no guarantee of future results."

nobody claimed any guarantee

i am enjoying my CAPITAL.

a large %age of which i haev BECAUSE of the glory of the stock market.

i'm a trader and an investor. dogma doesn't matter. RESULTS matter

"some futures trades literally last a second or two. those are TRADES, not investments."

"i LOVE bubbles. bubbles offer immense opportunity. the more irrational a market gets, the more opportunity it presents."

People like you caused this mess and you should be beaten and flogged.

How do you build wealth? I mean this seriously, not in an insulting way.

Also, I would humbly point out that there is a very recent 10 year period where the market has not gone up on average.


Thanks!

trading is like any business, and 80% of businesses fail. i do NOT recommend most people trade. i recommend they INVEST.

investing builds wealth. dollar cost averaging (investing a fixed amount) every 2 weeks or month has never, in the history of the stock market , yielded a negative return in any 20 yr period.

what i recommend people do is START early. many mutual funds will take small investments, like $50 or less, and you can build wealth that way.

as a trader, i have taken some strategic shorts, when the dow passed 10,000. but that's TRADING.

an investor should be in it for the long haul. just keep adding. every month (or two weeks) and don't flip out over every jitter in the market.

the way DCA'ing works is that when prices are cheaper, you are buying more shares automatically, and when they are expensive, you are buying less. in the long run, this improves profits over just jumping in all at once, in msot cases (unless you are great at picking bottoms and tops)

The Goldman Sachses of the world are able to afford high speed servers co-located with the exchanges servers, giving them an edge on you based, as the article points out, on fundamental limits of information transmission. They can not only get in ahead of other traders, but as has been recently exposed, they can engineer small, very rapidly played out pump-and-dump events based on their advantageous position and their ability to move millions more dollars in and out of the market faster than anyone else.

That is why I think that you are mistaken about the nature of the stock market. While small long term investors think the way you do (and the way everyone did up till a decade ago), the vast majority of the money churning in and out of the market is moved by investors basing most of their decisions on trend-following algorithms running on supercomputer clusters.

Small investors are played for chumps in this system, because any sensible investing based on things like a company's future profit outlook, opportunities for growth, and value of products and services provided is completely swamped by the big boys, especially in the near and middle term.

The value of stock ownership is, therefore, almost completely decoupled from the value of the companies the stocks represent. Investment in stock markets has instead become a big, "respectable" casino based on entirely stochastic non-linear processes.

It's fucking crazy.

If you're not a teacher maybe you should be. :thumbsup:

i am well aware of how bots work. i trade futures for pete's sake.

but for a long term graham'ian/buffet'ian investor, that matters little.

also, the big institutions can't concentrate on smaller, less liquid stocks. they are too big to do that. thus, for the individual trader, he can often find an edge in names that are off the radar of the big institutions.

as an example, i made over 400% return on HANS back in the day. they were way off the radar of the big institutions, because they were too small.

this isn't about trading, though. this is about INVESTING. there has NEVER been any 20 yr period in the history of the stock market where dollar cost averaging into a broad index (e.g. S&P 500 or Wilshire) did not yield a positive return. in most instances, a rturn that beats most asset classes.

the stock market has helped me build wealth, as well as my parents, and my grandparents.

it is a great price discovery mechanism, and as stated, one of the most democratic institutions on earth

There might be some reform in the near future that will return some sanity, but as things stand now, I just don't trust the stock markets.

Why is the DJIA at 10,000 now, when it was at 6K a little while before now, and at 14k years before that? Have the values of the blue chips really changed that much, or are these fluctuations a result of the combination of automated systems and foolish herd behavior by the majority of flesh-and-blood traders?

The times, they are a changin. Maybe it can be fixed, though.

I'm an optimist...in the long term. :)

then you should have decreased your equity position and increased your cash position

that's investing 101.

the nice thing about DCA'ing for joe sixpack, is you don't have to make a determination about when to buy.

and in EVERY 20 yr period, it has yielded positive results. in the VAST majority, quite good results.

In your job as a policeman, you provide a public service. You increase the security of the entire community, which is an absolute benefit. It's a good thing. :)

But how does bare trading, especially day trading, create wealth or value?

create wealth for myself. how i help the "system" is that i provide liquidity and make the market more efficient.

INVESTING creates wealth, because when you are investing, you are literally buying pieces of companies. you are participating in ownership.

i will concede that daytrading, espceially a zero sum game like futures, does not create wealth for anybody but me.

that's why i strongly distinguish between trading and investing. and i do NOT recommend people trade. i recommend they invest.

when you invest, you are buying pieces of a company. the company benefits from the infusionm of cash (ipo's, 2nd offerings, etc.) and can expand. in the long run, wealth is built

It's all unsustainable. Back in the day you bought stocks for their dividends, capital gains was a bonus and not an economy-destroying obsession. When the Boomers really start liquidating their 401Ks as they retire the game will be over and the Dow will settle around 4000.

The small investor is nothing but a sucker for hucksters telling you to buy while they are preparing to sell to screw you over.

"it's different this time"

um, no it's not. it's a recession. EVERY single time this happens, we hear the same naysaying chicken littles come in and say "capitalism is doomed", the stock market is doomed, bla bla.

and they are always wrong.

there are still plenty of stocks you buy for dividends(the dogs of the dow theory works really well for this).

there is a UNIVERSE of stocks out there. GREAT stocks and GREAT companies. and of course, instead of whinging about it, actually BUYING them when the dow was 2,000 pts lower was a good idea (buy panic, sell euphoria).

the stock market worked for my grandfather (during the great depression no less), for my dad, and for me.

it continues to be one of the greatest methods ever developed for building wealth.

the NYSE has helped me build wealth. that's what stock markets, in the aggregate do. i don't particularly like the NYSE due to the specialists (i prefer nasdaq), but some of the best companies are there. and open to investing by anybody with a little capital. that is a great opportunity.

Somehow, there has to be a way for business to generate capital by selling equity to the general public in a regulated, transparent way.

Obviously, the current system is frequently being gamed. But relying on private sales alone is inefficient, and zaps the hell out of liquidity. And borrowing is, well, debt!

If the Securities and Exchange Commission and the FBI would do their jobs, stock markets could be an excellent opportunity for joe six pack to own at least some part of the companies that have so much influence over life. As far as I can see, the only other options are "Only the rich get to own anything" or "the government, with the power of incarceration and confiscation, owns everything".

Rigorous regulation is the key, transparency, and like that, the rule of law. They need to get all the hucksters, the ponzi-schemers, the quick money boys, out of the business.

and am pretty familiar with the NYSE. NYSE unlike nasdaq, etc. employs specialists, and they have more power than a pure electronic market. i prefer the latter due to greater transparency

you want to build wealth? try SAVING. a novel concept.

but you can't build the kind of "wealth" you parasites are talking about by saving, you have to fleece others to do it, then justify it with all this bullshit. and technology just makes it easier for you to steal from those who don't have it.

if a company wants to expand, they build a good product, sell it for a profit, reinvest the profit into expansion. but no, not fast enough or big enough, must convince the desperate "wannabe mega rich" to jump in, so you can take theirs and run.

as far as expansion creating jobs, i think a slow and steady growth would provide reliable, longterm, reasonable paying jobs. it would be a lot better than the boom and bust created by you sellers of smoke and mirrors.

you people are the ultimate example of what is wrong with this country. i will celebrate if wall street ever collapses, taking you parasites with it.

(but again, you are so smart you will "get yours" out, and let the wannabe suckers eat it. again, so typical for greedy bastards.)

i may not have a lot, but i sure know that i didn't screw anyone over to get what i DO have.

:puke: