5/7/2014 8:45 PM ET|
Can Wall Street remain the capital of finance?
As both the nature and the process of investing evolve, some say the New York Stock Exchange could very well end up a museum in years to come.
"People think you can just walk right in," the bemused security guard said to his co-worker, who snickered, shook his head and returned to his outpost under the tented area outside the otherwise-regal entrance to the New York Stock Exchange.
The dejected tourist walked away after learning that, no, there is no visitors' gallery at the exchange where he could watch what was happening inside. He then disappeared into a dense crowd of tourists browsing the mall around the exchange one pleasant early April day. Apparently, the man had made multiple efforts -- "guard shopping" as one of the security personnel put it -- to get a look at the trading inside the confines of 11 Wall St., and was unsuccessful each time.
Nearby, folks posed in front of the George Washington statue at Federal Hall, across the walkway from the exchange. They aimed their camera phones curiously around Broad and Wall streets, many drawn to the enormous American flag that flies in front of the NYSE, where it has stood proudly since shortly after the Sept. 11, 2001, terror attacks.
And they wondered what was going on inside. This is, after all, supposed to be the financial capital of the world, so there must have been some really amazing beehives of activity happening.
If they only knew.
Truth is, there's really not that much to see anymore inside these majestic halls. An exchange that used to house more than 5,000 traders shouting out their business now is a mostly docile habitat in which those still left on the floor quietly tap out orders on hand-held computers and barely make a peep at swift changes in market activity.
Things indeed have changed a lot for the exchange over the past 25 years.
The next 25 years -- well, things could get dicey. Will the exchange still exist? Will it be a museum? An office complex? An automated emporium run by robots?
More importantly, will New York still be the financial capital of the world?
Nobody seems quite sure, though the building itself does maintain its nostalgic appeal even if it's lost much of its relevance as a trading center.
"Symbols matter," said Nicholas Colas, chief market strategist at New York-based brokerage ConvergEx. "It's important to have a symbol that people can relate to, and it's much easier to relate to a physical space. It will be important for the New York Stock Exchange to maintain some relevance with investors."
As things stand in 2014, the prospects for 2039 for the building and what happens inside it hinge on three things: Just how far the trading community pushes automation, how hard regulators push back and how well the 80 or so locations where stocks are now traded can maintain their trust and credibility with the investing public.
A rapidly changing ecosystem
New York faces a bevy of challenges. Automated trading has taken up about four-fifths of the market's volume. Dark pools -- privately run trading centers away from the NYSE -- are scattered around the metropolitan area. Exchanges around the world such as those in Tokyo, London and Shanghai are seeing their volumes increase, though they still draw just a fraction of the volume seen in New York at the NYSE and the Nasdaq.
The current market is dealing with one whale of a black eye caused by suspicion over high-frequency trading and its stranglehold on market activity. The proliferation of trading aberrations such as 2010's "Flash Crash" and the intense debate over Michael Lewis' HFT-centered book "Flash Boys" has underscored the credibility problem, which will have to be rectified -- and soon -- if the market is to have a future in the coming decades.
Conversations with the folks who help make the market machinery work reveal some interesting -- and surprising -- thought trends.
For instance, there is a pervasive belief that the market will become less fractured and perhaps even a bit slower than the current incomprehensible millisecond-moving speeds. While automation is a fact of life, there is no widely shared dystopian view of a market run by faceless machines without accountability.
There's even a bit of whimsy.
Market veteran Art Hogan peered into his crystal ball at CNBC.com's request and saw two megamergers that would shake Wall Street at its core. One would see Facebook (FB) and Twitter (TWTR) join to take over the New York Stock Exchange; the other would have Apple (AAPL) and Google (GOOG) combine forces to wrest control of the Nasdaq, which trades mostly tech stocks.
In the Hogan scenario, the two mammoths blow out the rest of the 80 or so exchanges and dark pools where trades currently take place and defragment the market. At the same time, regulators change trading "ticks," or the increments in which stocks can trade, from the current decimalization to nickel sizes, eliminating the benefits that high-frequency traders enjoy from capitalizing on moves of pennies.
Hogan is kidding . . . sort of, but in a way that indicates the general direction the market needs to trend to win back investor confidence.
"You've got a world (in 25 years) where technology, social media and financial markets have come together to increase investor confidence in markets," said Hogan, the chief market strategist at Wunderlich Securities. In his future vision, "Wall Street gets to play its role again as the greatest place to form capital for emerging companies, and to research those emerging companies."
Don't laugh too loudly.
Hogan's scenario of a market that undergoes massive transformation that actually benefits the retail investor and re-establishes some sanity in a market that has lost so much of its trading volume over the years is a widely shared vision.
"We're moving faster and faster. The speeds are incredible, but we're going to get to the point where it doesn't go any faster," said Peter Costa, president of Empire Executions and an NYSE governor with 33 years of trading experience.
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What? $2 trillion QE 1, 2, 3 .... ad infinitum ONLY bought 7,000 points on the DOW? The USSA can't print fiat money forever.
They can print paper money forever, they have done it for a hundred years... You know where that ends up. Called HYPER inflation.
People should look in the mirror for the culprit.
It's really funny how certain posters yap on and on about QE to infinity without ever talking about the issues which were and still are far Bigger. The Real 800 pound Gorilla was and still is the $500-700TRILLION with a Capital T, Scam Banking Derivatives. Nobody wants to talk about it because that was a problem which was never solved, only delayed.
Regardless of if you approve or disapprove of Global FEDS actions, one thing is certain, it has given folks the Chance to recover plus some, all the Gains lost during the Great Recession. If you didn't take advantage of that by now, that's a YOU Problem. Eventually just as in the past, that opportunity will FADE and another downturn will take it's place. But go ahead, blame somebody else for your Failure to take advantage of the Mother of All Bull Markets.
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