Nasdaq outage: Last straw for retail investors

For many smaller players, the freeze has proved to them that they don't belong in the stock market.

By Jim Cramer Aug 26, 2013 9:33AM

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"Last straw." Those are the two words I heard everywhere I went this weekend. The Nasdaq outage was the last straw, as it's become clear that the machines have taken over and they simply can't be stopped. That attitude, plus the desire to see someone at the Nasdaq OMX (NDAQ) take the fall for Facebook (FB) and for this three-hour shutdown, was on one everybody's lips -- my conversations tend to skew to the stock market when any event puts stocks back on the front page.


The criticism was two-pronged. The professionals would like to see Bob Greifeld replaced as CEO at Nasdaq, mostly because of his total failure to communicate anything about the situation, coupled with his insistence that such a lack of transparency is absolutely the right thing to do.

The amateurs, on the other hand, just want out. They have lost faith in the system entirely, because they believe that the big guys -- particularly the high-frequency traders -- are the ones behind the complexity. These folks just want a simple bid-and-ask to make their sells and their buys. They don't need the obviously not-redundant dark pools and rival exchanges in order to get what they want done. They just want the old days back, when the Nasdaq was the technological leader and seemed like the better-run of the two big exchanges.


Greifeld's hold on the Nasdaq board is a little mystifying. I think his success has a lot to do with his hard-core "don't cross me" ability that can beat back all critics. To say that Greifeld is tough would be an incredible understatement. It's a given that he'll ensure those who disagree with him will have to explain themselves a lot harder than he has to do. In light of Facebook and this debacle, that's a pretty brilliant strategy: He's put the critics on the defensive even after these two confidence-destroying episodes. That shows his power and his hold on the franchise -- as well as the toothlessness of the Securities and Exchange Commission.


Stock market (© Zurbar/age fotostock)You pretty much want to side with Greifeld and embrace his rationalization for both screw-ups. You want to join him in saying that they weren't screw-ups at all but, rather, total validations of the strengths of the Nasdaq. After all, in the end, the Facebook deal did get done and the Nasdaq did open up.


My problem with that, though, is that the public has been so poorly served. Individuals regard the Nasdaq, indeed the system, as something that works day in and day out. Unless there's a specific physical threat to the entity, they don't believe it can go down.


Surely, I heard over and over from folks, there's a back-up. There must be some redundancy of a simpler variety that lets the market remain open for business via use of the technology of competing exchanges. What's the point of having these other operators if they can't help out to keep things open? How can the Nasdaq rely on just one feed for its operations? How does it not have an alternative, somewhere, with different technology?


Whatever the answer is, we know how Nasdaq is going to play it: "We're right, you are wrong, and it can't be done anyway."

For a lot of the retail investors I've talked to, the lack of an explanation or an apology showed them that they simply don't belong in the market at all. Only the big investors can handle such a blasé and routine attitude. Plus, because of the unhampered trading in ETFs that are made up of about 20% Nasdaq stocks, people are deeply suspicious that someone indeed had price discovery -- or else they, too, would have been shut down.


We can blame everything on the government. If the SEC had chosen to regulate the Nasdaq with a heavier hand, then perhaps it wouldn't be as given to glitches like that of Facebook and the Freeze. But maybe the reason for the SEC's lack of intervention or sanctioning is similar to Greifeld's: Basically, the system is great, and stop asking questions for your own good. You don't deserve answers because, in the end, you're nothing, too.

 

Cramer

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long FB.

 

 

 

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62Comments
Aug 26, 2013 10:48AM
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What are you talking about, 99% of retail investors didn't even notice that nasdaq was down.

Most retail investors don't check the nasdaq every hour...

Aug 26, 2013 10:06AM
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Here's my question:  Suppose you have stop-loss order in place in a stock you own through Ameritrade or Schwabb or whatever.  And suppose the crap hits the fan and your stock drops like a rock.  Whose trades do you think get executed first, yours or the HFT platforms?   If trading in a stock gets shut down for a little while due to huge news or something, whose trades get executed first when trading resumes?  Something tells me the Goldman Sachs HFT platform trade is probably going to take priority over Brutus' Schwabb account trade.  There's something to be said for a real-life person on the floor who is trying to get you the best price.  But they can't compete against HFT either. 

I don't trade much commodities outside of metals, but it would seem that area would be completely dominated by HFT - half a penny move in the price of corn or pork bellies or coffee can be huge.  But the HFT platforms are probably way ahead, buying and selling on moves of 1/100 of a cent.  I've seen it first-hand in the currency markets.   Sure, the overall move up or down is what's important, but it sucks being nickel and dimed to death every time you turn around.  If you are an active trader, those nickels and dimes can add up in a hurry.
Aug 26, 2013 10:57AM
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Wall Street/Fraud Street it is a rigged game to SCREW the small investors ! TAKE YOUR MONEY AND RUN ! Before it is TO LATE !
Aug 26, 2013 11:18AM
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WAKE UP PEOPLE!  It's not just the NASDAQ or for that matter the "Stock Market System."  The entire "American Culture," our American way of life, i.e. personal freedoms and liberties, are in jeopardy; now, more than ever, we are being manipulated by Big Business and The Federal Government!

Don Moore
Aug 26, 2013 11:35AM
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If I don't hold a purchase of stock for a long time, one year?, I have to pay 40% tax.  Short traders get to not care about that because they do it so frequently that the 40% is like a few billion for BP to kill the Gulf of Mexico.  It's chump change.  Yes, I feel cheated by the computer traders who play a game with companies and investors, common people like me.  No, I don't have an option to quit.  Will the GOP now consider giving teeth to the consumer protection laws???  Or is no tax their only pledge, other than gerrymandering and restricting voter rights?
Aug 26, 2013 10:21AM
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I have everything in broad index funds, so it doesn't affect me much, if at all.  Still, I'd like to see the pathetic   SEC put better rules in place.
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The market should be slowed by having floor traders. (Jobs created)  Computer trading is something even IT people do not know everything about and is too easy to control by "someone" else smarter than they (IT) are.
Aug 26, 2013 11:27AM
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Jim:  you hit the nail on the head this time..what with the industry - dominating options market and the ridiculous quest for instant profits, the market has become nothing more than a trader's dice game.  we can hope that the various regulatory agencies will be able to exert pressure to rein  in the excesses but we "live in hope and die in despair".
Aug 26, 2013 12:47PM
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Could never foresee supporting a Cramer article but he's right on the button with this one. The HQT should be stringently  regulated if not totally banned , however the SEC doesn't have the balls or the political support to do so. Wall St. is the primary ,if not exclusive, recruiting source for SEC staffing . I don't know of any SEC Commissioner that didn't come from Wall St. The SEC is a wonderful stepping stone for advancement. Note that a NY law firm recently  offered the SEC Enforcement Officer $5 Million to join the firm. On a more local level I've heard of a recent SEC compliance officer offered a $1 million signing bonus, partnership equity, high 6 figure salary, and a $500K forgivable loan towards purchase of a home by a large accounting firm. The SEC needs a complete overhaul free from political intervention but it will never happen.
Aug 26, 2013 12:39PM
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I'm invoking the Skynet clause of our roommate agreement.....
Aug 26, 2013 10:11AM
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News flash "Nasdaq meltdown results in a Cramer meltdown".  It appears nuclear fusion must have occurred to hear Jim go off on these folks.  I am forever cynical and I am never taking anything from the street at face value.
Aug 26, 2013 12:23PM
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NO , the last straw is how unscrupulous traders are manipulating QE knowing it has to end,   Most are sick of the 'games' traders play with the markets.  Cramer, why not an article exposing this?   Traders are following an obvious pattern.  These traders give Wall St a bad name!!!
Aug 26, 2013 12:14PM
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Madoff said it best: "All of The Street is a Ponzi...The biggest of them all." One day all Ponzis meet their Waterloo. The bigger they are the harder they fall. Was this a wobble???
Aug 26, 2013 3:43PM
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We need an end to HFT. It's manipulative, and dicks with the real investors. 
Aug 26, 2013 11:58AM
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Transition Tax and a limit on canceled trades for price advantage. 
The Robber Barons can correct the markets now, or the next Teddy Roosevelt will.
Aug 26, 2013 11:11AM
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i post on this site just to warn people about cramer.........this guy is a carnival clown.....beware
Aug 26, 2013 12:27PM
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This sounds like SKYNET  has taken over in  T-3 RISE OF THE MACHINES
Aug 26, 2013 3:39PM
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WALL STREET: Gambling parlor with FRAUD written across the board!
Aug 26, 2013 3:07PM
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Very good post by Brutus.  A lot of food for thought there.

 

 

Aug 26, 2013 9:41AM
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so, what do you think the poor people are doing today?
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