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When technology gives, it taketh away

By NexChange

stock exchange

Finance firms talk about the “disruptors” making the industry shake in its boots. But finance has always been subject to advances that have made people nervous. At a recent investment conference at Baruch College, industry veterans discussed the changes they’ve seen over the more than 40 years they’ve been working in finance.

Electronic trading, “like Venus, sprang out fully formed,” says Art Cashin, UBS Director of Floor Operations at the NYSE. “I like humans because I happen to be one,” he joked, but the speed and efficiency of new technology has made the markets easier for everyone.

Trading system crashes used to happen on a regular basis. Now a blip in the trading day sends investors into a tail spin.

“Investors are really much better off than they were,” says William Brodsky, chairman of the Chicago Board of Options Exchange. Investing has become more democratized, giving average retail investors easier access to products previously only used by high-net-worth individuals. Retail investors are more competitive with less expensive strategy options. But this reality doesn’t matter if investors feel worse off, he says. The perception is important.

“The reality is one thing and the perception is completely different,” agrees Cashin. “Everybody began to look at (the markets) like liquidity had completely disappeared,” he says. “The retail investor really feels the market is not friendly to him, and that’s critical.”

With technology has also come some scarier issues that investors should approach with caution, the men said. There are now dozens of stock exchanges. While the New York Stock Exchange is dominant, the country still lacks a solid primary market, says Cashin. Dark pools, and some high frequency trading that hovers in these pools, are also concerning, says Richard Lindsey, CEO of the Callcott Group.

“The road to hell is truly paved with good intentions,” says Cashin.

Photo: David Foster

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