Wall St Still Pushing Back on Reform
Transactions costs have declined significantly over the past 10 years, thanks to the many structural changes in equity markets, including trading in decimals instead of eighths, the proliferation of scores of trading venues that function as exchanges, and an explosion of high-frequency trading. Vanguard has estimated that total transactions costs on an average trade have fallen by more than 50%, resulting in approximately $1 billion of annual savings to its investors. When magnified across the whole investment industry, investors have probably saved tens of billions of dollars in transactions costs
–Burton Malkiel and George Sauter, “A Transaction Tax Would Hurt All Investors“; The Wall Street Journal (12/9/09)
I’m not sure I’ve seen a more egregious example of “missing the forest for the trees” in quite awhile.
After all the financial tumult the last 18 months — and the negative returns on stocks the last decade(!) — I don’t think investors’ problem with the stock market is inordinately high transaction costs.
I’d volunteer to pay dramatically higher transaction costs if that damped down the speculative, hyper-liquidity driven trading that has captured most equity markets (actually, given that I seldom trade, I pay practically zero transaction costs).
Speaking for investors everywhere, I think I can confidently say how I grateful I am that Wall Street has cut its commissions billions annually — as stocks have lost trillions (and gyrated wildly, to boot), and Wall Street’s pay has exploded.
Sadly, if you want a quick shorthand as to whether a given proposal is sensible, good for the broader economy, etc. — just ask, is Wall Street for it or against it?
If Wall Street opposes it . . . it’s a good idea.
P.S.: you might know Burton Malkiel as the author of “A Random Walk Down Wall Street,” which argues that markets efficiently price equities by incorporating all known information. If you weren’t aware . . . that notion has been thoroughly discredited the last decade or so — and so has Malkiel.