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Restoring U.S. Investor Confidence: Six (Relatively) Simple Steps
These are not easy times for nervous equity investors. The May 2010 Flash Crash, the Facebook IPO, and Knight Capital’s trading debacle this last summer have offered little comfort that U.S. equity markets are a safe place to trade or invest.
While 2013 has brought early stirrings of renewed interest in U.S. equities, over the past four years investors have voted with their feet, pulling more than half a trillion dollars from actively managed U.S. equity mutual funds, according to the Investment Company Institute. Despite this, U.S. equity markets remain among the most robust and transparent, leading the world in capital formation in 2012 even in the face of a weak global economy.
It is clear that investors need to be reassured, but not at the cost of disturbing the progress that has been made over the past decade in terms of lower trading costs and more available liquidity. We believe six key initiatives, some of them already much discussed in market structure circles, would go a long way toward restoring investor confidence:
These six measures would give the investing public the protections they need to confidently invest in the world’s strongest and most resilient market while still deriving all of the cost savings and liquidity benefits which have been achieved over the past decade. The old saying about the perfect being the enemy of the good applies here: we urge regulators to take incremental steps toward improving market quality rather than waiting to enact a broad slate of changes at some unspecified future time. We are steadfast in our belief that U.S. equity markets are on firm footing, but it remains to be seen how long it will take for Wall Street to regain Main Street’s confidence.
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