A few days after the initial shock of the enormous problems facing Knight Capital began to subside, only months after the Facebook IPO and its subsequent fall-out, TABB Group decided to measure the institutional community’s confidence in US equity market structure.
Surveying market participants between August 6 and 13, TABB learned that only two per cent of the respondents drawn from broker/dealers, asset managers, hedge funds, execution venues and vendors rate their confidence level as very high, down markedly from 12 per cent in a May 2010 TABB survey following the Flash Crash.
According to Adam Sussman, a TABB partner, director of research and author of the 11-page, 10-exhibit report, “The Sky is Falling: US Equity Market Structure Confidence Survey Results,” 26 per cent say they have a very weak level of confidence, up from three per cent in 2010.
There is little confusion among those who participated between the lack of internal controls at an execution venue or broker/dealer and the broader issues facing market structure, Sussman explains.
“Nonetheless, there’s concern that cracks in the system exposed during the 2010 Flash Crash and the recent rash of technology-specific issues are exposing the industry to unacceptable risks,” says Sussman. “At TABB, we believe that this erosion in market structure confidence during the past two years is due to tough market conditions, declining market volumes, the Pipeline Trading scandal and, more recently, botched IPOs.”