Is the market rigged?
“Spirit of ‘76” by A.M. Willard. Source: Wikipedia
People are concerned about the structure of the market. Some folks looked at how stock market trades are executed and it seems like the markets are rigged, that insiders use fiber optic lines and special privileges get inside the market and game the system. It looks like they profit at the expense of the small fry.
The stock exchanges are a lot different now than they were 25 years ago, largely because new technology and new SEC regulations have forced them to be different. A few independent market-makers try to “scalp” a penny or two off of big trades, buying 1,000 shares of Apple at 200, selling them for a penny more. If they do this enough times they can make some real money. That’s what making markets is all about.
But actually there’s evidence that investing in the market has actually gotten cheaper. After all, if there are more market makers competing, consumers tend to benefit. The investment giant Vanguard studied transaction costs and found that they have declined 60 percent over the past 20 years.
Photo: Tenaciousme. Source: Flikr. CC-BY-2.0
For all their flaws, our markets remain the most open, transparent, and efficient in the world. Our commitment to free markets and free information sets an extremely high standard for everyone else. Having liquid markets lowers the cost of capital for all corporations, which is part of the reason our economy has done so well.
The more we can do to get more market information to more people, the better everyone does. July 4th is about both freedom and fairness. Our markets should try to be as free and fair as possible.
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”