It was a man bites dog day on Capitol Hill yesterday.
Wall Street veterans, fearing they will completely lose Main Street’s faith in the financial markets, actually asked for more regulation and lawmaker meddling.
Yes, it has gotten that bad on Wall Street, the money men told a Senate panel.
“US equity markets are in dire straits,” said Dave Lauer, a trading consultant at Better Markets, who testified at the a hearing before the subcommittee of Senate Banking, Housing and Urban Affairs. “We are truly in a crisis.”
“Right now nobody knows if the market is fair,” Larry Tabb, CEO of the Tabb Group, told The Post after his testimony.
The panel is probing high-frequency trading following a string of computer glitches and stock snafus that have shaken confidence in modern-day markets.
Wall Street heavy-hitters testified just a week after the New York Stock Exchange was fined $5 million for a systems glitch that gave select clients a split-second trading advantage over a period of four years. The debacle was widely seen as evidence that the market has been rigged.
Knight Capital’s $440 million software meltdown and Facebook’s glitch-filled IPO earlier this year have done little to restore investors’ confidence since the infamous “flash crash” of 2010.
One big problem is the ability of high-frequency traders to leverage big profits by creating minor movements in stock prices while leaving average investors in the dust.
Many panelists supported the idea of introducing so-called kill switches into market trading, which would either shut down errant trades from a firm or seek further approval.
Tabb and other panelists also suggested that regulators encourage consolidation among the more than 13 exchanges and 50 smaller trading platforms known as “dark pools.”
The New York Stock Exchange-Euronext, Nasdaq OMX and BATS represent the most well-known of these trading platforms.
Lawmakers, frustrated by the slow pace of evolution at the exchanges, said that they hope to put more pressure on regulators and self-policing organizations such as the NYSE and Nasdaq to create rules that will even the playing field and bring more stability to the markets.
“Our marketplace has been evolving very quickly, and it is not clear that our rules have kept up,” said Sen. Jack Reed (D-RI), who chairs the Senate subcommittee.
The Securities and Exchange Commission’s fine against the NYSE last week sent a strong signal that regulators are going to more closely scrutinize exchange platforms, which have enjoyed legal protection despite being publicly traded.