May 5, 2009
I absolutely agree with the efforts of the SEC to return the stock market to an "investor friendly" place. Here are my comments:
The problem is not exclusively going short or long the market. There are reasons for both positions and both postions need to be honored.
The problem occurs when traders "gang up" and push the price of a stock in any given direction. For the last two years they have pushed stocks down and now they are pushing them up. The ability of trading firms to manipulate the price of a stock (up or down) is what bothers small investors.
Its VERY clear what is going on when watching the movement of a stock that is being "worked" by a trading firm. The price of a stock can literally go up or down 50-90 cents in 2 seconds (with no news being released) depending on which way the firms are trading it. There is NO WAY this significant price move could take place without some type of "orchestrated" effort by trading firms.
Its been very clear that trading firms are being coached to "short" a stock or go "long" on a stock ... with multiple traders initiating trades at the very same time. The effect is to knock a price down ... or push a price up ... with multiple initiations at the same moment. This "gang" trading leaves the small investor helpless. It promotes volatility in the market and a sense of helplessness to the individual investor. The sense is .. what ever the trading firms want, they can get. My opinion is that they were the ones that put Bear Stearns and Lehman out of business. Trading firms pushed pushed pushed and no one could do anything about it. This unregulated power has cost the country millions of jobs and trillions in assets.
Putting circuit breakers or the uptick rule back into affect is a work around. It doesnt get at the heart of the problem, but it may help. The heart of the problem is that trading firms use their size (multiple traders and assets) to manipulate the price of stocks. Their activity has turned the small investor into a trader to catch the momentum that trading firms create. Buy and hold has lost favor because of the market volatility caused by trading firms that are "working" the market to their favor.
I dont have a solution unfortunately, but any effort by the SEC to restrict the orchestrated moves of trading firms (example: 100 traders at XYZ Trading Company shorting BAC at 10EST) will really help Trading firms have TOO MUCH POWER and it's cost the country dearly.