Panel, Fireside Chat
Speed to Market: The Evolution of Trading
Milken InstituteChris Brummer, Seth Marin, Jamil Nazarali, Joe Ratterman, Fred Tomczyk, Greg Toussart, Adni DePaulo
- Retail investors are projected to continue benefiting from reduced commissions (dropping approximately 80%), narrower bid-ask spreads (falling from six to twelve cents to two cents or a penny), and faster execution speeds (improving from 10 seconds to under a second), with the potential for automated trading to save a retiree an additional $32,000 over a 30-year horizon.
- Institutional investors are expected to persistently face a supply-demand imbalance where average order sizes of 1 million shares struggle against an average execution size of 200 to 250 shares on public exchanges, leading to information leakage, adverse price movements, and high transaction costs as assets under management have grown 40 times over the last 30 years.
- The industry is forecasted to undergo continued consolidation among exchange operators, with predictions that one exchange will fold while others merge, and a proliferation of alternative trading venues and dark pools driven by Regulation NMS and the need to process trades not executed on major exchanges like the NYSE or NASDAQ.
- High-frequency trading is anticipated to remain a driver of market efficiency and real-time pricing, though it is also expected to fuel an "arms race" where predatory algorithms exploit supply and demand imbalances, forcing institutions to invest heavily in sophisticated technology to minimize market footprints in a race they may structurally lose.
- Regulators are predicted to shift from a reactive, lawyer-driven model to a proactive, data-driven approach utilizing systems like MIDAS and the "Limit Up, Limit Down" circuit breaker to mitigate risks such as "fat finger" errors and volatility, with a holistic review aimed at declaring markets "fine" or identifying specific improvements to restore investor confidence.
- Market structure evolution is expected to prioritize competition over speed, potentially reducing "payment for order flow" and establishing new market-making obligations (such as staying within 8% of the inside) across venues, while addressing the "arms race" dynamic through principle-based regulation rather than focusing solely on display liquidity or spread metrics.
- Global markets are expected to maintain high interconnectivity, creating risks where foreign index events (e.g., in Abu Dhabi) could trigger domestic crashes, necessitating timely regulatory intervention to address cross-border risks rather than acting after the fact.
- The outlook includes a theoretical but currently unattainable "ideal world" where institutions can transact at the same prices as retail investors, though structural constraints currently favor retail "little guys" who transact at better prices than bulk buyers due to the inverse market nature of U.S. capital markets.