Overall US equity volumes for 2012 declined 18.5%, averaging about 6.5 billion shares a day. Interestingly, as quiet as equity volumes were last year, the volume of chatter around the markets was louder than ever. Several events in 2012 caught the public’s attention, and not in a good way.
Equity markets have a long history, and they often have been referred to as a well-oiled machine. But a number of malfunctions and investigations across trading venues have thrown a monkey wrench in the works. From the botched Facebook IPO, to Knight’s rogue algorithm, to the various dark pool investigations, each incident was damaging in its own right; but collectively, they have made it clear that some measures must be taken to address the current structure of the equity markets and boost market confidence.
[Related: “Changing the Equity Market by Fixing Broken Windows”]
Perhaps the lack of volume has put unbearable pressure on trading venues to come up with new and creative ways to amass liquidity. Brokers and exchanges are constantly trying to figure out any way possible to bring liquidity to their customers, and now the ways in which they attract and aggregate that liquidity are coming under scrutiny. Innovation is a good thing -- but not when it hurts investors, and this is at the heart of regulators’ concerns.