It’s become apparent to everyone that the stock market these days is just a giant online casino. As one commentator put it: “The stock market is becoming little more than a place for speculators and algorithms to compete over who can trade his way to the most money.”
As a mechanism for raising and allocating capital it’s all but dead. And it certainly doesn’t need a ‘place’ to operate. It’s all virtual anyway, driven by cloud computing.
Some say the writing was on the wall for Wall Street when Chi-X launched in 2005. Within five years they had grabbed 20% of Europe’s equities trading market. Not to be outdone, the NYSE snapped up Euronext, a collection of European stock markets, hoping to “globally redefine the marketplace for trading cash and derivatives securities.”
Perhaps the Credit Crunch one year later put paid to those dreams. Whatever the case, by 2010 there was a wave of consolidation that swept the markets.
Deutsche Börse weighed in by buying NYSE Euronext, looking again to be the biggest global gorilla, while London Stock Exchange bought Canada TMX. The club was closing ranks.
But the final straw was the ‘App Economy’. Chi-X started the trend, quickly followed by NASDAQ and other tech driven exchanges. An iPad or Android app is all you need to be a virtual broker or day trader, from anywhere in the world. Trading stocks and futures is as easy as playing poker on your tablet, and there’s zero risk around settlement. The market is open 24 hours a day, every day.
So why on earth do you need a trading floor full of shouting people, and thousands of screens all over the room, when the one in your hand can do it all?
After five years of trying to buck this trend, DBNYX has finally pulled the plug. Wall Street is shutting up shop. Will anyone even notice?
ANALYSIS >> SYNTHESIS: How this scenario came to be
The Future of the Stock Market
It seems that traditional stock exchanges stand on the brink of a tipping point. Like ‘bank holidays’ in Britain, they are becoming an anachronism of the flat, fast and furious world we live in. The basic idea of a stock exchange was to raise capital for new and expanding business enterprises. The market mechanism ensured an efficient distribution of capital according to supply and demand.
Well, that was the theory. Today, stocks and futures are traded on multilateral trading platforms like Chi-X and BATS that are ‘open’ 24/7. And trading costs are next to nothing, making it possible to balance your portfolio several times a day. But there’s an app for that. A tablet application that uses Googlesque algorithms to determine the optimum trades to make, for your personal risk profile. Automatically. All the time. So what’s this ‘Exchange’ thing, with floors and bells and whatnot?
2005: Trades in the blink of an eye
A new electronic trading platform, Chi-X is established by electronic trading pioneer Instinet. The benefits of Chi-X are the ability to trade across multiple trading ‘venues’ at low cost, and high speed. Chi-X Global aims to provide investors around the world with the most efficient markets possible, with trades being executed “in the blink of an eye.”
2007: NYSE rides the wave
NYSE acquires Euronext amid the big boom. Chi-X Europe is established as an independent regional operator, with major banks as its primary shareholders. Within four years Chi-X is outperforming Euronext in total European trades.
But NYSE Euronext plans for world domination have to be moderated when the sub-prime debacle affects world markets.
2009: Crunch time
The Credit Crunch turns into a global slump. Finances are in crisis worldwide. Stock exchanges reel, as governments bail out banks, auto companies, and each other, in a desperate bid to avert a global financial meltdown.
By 2010 the recovery seems certain, but many banks have been extinguished, and investment banks and packaged debt have a bad reputation. Governments have record debt, and a crisis emerges in Europe as Greece, Ireland, Portugal, Spain and Italy acquire the tag of PIIGS, essentially relying on France and Germany to guarantee their sovereign debt.
2011: Bigger must be better
A wave of consolidation sweeps the global market. “Let’s all gang up on our enemies. We need to control the markets to ensure our survival. We can cut costs with economies of scale.” That seems to be the thinking.
Deutsche Borse buys NYSE Euronext. London buys Canada’s TMX. Singapore buys Australia’s stock exchange. And Shanghai waits in the wings, while Chi-X Europe and BATS Global Markets cosy up to each other.
But can the traditional exchanges really compete with the electronic upstarts? “The NYSE once controlled 80% of the trade in stocks listed on its markets; that figure is now down to about 23%,” reports Fortune. To complicate matters, Nasdaq OMX puts in a hostile bid for the NYSE, hoping to dominate US markets and cut costs to increase margins.
It’s all starting to look rather messy.
2013: The new money
Virtual money is insidious. Since Apple and Google supported ‘in-app’ purchase transactions, anyone can buy stuff on their iPad or Android tablet. And you don’t even need a credit card or bank account – you can buy iTunes vouchers with anonymous cash, and spend them inside your favorite shopping app, with total security and maximum convenience. Money laundering has never been easier.
Apple is forced to admit that financial services is now its biggest revenue segment. Vodafone privately kicks itself for missing the greatest opportunity of the mobile age.
Meanwhile, investors have been bypassing traditional stock exchanges by turning to so-called ‘dark pools’ to facilitate large blocks of trades they want to keep out of sight. These trading platforms are run by the investment banks, naturally, and start attracting regulator scrutiny. At the other end of the spectrum, margins are so low that even Chi-X is struggling to fight off the competition.
2016: Wall Street is a game
‘Wall Street’ is the title of a mobile game. And a movie. And several books. It’s a quaint idea, that you needed a broker with accreditation to trade in financial instruments on your behalf. And half the time he was probably trading against you for his own benefit! And let’s face it, derivatives and ‘funds of hedge funds’ have nothing whatsoever to do with capital raising – it’s just legalized gambling on a grand scale.
Now it’s just a finger tap away, on your Chi-X or NASDAQ app. Better still, use the Opt-X multi portfolio app that continuously balances your portfolio for you, globally, and automatically closes your position when things turn sour – within microseconds!
There’s a subdued ceremony, poorly attended, as the NYSE closing bell rings for the last time. That part of Wall Street is closed for good.