TABB Group Says, “The U.S. Financial Markets are in Full-Out, No-Holds-Barred, Free-For-All Radical Change”

New York, NY - 5 March 2008

The U.S. financial markets are not just in flux, they are in full-out, no-holds-barred, free-for-all radical change. Not only have the national exchanges become fully electronic, but, according to TABB Group in a new industry study published today, “U.S. Equity Market Structure: Driving Change in Global Financial Markets,” there are more than 55 different venues vying to match buyers and sellers and trade U.S. equities electronically.

According to Larry Tabb, the study’s author and CEO and founder of TABB Group, the capital markets research and advisory firm, “With these 55-plus millisecond-matching U.S. equity trading platforms competing against each other and new electronic strategies enabling brokers, investors and markets themselves to connect and trade, the way traders now access the financial markets has changed radically.” This proliferation of equity execution venues, in conjunction with significant capital investment in scheduling and smart order routing logic, not to mention the market-data infrastructure and millisecond speeds necessary to read and analyze trading opportunities, Tabb writes, “has made the old-school method of phoning a stock exchange floor broker for a trade execution as ludicrous as a horse and buggy competing in the Daytona 500. Not only can’t they win, but they have a greater chance of harming everyone around them.”

As to the question, “Who really cares?” he explains, “Certainly not the millions of individual investors on Main Street trading 100-share orders three or four times a year who are generally happy as long as they’re guaranteed by the SEC’s Regulation NMS rules of getting the best price at the time of execution.” For brokers, proprietary traders, exchanges, ECNs and other trading facilities inside and outside of the US dealing with this daily radical change, he adds, “it means life or death.”

On Wall Street today, says Tabb, it is absolutely critical for hedge funds and money managers to understand market structure nuances as professionally managed equity assets continue to expand and buy-side traders increasingly need to know how to negotiate the rapidly changing market structure. “It often means the difference between beating their benchmarks – or merely matching them.”

The study analyzes the US equity market structure, decomposes who, why and how institutions trade and looks at how market centers, ECNs, crossing networks and dark pools, or non-displayed liquidity, are changing the current trading environment and how they are having a major impact on the global equity execution business. More than 60 pages long, the study covers market structure fundamentals; types of traders and electronic trading venues; best execution; attracting liquidity; subtleties of execution economics; challenges of exchange consolidation; dark pool economic models; six real-world dark pool models; the pressure on the Securities and Exchange Commission (SEC) to change course; the clearing and settlement battleground; and a conclusion titled, “the good, the bad and the ugly.”

While the study focuses primarily on the U.S. market, Tabb says that it should be read by exchanges, brokers and institutional and serious private investors around the globe. “What started as a way to disintermediate recalcitrant U.S. market centers has effectively spurred the development of new trading tools to better support a wide ranging selection of execution needs. While this trend started in the U.S., TABB Group believes it won’t end there. Once the genie’s out of the bottle, it’s impossible to re-cork.”

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