“The whole point of Reg NMS was to deal with the 10 years of change that had already happened — that of course made things even more complex. And there are things about Regulation NMS that we’re dealing with today that some people find problematic. But it is not a new thing and it’s just another block in what I like to call the Jenga tower of market structure.”
It always pays to have an understanding of history, especially when mass media latches onto a storyline and refuses to let go. In the wake of the financial crisis, one of those storylines was equity market structure. In this video, Justin Schack, managing director at Rosenblatt Securities, revisits the events that led to the market’s current state.
A Rube Goldberg machine is the best analogy for the current equity markets, according to Schack. If someone were tasked with designing market structure anew, the result would be far from the current structure. But regulations have unintended consequences, and attempting to surgically remove a previous, problematic “Jenga block” could set off a domino effect that leads to an even more complex situation.
Despite its negatives, Schack points out that the current market structure has lowered transaction costs for institutional investors. Looks like the Frankenstein monster has a nice smile.