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Updated Study Underscores Health Of The U.S. Equity Markets

JERSEY CITY, N.J., June 27, 2013 /PRNewswire/ --  Knight Capital Group, Inc. (NYSE Euronext: KCG) today announced the release of "Equity Trading in the 21st Century: An Update." This study updates the empirical results of a previous report from 2010 by incorporating the most recent data and accounting for current market dynamics. The findings of the study underscore the continued health of the U.S. equity markets and provide a basis for the timely analysis of the current market structure.

The updated study, commissioned by Knight Capital Group and authored by professors James Angel of Georgetown University, Larry Harris of the University of Southern California, and Chester Spatt of Carnegie Mellon University, concludes:

  • U.S. markets continue to be healthy with low transaction costs, ample market depth and high execution speeds;
  • Gains in market quality documented in 2010 continue and the markets remain significantly more liquid than they were before the growth of electronic trading; and
  • Improvements in market quality have benefited small traders as well as institutional traders executing very large orders over many days.

Among other findings, the study shows that intraday volatility of individual stocks as measured by the high/low range remains below the levels of the pre-electronic 1990s. It concludes that quote to trade ratios have moderated from their peaks in 2011, with the decrease likely due to a reduction in volatility and a reduction in the number of high frequency traders making markets.

While empirical results show that the markets remain healthy, the study concludes that there is room for further improvement of market structures to better serve investors. However, the study warns against certain proposals to reform market structures, citing as examples proposals that impose transaction costs on trading and minimum resting times on quotes, which the study concludes would hurt liquidity without producing the desired improvements in market quality.

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