FORTUNE -- The TABB Group, a research firm that specializes in stock trading and technology, is out with what appears to be a concerning stat: Just 2% of professional investors completely trust the market.
It's become a common line to say that Knight Capital's recent trading glitch, the bungled Facebook IPO and the 2010 Flash Crash is either adding to or the root cause of individuals' skittishness with the market. As evidence, people point to the fact that money has continued to come out of stock funds even as the market has rallied. Now TABB is saying it's not just individuals but pros who are growing nervous.
TABB has done this survey a number of times, and taken together they do seem to suggest high-frequency trading and technical glitches are the source of the pros' growing uneasiness with the market. After 2010's Flash Crash, 12% of market pros said their confidence in the market's structure was "very high." After Facebook's bungled IPO, the "very high" group had dropped to 5%.
The problem with all this lack-of-confidence talk is that the market's main gauge of confidence, the S&P 500, is up 11% so far this year. Yes, on light volume. But for the market to be up that much, someone must be putting more money in.
What's more, fears that the market is some sort of borg-controlled system ready to be taken down by a computer bug is only part of the confidence story. Along with the question about confidence, TABB also asked respondents what they thought it would take to revive investor enthusiasm for U.S. stocks. Slightly less than half of all asset managers and hedge funds who responded to the survey, 47%, did say some improvement in market structure would help. But the next highest response, 39%, was that U.S. stocks "outperform other markets." What's more, the most common written-in response, at 8%, for what would boost confidence was "global economy."
I'm not saying that our complicated, fragmented market is not a problem that regulators shouldn't look into. And it's probably true the market has grown so complicated that a growing number of professionals now don't truly understand how it all works.
But we should also be careful before lumping in the trading problems into talk of "the death of equities." The reason stocks have had a lackluster few years could be more mundane than we think. People aren't confident in the market, because stocks haven't been going up, at least not consistently. And the economy hasn't turned around. When stocks go up, and the economy turns around, investors are likely to pile back into the market, which is, of course, what always happens.
An increase in stock trading rule changes is making it hard for firms to keep up.
FORTUNE -- Perhaps the only thing moving faster than high-frequency traders are the changes to the rules that govern how they trade.
On the day of the flub that cost Knight Capital Group (KCG) $440 million in 45 minutes and briefly caused turmoil in over 100 stocks, the New York Stock Exchange issued three changes to MOREStephen Gandel, senior editor - Aug 8, 2012 2:40 PM ET
Building error-free trading software is impossible, and that makes today's stock markets even more fragile.
FORTUNE -- One question keeps arising in the saga of Knight Capital and its $440 million software glitch: why did Knight, one of the premier U.S. market makers that handles more than 10% of total stock trading, introduce glitchy software into the market?
CEO Thomas Joyce explained in a television interview that the company's new software program MOREScott Cendrowski, writer-reporter - Aug 3, 2012 2:17 PM ET
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