07.09.2012

Wanted: Retail Investors

07.09.2012
Terry Flanagan

Market turbulence over the past few years drove away many retail investors, and recent well-publicized instances of Wall Street stumbles such as the Facebook IPO haven’t helped bring them back.

Rather than wait for the market to improve and retail investors to come back on their own, some organizations are moving proactively to try to make this happen. Last month, the U.S. Securities and Exchange Commission’s Investor Advisory Committee held its inaugural meeting and asserted its primary goal of protecting retail investors. Then last week, the NYSE Euronext said it would launch a plan to offer retail investors price improvement on stock trades.

Retail investors who have been involved in at least a few securities offerings can look beyond the splashy Facebook headlines, noted Ben Schwartz, chief market strategist at Lightspeed Financial.

“Facebook has been on the front page of the paper, but there are a lot of great companies that have come out and done very well — a perfect example of this is LinkedIn,” Schwartz told Markets Media. “As long as retail investors have some balance and exposure to a blend of offerings rather than just the one the one they love, they will understand that some things work out well and Wall Street isn’t all bad guys.”

“It’s easy to have a ‘Doomsday’ or pessimistic attitude but we are all working towards the same goal,” Schwartz continued. “Nobody wants to see people lose money or companies going down. We are all looking for stability and how we can best move forward.”

The SEC group is intended to give a greater voice to retail investors, who often are underrepresented on Wall Street and tend to show their displeasure by withdrawing from the markets. As its name suggests, the group will serve in an advisory capacity to the SEC; its recommendations won’t be binding.

The NYSE Euronext plan, approved by the SEC, will improve the execution price for individual investors’ stock orders by a fraction of a penny. “To the extent that we can bring new participants into the process…we think it results in a better experience for individual investors and encourages more people to trade,” NYSE Euronext Executive Vice President Joe Mecane told CNBC on July 6.

Lightspeed provides trading technology geared toward active equity, options, and futures traders. Schwartz expects a continuation of the current market climate until later in the year, when some macro developments have the potential to improve sentiment for institutional and retail investors alike.

“With the macro situation in Europe and the fiscal cliff in the U.S., there are a lot of hurdles to clear,” Schwartz said. “In the second half of the year I think we see more certainty in Europe and some compromise resolution in the U.S.”

“The federal government is creating a lot of new regulations and rules that are constantly evolving, which apply to HFTs, hedge funds and others,” he continued. “Right now the market is looking for some certainty, so there has to be more translation of Dodd-Frank and other different rules. I think volume will continue to trend lower going into election. After the election we will see an upturn, potentially a substantial volume pickup.”

From a bigger-picture perspective, “this industry is full of cycles,” Schwartz said. “We had seen tremendous growth in a short period of time, and we will continue to see more growth as populations are rising and people will need a place to invest. In 10 years all areas will have growth.”

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