CBOE Holdings Chairman and CEO William J. Brodsky offered his clear and concise opinions on matters affecting market structure during a panel discussion at the SIFMA 2011 Annual Meeting. Brodsky sounded the alarm about the perils of a financial-transaction tax and commented on the causes of recent volatility in the markets. He also warned against confusing the flash crash with market volatility.
On the idea of a transaction tax …
“I think it is a bad idea because there are always going to be jurisdictions that say no. The U.K. is saying no. Happily, the U.S. is saying no. I think there are other ways to regulate markets and to tax profits than to try to slow down the system with a way of raising revenue is counterproductive. … We need people to make markets and to trade on a regular basis so when the individual customer or the institution wants to come in and get out, they can do it with very tight spreads. The transaction tax will only unnecessarily widen those spreads.”
On today’s market volatility …
“We have volatility today … that is driven by macroeconomic events. We’ve had market volatility in the past, and I think what we are all living through is a very prolonged crisis that is now three or four years old. … What’s going on in Europe is very, very serious and look at what is going on in this country. … Until we get some clarification on what our governmental policies are that affect the macroeconomic environment, markets will remain volatile.”
“One concern I have is that we have news that so in your face. … I remember years ago people would see what their stock portfolio was worth by reading the newspaper. Now it is everywhere you go, right in front of you all the time. We have talk shows that didn’t used to exist. I think the speed of news is exacerbating the problem.”
On volatility versus the flash crash …
“I don’t think we should confuse the market volatility we see today or we’ve seen the past few years with the flash crash. I think the flash crash was a micro-market phenomenon. … I feel comfortable that type of event can’t happen in that way again. To say that is was volatility on May 6 is not true. What happened on May 6 was the consequences of a lot of the things that have been done over the last 10 years came home to roost.”