WASHINGTON (AP) — Federal Reserve Chairman Alan Greenspan said today ordinary investors should pay attention to costs that may be "buried" in their trading contracts. He also advised against a government mandate for any form of centralized network for displaying stock quotes.
Wall Street appears to be inching slowly toward creation of such a network, which would show stock quotes across an array of competitive markets. In testimony to the Senate Banking Committee, Greenspan said that given the pace of change in securities markets, "It is difficult to contemplate how a government mandate could be implemented; systems might well be obsolete before we were halfway through the planning process."
Change has been sweeping the markets, as millions of new investors and increasing competition from new electronic communications networks, known as ECNs, have put pressure on the nation's two biggest exchanges, the New York Stock Exchange and the Nasdaq Stock Market.
"If it fails to respond to technological change, one centralized trading venue, even the NYSE, can be displaced by another as other trading systems take advantage of newer technology to offer greater efficiency or to provide new functions investors value more highly," Greenspan said.
He also said ordinary investors should pay attention to costs other than commissions "that may be buried in the contracts authorizing their transactions."
Those costs could include delayed executions of stock trades, failures to execute trades and lost profit, Greenspan said. Disclosure to investors by brokerage firms will enable them to make more informed choices, he added.
Greenspan said investors should evaluate the efficiency of the trading systems they use and seek appropriate trading strategies for their circumstances.
Sen. Phil Gramm, R-Texas, the Banking Committee chairman, noted in an opening statement that no one is able to predict what shape the markets may take in the future. Like Greenspan, he cautioned against government intervention.
There are strong disagreements within the financial industry over how to build a market system that balances the interests of both big institutional investors — such as pension plans and mutual funds — against those of a growing number of small, individual investors.
The leaders of the two largest U.S. stock markets and five of the largest brokerage firms have previously argued the pros and cons of such a system before the Banking panel.