The Lost Reputation Of Stock Exchange, The Comparative View Of False Trading Response And Legal Reform

There had been a time when companies were listed on New York Stock Exchanges(NYSE), it was considered as a great endorsement for companies’ comprehensive strength. The credibility that stock exchanges serve has been proven both domestic and abroad. Nevertheless, with the sustainable development of the capital market and the profit-driven nature of the companies, financial institution, securities trader and high-frequency traders have created more and more bewildering new trading technologies and arbitrage means. In recently years, there has repeatedly been many ‘fat finger’ incidents(Ever bright ’fat finger’ incident, Japan 2005 J-COM ‘fat finger’ syndrome, and U.S. stocks flash order incident) among the capital market of both developed and developing countries. The investment benefits of the medium and small investors were further exploited, who had already been in a weak position of information communication. As a service platform that maintains the fair and orderly operation of the securities market, the stock exchanges, however, have blindly cut the salaries of executives, forcing those who were capable to leave their posts. Without the support personnel, the healthy operation of the stock exchanges becomes vulnerable. With the development of electronic trading, an emerging term called ‘high frequency trading’ has frequently appeared in the securities market. Also, it has been more and more frequently used by securities traders, market makers and other financial entities such as arbitragers. On the surface, high frequency is capable of increasing securities market liquidity, but its frequently occurred ‘technical glitch’ has caused wild fluctuations on securities market price. With the blind following of quantitative trading, it will potentially lead to securities market collapse. In addition, to obtain high frequency order flow, the stock exchanges are willing to sell the transaction data of other investors. With the advantages of speed, along with its complicated order types, the high frequency traders manage to trade before other investors, even some organizations, which has greatly damaged the fairness of the securities market. This paper adopts the comparative method to review the history of stock exchanges, and describes three key points: Origin and development of the United States Stock Exchanges; the establishment ‘Shanghai-Hong Kong Stock Connect’ system and its positive stimulus to domestic securities settlement system; and how does the cost of high frequency trading breeds such powerful arbitrage means: ETF. By analyzing the pros & cons, and their inside logical structure of these three points, it helps reader to have better understanding of the vanishment of stock exchanges’ reputations. The novelty of this paper is also on how to redeem the reputation of the stock exchanges: Firstly, by introducing advanced ideas of the IEX, it analyzed the scientificity of the IEX, and revealed how existing trading systems damaged ordinary investors’ interests; Secondly, after wiping out all the superficialities, the stock exchanges should return to the character of perfecting functions of market making and price discovery. Finally, it is without denying that talents competitions is the fundamental of promoting progress, especially putting the right people in the right place. Therefore, reshaping the stock exchanges executives inspiration system, and scouting for competent executives have become inevitable approaches for modern stock exchanges.