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TECH TUESDAY: Trading technology saves money for 'moms and pops'

TECH TUESDAY is a weekly content series covering all aspects of capital markets technology. TECH TUESDAY is produced in collaboration with Nasdaq.

Wall Street technology may be the domain of big financial institutions, but its benefits are very tangible and extend down to Main Street.

Kirsten Wegner, MMI

According to the Modern Market Initiative (MMI), an industry advocacy group, automation and other advances over the past 30 years have made middle-class workers earning $70,000 a year and with a retirement portfolio of $100,000 less than 2 You can retire early.

MMI reported in July that the stock market’s average bid-ask spread has shrunk by 50%, with commissions on $100 stock trades dropping from $6 Deminimis.

“Over the last few decades, capital markets have moved from analog (pieces of paper traded on exchanges) to digital,” MMI CEO Kirsten Wegner told Traders Magazine. “The digital revolution of stock exchanges and the digitization of market-making on exchanges has historically enabled low-cost trading.”

“Our research shows that for investors as a whole, transaction costs are now one penny per dollar, thanks to market automation. has never been lower,” Wegner added. “For investors, these seemingly small, incremental savings can actually pay off over time.”

MMI research analyzes multiple savings vehicles used by U.S. investors, including public pension plans, 401(k) plans, individual retirement accounts (IRAs), 529 college savings plans, and exchange-traded funds (ETFs) Did. Market Technology saves the California 529 plan an average of $61 million annually. This is enough to cover the tuition fees of 6,100 students. The public pension fund is saving $125 million a year, equivalent to his 9.5 million working hours.

Since the 1990s, digitization efforts such as automated trading technology and improved exchange technology have lowered transaction costs and increased accessibility. This has occurred in conjunction with regulatory developments such as the Regulated National Market Structure (Reg NMS), which has increased fractionalization and competition.

The net result is more money in the pockets of investors such as investment plans, pension funds and 401(k)s, and less fees paid to brokers.

“At a time when the digitalization of markets has leveled the technological playing field between Wall Street and Main Street, making saving and investing more important than ever for many, retail investors have far more access to markets. We provide equitable access to July 2022 report. This follows his 2021 report.

According to the report, promoting financial literacy, risk management and transparency is essential given the increasing participation of retail investors in capital markets. Wegner said regulatory policy is data-driven, must consider the interests of a broad spectrum of industry players, and regulators have the necessary resources to detect and deter market manipulation. I was.

“Given the unknown timeline for ongoing uncertainties – geopolitical, inflation, supply chain and COVID-19 related – the dominant attribute of modern markets today is the ability of the market to function. , must be able to function efficiently and be relied upon by retail investors to ensure liquidity and maximized cost savings,” said Wegner.