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not reach their brokers and react to the falling market. Even if you got through to your broker, your broker couldn't get through to the trading desk; and even if your broker reached the trading desk, the trading desk was unable to contact the floor brokers, or in the case of Nasdaq, the market makers. The result was a complete breakdown in liquidity and in confidence in the existing market mechanism. |
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Customers fared somewhat better during the crash of 1997. In 1997 electronic systems and electronic interfaces made the market makers available even if they didn't answer the phones. Even so, many electronic systems melted from the overload. Large brokerage firms such as Merrill Lynch refunded damages to customers. |
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People also have a real concern about the slippage that frequently occurs in the execution of their orders. As I stated on national television, I do not believe there is a person in this country who has interacted with the brokerage community in the execution of a trade who has not felt screwed. I have had dozens of customers who have come into my office tell me horror stories of how they have been skewered by their brokers, including full-service brokers, discount brokers, and even deep discount brokers. And my travels and discussions with industry professionals indicate that not only do individuals feel cheated but so do institutional investors, who know that they have been treated poorly by the market makers and the system. |
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Angry customers complain about prices that seemed inconceivable based upon quotes received when entering their orders. They feel frustrated because they feel they can do nothing about it. The remedies offered by the industry are impractical in that the expense, time, and effort to protest in an arbitration proceeding make such an exercise seem futile. Therefore the only way to assure a fair execution is to place yourself in a position of getting the correct information immediately and have the execution performed immediately with full knowledge of the current market. Putting faith in your broker to do the right thing is like Little Red Riding Hood trusting the wolf. |
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