Everyday Americans invested in the markets have on average 30 percent more savings in their retirement accounts over the course of a lifetime due to advances in market automation over the last three decades, according to a landmark report issued today by the Modern Markets Initiative, a non-profit education and advocacy organization for innovation in today’s markets.
The study, “A Report on Market Automation and Democratizing Markets: Lowered Bid-Ask Spreads and Investor Savings,” found that retail investors have the ability to retire 2-1/2 years earlier to reach the same retirement savings goal because of modern electronic trading technology.
The report’s conclusions come from an extensive review of bid-ask spreads in stocks (the difference between the bid and offer prices) over the past 30 years.
The report states:
“The financial markets that operate across the United States are widely admired across the world – and the best they have ever been since the founding of the New York Stock Exchange in 1817. While investor sentiment will slide between bull markets and bear markets, there is one portion of the market where large and small investors have reaped consistent positive returns over the past 30-some years and that is in the area of market structure and the cost of trading.”
This study analyzed multiple savings vehicles utilized by American investors, including public pension plans, 401 (k) plans, Individual Retirement Accounts (IRAs), 529 college savings plans and ETFs.
The electronification of the markets has leveled the technology playing field between Wall Street and Main Street, providing far more equitable access to the markets for retail investors at a time when savings and investment has never been more important to many, the report stated.
Kirsten Wegner, CEO of the Modern Markets Initiative and a co-author of the report, said, “The net result of the multiple electronification initiatives has been more money in the pockets of teachers, firefighters, nurses and many other hardworking Americans who want to retire comfortably.”
The electronification initiatives since the 1990s include automated trading technology, improved exchange technology, decimalization, Reg NMS (protecting linked markets), among other technological and regulatory developments. All told, these initiatives have cut the cost of trading for retailer investors by 50 percent.
The report concluded:
“With the maturation of electronic market making into its third decade, it is important that regulators continue to encourage competition in the markets. With further technological innovation, it is important that there is a strong cop on the beat at the SEC, FINRA and CFTC… It is vital that regulators continue to have resources to keep up with changing technologies, to ensure investors can have confidence in the markets.