Small investors are quitting Wall Street following crash: watchdog boss

Mary Schapiro, chairman of the Securities and Exchange Commission (SEC), said it will release in the coming weeks a report on the May 6 “Flash Crash” which saw market indexes dive by more than five percent in minutes, only to rebound again after seconds.

The crash is largely blamed on the extremely sophisticated automated trading that dominates today's markets, where thousands of trades are executed within seconds.

These advanced methods have pushed away individual investors who fear investing in stocks in view of the market's volatility, Schapiro said in a speech before the Economic Club of New York.

Many individual investors, she said, “have submitted comments to the Commission that are highly critical of the current market structure.

“Retail broker-dealers have told us that their customers — individual investors — have pulled back from participating in the equity markets since May 6,” she said.

“Indeed, according to mutual fund data, every single week since May 6 has seen an outflow of funds from equity mutual funds.

“I recognize that there may be a variety of reasons for reduced participation in the equity markets, but the trend is troubling, particularly if concerns about equity market structure are playing even a small role in investor decision-making,” Schapiro said.

Schapiro hinted that the SEC report would propose measures to strengthen the stock markets, most notably by regulating high frequency trading, which uses ultra-complex algorithms that automatically trade millions of shares a day, accounting for more than half of total daily trade.

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