The majority of advisors believe market structure issues were the primary reason for the “Flash Crash” on May 6, according to new research by BlackRock that was released on Monday. And despite new guidelines proposed by the SEC, advisors believe a similar event will likely happen again.
The solution: exchange-traded funds, which advisors see as the safest investments for staying afloat in a volatile market. Bonds and mutual funds were also high on the list.
According to the survey, which was commissioned by the iShares Exchange Traded Funds (ETFs) business and conducted by Market Strategies International, advisors believe that a dependence on computer systems and high-frequency trading were the primary reason for the Flash Crash on May 6th. Other reasons: the use of stop-loss orders, the support of market makers and questions with exchange routing rules.
Interestingly, most advisors’ surveyed said their accounts were not impacted by market volatility on May 6th. About a quarter of advisors were impacted when a stop-loss order was triggered at a significantly reduced value.
In terms of solutions, the single-stock circuit breaker rule proposed by the SEC is one of the primary solutions advisors endorse to address the causes of the Flash Crash. They also endorse clearer inter-market routing guidelines to fix market structure problems, placing trading audits and expanding the role of the lead market maker.
“The findings of the financial advisor survey around May 6th are noteworthy because they indicate that advisors believe that market structure issues were at the root of the ‘Flash Crash’ and that the initial recommendations made by regulators to fix structural market problems are a step in the right direction,” said Rob Stone, Ph.D., Executive Vice President at Market Strategies International, in a press release. “In addition, advisors’ market sentiment leans towards the view of continued or increased market volatility and, despite the ‘Flash Crash,’ advisors state that they will use ETFs most often in uncertain markets.”