How online brokers and the tech bubble are setting the tone for decades to come

Twenty-five years ago, on an October morning, MarketWatch began delivering real-time news and market data to the general public on the Internet. Individuals were fleeing their stockbrokers for new online platforms, like E-Trade and Charles Schwab, hungry for data and financial information that cost no more than $10,000 a year to access.

The MarketWatch Newsroom was designed with the needs of these readers in mind, and for the next 25 years we provided them with unbiased coverage to help them understand the financial markets and their personal financial decisions.

As MarketWatch celebrates its 25th anniversary this week, we take a look back at the 25 biggest market events and developments we’ve covered. These moments of market surveillance have shaped our current financial markets and will continue to reverberate.

In the beginning, there were five events and market developments of titanic magnitude that set the tone for what was to follow.

1. Online brokers and the rise of the day trader

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The internet and the discount brokerage model combined in the late 1990s to unleash a powerful new force in financial markets, led by E-trade and Charles Schwab SCHW,
-2.21%.
By 1998, millions of Americans had moved their retail businesses online, reshaping Wall Street forever. The Internet also offered individual investors access to financial information, ranging from securities filings to information on market developments and data provided by emerging news outlets, such as MarketWatch. CNBC’s market news became the default channel in waiting rooms and airport lounges, and stock exchange message boards were overrun with trading advice.

Online brokers promised low commissions and a vehicle for quick trading profits. E-commerce ads in the late 90s tapped into the fear of missing out on a boom. An advertisement during the Super Bowl featured a patient being transported to an emergency room, suffering from an illness diagnosed as “wazoo money”. An estimated 10 million people have quit their jobs to become day traders, adding to the frenzy around internet and tech stocks.

Sometimes it felt like we were in the Wild West and the abuse was real. But it was also clear that lower costs and easier access to information allowed individual investors to become active market participants and would pressure Wall Street to serve them better.

2. Devaluation of the Russian ruble and LTCM

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The brain is not everything. Despite employing two future Nobel laureates, long-term capital management went bankrupt in late 1998, becoming a byword for investor hubris and systemic risk. LTCM was a global beater, raising more than $1 billion between 1994 and 1998 as its executives touted their approach that they boasted of using leverage to take advantage of bond and equity arbitrage opportunities. interest rate while reducing risk.

But it all went wrong in August 1998 when Russian markets imploded after Moscow devalued the rouble, defaulted on domestic debt and declared a moratorium on payments to foreign creditors. LTCM’s highly leveraged exposure to Russia led to the collapse of the hedge fund, with the Federal Reserve coordinating a then-historic $3.6 billion bailout led by the fund’s creditor banks.

These woes are regularly invoked during times of financial stress, as wary investors keep their eyes peeled for the upcoming LTCM. In June, investor Michael Novogratz called the turmoil in crypto markets the industry’s “long-term capital management moment.” The initial incident was the first time MarketWatch covered Wall Street’s excessive risk-taking that culminated in a government-led bailout. But MarketWatch’s coverage of the “bailout culture” would continue.

3. The tech bubble of the 1990s, the boom and bust of IPOs

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MarketWatch didn’t just cover the dot-com boom and bust, it participated in the frenzy. The fledgling news site was one of many San Francisco-based companies racing to finalize business plans for immediate Wall Street riches. Initial public offerings of the time were often not dependent on companies’ financial performance, but instead relied on their ability to sell a new future.

Near the peak of the surge, MarketWatch went public in January 1999 at $17 per share, despite losing more than $8 million the previous year on less than $5 million in revenue. A valuation of around $200 million at IPO price has more than quintupled in just the first day of trading, making MarketWatch a billion-dollar company. Vincent Slavin, an institutional trader, was candid when describing MarketWatch’s IPO: “It’s complete madness.”

Other Wall Street analysts told Wired that MarketWatch is a “scruffy business” that, unlike a newspaper, “won’t have to deal with newsprint, delivery trucks, labor unions and other disorderly spending”.

It was all part of what Federal Reserve Chairman Alan Greenspan called “irrational exuberance.” Of course, the madness did not last. The bubble began to burst in April 2000 after a federal judge ruled that Bill Gates’ Microsoft MSFT,
-5.09%
violated antitrust law. The outsized valuations of the dot-com boom disappeared almost in unison over the following months.

MarketWatch covered the implosion of companies like Pets.com and Webvan, even as its stock price plummeted, with MarketWatch shares plunging to nearly $1 in September 2001. While many companies that recently went public went out of business, MarketWatch continued to find readers eager for market news, including the dot-com bankruptcies and zombie stocks they left behind. In 2005, MarketWatch sold to Dow Jones for $18 a share, surpassing the initial IPO price, and survived long enough to cover the spiritual successors of these dot-com companies, such as Chewy CHWY,
-4.22%
and DoorDash DASH,
-6.79%,
and to tell you why the second tech boom has nothing to do with the first.

4. Decimalisation

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In response to a Nasdaq trade scandal, the Securities and Exchange Commission in 2001 forced US stock exchanges to stop quoting stocks in fractions of ⅛ points and switch to decimals. In other words, quotes moved from 12.5 cent increments to penny increments – a move that was seen as a boon to retail traders as it narrowed the gap between quotes buyer and seller, but also helped to accelerate the development of e-commerce in the human market. to touch.

Subsequent rule changes, culminating in what the SEC considered the “National Market System,” had a similar effect, accelerating technology trends that had taken decades while aiming to create a freewheeling marketplace where stock exchanges and other venues, including electronic communications networks and so-called dark pools, would compete to provide the best execution on trades.

An increase in high-frequency trading, or HFT – transactions performed by powerful computers with high-speed connections to the various exchanges capable of executing large numbers of trades in milliseconds or faster – was linked to market fragmentation. HFT firms were well equipped, for example, to take advantage of situations where a stock was trading at different prices on different platforms. Critics have accused HFT of distorting prices and encouraging market makers to disappear during times of market stress.

Increased competition has also contributed to the growth of a practice known as payment for order flow, in which brokers are paid by trading venues in return for routing their trades to them. . Proponents argue that order-flow payments promote liquidity on Wall Street and facilitate commission-free trading – to the benefit of retail traders. Critics say it is a blatant conflict of interest and undermines the concept of fair markets. The backlash from the controversial practices has prompted new regulatory scrutiny, as well as an entrepreneurial response. IEX Group Inc., featured in Michael Lewis’ 2014 book “Flash Boys,” has developed a trading platform with a speed bump aimed at discouraging high-frequency traders while avoiding the practice of paying for order flow.

5. The September 11 attacks

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“Our main concern here is human life, but do we know if any markets operating in this area have decided to suspend trading for today? CNBC host Mark Haines asked shortly after the second plane hit the World Trade Center.

The human tragedy of 9/11 was overwhelming, and the terrorist attack on the World Trade Center and the Pentagon also clearly targeted financial markets and the people who worked to make them work. US markets halted trading on September 11 and the New York Stock Exchange remained closed for four trading days, the longest time it had been empty since 1933, at the height of the Great Depression.

But in the hours before those decisions were made and before Americans began to understand the true impact of 9/11, traders and other workers who would normally commute or arrive on Wall Street, along with their families, searched for information. News outlets, including ours, have worked to provide them with all the information possible.

Dressed in a reddish-brown pantsuit and pearls, Maria Bartiromo stood on the floor of the New York Stock Exchange as traders crowded in and described what she had seen moments before. “The first explosion I witnessed was the second plane going into the second tower,” she told CNBC hosts. “I was outside, frankly I ran for my life.”

As the day progressed, many websites buckled under the pressure of increased Internet activity. But MarketWatch managed to stay online and pulled ads from the site. A reader named C. Harrison, who said he had no access to television or radio at work, wrote to us in the aftermath, saying the site “provides me and my colleagues with the only news of what was happening in the world.” Harrison added, “You’ll never know how much I appreciated being able to maintain the link throughout the day and get updated information, almost as it happened.”

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