Moore's law and the regulation of securities markets

Moore's law and the regulation of securities markets

Moore's law was first postulated in 1968, and it loosely says that the cost of making calculations on a computer falls by 50% each year. Securities markets are, in essence, a form of data processing. Consequently, Moore’s law has driven important changes in those markets over the
past forty years. Faster data processing was essential for major changes in securities trading. Increased turnover of portfolios was a result of faster data processing. Consequently, the criticism of that turnover may be misplaced.
The effectiveness of regulatory changes, such as the lowering of brokerage commissions and the reduction in bid ask spreads, depended on reduced data processing costs, that is on Moore's Law. Deregulation of brokerage commissions could not have reduced rates by as much as it did if we had not had decreasing costs of data processing. The reduction in bid ask spreads which followed decimalization of securities quotes depended on improved data processing. Continued reductions in data processing costs will require a new regulatory approach. Regulators should consider the improvements in data processing and data transmission when they establish capital requirements and haircuts.

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