Cheaper trading in stocks is usually something to be celebrated. Tumbling transaction costs over the past decade have benefited the investing public as well as professionals.
 
Still, there may be a dark side to this otherwise beneficial trend. As we reported last month, studies show that the market for smaller IPOs has shrunk in recent years. A persuasive case can be made that ever greater market efficiency is responsible.
 
The basic argument is that thrifty trading has harmed the old-fashioned brokers, who traditionally helped draw investor attention to smaller businesses through their research and sales teams. For advocates of this line, the rot started to set in with the development of electronic trading in the late 1990s. This started to bring down the cost of transactions by making trading more efficient. In 2001 brokers suffered another blow: decimalization in the United States. Instead of fractions of dollars, stock prices began to be denominated in pennies.
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