Continued sudden drops in the U.S. stock market will test its “integrity” with investors, TDAmeritradeCEO Fredric Tomczyk told CNBC Tuesday.
“I think it’s a question about the whole market and the integrity of the market,” said Tomczyk. “Is it functioning properly? That’s what’s spooked some retail traders right now,” he added.
Tomczyk added he has not seen any reduction in the trading volume among investors using Ameritrade's systems, and investors are continuing to come in.
Still, Tomczyk, the head of the second-largest U.S. discount broker , said he expects certain “market structure changes” are needed to prevent last Thursday’s dive from happening again.
Among the change he would recommend is making trading more consistent from one exchange to another.
The exchanges must “apply those rules and regulations consistently. It can’t be done on one exchange and not another,” Tomczyk said. "That causes problems and I think we are seeing some of the results of that."
He said he thinks some sort of circuit breaker — both on a market-level and a stock-level — makes sense. Circuit breakers are used to slow trading amid rapid market swings.
“There has to be a pauses when things seem really abnormal. There has to be a way to step in,” he said.
It is thought that some exchanges applied the circuit breakers, while others did not. That left fewer buyers and sellers to help set prices, potentially accelerating Thursday's drop.