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Articles Archive Q2 2019

More Transparency Should Improve Execution Quality

Ryan Larson, Head of Equity Trading (US), RBC Global Asset Management (US)

Ryan Larson,
Head of Equity Trading
(US), RBC Global Asset
Management (US)

Nasdaq recently offered their recommendations on creating a more modern market structure; and separately, a collective group of market participants launched the Routing Transparency Initiative. These efforts should be applauded as contributing to the debate as to how to improve our markets.

A collective group of diverse market participants should agree to adopt common ground to deliver a global standard to routing FIX orders that provide additional transparency and build upon the efforts of the SEC’s Rule 606 enhancements, ultimately providing child-order routing decision transparency. My expectation is that with this additional level of insight, participants would be able to analyze data that aligns with order intentions, and definitively evaluate and determine routing and venue quality, including the potential impact of un-executed orders.

However, there is some element of “be careful of what you wish for”. For firms not mandated to consume venue-level information as part of their best execution review process, there is an additional sense of fiduciary duty in that “the data is out there, now what do we do with it”. Some firms may not have adequate resources, or are structurally not ready, to consume this level of information; and the benefits that could result would simply end up as an unused cost to the industry.

Perhaps a short-coming of Reg NMS is a somewhat narrow definition of best execution. While price is certainly a factor, there are infinitely more variables that could be considered in satisfying best execution obligations; especially given the diversity of ecosystem participants and their different objectives in the marketplace. Other amendments that are worth resolution include a one-size-fits-all market structure and the potential elimination of the OPR; liquidity aggregation for smaller capitalization companies; SIP reform and oversight; and SRO, ATS and data governance.

We remain very supportive of the Routing Transparency Initiative, and encourage others to consider the benefits it would bring.