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Reactions: SEC Market Structure Changes

At an Open Meeting on 14 December, the US Securities and Exchange Commission voted on a number of rules related to equity market structure:

Comments on the proposals can be made to the SEC until at least March 31 2023. 

Ronan Ryan, president and co-founder of equity exchange IEX Group, said in an email:

 Ronan Ryan, IEX

“We believe the reforms announced by the SEC represent a constructive and positive effort to improve transparency, increase competition, and ensure that investors can access the best prices available in the market.

It has been 17 years since the existing equity rules were adopted, and since that time, the stock market has seen significant change – including the advent of high-frequency trading, a dramatic decline in displayed liquidity on exchange, and a substantial rise in off-exchange trading.

Modernizing regulation ensures that market competition among brokers, market makers, and exchanges continues to benefit investors.”

Adrian Griffiths, head of market structure at equity exchange MEMX, said:

Security Traders Association: 

Kenneth Bentsen, president and CEO of SIFMA, the trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets:

“A measured, data driven review of the U.S. equity market structure and specifically Reg NMS has been a SIFMA priority for many years, and SIFMA presented recommendations designed to enhance the current structure to the SEC and Congress in 2013, 2014 and 2017.  The substantial changes proposed today by the SEC are incredibly complex with material impact to all market participants, but particularly to investors.

“We strongly believe the SEC needs to be extremely careful in its approach.  Any changes being proposed in the name of competition which may tilt the playing field at the expense of investors should be weighed carefully, be subject to a robust cost benefit analysis, and considered holistically with a view to ensuring there are no negative, unintended consequences for investors.  Additionally, as the proposals issued today are significantly complex and interrelated, it is essential the SEC provide an adequate comment period to allow all parties sufficient time to provide thoughtful input on the package of proposals.”

James Angel, Georgetown professor specializing in financial market structure and fintech:

The Council of Institutional Investors:

CII, an association of U.S. public, corporate and union employee benefit funds, other employee benefit plans, state and local entities charged with investing public assets, and foundations and endowments with combined assets under management of approximately $4 trillion: 

“CII applauds the SEC’s unanimous approval of final rules that will close loopholes and enhance the transparency of executive trading plans in company stock. The adoption comes after CII pressed the commission for 10 years to reform these Rule 10b5-1 trading plans.

“The new rules close gaps in the SEC’s enforcement regime that allow executives to use 10b5-1 plans as cover for insider trading,” said CII Executive Director Amy Borrus. “The SEC amendments will better protect public investors from misuse of these plans and strengthen confidence in corporate management teams and the capital markets generally.”

Under the new requirements, executives will have to wait a specified period of time after adopting a Rule10b5-1 trading plans before they can execute trades. The rules also restrict the use of multiple overlapping trading plans. In addition, directors and management must certify when adopting a new plan or modifying an existing one that: (1) they are not aware of any material nonpublic information about a company or its securities; and (2) they are adopting the plan in good faith. More comprehensive disclosure of companies’ policies and procedures related to insider trading also will be required.”

Stephen Hall, legal director and securities specialist at Better Markets, an independent, nonpartisan, nonprofit promoting economic security:

“The trading systems that dominate our overly fragmented and needlessly complex markets today aren’t fair or transparent.  Hidden in the shadows, these trading practices are often touted as reducing the costs to retail investors.  But in reality, investors continue to be ripped off by the large, rich, and entrenched players that pay handsomely for retail orders they can trade against for almost guaranteed profits, leaving investors with inferior prices on their trades. The proposed rules might help solve these structural problems.  It will take some time to study the proposals in detail to know how effective they may prove to be.”  

“We’ll be particularly interested to see the details of the proposed ‘best execution’ standard as well as the proposed order competition requirement. They represent potentially powerful reforms that might help ensure investors are truly getting the best execution for their trades, not a trade price that looks good only when measured against a distorted benchmark such as the mislabeled and incomplete ‘national best bid and offer.’

We fully expect that the incumbent firms that benefit from the status quo will fight the SEC’s proposals. That includes the wholesaler high frequency trading firms that pocket billions in profits annually from their wealth-extraction methods, as well as other platforms that sell their retail order flow for their cut of the profits.” 

Representative Maxine Walters, chair of US House Committee on Financial Services: 

The top Republican on the House Financial Services Committee, Patrick McHenry:

“Chair Gensler’s market structure overhaul, especially his untested proposal routing retail orders to auctions, will inject uncertainty and threaten the dominance of our markets that millions of Americans rely on for their financial security.

“The SEC has no legitimate cause for such fundamental changes to the structure of our equity markets. In fact, our equity markets appear to be working very well for everyday investors as their participation continues to increase.”

Dave Lauer, CEO of Urvin Finance: