Congress Gets Access-Pilot Earful


There was much finger-pointing during the hearing of US equity market structure held by the House Financial Services Committee’s Subcommittee on Capital Markets, Securities, and Investments on Tuesday.

Almost all of those representing the buy side, sell side, and the exchanges agreed that it was time for Congress and the US Securities and Exchange Commission to revisit the intended and unintended consequences of Regulation NMS now that the industry and regulators have more than 12 years of data and experience with the current market structure.

Chris Concannon, CBOE

“I believe Regulation NMS was materially flawed in its ‘one size fits all’ approach to our markets,” said Chris Concannon, President and Chief Operating Officer, Chicago Board of Options Exchange. “Under Regulation NMS, all stocks are treated similarly regardless of market cap, liquidity or public float. Our current market rules do not care if a stock trades once a month or 1 million times per day. Our market rules do not care if a company is valued at $800 billion or $25 million. This is not an ideal design for the largest, most diverse equity market on the planet.”

Ari Rubenstein, CEO of market maker Global Trading Systems, did not agree.

“We should not squander our resources trying to fix problems that don’t exist,” he testified. “I have witnessed a lot of alarms being rang for problems that really aren’t there, and then hear proposed solutions that are questionably positive in the grand scheme of things.”

Beyond concluding it was time to reassess Regulation NMS, witnesses left almost no reform suggestion off the table from giving non-SROs votes on NMS Plan decisions to having the SEC stop off-loading much of its rule making responsibility to the NMS Plan.

The most common suggestions coming from various witnesses were to extend the mandate of the SEC’s Equity Market Structure Advisory Committee for at least another two years and implementing an access fee pilot.

Matt Lyons, senior vice president and global trading manager at The Capital Group; Joseph Saluzzi, a partner at agency brokerage Themis Trading; and Brad Katsuyama, CEO, The Investors Exchange, all testified to the deleterious effect that rebates have had on the market’s health.

“Maker-taker pricing harms regulated funds and the millions of investors that entrust these funds with their savings in several ways,” said Lyons. “First, the fees and rebates associated with maker-taker pricing reduce market transparency and impair the ability of regulated funds to evaluate the quality of executions they receive.”

Saluzzi also took the opportunity to remind the Subcommittee that ESMAC recommended in July 2016 that the SEC undertake a pilot program to adjust the access fee cap under Rule 610.

Not discounting a possible access fee pilot, Tom Wittman, executive vice president and global head of equities at Nasdaq suggested that legislators and regulators approach such a discussion with the needs of the smallest issues in mind and with data-driven facts. “Our markets are too important to job creation and economic vitality to take unjustified risks to the system,” he said.

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