OPINION: Sprecher Keeps it Simple

Terry Flanagan

Jeff Sprecher’s “grand bargain” proposal to revamp U.S. equity market share is striking in its simplicity.

To wit, after years of creeping complexity and fragmentation that resulted in a “mess” (Sprecher’s own characterization), the CEO of IntercontinentalExchange aims to roll back many of the complicating factors in one fell swoop.

In a draft letter shared with large sell-side and buy-side players, Sprecher proposes cutting banks’ equity-trading costs by more than 80%, as long as banks agree to step down from directly competing with exchanges and let the lion’s share order flow transact on exchanges.

Exchanges would have more business, but it would be lower-margin business. Banks would pay less per trade, but they’d have to pay to match some trades that they’re now doing themselves.

Net-net, it’s unclear whether the proposal would result in more monetary benefits to exchanges or banks.

But I suspect Sprecher is looking at the big picture here, rather than who gets what split of the buy side’s next dollar spent on trading.

That is, if U.S. equity market structure can indeed be simplified and streamlined in a meaningful way, that could result in a host of benefits, including increased confidence on the part of market participants and less haranguing by regulators, legislators and the press. If that happens, trading and investing activity would most likely pick up, growing the pie for exchanges as well as the sell side and the buy side.

Sprecher is rightly known as a visionary and someone who’s not afraid to shake things up. He was fairly quiet in the first 13 months after ICE bought NYSE Euronext in November 2013, but he stepped out boldly this month.


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