Sifma Assesses Reg NMS


To reform or not to reform — that is the question being bantered about regarding Regulation National Market Structure, according to one market advocacy group.

In remarks given at the Sifma Equity Market Structure Conference in New York on April 26, Randy Snook, executive vice president, business policies and practices said that from Sifma’s standpoint, the most timely issue in equity market structure is the future of Regulation NMS.

Randy Snook, SIFMA

The SEC adopted Regulation NMS in 2005, and it has been full effect for more than a decade now. Over that time, Reg NMS has had a tremendous impact on investors and market structure. Reg NMS is anchored by the order protection rule – also known as the trade-through rule.

“The order protection rule requires all trading centers to honor the best displayed price in the market and has effectively achieved its goal of creating a fully-automated equities market that provides intermarket price protection,” Snook began. ”These factors have greatly helped the trading experience for individual investors, resulting in reduced trading costs and increased quality of execution. At the same time, however, Reg NMS has also contributed to a highly complex stock market with a significant focus on the speed of execution.”

Snook added that Sifma is encouraged by the request for comment on Reg NMS from Acting SEC Chair Michael Piwowar.

“Equity markets have evolved considerably since Reg NMS was adopted. Now is a very appropriate time for the SEC to conduct a review,” he said. “Ultimately, Sifma’s goal is to improve market resilience and ensure the equity market continues to benefit investors and play an essential role in capital formation.  And certainly, any changes to Reg NMS should maintain the benefits that investors and market participants have received – in particular the automation of markets and the improved trading experience for individual investors.”

Away from Reg NMS review and revision, Snook said there are four other areas that the advocacy group should be reviewed and looked into more deeply. First, he said the SEC should evaluate the Order Protection Rule to determine whether it is continuing to provide value or if increased market complexity is creating unnecessary market risk.

Secondly, he asked the crowd has Reg NMS resulted in rebates that create improper incentives or hidden conflicts of interest. Snook then answered noting his constituency wants the SEC to address the cap on access fees, either through a reduction in the cap or through a pilot to study the impact of varying levels of access fee reductions.

“Third, do speed and quality issues with the public market data feed create an inequitable trading environment for individual and smaller investors,” Snook began. “We think the SEC should evaluate the current framework for providing the public market data feed and consider improvements such as adding depth of book information to the public feed and permitting competition among public market data consolidators.”

And last, Snook and Sifma members focused on the exchanges and the potential for conflicts that exist between their for-profit status and role in setting regulatory policy.

“Have we struck the right balance between exchanges’ profit incentive and their role in setting regulatory policy, particularly through the use of NMS Plans?” he asked the crowd. “We think the SEC should address the current lack of balance in NMS plan structure by providing broker-dealers and asset managers with representation in plan governance.”

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