Rich Repetto Talks Exchanges, Market Structure, ETFs


While the equities market has been rife with talk over the recent Investors Exchange application process, there’s a lot more happening in the space.

Sandler O’Neill Principal Richard Repetto opined that 2016 won’t bring wholesale changes to market structure. Some of the main topics of conversation will be mergers and acquisitions in the exchange space, the creation of the consolidated audit trail, and additional regulation into other asset classes, such as exchange-traded funds.

“I’m focusing my attention at our upcoming conference on the current state of global exchange consolidation,” Repetto said. “We’re currently in a period now where exchanges are merging, and more can come.”

Repetto cited the planned merger deal between London Stock Exchange and Deutsche Boerse, which would create a regional trading powerhouse, and the possibility that IntercontinentalExchange might jump in with its own bid. Last month, Nasdaq agreed to buy options-exchange operator International Securities Exchange, following its acquisition of Chi-X Canada.

“There’s going to being a lot of attention given to consolidation and the effects such consolidations would have,” Repetto said. “There’s going to be a lot of talk focusing on clearing, cross-margining, and issues of nationalism and anti-trust. While this consolidation is small so far, it does raise the topic of discussion to a higher level.”

He added that ICE is a wildcard, as it could bid for the LSE or another exchange. “You just don’t know what ICE is doing or thinking,” Repetto said. “You can have the real potential for more consolidation.”

Rich Repetto, Sandler O'Neill

Rich Repetto, Sandler O’Neill

Repetto said if Nasdaq were to launch a dark pool as has been speculated, the exchange operator can effectively counter some of the broker-sponsored pools and keep order flow inside the exchange’s four walls.

“By having an independent dark pool, Nasdaq, can offer the buy side a more neutral offering,” Repetto told Markets Media. “The issue with dark pools centers on the fact that their operating brokers try to hold their order flow in-house, whereas Nasdaq doesn’t have that pressure. Brokers don’t want to pay that exchange fee for routing an order away from themselves.”

Furthermore, while much of the recent controversy surrounding dark pools has been lack of internal controls and governance, Nasdaq, with its status as a Self-Regulatory Organization, has a built in oversight system that can give investors and traders an extra sense of security when trading. “In essence, Nasdaq would have and sets a higher standard of dark pool regulation,” Repetto said.

On the subject of the Consolidated Audit Trail,  Repetto said that the proposed market trade monitoring system is still needed and that it should be a focus of the industry.

“I still think that despite the delays in getting the groundwork for the CAT put together and the effectiveness of certain market circuit breakers, such as limit up and limit down, there is still a very real need for this system as soon as possible,” Repetto said. “Despite the market functioning relatively smoothly and without incident, you can never rule out the market having a problem and having the need for a system that monitors executions and current bids and offers. The CAT is as relevant today as it was back in 2010.”

Lastly, when it came to other market structure issues, Repetto said market surveillance and circuit breakers such as the aforementioned limit up/limit down system would be expanded to other asset classes such as ETFs. Just last August, the ETF market experienced its own market meltdown where for approximately 30 minutes investors and traders were unable to get proper valuations for these instruments. The equity markets also experienced some dislocation as a result of the ETF market disruption.

“I think some of the circuit breakers will be expanded to other asset classes and there will be greater coordination across exchanges as to how these breakers will operate,” Repetto said.

Featured image by imtmphoto/Dollar Photo Club

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