Sifma Seeks SIP Solutions

Terry Flanagan

The Securities Industry and Financial Markets Association urged the SEC to work with SROs and industry members to examine Securities Industry Processors (SIPs) more broadly ) following the August 22 SIP outage that led to a halt in trading of Nasdaq-listed securities.

In a letter to SEC chair Mary Jo White, Sifma suggested that the SEC and the industry work together to develop action plans that revamp governance, increase transparency in operations, and provide for increased efficiencies.

The letter also notes more broadly that the August 22 SIP outage is a symptom of the outdated system by which critical market data is controlled and distributed.

“The events of August 22nd highlight the critical nature of the SIPs in maintaining fair and orderly markets and the need for regulators and market participants to collaborate to make sure the markets are operationally resilient,” said Randy Snook, executive vice president, business policies and practices. “Further, we believe the time is time is right for a broader review of SIPs to address concerns with transparency and governance. The current system for distributing market data was developed over 30 years ago. It’s time to reevaluate what’s best for the markets.”

Sifma commended the SEC’s leadership in examining “this vital market structure issue and its call for the self-regulatory organizations (SROs) to work with broker-dealers as they craft proposals for enhancing SIPs. In addition, Sifma appreciates the SROs’ initial engagement with our members as they formulated their preliminary proposals. SIFMA’s letter provides the Association’s viewpoint on the five workstreams for enhancing SIPs.”

Sifma said it is imperative that the broker-dealer and investment communities play an active and substantive role with the SROs as the SIP enhancement process moves forward from identifying preliminary concepts to developing concrete proposals. Collaboration between SROs and the broker-dealer community is essential to crafting comprehensive proposals that strengthen the resiliency of equity market structure in the United States.

“As we are reminded on a daily basis, the markets have undergone profound changes over the past decade,” SEC commissioner Luis Aguilar said in a December 5 speech. “Among other things, the markets have come to be increasingly dominated by technology and automated trading. The degree to which technology and automation have taken over the markets is simply extraordinary. While technological innovation can bring great benefits, the markets’ increasing reliance on technology and automation has resulted in numerous market disruptions over the past several years.”

At the heart of the organization of the SIPs is the national market system (“NMS”) plan construct that governs their operation.

“The existing NMS Plan structure is outdated and should be modified,” said Sifma’s letter. “The NMS Plans should include direct representatives from the industry (both broker-dealers and asset managers) and the public, and those independent representatives should have voting power on the operating committees of the SRO plans.”

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