At a hearing of the House Subcommittee on Capital Markets, Securities, and Investment titled "U.S. Equity Market Structure, Part I: A Review of the Evolution of Today's Equity Market Structure and How We Got Here," industry professionals offered recommendations for regulatory improvements, and identified aspects of the equity market that warrant further review:
Regulation NMS: Chicago Mercantile Exchange President and CEO Chris Concannon argued that Regulation NMS does not account adequately for the diversity of offerings in the equity market: "[u]nder Regulation NMS, all stocks are treated similarly regardless of market cap, liquidity or public float." He urged the SEC to reevaluate Regulation NMS in order to remedy the "unintended consequences" that have arisen since the inception of the regulation.
Speaking on behalf of SIFMA, Charles Schwab Senior Vice President Jeff Brown identified multiple facets of Regulation NMS that warranted further review, including (i) access fee caps and (ii) the order protection rule, in order to better reflect current market conditions.
Regulation ATS: Panelists raised issues regarding conflicts of interest that may arise in relation to Alternative Trading Systems ("ATSs"), as well as the need for additional disclosures from ATSs.
Tick Size: Representatives from NASDAQ and Instinet, Inc. criticized the efficacy of the "one-size-fits-all" tick size that is standardized in current regulations. NASDAQ Executive Vice President and Global Head of Equities Tom Wittman suggested that "transparent and standardized methodologies" should be utilized to evaluate the optimal tick size for companies, and claimed that utilizing those methodologies potentially could contribute to increased liquidity and lower trading costs.
Self-Regulatory Structure: SIFMA representative Jeff Brown urged the SEC to consider an "overhaul of the self-regulatory model." He contended that exchanges enjoy the benefits of being self-regulatory organizations ("SROs") while "act[ing] as regulators of [their] commercial competitors – broker-dealers." This structure, he claimed, "has resulted in policies that are designed to benefit the exchanges' business interests or mitigate their regulatory obligations at the expense of broker-dealers."
The complete written testimonies of all panelists can be accessed here. For a detailed overview of the hearing, see the Delta Strategy Group summary.
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