SIFMA published a set of recommendations on equity market structure for “enhancing fairness, stability, and transparency” in the U.S. stock market.
According to the press release, SIFMA has long called for a comprehensive review of equity market structure. SIFMA stated that the recommendations are designed to “promote fair and timely access to market data, address the complexity and fragmentation caused by the current order system, and enhance transparency for retail and institutional investors.”
The recommendations include changes to current business practices, as well as proposals for regulatory reform, and fall under three areas: (i) promoting fairness in market data dissemination, (ii) addressing market complexity and fragmentation, and (iii) encouraging robust transparency and disclosure for both retail and institutional investors.
The featured recommendations include that:
- access fees charged by exchanges should be dramatically reduced or eliminated;
- regulators should eliminate the requirements for broker-dealers to connect to trading venues that do not add substantial liquidity to the market;
- all users of market data should have access to data at the same time;
- regulators should direct brokers to provide public reports of specific order-routing statistics and metrics; and
- over time, the central SIP structure should be replaced with multiple processors that would distribute public market data and compete on performance and costs to better serve the marketplace.
Lofchie Comment: Market structure is largely a creature of market regulation rather than market forces, since both the revenue of the exchanges (see the first bullet above) and the number of exchanges (see the second bullet point above) essentially are the products of SEC regulation. Allowing market forces more space to be forceful almost certainly will reduce the number of exchanges, as smaller exchanges will no longer be viable unless firms are forced to trade on them.