SEC Equity Market Structure Advisory Committee Holds First Meeting

The Equity Market Structure Advisory Committee (the “Committee”) of the SEC held its first meeting. The participants focused on Regulation NMS Rule 611, also known as the “Order Protection Rule” or “Trade-through Rule.”

The SEC established the Committee in February 2015 to provide a formal mechanism through which the SEC could receive advice and recommendations on equity market structure issues.

Chair Mary Jo White delivered the opening remarks. She emphasized that market complexity is a key characteristic of equity markets and “deserves close attention.” Complexity, Chair White explained, involves the highly competitive, high-speed, high-volume and yet fragmented nature of equity markets. According to Chair White, one negative aspect of the complexity in equity markets stems from the perception that some complexity is “unnecessary” – an aspect she described as “complexity that is not directed primarily toward producing better markets for investors and public companies.” Chair White recommended that regulators and market participants who wish to evaluate equity market structure look closely at current rules to determine how and to what extent regulations have “needlessly fostered complexity.”

Commissioner Piwowar spoke at the meeting next, offering his optimistic support for a “robust and animated” dialogue about the SEC’s review of market structure. In forthcoming discussions, Commissioner Piwowar said, market participants should review and analyze the Regulation NMS in the context of when it was adopted versus its impact 10 years after it was passed. He explained that Regulation NMS and any potential changes to it should be measured against “the goals and concerns that were articulated at the time it was adopted.”

Lofchie Comment: In a public statement dated May 11, 2015, Commissioner Aguilar disputed the notion that the regulatory framework had contributed substantially to the complexity of the current market structure. (See SEC Commissioner Aguilar Discusses U.S. Equity Market Structure (with Lofchie Comment)). He also disputed that such complexity had made the possibility of market failures or dislocations more likely, as was the case in the Flash Crash. By contrast, Chair White’s remarks inclined toward the view that the regulations had contributed to market complexity and complexity to market disruptions. Perhaps the question of regulatory complexity is itself so complicated that the answer defies proof one way or the other.

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