The MFA updated its equity market structure recommendations. It made the following new recommendations to the SEC for enhancing the resilience of critical infrastructure and the robustness of the market framework:
- improve the reliability and oversight of consolidated market data;
- require electronic trading venues to provide trade order and execution information in milliseconds;
- develop contingency plans and interim processes to address unexpected trading halts, particularly those that are caused by technology failures;
- at least every two years, reexamine the parameters used to set circuit breakers and price collars for addressing market volatility, and amend such parameters where appropriate; and
- conduct well-designed studies to test the efficacy of alternative rules that govern market structure.
Lofchie Comment: Because the MFA’s comments about the benefits of market study tests are intentionally unspecific, they might go unnoticed, and that would be a shame. The SEC should be conducting ongoing tests of market structure rules to see what works and what does not instead of relying on accepted wisdom. Obviously, such testing is expensive and imposes costs on the industry. Accordingly, it is important that any such test be well designed and, ideally, part of an overall testing strategy. In the best case, the SEC might propose tests that it is considering and then ask market participants and academics to propose tests of their own and the means by which such tests would be conducted.