The SEC Equity Market Structure Advisory Committee discussed (i) exchange access fees and (ii) the current regulatory models for trading venues.
In her opening remarks at the October 2015 meeting, SEC Chair Mary Jo White discussed the “maker-taker” fee structure, which “attracts order flow to a venue and incentivizes the venue’s market participants to provide liquidity at the most competitive prices.” Chair White also reported that the committee would consider “fundamental changes in trading venue management and operation.” Those possible changes included (i) the growth of trading conducted through automated trading systems, (ii) the impact of demutualization, and (iii) the emergence of exchange group affiliations and other developments.
In his public statement, SEC Commissioner Luis A. Aguilar entreated SEC staff to (i) “work toward developing a robust contingency plan for the exchanges’ vital infrastructure,” (ii) consider whether other aspects of market structure should be “buttressed” with contingency plans, (iii) address new market paradigms created by technological advances and (iv) work on a maker-taker pilot program that is less complex than the current tick pilot program.
Commissioner Aguilar revealed that this “may be the last time” he would have an “opportunity to address the Committee as a commissioner.” He closed with some “longer-term questions” that he hoped the SEC would consider for future meetings:
- How will retail investors’ increasing reliance on professional asset managers affect the structure and regulatory framework of our equity markets?
- Is there adequate liquidity for institutional investors, who now play a greater role in our equity markets?
- What causes liquidity to become more “brittle” and “apt to flee during periods of market stress,” and does market structure contribute to that effect?
- What does the “aggressive growth of indexing in recent years,” and its concentration of investment activity in the largest and most liquid stocks, mean in terms of market stability and volatility?
- How has the growing use of so-called systematic trading strategies such as risk parity affected the stability of our markets?
- How should the SEC address the problem of excessive intermediation in our equity markets?
- Are public exchanges still an attractive destination for smaller and emerging companies, or are venture capital and private equity firms more popular now?
Lofchie Comment: The last question, which is not about “markets” but rather the costs of going public, is the big one. This is the type of question that the SEC should not only study but examine continuously: how do issuers decide where to raise capital or whether to go public? Is it better to go public in the United States or to stay private? Is it better to go public in the U.S. market, or to go public abroad and hope that shares of any attractive company eventually will filter back to the United States?