Regulators should eliminate market access fees, set minimum thresholds for order protection, ensure fair access to data, and improve transparency for investors, suggests the U.S. Securities Industry and Financial Markets Association (SIFMA) in a set of recommendations designed to address a variety of equity market structure issues.
SIFMA Monday released a set of recommendations for reforming equity market structure, which it says would enhance fairness, stability, and transparency in the U.S. stock market. The recommendations, which include issues for both regulators and the industry, focus on three main areas: market complexity and fragmentation, fairness in the dissemination of market data, and encouraging transparency.
In terms of market fragmentation, SIFMA suggests that the access fees charged by trading venues should be capped by regulators at 5¢ per 100 shares, or eliminated completely; and, that regulators should eliminate the obligation for brokers to connect to all trading venues regardless of their contribution to market liquidity. To that end, it recommends limiting order protection to venues that contribute at least 1% of average daily dollar volume (Canadian regulators recently proposed a 5% order protection threshold, among other possible reforms to Canadian trading rules).
It also calls on regulators to encourage the exchanges to improve data processing and dissemination, so that all users have access to the same information at the same time. And that, over time, centralized data processing should be replaced with multiple, competing processors.
SIFMA also demands increased transparency to retail investors about order routing; it says that brokers should be obliged to provide institutional customers with standardized execution analysis reports; that regulators should direct the exchanges to provide standardized public disclosure of their trading volumes through undisplayed and partially undisplayed orders; and, that disclosure from alternative trading systems should be expanded to include all off-exchange broker venues, such as market makers and internalizers.
“The U.S. has the deepest and most liquid stock market in the world. Innovation, competition and regulation have made the equity markets more efficient and better for investors today than they ever have been. Spreads have tightened, transaction costs have decreased and execution speeds have increased,” said Curt Bradbury, chief operating officer of Stephens Inc., and chair of the SIFMA Board’s Market Structure Task Force. “However, the evolution of our equity markets has shown that there are aspects that should be improved or corrected, so that markets operate in a manner that supports fairness and stability. We believe these recommendations will help shape the best path forward.”