SEC Chair Jay Clayton outlined SEC initiatives for improving equity market structures.
At an Equity Market Structure Symposium sponsored by the University of Chicago and the STA Foundation, Mr. Clayton stated that the SEC is considering recommendations made by the Equity Market Structure Advisory Committee ("EMSAC") and the Department of the Treasury. He said the SEC is focusing its efforts on (i) the implementation of a pilot program to test rebates and access fees on U.S. equity markets, and (ii) the upcoming Commission vote on rules concerning operational transparency for alternative trading systems and transparency into broker order routing practices.
Mr. Clayton also announced that the SEC Division of Trading and Markets will host several roundtables on equity market structure in order to get public input on liquidity for thinly traded equity securities, access to markets and market data, and retail investor fraud. Mr. Clayton voiced concerns that "main street investors" are burdened with costs and miss opportunities to invest due to the decreasing number of U.S. publicly listed companies.
SEC Director of Trading and Markets Brett Redfearn affirmed the SEC's commitment to executing its pilot programs, including the Transaction Fee Pilot, and using the empirical data from such programs to make informed policy decisions. The pilot will test "the effects of lower exchange access fee caps" and "a prohibition of rebates" through a test group. According to Mr. Redfearn, the Transaction Fee pilot, which studies order routing behavior, execution quality and market quality, could lead to policy recommendations such as a tiered access fee cap structure based upon the specific liquidity characteristics of different securities or, alternatively, no access fee cap.
Commentary / Steven Lofchie
The SEC's new "practice" (or hopefully it will become a practice) of testing rule changes through pilots is a positive development as an approach to regulation. The pilots must themselves be carefully selected. The notion of testing Transaction Fees seems a much better idea than the SEC's prior major test of Tick Sizes, which seemed highly unlikely to produce any meaningful results.
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