After reading SEC Chairman White’s recent speech, it felt like hearing a doctor’s diagnosis following a series of tests. Sophisticated market participants have a good idea of what the underlying problem may be, but there is still a certain amount of relief in hearing Chair White’s assessment.
We see 5 key issues for the buy side:
- Increased Disclosure & Transparency - This includes direct data feeds usage, broker routing logic, non-ATS off -exchange dark trading and adding a timestamp into the consolidated feed.
- Curbing Volatility - The SEC is working on an anti-disruptive trading rule to curb excessive price volatility caused by short term trading strategies.
- Impact of Technology - More rules governing technology are coming. The market is fragile because it is interconnected and has a single point of failure.
- Trading in the Dark - There is a concession that excessive dark trading leads to erosion in price discovery, and that the contribution of the trade-through rule to fragmentation needs to be studied.
- Regulating HFT - Bad actors are finding ways to access the market through intermediaries with weak controls over market access so all HFTs will register as dealers and all dealers must be FINRA members.