January 28, 2016
There are a number of recommendations that have been made by various participants in the public comments docket for
the Equity Market Structure Advisory Committee (EMSAC). These comments should be tabulated in a spreadsheet with an indication of how they have been handled, both by the EMSAC and the Commission. Among the recommendations are the first comment, proposing random delays in orders which remove liquidity, to comments suggesting removal of some members of
the Committee, to more recent proposals to move responsibility for certain duties from the exchanges to broker/dealers who originate orders. Many of these comments deserve careful consideration, and a record of how they have been considered, and what actions resulted. For example, separately, BlackRock has a number of recommendations, including assessing fragmentation of exchanges,simplification of orders, high frequency trading, and availability of data on an equal basis to all participants. This does not mean merely that any market participant can, if they have the funds, buy high speed data, but that high speed data purchased by some particpants should not give an opportunity for front running or latency arbitrage. I do not take any position at this time on these recommendations, other than to suggest that they, along with other recommendations to improve fairness and competition, and instill investor, including retail investor, confidence in markets
needs to be addressed by the Committee and ultimately the Securities and Exchange Commission.
BlackRock recommendations.
Summary of Recommendations for
Improving Investor Confidence
In addition to the market structure recommendations
noted above, we recommend policy makers target five
areas of focus that will have the greatest impact on
investor confidence in the US equity market:
Equal access to trade information
: Trading venues should provide access to information to all participants
at the same time; select participants should not be
allowed to receive information from a trading venue
that is not available to all participants.
Simplify order types
: Certain types of market orders
may provide some participants with signals about large
institutions' intentions. These participants can then use
these signals in trades that "jump ahead" of the
broader market. Simplification of order types could
eliminate this behavior.
Address message traffic congestion
: Market participants should agree and establish order-to-trade
ratios to ensure that quotes represent true economic
interest. Doing so would help curb behavior that is
both potentially misleading and a stress on the overall
market.
Align sell-side and buy-side incentives:
Changes to exchange access fees paid by brokers that would
ensure best execution for clients and reduced cost.
Require market participants to improve electronic
trading safeguards: Such measures could include
additional circuit breakers, "kill" switches, better testing
and more robust compliance systems, among others
Other commenters have different recommendations. Some commenters, Mr. Leuchthafer, suggest that
market particpants want to kill limitations on sell-through or other Rule 611 requirements, to benefit themselves
or their trading strategies. The Commission should consider carefully and avoid reducing existing requirements
designed to protect market investors generally and prohibit manipulative or gain-arbitraging strategies
which do not benefit markets and the investing public.
In addition, I note with dismay that the notice of this meeting, while appearing in the Federal Register and on Regulations.gov
does not appear on the EMSAC website, so that someone looking at the site for information about issues, meetings,
agendas and Commission actions and priorities would not have been aware of a Feb. 2 meeting. The SEC must make
better efforts to make the public aware of EMSAC meetings and issues. With regard to the BlackRock recommendations summarized above, I note that there is a daily parade of self-regulatory organization market proposals to change, modify, raise, rebate, or otherwise curry market participants who want forms of high speed data, self-distribute the data, or
otherwise have advantageous access to quotes and executed orders. Among the other recommendations the Commission and the EMSAC should consider are proposal to upgrade the public quote and order systems, SIP or otherwise. There is
no reason that private parties should have better access to market data than the public and retail investors, merely because they are willing to pay for high speed access and the advantage to trading it provides.