March 20, 2020
The SEC should improve the governance of national equity markets by requiring collection of data which permits analysis of high speed trading or pinging of markets by submission of flash bids for sale or purchase of securities. Market makers, such as the NYSE and AMEX and NASDAQ should require market participants who engage in rapid high speed trading and price evaluation to disclose how many proposed orders or bids they have issued for each security in which they are interested, how many bids are provided which do not result in transactions but merely price information and information about demand elasticity of stocks, and how many bids or pings issued in digits for which the retail investor is not allowed to trade, ie 4 digits of a dollar , if the retail investor is only allowed to trade in cents or half cents or tenths of a cents.
Equity market data can be skewed by high frequency pinging or trading, with the result that individual investors, and large long term investors such as pension funds and insurance companies are deprived of some part of what would have been a reasonable return for a medium to long term investment. Overall, this could reduce returns for retail investors from for example 5-7% to 3-4%. Identification by markets of high speed trading bids and transactions could also identify front running which also impedes efficient market performance.
If computers can enhance the speed of trading and of matching buy orders with sell orders, then computers can also collate bids and proposed transactions by security, by source, and by execution or non-execution, for better understanding of how any individual security or industry is being impacted by algorithmic trading. Bids or offers which are merely pinging the price should not be allowed to modify the quoted prices, either by artificially increasing prices and execution costs in rising markets or by artificially depressing securites prices in declining markets. The volume of such short term transactions might also help in identifying improper ie naked shorting of securities which also inhibts proper market performance and securities valuation.
Despite claims that such data on high speed trading, bids and offers may be proprietary, the SEC already has in place policies regarding confidential information which permit it to require these additional data about high speed and spoofing trading practices which can be maintained confidential except for enforcement and analysis purposes within the Commission and for Congressional oversight.