Equity Market Concept Release Issued by the SEC

January 13, 2010

The SEC issued a report entitled Concept Release on Equity Market Structure."  The report reviews an evaluation of equity market structure performance and assesses whether market structure rules have kept pace with changes in trading practices and technology. 


The concept release requests comment on all matters related to market structure. In addition, it asks many specific questions about the current market structure, including:

Market Quality Metrics

   What are the best metrics for assessing market quality for long-term investors and have these metrics improved or worsened in recent years?

Fairness of Market Structure

   Is the current highly automated, high-speed market structure fundamentally fair for investors?

High Frequency Trading

   What types of strategies are used by the proprietary trading firms loosely referred to as high frequency traders, and are these strategies beneficial or harmful for other investors?

   Is the overall use of any harmful strategies by proprietary firms sufficiently widespread that the Commission should consider a regulatory initiative in this area?

Co-Location

   Do co-location services (which enable exchange customers to potentially route trades faster by placing their computer servers in close proximity to an exchange's computer system) give proprietary trading firms an unfair advantage?

   If so, should the proprietary firms that use these services be subject to any specific trading obligations?

Dark Liquidity

   Has the trading volume of undisplayed trading centers (such as dark pools) reached a sufficiently significant level that it has detracted from the quality of public price discovery?

   If more individual investor orders were routed to public markets, would it promote quote competition in the public markets, lead to narrower spreads, and ultimately improve order execution quality for individual investors beyond current levels?

   Are a significant number of individual investor orders executed in dark pools and, if so, what is the execution quality for these orders?

The SEC noted that its ongoing review has led to several rulemaking proposals that are narrowly targeted to address discrete issues and intended primarily to preserve the integrity of longstanding market structure principles.  One proposal would ban flash orders, which enable a person who has not publicly displayed a quote to see orders less than a second before the public is given an opportunity to trade with those orders.

Another proposal would strengthen transparency requirements for non-public trading interest, including dark pools of liquidity which are a type of alternative trading system that does not display quotations to the public.

The SEC also proposed a new market structure initiative to strengthen the risk management controls of broker-dealers that provide market access.

Click http://www.sec.gov/rules/concept/2010/34-61358.pdf to access the proposal.


Categories

Exchange-Traded Funds (ETFs), Investment Advisers, Miscellaneous, Mutual Funds