SEC Chair White Proposes Market Structure Rules in Industry Speech

June 6th, 2014

Yesterday, June 5, 2014, Mary Jo White, Chair of the Securities and Exchange Commission (SEC), introduced plans to reform the agency’s regulation of equity market structures before Sandler O’Neill & Partners’ Global Exchange and Brokerage Conference in New York City.  Addressing an audience of industry stakeholders, White recommended “additional measures to further promote market stability and fairness, enhance market transparency and disclosures, and build more effective markets.” White also proposed the creation of a Market Structure Advisory Committee to review proposed rule and policy changes.

 

The reforms will be largely aimed at the behavior of high frequency trading firms, exchanges, private trading venues or dark pools, and certain brokers.  Specifically, White proposed increasing transparency and reporting requirements for dark pool operators, and requiring high frequency traders to register as broker dealers.  White said the SEC would also review the appropriateness of rules to restrict destructive high-speed trading strategies and overly complex order types throughout 2014.

 

White’s proposals come as high-frequency trading issues continue to heat up, especially in the wake of the release of Michael Lewis’s book, Flash Boys.   The behaviors and practices discussed in the book have solicited criticism, and in some instances outrage, from Congress, the media, other regulators and certain Wall Street stakeholders.  This backlash is what likely motivated White’s announcement.

 

Interestingly, however, White’s speech reflects her own personal view of high frequency trading and enhanced technology on Wall Street, which is slightly more favorable than current public opinion. White cites some of the benefits of high frequency trading.  For example, she references the reduction of execution costs for institutional investors, and other benefits from improved technology.  These views are similar to some of the SEC’s foreign counterparts, including the United Kingdom’s (UK) Financial Conduct Authority (FCA).

 

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