“Chairman Donaldson and the SEC have demonstrated outstanding leadership in taking up the critical task of modernizing the way our markets are structured and how they function,” said Donald D. Kittell, SIA executive vice president. “The proposed trade-through rule is a key component of market structure reform. Because this effort is both vitally important to the future of the markets and extremely complex, we are urging the commission to take a methodical approach to implementation. Using the NBBO approach as a first step is in the best interests of investors and the markets, and will help to ensure that we get it right from the start and avoid costly and time-consuming corrections down the road.”
The SEC has proposed two alternatives for the trade-through rule, a “top of book” option and a voluntary “depth of book” option. SIA recommends putting in place the NBBO model as a first step before the industry considers implementing either of these options. An approach based on the NBBO would significantly increase investor protection by strengthening existing trade-through protection and extending the current Intermarket Trading System trade-through rule beyond the listed market to cover the entire Nasdaq market as well. SIA recommends the NBBO approach as the best means of meeting the commission’s goal of ensuring liquidity, transparency, and price discovery.
SIA also is advocating a liquidity exception from the trade-through rule for the most actively traded, highly liquid securities because the manner in which these securities trade already affords investors with effective protection. SIA recommends the SEC consider implementing this exception for a period of one year, and then studying its effects. The association commended the SEC for other proposed trade through-rule exceptions, and offered refinements for some of them to address certain practical issues.
In its comment letter, SIA made the following points on other aspects of Regulation NMS:
Intermarket Access – The association voiced support for the commission’s proposed access standards for private linkages and the proposed rule to minimize locked and crossed markets. SIA reaffirmed its support for a market-wide resolution of issues concerning access fees, and offered suggestions for fine-tuning each of these proposals.
Sub-Penny Quoting – SIA endorsed the SEC’s proposed ban on sub-penny quoting.
Market Data – SIA urged the commission to expand its current consideration of market data issues beyond the allocation of market data fees. The association recommended in particular that the SEC consider the high level of market data fees, impose more transparent methods for establishing market data fees, and require a cost-based system for determining fees.
SIA’s comment letter is available at: http://www.sia.com/2005_comment_letters/4601.pdf
