The association also offered suggestions in a comment letter it filed with the Securities and Exchange Commission on Regulation National Market Structure. This proposal addresses a number of crucial issues aimed at modernizing markets and providing greater protections for investors.
“Intermarket price protection of all firm and accessible quotes is not only beneficial but essential to the markets,” said Marc E. Lackritz, SIA’s president. “This would foster accurate price discovery and facilitate market integrity by encouraging aggressive quoting and enhanced order interaction across multiple, competing markets. It will ensure the best market structure possible – one that effectively utilizes technology and innovation while providing tough investor safeguards.”
SIA’s intermarket price-protection proposal would apply only to those best bids and best offers that are both “firm” and “accessible.” Certain exceptions, however, are warranted to facilitate investment and trading strategies, including one for large block transactions. With those modifications, the proposal could be broadly applied across all markets to “attain the valuable goal of regulatory uniformity.”
SIA provided other specific comments and recommendations aimed at fine-tuning the SEC’s Reg NMS proposal. These include:
- Efficient linkages among markets are needed to improve access to quotes and orders and to achieve intermarket price protection. The SEC’s proposed market-access standards for private linkages will strengthen intermarket connectivity, but issues remain related to some small and relatively inactive markets. Given the industry’s differing support for the solutions proposed, more study is needed to ascertain the potential impact.
- The industry is divided over the SEC’s proposal to address long-standing issues over access fees. Some SIA member-firms accept the commission’s de minimis access fee proposal as a fair compromise; others consider it an inappropriate solution. There is general support for some type of regulation of access fees.
- SIA supports the SEC’s proposed rule to minimize locked and crossed markets, subject to certain exceptions. “Locked and crossed markets can reflect inefficient pricing, which confuses investors as to the reliability of the quote and creates difficulties for market participants seeking best execution for customer orders.”
- SIA supports the SEC’s proposed ban on sub-penny quoting, due to the adverse effects of sub-penny pricing.
- SIA advocates cost-based market-data fees and greater transparency in market-data fee-setting and governance structures.
“The SEC has put together a well-reasoned and comprehensive package of proposals to address complicated and long-standing market structure issues,” Lackritz said. “We commend the commission and its staff for their efforts to resolve these complex and interrelated market-structure questions. Their initiative is one of the most significant in more than 30 years. With the incorporation of the industry’s suggested changes, Regulation NMS can greatly improve the efficiency and quality of our markets to the benefit of all investors and market participants.”