Welcome to everyone here at our Roundtable on Trade-Through Prohibitions, including those watching online. The Division of Trading and Markets is pleased to host you today. We thank Chairman Atkins for his leadership on these issues and look forward to his remarks later today. We also thank the Commissioners for their remarks and valuable input on this event. I thank my capable Division teammates, who worked diligently on today’s program, and in particular Ted Venuti, Arisa Kettig, David Liu, and Kevin Brennan. Most importantly, we thank our moderators and panelists, who will contribute a variety of expertise and experiences today to benefit the Commission and the investing public we serve. We are confident that your contributions will meaningfully inform the Commission’s next steps with respect to trade-through prohibitions. Before I begin, I must remind you all that my remarks today are provided in my official capacity as the Commission’s Director of the Division of Trading and Markets, but they do not necessarily reflect the views of the Commission, the Commissioners, or members of the staff.
Our Division was the Commission’s first, and it was initially known as the “Division of Trading and Exchange.” Our first Director, David Saperstein, was appointed by Joseph Kennedy on August 1, 1934. Speaking to the National Securities Traders Association on August 4, 1936 in Los Angeles, Director Saperstein asked the following regarding the two-year-old Securities Exchange Act of 1934:
“In what direction has it moved? What progress has it made toward the goal of protecting the investor? These questions ought to be answered frequently, honestly, without heat and without dogma. The answers are of paramount importance – to you in the securities business, to us in the business of government and to that great, amorphous, myriad-minded entity that we designate ‘the public.’”[1]
Seventy years later, Reg NMS was adopted. The Division of Trading and Exchange was now called “Market Regulation” and the National Securities Traders Association had dropped its descriptor. Speaking to this group in New York on April 19, 2007, then-Commissioner Paul Atkins said the following of Reg NMS:
“The trouble is that the real consequences for our markets will not be known for years, after the damage has been done and after trading patterns have shifted in unpredictable ways and perhaps to other venues.”[2]
Today’s Roundtable is an important marker along the path that the markets have taken since Regulation NMS was adopted some 20 years ago. Our national market system has seen substantial change since that time. We have gone from markets dominated by a small number of venues to trading dispersed across many registered exchanges and, for equities, off-exchange venues. Indeed, we have seen a proliferation in the number of registered equity and options exchanges over the last 20 years, and, over this time, trading volumes have increased many fold and latencies have become ever smaller. As Chairman Atkins foretold, many of these changes have been unpredictable, and the consequences and costs have been hard to discern. But as Director Saperstein urged, the Commission has a duty to evaluate its handiwork—frequently and honestly.
For example, Rule 611 focuses on price priority, but also includes a number of exceptions that recognize market participants may have other priorities when executing orders. Have trade-though prohibitions with their numerous exceptions and exemptions made our markets more competitive to the benefit of investors? Are there more efficient, less prescriptive means to enable competition and foster innovation in our markets? As a means to protect investors, how do trade-through prohibitions compare to the duty of best execution?
Trade-through prohibitions necessitate additional policy choices, such as access fee restrictions and market data standardization. We appreciate that Rule 611 cannot be analyzed in a vacuum, and we look forward to exploring related questions with the benefit of public comment and, possibly, additional roundtables. To borrow from another Kennedy, we begin today with Rule 611 not because it is easy, but because it is hard. Your input is valuable and we thank those who have already submitted comments. We hope to hear from as many market participants as possible—our goal is to ensure that we continue to have the best securities market possible—competitive, fair, efficient, and the model for the world.
Today, we will first hear from the Division’s Office of Analytics and Research, which will present highlights from recently-published data intended to support today’s discussion. This work is available on the Roundtable website and on the Commission’s market structure analytics page. For NMS stocks, the data describes trade-through rates, the number of broker-dealers trading directly on exchanges compared with those that route to exchanges via other brokers, and changes in displayed liquidity over the last ten years. For listed options, the data describes trade-through rates as well as related changes in options market structure over the last several decades.
Following the presentation, the first panel will focus on market participants’ experience with trade-through prohibitions over the past 20 years. After a break for lunch, the second panel will discuss a trade-through prohibition’s role in today’s highly automated and connected market structure. Next, Chairman Atkins will give his remarks. Finally, the third panel will consider potential paths forward for trade-through prohibitions.
Again, thank you all for participating in today’s Roundtable. We look forward to hearing everyone’s views on how to ensure that our markets remain the envy of the world for the benefit of the great, amorphous, myriad-minded investing public.
