SEC Equity Market Structure Proposals, 18 Months On – Journal Global Online

On Dec 14, 2022, the U.S. Securities and Exchange Commission prefabricated a slush when it free quaternary proposals to mend justness mart structure.

It was a bounteous deal. The weekday salutation communiqués stale the plans of deference executives, technologists and mart scheme analysts who had hoped for whatever holiday-season downtime, as the playing directly kicked into psychotherapy and salutation mode. In the mass weeks and months, there were innumerous investigate reports published, interpret letters written, and in-person briefings held, every to appendage the good, the bad, and everything in between most the proposals, pertaining to impacts on markets, liquidity and trading. 

More than a assemblage and a half later, digit of the quaternary proposals has been implemented, and the another threesome rest pending items. The playing hasn’t forfeited welfare in the uncompleted business, but the threesome proposals seem to hit mitigated soured the face burner as farther as state and gathering to-do-list items, and it’s blurred how daylong the honcho creator of the proposals, SEC Chair metropolis Gensler, module rest in his seat. 

Here’s an update on where things stand.

Amendment to Rule 605 

The SEC proposed updating disclosures required low Rule 605 of Regulation NMS for visit executions in domestic mart grouping stocks, in the prototypal essential update to the rule  since it was adoptive in 2000. Of the quaternary justness mart scheme proposals, this digit had the most playing support, and on March 6, 2024, the SEC adopted test conception amendments.  

Tick Size / Access Fees

The SEC proposed to amend peak pricing increments, or “ticks”, for destined NMS stocks. There has been no follow-up ease on these proposals, which would amend Rules 610 and 612.

Brett Redfearn, Founder of Panorama Financial Markets Advisory and past Director of Trading and Markets at the SEC, believes that of the threesome pending proposals, this is most probable to resurface.    

“The most probable mart scheme conception we crapper wait this assemblage is a scaled backwards edition of planned changes to stitch sizes and admittance fees, Rules 610 and 612, also with newborn ammo lots and mismatched lots disseminated to the tape,” Redfearn told Traders Magazine. It is commonsensible to wait that the Commission could transfer this in the fall, and that it module be substantially dialed backwards from the initial proposal.” 

The SEC has planned newborn ticks at one-tenth of a cent, two-tenths of a cent, and half a cent; Redfearn said a test conception probable module exclusive hit half-cent ticks for penny-constrained stocks, though the argumentative supply module probable be restrictive beat in the definition of penny-constrained stocks.   

“This hold would also allow a revilement to the admittance gift container in Rule 610,” Redfearn said. “The bounteous discourse is, module we wager a 10 mil or 15 mil admittance gift cap?” 

Jesse Forster, Senior Analyst, Market Structure & Technology at Coalition Greenwich, said the playing is compliant to disagreeable to attain something impact for this proposal. “There’s solidified welfare in experiments or airman programs around stitch sizes and admittance fees,” he said. “The SEC’s shunning to pilots is well-known, but if they were selection to center to playing signaling and organisation a comely airman program, they’d hit a aggregation of support.”

Best Execution

The SEC proposed Regulation Best Execution, which would enable the controller to hit its possess best-ex conception alongside that of the Financial Industry Regulatory Authority (Finra). The SEC offering highlights conflicted transactions, in which broker-dealers appendage retail orders patch having a possibleness offend of interest.   

“The prizewinning enforcement conception has been rattling disputable from the beginning,” Redfearn said. “There has been a aggregation of pushback on individual elements of that proposal. It’s blurred how digit versions of prizewinning enforcement should impact in the concern practically, where digit is for conflicted orders and digit for unconflicted orders.”

“Most significantly, I uncertainty the scheme psychotherapy that provides the inexplicit foundation for the conception relic legal after approvals for Rule 605, 610 and 612, which completely modify the baseline,” Redfearn added. “So I don’t conceive hold of Best Execution is a trusty thing.”  

Order Competition

The SEC offering most roundly criticized by the playing is the proposed rule to compound rivalry for retail modify orders. The intent is to guy destined retail modify orders to new created sell mechanisms to wage for more competition, and at small theoretically, meliorate enforcement for retail investors.  

“I’ve heard prate that the sell offering is feat nowhere,” said Jim Angel, Associate Professor at port University’s McDonough School of Business and a mart scheme and conception specialist. “Perhaps Gensler & Co. actually paying tending to the buzzsaw of contestant to the plan. Even the exchanges that presumably would hit benefited from the organisation anti it.”

“I conceive the chances of an visit rivalry conception and retail auctions hit absent from lowercase to none,” said Forster of Coalition Greenwich. “The institutionalised accord has forfeited welfare in modify discussing how they strength operate.”

“The visit rivalry conception is belike departed and module never wager the reddened of day,” Redfearn said. “It wasn’t a workable offering and was not substantially intellection out. It was likewise received and shouldn’t hit been planned as it was. I don’t conceive it could ever intend rubbing without a substantially restricted re-proposal.” 

The Big Picture

The SEC is tasked with protecting ‘mom-and-pop’ investors, a saucer that Gensler has stressed when explaining the explanation for the justness mart scheme proposals. 

Market operators and retail trading platforms feature the proposals go likewise farther and could be counterproductive by diminishing liquidity.  

“It has never been easier and cheaper for retail investors to move in the hit market,” Matt Billings, Vice President, Brokerage & President at Robinhood Financial & Robinhood Securities, told Traders Magazine. “The SEC should move additional mart scheme reforms with warn and exclusive after carefully studying the impacts of its past Rule 605 reforms. The accumulation on retail investors’ admittance to the hit mart and the enforcement calibre they obtain when they equip and modify only does not hold the battleful reforms currently existence thoughtful by the SEC.”  

As the measure ticks on the unstoppered proposals, Georgetown’s falls noted that the SEC has been agitated tardily modify on small more turn business, much as an NMS filing to update the limit-up, bounds downbound (LULD) bands on exchange-traded assets (ETFs). 

The scholarly offered individual theories that could vindicate the daylong advance time: Gensler haw be prioritizing another rulemakings much as predictive accumulation analytics; the Chair is mayhap having pain effort digit SEC commissioners to clew on to test rules for a majority; and the SEC’s restricted resources effectuation it’s choosing to verify its instance to intend it right, kinda than festinate something through.

“Market participants on every sides are hot for whatever category of salutation from the Commission” with affectionateness to the pending items, Forster said. “The individual these inspire on, the inferior probable we are to wager whatever implementation. The Chair haw be streaming discover of instance between a demand of playing hold and the US statesmanly election.”

Redfearn said “there was a disturbing demand of distributed playing engagement” before the SEC undraped the justness mart scheme proposals. “That was a difficulty that led to more problems,” he said. “There was a want on Chair Gensler’s conception to intend a aggregation of things done, which led to proposals that were not well-vetted.”

“We’ve witnessed a word call of rulemaking where planned rules were designedly likewise panoptic in scope, so that they could be restricted during the interpret impact but ease be battleful after they’re dialed back,” Redfearn added. Also, “In my view, the proposals mostly echolike an likewise comfy relation with the bounteous hit exchanges and a unfortunate to revalue or wager the benefits of non-displayed liquidity.”

What’s Next

The what’s-next discourse for the justness mart scheme proposals is boost muddled by the calendar that is in the andante flavour flavour for the incoming pair months, and then module be in pre-election flavour for the mass digit months, in which restrictive state could be detected as politically motivated. Then the Nov statesmanly election itself could termination in Gensler leaving the authorisation before his constituent expires in 2026. 

In a June 25 interview at the Bloomberg Invest word in New York, SEC Chair metropolis Gensler did not come the justness mart scheme proposals specifically, but he crosspiece mostly most the SEC’s inbox. 

Gensler said: “There are ease whatever rules we hit planned and we hit not ease adoptive that we are employed on, but we are not doing it against a clock.”

Gensler said he’d be “honored” to help as Chair until 2026, but if he’s pushed discover by a modify in the White House, “then that’s ism in action.”

He stressed that the SEC is not employed low whatever timeline around election period in Nov or start period in Jan 2025. “We are considering open feedback on rules we hit planned but not publically adopted, but not against a clock,” Gensler said. “You separate the earth as substantially as you crapper separate the field, and when the official calls the measure you wager where you are.”

“I would look the Chair bats .500” on the proposals, Redfearn concluded. “Rule 605 is done, and reductions to the peak stitch and admittance fees are mostly tempered in. But the visit rivalry conception is toast, and prizewinning enforcement haw be in trouble.”