SEC Seeks to Boost Trading in Thinly Traded Securities
Traders Magazine Online News, October 21, 2019
John D’Antona Jr.
It's time to alter market structure slightly.
Late last week, the Securities and Exchange Commission issued a statement that invited exchanges and other market participants to submit innovative proposals designed to improve the secondary market structure for exchange listed equity securities that trade in lower volumes, commonly referred to as "thinly traded securities."
Why?
Simple. In order to ultimately lower investor costs, maintain or improve capital formation and boost trading volumes, the Commission is interested in proposals to address these issues by improving the secondary market structure for thinly traded securities. The Commission's statement lays out various considerations that may be helpful for a proposal to address, including whether and under what circumstances it would be appropriate to suspend unlisted trading privileges on multiple exchanges and whether exemptive relief from Regulation NMS and other rules under the Securities Exchange Act of 1934 would improve trading and liquidity.
SEC Chairman Jay Clayton said, "As we have heard from issuers, exchanges, and other market participants, a one-size-fits-all approach to market structure does not work for many of our public issuers, particularly small and medium sized companies. We want to know if more can be done to improve secondary market quality for thinly traded securities, and we look forward to seeing proposals geared to enhance trading and liquidity for this segment of the market while maintaining or improving market integrity."
In repsonse, Jim Toes, President and CEO of the Security Traders Association (STA), said that the Commission’s interest for industry input in this area is not new; however this statement, or re-statement, is a good indicator that they are getting close on proposing something of substance. Also, given the fact that the Commission has finalized other rule makings; Reg BI; ETF Rule; Rule 606, etc, which were taking up enormous resources, it appears this topic has moved closer to the front of the line.
"Initial opinions for and against a suspension of UTP are bona fide and need further vetting," Toes began. " While we, STA, do not have an official opinion on UTP, I would state that opinions in favor of suspending which state that consolidating trading to one venue will improve the ability for buyers to meet sellers is flawed. We do not feel that is the problem which needs to be addressed; buyers meet sellers very efficiently today. We would rather see a market place which provides incentives for enhanced liquidity provision. Exchanges cannot commit capital to buyers & sellers, only brokers & markets makers can. That is where the problem is."
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