Group Co.
The Split to Restructure Equity Markets
Traders Magazine Online News, May 31, 2018
The SEC's access fee pilot is a very big deal in restructuring the equity market.
You think?
Kelvin To, Founder and President of Data Boiler Technologies, thinks so. He told Traders Magazine in a recent interview that huge profits are at stake for trading platforms, market makers and many, shall the rule be skewed one way or another. He shared his thoughts with editor John D’Antona and what To included in his comment letter to the Securities and Exchange Commission.
:The SEC’s access fee pilot is a very big deal in restructuring the equity market,” To began. “applaud the Commission for daring to touch this controversial topic about broker-dealers’ best execution and conflicts of interest with their customers. It involves recalibration of maximum rebates that exchanges can offer. It will have significant order-routing implications, where smaller trading platforms (e.g. IEX) are seemingly teamed with some buy-side firms in fight against the large stock exchanges and high frequency trading firms (HFT). Huge profits are at stake, shall the rule be skewed one way or another. Should investor protection be the sole consideration in policy direction?”
So, which investors exactly should the SEC be protecting with the pilot – institutional or retail, To asked, in this highly fragmented market? Also, should ETFs, endowments and retirement funds be crafted out from institutional population when making policy choices?
“The arguments can go on and on, but let’s not forget the contributors to the economic goal of capital formation,” To continued. “A healthy market needs depth, quality, and choices to allow orders in the public markets to interact with those in the proprietary systems. Nevertheless, market trustworthiness is critically important. Retail investors shouldn’t receive inferior prices to those available to institutional trading. More so, market ought to function effectively to uphold market integrity standards (fairness of access, free from manipulations other disruptions).”
To said that a recalibration of the access fee cap is a must if order protection, best execution rules and other NMS provisions remain as-is. The cap is in essence the maximum toleration of exploitation and bad behaviors will still be nourished and abusers will seek alternate ways to circumvent the control.
“Regulatory intervention through recalibration would be biased,” To explained. “Conflicts and disputes would be better resolved through the market. By having a new rule to ban exchanges, alternative trading systems, and internalizers from running data and technology businesses (mutually exclusive), then order protection and access rules might be able to roll back.”
Furthermore, he argued the access fee pilot is a substantial cost to everyone in the market. If these separation and realignment suggestions can be adopted, the consolidated audit trail can be revised for better market surveillance using stream analytics in real-time, and the economic resources devoted to in this access fee pilot can be saved.
“Instead of treating symptoms that may cause other unintended consequences with access fees recalibration, I encourage policy makers and all stakeholders to seriously consider my holistic suggestions,” To said.
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