As the Securities and Exchange Commission continues to explore ways to evaluate the current market structure, Michael Lynch, head of execution services for the Americas at Bank of America Merrill Lynch, spoke with Traders Magazine about some of the issues concerning the markets and investors, as well as the future of electronic trading.
On the biggest issue the desk is facing today–
The biggest issue for us is that there are so many things in flux from a regulatory perspective. We’d be encouraged if the SEC narrowed its focus to the most pressing issues. There are a number of open commentaries regarding May 6, plus the Concept Release, that need to be addressed. One example would be naked access. Or the debate about whether circuit breakers are really the right answer to what happened May 6.
On one regulatory item Lynch would like to see get passed or addressed–
I think the single most important item I’d like to see addressed is naked access. Filtered access is the concept we have supported. We’re not sure about how naked or filtered access will play out, but unfiltered access could have some very negative impacts and is high on the risk charts in terms of what it could mean to the marketplace.
On whether the volume of trades coming to a desk electronically will match those arriving via phone call–
I think the blend between low-touch and high-touch trading depends on everything from market volume to volatility, clients’ wallets and the demands placed on those wallets for goods and services. It can depend on client requests for capital, the new deal calendar, etc. There is no doubt the percentage of trading volume going electronic is a growth story, but I do not see it as a replacement of the high-touch trader.
On how the challenges of market fragmentation affect his business–
It is very important to know that when you manage the execution stack we examine all facets of liquidity. All in all, fragmentation has been a good thing for the market, but has made things more challenging for us in terms of increased capital investments on our side to process the data as efficiently as possible.
On the recent implementation of equity market circuit breakers–
We believe that circuit breakers were an appropriate interim step; however, we believe that logic would dictate that limit up/down would be a better long-term solution. This and the elimination of "stub quotes" combined with market collars are steps to improve the gaps exposed on May 6.
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