The authors who wrote the piece summarizing the webinar are ETF BILD Co-Founders John Jacobs, Executive Policy Director at Georgetown University’s Center for Financial Markets and Policy and Bibb Strench, Partner at Thompson Hine, LLP.
The Center for Financial Markets and Policy at Georgetown University’s McDonough School of Business quickly assembled a group of panelists well-equipped to provide their views on the securities markets during the midst of the market turmoil caused by COVID-19. The Center hosted the webinar on Thursday, March 26, which produced lively discussions and important insights. ETF BILD’s co-founders attended the webinar safely from their homes, including John Jacobs, who is the Center’s Executive Director. Key topics that were explored include reduced trading hours, circuit breakers and limit up/limit down, short sales ban and electronic trading.
The webinar was facilitated by Mike Piwowar and served as the panel moderator.
The group of expert panelists consisted of:
- Jeff Harris, Former SEC Chief Economist
- Larry Harris, Former SEC Chief Economist
- Craig Lewis, Former SEC Chief Economist
- Jim Overdahl, Former SEC Chief Economist
- Chester Spatt, Former SEC Chief Economist
- Reena Aggarwal, Director of Georgetown Center for Financial Markets and Policy
- Mike Piwowar, Former Commissioner of the SEC, and panel moderator
Not surprisingly, the group of panelists provided thoughtful insights on COVID-19’s impact on the markets and possible SEC and exchange responses. Such actions or inactions have the potential to greatly impact the trading of ETFs as well as the trading of the underlying securities and other assets that make up the ETFs.
Below is the summary of the webinar, including the paraphrasing of key takeaways provided by the panelists.
Reduced Trading Hours
The question was posited that given that all markets can now operate in a decentralized, electronic manner, would reduced trading hours be helpful or even impactful?
Craig Lewis: If we are arguing that markets remain open, limiting the trading hours does not serve a purpose. Markets are electronic, and as long as they function as intended, there is no need to close them.
Larry Harris: If you shorten trading hours and fail to address before- and after-hours trading, then you do not solve the problem.
Circuit Breakers and Limit Up, Limit Down
The panelists discussed the role of circuit breakers and whether they have a gravitational effect and thus impact volatility, and in some cases in the past, it may have occurred. Currently, U.S. market circuit breakers are subject to an awkward regulatory design, but they are important to market participants, like liquidity providers, so that they have the correct information and can respond accordingly to serve their role.
Key takeaways:
Larry Harris: Circuit breakers are particularly important to liquidity providers, and they ensure these market participants are given information so that they can respond to market signals.
Chester Spatt: We have an awkward regulatory design where we have futures markets’ circuit breakers tripping at one level and equities at another. The purpose of the circuit breaker is to help everyone become informed, but because we have so much overnight trading, it is not clear that triggering a circuit breaker during the open makes sense.
Short Sale Bans
The panelists weighed in on whether a ban on short-selling certain stocks was necessary, similar to the move made during the 2008 financial crisis.
Key takeaways:
Jim Overdahl: SEC evidence on the ban’s impact and found that on net it was harmful, which was one reason the Commission removed the ban so quickly. The 2008 evidence showed short selling to be more intense in rising markets, not falling markets and that short sales were less aggressive than long sales.
Chester Spatt: One of the 2008 ban’s problems was the regulatory uncertainty. Prices declined in 2008 because people did not want to pay as much as they previously paid to buy the asset; short sales were an excuse, used by several Wall Street managers, for the declining prices.
Electronic Trading
In response to a question from the audience, the panelists discussed how electronic trading is impacting volatility.
Key takeaway:
Jeff Harris: The move to electronification has been a huge advantage particularly during this pandemic. We have had decades of experience with electronic systems that if they are producing excessive volatility in the markets, then traders will not use that technology. The on-exchange technology has been very well vetted and avoided producing excessive volatility.
If interested in Georgetown Center for Financial Markets and Policy’s Global Virtual Seminar Series on FinTech and future webinars, please visit: https://finpolicy.georgetown.edu/news/global-virtual-seminar-series-on-fintech/
