Robert Hegarty, global head of market structure at Thomson Reuters, offered his views on U.S. market structure in a recent meeting with Traders Magazine. Among the topics discussed were: "limit up/limit down," the proposed "trade-at" rule and regulators’ caution about adopting new rules.
>>On what’s hot
We’re looking at anything coming out of Dodd-Frank; this has everybody’s attention. Dodd-Frank, combined with anything coming out of the "flash crash," are a focus in the equities market. We’re also watching the impact of changes to the derivatives market, as it moves from an over-the-counter market onto the exchanges and centralized clearing.
>>On how regulators are moving forward
We’re looking not so much at the new proposed regulations themselves, but directionally where we think the regulators’ thinking is heading. So we’re watching what sort of rules they are coming up with to try to define their impact and how these might impact some of the other future regulations coming out later in the year.
>>On the so-called "limit up/limit down" rule proposal
I think it makes a lot of sense to implement it in equities. When we look at the rule and its success in the futures market, and the fact is that it is doing the job it is intended to do in the market, it’s just taking an existing functioning rule and implementing it in another asset class. It makes sense that it should be completed and implemented by the end of the year.
>>On regulators’ caution about implementing new rules
Like so many things revolving around regulation, there’s some difficulty in trying to figure out who stands on what side of what argument. All the rules have political overtones-such as, "If we implement this rule, who’s it going to hurt?" I don’t think anyone is against, say, limit up/limit down. But we’re seeing the regulators becoming extra cautious, so as to not put regulations into place that result in unintended consequences. And the only thing that can resolve that is time and attention. Regulators need to put these rules out for comment for a long enough period of time to make sure they are hearing all sides of the argument.
>> On expanding usage of single-stock circuit breakers
I think approval on expanding single-stock circuit breakers to the remainder of the equity universe will take some of the heat off of having to implement limit up/limit down. That would likely appease many participants in the market-at least for the time being.
>> On the future of the "trade-at" proposal
It is hard to get parties to agree on this one. We’re talking about getting multiple market venues that were created for different purposes-who bring their own type of liquidity or unique access to the market. And there’s money to be won or lost, depending on how this proposal comes out. This makes it much harder to get done. You can make the argument that on the one hand, the trade-at rule, if passed, will do a lot to normalize the market in terms of where trading gets done. But on the other hand, it is going to take away some choice. And it is that balance between these two points that the regulators are trying to find. What is that balance between market structure and proposed rules versus giving investors and traders enough choice?
