The Security Traders Association is calling for an overhaul of the surveillance system that oversees how stocks trade.
Regulators’ oversight should be faster, more comprehensive and better integrated to keep up with advancements in trading technology, the STA added. This is why the Securities and Exchange Commission needs to develop a National Market Surveillance System to keep abreast of technology’s blistering pace, the STA wrote in its response to the SEC’s Concept Release on market structure.
In addition, such a system would help regulators with market fragmentation, which has hindered their ability to get a comprehensive view of the markets, said Peter Driscoll, a senior equity trader with The Northern Trust Company and last year’s STA chairman.
"With all of the information siloed in various trading venues, there’s no ability for regulators to see the whole picture," he said last night at STANY’s 74th Annual Conference, at Cipriani Wall Street. STANY is the New York chapter of the STA.
The SEC published its Concept Release on the structure of the equities markets on Jan. 13. It focused on dark pools, high-frequency trading, co-location, market structure fairness and market quality metrics. Its intent was to start discussions about the state of the market. In addition, the SEC also wanted to understand how trading technology affects market structure.
Technology, in fact, has progressed so rapidly that self-regulatory organizations’ market surveillance systems have proven inadequate in the face of innovation. "Regulatory gaps exist today because there is no one regulator with the capacity to technologically observe, examine and evaluate intra- and inter-market trading," the STA wrote in its response.
A new market surveillance system should be linked to and integrated with the existing systems of the SROs, but work independent of them, as well. In addition, the STA praised the SEC’s latest efforts to build a consolidated audit trail system that would capture customer and order information across markets. Both would help the SEC, the SROs and the Financial Industry Regulatory Authority, said John Giesea, the STA’s president and chief executive.
"We’re talking about one agency having the ability to [assess] market-wide," he said at the STANY conference.
Furthermore, the STA outlined in its response several principles to guide future SEC changes to market structure. They include: periodic regulatory reviews; incremental changes; balanced competition and regulation; business-model-neutral regulation and aggressive enforcement of existing market and trading regulations.
