Last updated: December 9, 2013 5:40 pm

US regulator calls for stock trading rules review

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

The main US securities regulator is facing fresh pressure to undertake a large-scale review of the rules governing the US equity markets following a call from another of the agency’s five main commissioners.

Michael Piwowar, the newest of the five comissioners at the Securities and Exchange Commission, also became the third to call formally for a review of US market structure in recent weeks.

Mr Piwowar, whose background is in market microstructures, said he found it “troubling” that regulators had yet to take up such a study even as it has been more than three years since the May 2010 “flash crash”.

His comments are the latest in a series of calls made by other SEC commissioners such as Daniel Gallagher, a Republican appointee like Mr Piwowar, and Luis Aguilar, a Democrat, for the regulatory body to launch such a review.

Mr Piwowar said he would be engaging with the other commissioners and Mary Jo White, chair of the SEC, on his return to the US. In October Ms White agreed more should be done but stopped short of calling for a full review.

In his first speech as a commissioner, Mr Piwowar called for a wide-ranging study akin to the one conducted by the Foresight Committee in the UK. That two-year project, published last year, included the contributions of academics, market practitioners and regulators.

“The UK Foresight model is one that we should entertain in the US. The SEC can benefit tremendously from collaboration with market structure experts from both the private sector and the academic world,” he told investors at a conference held by ICI Global, an investor trade association, in London.

The rules, known as Regulation National Market Structure (Reg NMS), were implemented in 2007 with the goal of ensuring retail investors received the best possible market price when trading.

However, the rules also had the unintended consequence of turning the US equity market into a highly complex and fragmented system where 13 exchanges and 50 alternative trading venues vie for transactions.

A spate of high-profile glitches, such as the flash crash of 2010 where shares oscillated wildly in a matter of minutes and left regulators unable to reconstruct its causes for months, have raised concerns about the role of technology in financial markets.

Critics have argued the two trends are interlinked as they have exacerbated the complexity of the market while also pointing a finger at the role of high-frequency traders who have come to dominate the equity markets.

The disputes have also pitted leading stock exchanges against bank-run brokerage businesses as the two more directly compete for trading business.

Others have complained that criticism ignores the lower trading costs investors have enjoyed as a result of the reforms and is being based on incomplete data.

The disputes have also pitted leading stock exchanges against bank-run brokerage businesses as the two more directly compete for trading business.

Mr Piwowar said: “The comprehensive equity market structure review I am advocating is an effort that will take a couple of years, not a couple of months, to do right.”

The Foresight report was a two-year study overseen by the UK government into the future of computerised trading.

It called for action to limit sharp swings in financial markets in an effort to manage better systemic risks and argued investors should be protected by reducing so-called “tick sizes”, the increments by which asset prices are allowed to fluctuate.

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
SHARE THIS QUOTE