SIFMA Equity Market Structure Recommendations

SIFMA published a set of recommendations on equity market structure for enhancing fairness, stability and transparency in the U.S. stock market. The Recommendations are a set of tangible and actionable market structure reforms developed by a broad-based task force of SIFMA’s members from across the country and across the industry, including retail and institutional dealers and asset managers. They are designed to promote fair and timely access to market data, address the complexity and fragmentation caused by the current order system, and enhance transparency for retail and institutional investors.

See Also:

Press Release: SIFMA Publishes Recommendations for Enhancing Fairness, Stability and Transparency in US Equity Markets (July 14, 2014)

SIFMA President and CEO Kenneth E Bentsen, Jr Statement on SIFMA’s Market Structure Recommendations before Roundtable on Equity Market Structure  (July 28, 2014)

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Excerpt

Access Fees

• The fees for accessing quotes at market centers should either be significantly reduced or eliminated. As a

  first step, the cap on access fees should be lowered to no higher than 5 cents/100 shares. Accordingly,

  the SEC should amend Rule 610 of Regulation NMS to implement that reduction.

Number of Trading Venues

• The displayed quotations of a market center should be protected under Regulation NMS only if the

  market center executes a specified aggregate trading volume over a sustained period of time. In this

  regard, the SEC should amend the definition of “protected quotation” under Regulation NMS so that it

  applies only to the displayed quotations of a market center with one percent (1%) or more of the average

  daily dollar volume in all NMS stocks over a period of three consecutive calendar quarters. A market

  center would lose its protected quotation status if its volume fell below 1% for three consecutive calendar

  quarters.

• The standards for identifying automated quotations should be updated to reflect the reality of today’s

  markets. In this regard, the SEC should amend the definition of the term “automated quotation” to

  provide that it must be executable within a millisecond, in contrast with current SEC guidance that allows

  for a one second execution time.

Order Types

• The SEC should review the use and interaction of existing order types to ensure that all market

  participants have equivalent information about them. In this regard, the SEC should conduct a review to

  determine whether certain order types contribute to or create activity that otherwise should be

  discouraged (e.g., excessive message traffic, routing based on rebate capture). Exchanges also should

  amend their rules to provide transparency on available order types, including fill rates and typical usage of

  each order type offered.

Message Traffic

• The SEC should take steps to discourage excessive message traffic (measured through order to fill ratios)

  that is not the result of providing meaningful liquidity to the marketplace. In this regard, mechanisms

  designed to minimize or prevent excessive message traffic should take into account and recognize that

  higher volumes of message traffic may be the result of bona fide trading behavior (e.g. market making

  activities).

Kill Switches

• Kill switches at the various exchanges should use standardized protocols and methodology. In addition,

  Regulators, exchanges, and industry members should work toward developing a centralized kill switch

  mechanism.