SIFMA Comments on Potential Revisions to Reg NMS 

New York, N Y, March 29, 2017 – SIFMA today submitted to the SEC a set of recommendations for review of the SEC’s Regulation NMS, which governs trading of the equities markets.  Acting Chairman Michael Piwowar has requested industry comments on Regulation NMS, and the SEC has established a public comment period in advance of the April 5, 2017 meeting of the Equity Market Structure Advisory Committee. SIFMA appreciates the opportunity to provide its members’ on-the-ground insight regarding potential revisions to modernize Reg NMS and address unintended consequences.

Reg. NMS has had a tremendous impact to investors and to the equities market. It has largely achieved its goal of creating an automated, accessible equities market that provides investors with the best possible price when purchasing stock. However, Reg. NMS has also contributed to a highly complex and fragmented stock market with a significant focus on the speed of execution.

“Equity markets have evolved considerably since Reg NMS was adopted. Now is a very appropriate time for the SEC to review the intent of Regulation NMS, its real-world impacts to investors, and possible rule changes to increase its effectiveness,” said Randy Snook, executive vice president, business policies and practices.

SIFMA’s letter is meant to encourage discussion between the SEC and market participants on the following provisions of NMS to determine where investors and the market may be better served by either potentially modifying Reg. NMS or maintaining the status quo. Ultimately, SIFMA’s goal is to improve market resilience and ensure the equity market continues to benefit investors and play an essential role in capital formation.

• Order Protection Rule: To address market fragmentation and complexity, the SEC should evaluate the OPR and consider whether modifications or exemptions are needed, potentially including a volume threshold for protected quotation status and a block exemption for orders of significant size. The SEC also could consider an elimination of the OPR coupled with enhanced best execution principles or maintaining the status quo.
• Access Fees: The existing cap on access fees under Regulation NMS has become outsized relative to today’s market realities.To address this, the SEC should consider: (1) reducing the access fee cap to no more than $0.0005 for all securities; (2) implementing the SEC’s Equity Market Structure Advisory Committee’s access fee pilot recommendation; or (3) eliminating rebates and linkages between passive, posting of limit orders and transaction pricing.
• Market Data: To assure that market data is timely, comprehensive, non-discriminatory, and accessible to all market participants at a reasonable cost, the SEC should consider: (1) enhancing the Securities Information Processors (“SIP”) feeds with bid and offer quotes beyond the top of book data and providing that as the sole source of consolidated market data to meet regulatory obligations; and (2) replacing the single-consolidator SIP model of market data dissemination with a competitive construct, such as a Competing Market Data Aggregators (“CMDA”) model
• NMS Plan Governance: To address conflicts of interests and enhance the NMS Plan structure, the SEC should provide broker-dealers and asset managers with meaningful direct voting representation on the NMS Plan Operating Committees.

SIFMA’s letter further addresses alternatives to improve the functioning of the National Market System and is available here: https://www.sifma.org/resources/submissions/sifma-submits-comments-to-the-sec-on-the-emsac-meeting-and-the-regulatory-flexibility-act/. SIFMA is committed to providing its members’ insight as the SEC moves forward with its review of Reg NMS.

SIFMA’s 2014 equity market structure recommendations are available here: https://www.sifma.org/resources/news/recommendations-for-enhancing-fairness-stability-and-transparency-in-us-equity-markets/.

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SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly 1 million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the U.S., serving clients with over $18.5 trillion in assets and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.