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FIA PTG Comments on Locked and Crossed Markets in Letter to SEC Equity Market Structure Advisory Committee

FIA PTG Comments on Locked and Crossed Markets in Letter to SEC Equity Market Structure Advisory Committee

20 October 2015 8:30pm EDT
FIA PTG submitted comments on simplifying equity market structure to the Securities and Exchange Commission today, ahead of the second meeting of the SEC’s Equity Market Structure Advisory Committee (MSAC). The recommendations include ending the ban on displaying locked and crossed markets (Rule 610.d), which effectively requires each venue to collect and process data from every other displayed venue to determine whether incoming orders appear to lock or cross quotes on its venue. It has also encouraged the venues to develop hundreds of order types to allow members to specify how they would like orders to be handled if they appear to lock or cross another venue. We believe the elimination of Rule 610.d along with Rule 611 (the “Order Protection” or “Trade Through” rule) will simplify the markets in meaningful ways and provide other important benefits for the investing public.
 
The text of the letter follows, and the full letter is available here
 

October 20, 2015

 
Brent J. Fields
Secretary
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-1090
 
Re: File Number 265-29
 
Dear Mr. Fields:

The FIA Principal Traders Group (FIA PTG) looks forward to the second meeting of the SEC’s Equity Market Structure Advisory Committee (MSAC) and is glad to see the focus will be on Rule 610 of SEC Regulation NMS, known as the “Access Rule”. As we mentioned in our submission in connection with the first MSAC meeting, many aspects of market structure are closely interrelated and should not be viewed in isolation. We believe various components of Regulation NMS including Rule 611, Rule 610.d, best execution standards and various disclosure rules (including Rules 605 and 606) should be studied together. We are happy to see the Commission taking a similar approach with the MSAC agenda.

Earlier this year, FIA PTG published a brief set of recommendations regarding simplification of US equity market structure. These recommendations, as detailed in the attached paper, include the elimination of the requirement to avoid displaying locked and crossed markets (Rule 610.d). The current rule effectively requires each venue to collect and process data from every other displayed venue to determine whether incoming orders appear to lock or cross quotes on its venue. It has also encouraged the venues to develop hundreds of order types to allow members to specify how they would like orders to be handled if they appear to lock or cross another venue. We believe the elimination of Rule 610.d along with Rule 611 (the “Order Protection” or “Trade Through” rule) will simplify the markets in meaningful ways and provide other important benefits for the investing public.
 
In the wake of the market volatility on August 24, efforts to simplify the markets should be at the top of any list for potential reforms. During periods of market stress, it is particularly important that markets operate in a simple and well-understood manner. Instead, when markets are moving around quickly, rules like the trade-through rule and the prohibition on locked and crossed markets, add to complexity and uncertainty.

FIA PTG applauds the Commission’s openness to explore data-driven changes to REG NMS and the current equity market structure as part of its holistic market structure review. We welcome the opportunity to discuss these recommendations with you, your Staff or with the MSAC. If you have any questions about these comments, or if we can provide further information, please do not hesitate to contact Mary Ann Burns.

Respectfully,
FIA Principal Traders Group

Attachments

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2015-10-20 SEC MSAC Submission.pdf (614.65 KB)

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