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Atkins: SEC Should Review Reg NMS, Not Grant IEX Application

The exchange application of IEX has stoked an ongoing debate over the health of the equity markets, largely due to IEX’s plan to add a 350-microsecond delay in an attempt to remove any speed advantage enjoyed by traders racing between exchanges. Former SEC Commissioner Paul Atkins called for the SEC to think beyond the application, asking “Will the agency address equity-market structure concerns comprehensively, as many members of Congress and SEC commissioners say is necessary, or will it make these far-reaching policy decisions in an opaque exchange-application approval process?”

In a recent op-ed for the Wall Street Journal, Atkins argues that the “the SEC itself sowed the seeds of today’s distorted equity-market structure when it adopted Reg NMS in 2005 and began enforcing it in 2007,” a rule that Atkins voted against as Commissioner. The problem, according to Atkins, is that Reg NMS “mandated that stock-market participants prioritize price and speed above all other considerations, regardless of the trader’s preference or other factors like convenience or whether the amount of stock was enough to satisfy the trader’s order.”

He called arguments that Reg NMS results in “high-tech, efficient markets” a “false narrative” because “investor demand and technology were already driving improvements more than a decade ago.” Instead, Reg NMS “skewed trading by causing widespread market fragmentation and diminished transparency,” driving “order flow away from exchanges toward dark pools, fueled unhealthy trading volatility, and exposed the markets to flash crashes.”

Atkins argues that granting IEX’s application would amount to a “band-aid fix,” which may lead to “unfairness, with some market participants having advantages that others do not.” Instead, Atkins argues that the SEC should “own[] up to the infirmity of the regulatory regime they oversee” and conduct a comprehensive review of the effects of Reg NMS.