The Managed Funds Association offered several market structure recommendations in a letter to the SEC last week. The letter applauded the SEC’s plans for a holistic review, and suggested that “it is critical for regulators to take a systematic, data-driven and unbiased approach to continue to foster competition, while limiting harm to investors and issuers.”
The letter suggested improvements in the area of risk management, including guidance on the use of pre-trade risk controls and the development a standardized “kill switch” protocol for exchanges. Turning to transparency and disclosure issues, the MFA urged FINRA to publish detailed information of securities traded over-the-counter, and urged the SEC to both publish a list of ATSs and require each ATS to publish its Form ATS and order handling methods. In addition, the letter proposed that the Commission move to bolster the reliability and operation of Securities Information Processors, and applauded the SEC’s approach to co-location because the practice is “one means by which market participants obtain timely and accurate market data.” Lastly, the MFA suggested that the Commission require exchanges to bolster disclosure on order types and should require brokers to provide uniform disclosure of order routing and price improvement.
Turning to the Tick Size Pilot, the letter argues that the program “will harm investors by artificially widening spreads and increasing trading costs without any tangible benefit to market quality.” The MFA suggests that the Commission should limit the pilot to stocks with gross revenue of less than $750 million, as opposed to the current measure of a market cap of less than $2 billion. The MFA also took aim at the Trade-At part of the pilot program, stating that it unnecessarily complicates the pilot. The letter suggests that, if the SEC “is still inclined to experiment with tick sizes,” that it should pilot a half-penny tick size for high volume symbols.