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SEC Publishes Equity Market Structure Concept Release

As we reported in our January 14, 2009 post, "SEC to Conduct Broad Review of Equity Market Structure," the Commission approved a concept release requesting comment on market structures like high frequency trading, co-locating trading terminals, and dark pool trading. The full text of the concept release has been published by the Commission and is available on its website.  The concept release requests comment on all matters related to market structure, and also asks for comments on many specific questions about the current market structure, including:

Market Quality Metrics

  • What are the best metrics for assessing market quality for long-term investors and have these metrics improved or worsened in recent years?

Fairness of Market Structure

  • Is the current highly automated, high-speed market structure fundamentally fair for investors?

High Frequency Trading

  • What types of strategies are used by the proprietary trading firms loosely referred to as high frequency traders, and are these strategies beneficial or harmful for other investors?

  • Is the overall use of any harmful strategies by proprietary firms sufficiently widespread that the Commission should consider a regulatory initiative in this area?

Co-Location of Services

  • Do co-location services (which enable exchange customers to potentially route trades faster by placing their computer servers in close proximity to an exchange's computer system) give proprietary trading firms an unfair advantage?

  • If so, should the proprietary firms that use these services be subject to any specific trading obligations?

Dark Pools of Liquidity

  • Has the trading volume of undisplayed trading centers (such as dark pools) reached a sufficiently significant level that it has detracted from the quality of public price discovery?

  • If more individual investor orders were routed to public markets, would it promote quote competition in the public markets, lead to narrower spreads, and ultimately improve order execution quality for individual investors beyond current levels?

  • Are a significant number of individual investor orders executed in dark pools and, if so, what is the execution quality for these orders?

Concept releases are typically used by the Commission to gauge the need for new or additional regulation or other action by the SEC, based on comments received and other factors.  The comments on this concept release are due April 21, 2010, and submitted comments are available at:

The full text of the Concept Release on Equity Market Structure is available at: