SEC Launches Major Review of Equity Trading Rules

(Bloomberg) -- The U.S. Securities and Exchange Commission is starting a broad review of rules that have underpinned trading on the New York Stock Exchange and Nasdaq markets since 2005, according to the agency’s chief.

“As technology and business practices evolve, so must our regulatory framework,” SEC Chairman Jay Clayton said Friday at a New York forum on equity market structure. “There are many areas that the commission got right, some that may have missed their mark, and some that were positive in 2005 but may no longer be so.”

Key Insights

  • Clayton’s comments come as the SEC is locked in a legal battle with exchanges over the agency’s plans to review a system of fees and rebates that powers U.S. equity trading.
  • The SEC hasn’t conducted a sweeping review of Regulation National Market System, the sweeping measures designed to improve fairness in price execution and access to market data, since it was adopted in 2005.
  • NYSE, Nasdaq and the CBOE Global Markets -- which run the venues where the vast majority of U.S. trading takes place -- have opposed several of the SEC’s market structure plans under Clayton.
  • Clayton says he asked SEC staff to review core market data required to be widely available to traders because of concerns the rules have created a “two-tiered system” where firms must pay exchanges for private data feeds just to be competitive.
  • Shares of Intercontinental Exchange Inc., NYSE’s parent company, dropped as much as 2.3 percent, Nasdaq Inc. tumbled by 4.4 percent and Cboe Global Markets Inc. fell as much as 3.5 percent.
  • Brett Redfearn, director of the SEC’s trading and markets unit and a frequent critic of some of the exchanges’ practices, also spoke at the Fordham University business school event. He said: “We should ask the following question: To what extent has the cost of timely access to competitive data and access affected the goal of fair and efficient access to markets at all venues, including the larger protected venues?”
  • Clayton said the SEC should also review rules for “thinly-traded” securities and penny stock trading.
  • In October SEC said NYSE and Nasdaq had failed to justify increases in fees that are central to their businesses. (The fee increases were contested by the Securities Industry and Financial Markets Association and Bloomberg LP, the parent company of Bloomberg News).

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