SEC Chairwoman Mary Jo White gave a surprising broad speech about market structure at the Sandler O'Neill Exchange and Brokerage Conference in New York.
She spoke of the need for a "comprehensive review" of market structure, including rules adopted a decade ago that helped create high-speed trading.
She began by insisting that investors are doing better today than they did in the past:
"[T]he current market structure is not fundamentally broken, let alone rigged."
She also said new rules put in place since the 2010 Flash Crash have made the markets safer. For example, market wide circuit breakers and limit up/limit down rules were put in place that are "moderating price volatility in individual securities."
But she made it clear there are aspects of the market that are troubling to the SEC. Much of her commentary was built around what, if anything, should be done about high frequency trading (HFT): "We must consider, for example, whether the increasingly expensive search for speed has passed the point of diminishing returns." She made it clear that she was wary of any attempt to make a rule that limited trading speed, but said she was open to other methods to address HFT, including affirmative or negative trading obligations for HFT firms. In other words, she is considering subjecting HFTs to certain obligations as market makers. This might require them to post more definitive bids and offers for longer periods, for example.
She also said she was concerned that certain "destabilizing" trading strategies might harm the markets during periods of high volatility. She has proposed an anti-disruptive trading rule that would apply to high-speed traders during periods of high volatility. She was vague on this proposal, but this is likely to be controversial.
She also is proposing to subject high frequency traders (HFT) and other "unregistered active proprietary traders" to a new rule requiring registration with the SEC and membership in FINRA, which is responsible for much of the regulatory oversight of the industry.
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That's an interesting idea. Many HFT firms have objected to being required to join FINRA because of the relatively high cost.
She also spoke of the need to make sure the technology works as advertised. Reg SCI would mandate uniform testing standards for the technology used by the exchanges; after sitting on it for many months, the SEC is now finalizing rules that would put it in place.