Group Co.
The Investor: Our Industry's True North
Traders Magazine Online News, October 23, 2018
In the early 1990’s some of the companies on Nasdaq did not print to the tape. This meant that investors only saw a top-of-book quote and total volume from the previous day. One of these companies was a biotech firm with the ticker ALBM. In the early days of my career I was a market maker in ALBM and the ability to operate in the dark made it fairly easy to be profitable.
ALBM eventually graduated within Nasdaq to become a real time trade reporting security. This provided investors with greater transparency into how much volume was trading intraday and at what prices. For my own self-interests, I was not happy with this development because I believed the increased transparency was going to make it much harder and less profitable to trade ALBM.
My boss at the time, Jackson “Jack” Bayer tried to assure me that things would work out. The new trading regime was better for investors and, according to Jack, when conditions improve for investors Wall Street finds a way to strive. Jack did not offer any empirical data or details to support his statement, just 25 plus years of experience. His words were empty to this sophomoric trader and did little to change my opinion that my conditions would deteriorate for the benefit of investors.
Over time, Jack’s prophecy began to appear. The real time trading regime brought in new investor classes which translated to more volume and efficiencies became available that enabled market makers to process more volume. What started out as an improved condition for investors with unforeseen benefits for myself resulted in a positive outcome for all parties.
This is a simple story, but it none the less describes a scenario that plays out on Wall Street over and over, again. Wall Street strives when conditions for investors improve however, when we as individuals or firms are unable to see how the benefit to the investor translates to a benefit for ourselves, then our initial reaction is to protect the status quo.
SEC’s Focus on Equity Market Structure
In an April 10, 2018 speech, SEC Chairman, Jay Clayton laid out three areas of focus for the Commission’s Trading & Markets Committee with regards to equity market structure: address the challenges associated with liquidity for thinly-traded securities; regulatory approaches to addressing retail fraud; and access to markets and market data.
In that speech, Chairman Clayton referred to recommendations by the SEC Equity Market Structure Advisory Committee and the U.S. Department of Treasury’s white paper on Capital Markets as primary resources for identifying these specific areas. Chairman Clayton also described how the use of public roundtables and comment letters would provide the means for obtaining industry input used towards determinations of future rule making.
Since his April speech, the Commission has held roundtables discussions and opened comment letter folders on the first two areas; thinly traded securities and addressing retail fraud.
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