Industry Execs Decry Political Pressure on Trading Rules
Traders Magazine Online News, November 3, 2009
The trading industry is concerned that regulatory changes to trading rules are being driven by Capitol Hill. Executives fear that politicians could force rule changes that would harm the markets and ultimately lessen competition.
Lawrence Leibowitz, NYSE Euronext
"These were not the issues that brought us to the brink" last fall, said William Brodsky, CEO of the Chicago Board Options Exchange. He said Congress should focus on the macro regulatory issues involving the over-the-counter derivatives market, instead of seeking to overhaul the equities market structure.
Lawrence Leibowitz, executive vice president for U.S. markets at NYSE Euronext, agreed. "Congress should really be examining the bigger issues," he said. Both men spoke at the Securities Industry and Financial Markets Association's annual conference in New York last week.
Since mid-summer, a handful of senators have stressed concerns about the perception of the markets as an unfair playing field in which larger investors and faster traders get benefits unavailable to retail investors. Flash orders, high-frequency trading, co-location, dark pools and automated indications of interest have riveted the media and some members of Congress.
Last Wednesday, the Senate Banking Committee held market structure hearings about dark pools, flash orders and high-frequency trading. Sen. Ted Kaufman, D.-Del., who in July became a vociferous critic of aspects of the current marketplace, said that "liquidity as an end seems to have trumped the need for fairness and transparency."
Sen. Charles Schumer, D.-N.Y., recently urged the Securities and Exchange Commission to consider a suite of stricter regulatory requirements for dark pools. Two weeks ago, he held a conference call for reporters with Duncan Niederauer, the CEO of NYSE Euronext, to discuss what he sees as an unfair playing field between exchanges and alternative trading systems. NYSE Euronext and other displayed market centers, compete with some dark pools, which are operated by broker-dealers.
In July, Schumer scolded the SEC for what he saw as lax regulatory oversight of the markets that had allowed flash orders to evolve. Nasdaq OMX Group and BATS Exchange had introduced flash orders in their markets, joining Direct Edge and the CBOE Stock Exchange, which already offered versions of these order types. NYSE Euronext was a critic of flash orders. Schumer told the SEC and the media that if the Commission didn't ban flash orders, he would introduce legislation to do so. The SEC last month proposed a ban on flash orders.
According to Brett Redfearn, global head of liquidity in the electronic client solutions group at JP Morgan Securities, what's likely to be the rapid disappearance of the flash order type should raise industry concern. It was unusual, he said, for public and political outrage to "knock it out of the box within a very, very short amount of time." It is worrying, he said, to know that "the SEC is under pressure and then--boom!--something goes away overnight," perhaps without sufficient due diligence.
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