EMSAC is Back, EU Blocks, Canada Shuffles


Stability and Transparency

The SECs Equity Market Structure Advisory Committee reconvened last week to hear recommendations from its Market Quality and Customer Issues subcommittees. These proposals will be considered at the discretion of the SEC staff.

Market Quality:

Proposed tweaking Limit Up / Limit Down (LULD) rules from a 15-second limit state followed by a 5-minute halt to a more uniform 2-minute limit state, then 2-minute halt. The subcommittee also raised the conceptual notion of mean reversion, noting that during the volatility last August 24 there were examples of both the limit up and limit down mechanisms being triggered in the same security.

Suggested pushing market-wide trading halt band from 7% to 10% to reduce the potential for such halts and advocated using futures market prices instead of cash equities as a benchmark.

Encouraged the NYSE to open as close to 9:30 am as possible.

Asserted, contrary to the opinions of some commentators, that market structure change is not the best means to solve liquidity problems for small cap stocks.

Customer Issues:

Encouraged the SEC to measure and benchmark investor confidence by way of surveys, using this feedback to fine-tune policymaking.

Proposed seven changes to Rules 605 and 606, including extension of 605 to all broker-dealers (not just market centers) and 606 to exchanges; grouping stocks by S&P 500 and other (as opposed to listing venue); and aggregating 605/606 reports to the SECs MIDAS site.


The comment period for the SECs long-awaited Consolidated Audit Trail (CAT) plan has been extended two months until November 10. Remaining bones of contention include funding (who should pay the tab – brokers or exchanges?), use and security of data, and plan governance. The SEC cant easily defer a decision again, so look for finality on CAT-at long last-before year-end.

New FX Option

Inter-dealer broker Tullet Prebon and GMEX Group are launching a new electronic trading platform for FX options. The new platform combines RFQ and Central Limit Order Book functionality and represents an incremental development in the move towards more exchange-like trading in foreign exchange.


Blocking Up

Bats Europe has struck a licensing agreement with BIDS Trading to launch a block trading facility called Bats LIS (Large-in-Scale). Bats LIS, which will operate under Bats Europes existing exchange license, is set to launch by year-end, pending regulatory approval. Bats LIS will allow brokers (including ITG) to be sponsoring brokers as they are in the US version of BIDS and will also allow the sell-side to place orders on a conditional basis via FIX connection. Bats LIS, like the Turquoise facility set up by the LSE, will seek to capitalize on an anticipated increase in demand for electronic block liquidity under pending MiFID II regulations.


Adieu, Alain

The CEO of the Montreal Exchange, Alain Miquelon, stepped down last week in a surprise announcement. There has been no official word on where he is headed. Luc Fortin is stepping in as interim CEO. The TMX Group-owned Montreal Exchange is currently Canadas sole derivatives exchange.

Consolidating Clearing

The TMX Group is planning to integrate the operations of its equity and derivatives clearing operations (CDS and CDCC, respectively). It is unclear what this will mean for workers at the two organizations, as one stipulation of the Maple consortiums purchase of TMX Group was that the workforces of the two should be kept separate in Montreal (CDCC) and Toronto (CDS). One possible benefit of the move: increased cross-margining opportunities, which could free up additional capital for market participants.


Close to Normal

The newly-reintroduced closing auction mechanism on the Hong Kong Exchange is gaining traction – it attracted 8% of trading volume on the last trading day of July, up from less than 5% in the initial sessions of the auction. Up next: the Volatility Control Mechanism, which is set to go live on HKEx on August 22.

SEBI Proposal

The Securities and Exchange Board of India has issued a much-anticipated rule proposal on HFT and algorithmic trading. The proposal includes a sub-second speed bump, separate queues for co-located and non-colocated orders and a 500ms minimum resting time before orders are amended or cancelled. According to SEBI, algorithms now account for more than 80% of orders and approximately 40% of trades executed on Indias exchanges. Public comments are due back to the regulator by August 31.