U.S. Securities and Exchange Commission Chair Mary Jo White has unveiled plans for new rules addressing high-frequency trading, broker conflicts and overall improved market transparency.
In a speech at a financial services conference Thursday, White outlined plans to craft rules and recommendations, as well as form a new Market Structure Advisory Committee, around five broad sets of issues: market instability, high frequency trading, fragmentation, broker conflicts, and the quality of markets for smaller companies.
“The SEC should not roll back the technology clock or prohibit algorithmic trading, but we are assessing the extent to which specific elements of the computer-driven trading environment may be working against investors rather than for them,” White said.
A particular focus for the regulator is the use of aggressive, destabilizing trading strategies in vulnerable market conditions, White said. To that end, she’s directed SEC staff to develop an anti-disruptive trading rule, as well as recommendations around improving firms’ risk management of trading algorithms and enhancing regulatory oversight.
“Given the overwhelming dominance of trading algorithms, it is time that our regulatory regime is updated to take better account of the risks when they are poorly designed or operated,” White said.
But while much of the recent discussion has focused on high frequency trading firms, White pointed out that it’s important to keep in mind many brokers use the same tools on behalf of their customers.
Broker conflicts and how they are impacted by different exchanges is another key area of concern for White. “When fees and payments are not passed through from brokers to customers, they can create conflicts of interest and raise serious questions about whether such conflicts can be effectively managed,” she said Thursday.
The SEC staff will develop a rule enhancing order routing disclosures. While there is some information on broker order routing practices, White believes it does not go far enough to target the large orders typically used by institutional investors.
In addition to the high-frequency trading and broker conflicts measures, White also directed the SEC staff to work on recommendations around dark pool transparency and a review of the agency’s own rules, such as Regulation NMS.
Along with the rules and regulations, White also announced the formation of a new Market Structure Advisory Committee, a forum which will include experts with a diversity of backgrounds and viewpoints that will help review initiatives or rule proposals.
“While we do not require perfect solutions, our regulatory changes must be informed by clear-eyed, unbiased, and fact-based assessments of the likely impacts — positive and negative — on market quality for investors and issuers,” White said.