Trading & Execution

Order routing, tech issues top ICI trading priorities

US buy-side trade body the Investment Company Institute (ICI) will in 2014 focus on addressing key conflicts of interest around order routing and supporting industry efforts to reduce the occurrence of disruptions in the US equity market, according to its senior counsel.

Speaking to, Ari Burstein, senior counsel for ICI and its international counterpart ICI Global, said the organisation’s top three priorities for US equity market reform were: addressing conflicts arising from sell-side and exchange order routing and execution fees; highlighting buy-side concerns over exchange infrastructure and technology; and promoting a pilot program to widen tick sizes.

“The potential conflicts of interest raised by the current economic incentives for routing and executing orders – like maker-taker, access fees and internalisation – continue to have an impact on end-investors,” Burstein said.

In particular, Burstein said he would continue to gauge support for a potential pilot programme banning maker-taker pricing for a subset of securities to build data on the effects of liquidity rebates – an initiative several key buy-side firms have called for in recent years.

Tick size reform

ICI has given broad support for a pilot plan to widen tick sizes for small- and medium-cap equities to generate liquidity in these names and promote investment. Investment bank Citi last year put forward a comprehensive plan although several issues still need to be decided upon, Burstein said.

Unlike key SEC regulatory initiatives, the tick size reform program – which was part of the Jumpstart Our Business Startups Act – is not beholden to a certain timeline, meaning the SEC can hold back on plans if occupied by other rule-making issues.

Burstein added that ICI would also contribute to industry talks around exchange technology following high-profile trading errors, such as the 22 August Nasdaq outage, to ensure asset managers are properly represented.

In October, SEC chair Mary Jo White suggested the Commission would pursue a “holistic” review of the US equity market due to the interconnected nature of regulation and its impact on trading. Burstein says the ICI broadly backs this approach, citing likely advantages for formulating policy.

“We would support a holistic review of the US equity market as SEC staff members have suggested in recent public comments: at the same time, there are a number of key trading-related issues relevant to the buy-side that require more of a short-term look,” he said.

The last holistic regulatory review of the US equity market occurred in early 2010, when the SEC put together its review of market structure, but the agency’s resources were subsumed by its work on Dodd-Frank. Burstein said the market had changed significantly since then, warranting a new wide-ranging review.

Wide scope

ICI will also work with asset managers in addressing issues raised in an automated trading concept release issued by US derivatives regulator the Commodity Futures Trading Commission (CFTC) in September. This month, the CFTC re-opened industry submissions related to the concept release until mid February. The Commission will also hold a meeting of its Technology Advisory Committee to explore key issues within the concept release.

ICI Global will continue to consult buy-side market participants in Europe as MiFID II moves from its level one political agreement to level two implementation details driven by markets watchdog the European Securities and Markets Authority. Burstein said greater cross-border activity amongst market participants required greater cohesion at the rule-making level, particularly for the derivatives market.

“We will continue to be very aggressive working with the regulators and policy makers in the US and globally on all issues around trading and the reform of the financial markets,” Burstein said.

Richard Henderson +1 212 217 6916