SEC reforms: An exchange perspective

In the wake of the SEC’s landmark market structure proposals this week, The TRADE sat down with John Ramsay, chief market policy officer at IEX Exchange, to discuss the latest changes.  

What precipitated the SEC reforms, and are they needed?  

It has been 17 years since the existing equity rules were adopted, and since that time, the stock market has seen significant change – including the growth of high-frequency trading, a dramatic decline in displayed liquidity on exchange, and a substantial rise in off-exchange trading.

We think that modernising regulation like this ensures that market competition among brokers, market makers, and exchanges will continue to benefit investors.

What are the most crucial elements and why? 

While there are many key elements to these proposed reforms that will be discussed during the upcoming comment period, there seems broad support for narrowing tick sizes for highly liquid stocks, though the SEC has proposed more categories and narrower tick increments for some of these categories than most participants have proposed. One area of focus for comments around this reform is likely to be the trade-off between the value of giving participants more flexibility to quote and trade versus an increase in complexity and “noise” that may be associated with very narrow ticks. 

Investors of all types will benefit the most from the recently proposed reforms as this modernised market structure will help to drive further competition among brokers, market makers, and exchanges alike.  

Why has the SEC taken so long to move into best execution and what will the framework change? 

Based on the SEC’s comments, the intention of this proposed reform is not to take the place of FINRA or MSRB best execution rules. One point of comment will likely be the potential for confusion or overlap and questions about how the different standards may coexist. Given the importance of the best execution principle to investor protection, it makes sense that the SEC would want to consider having its own rule on that topic. 

Are there any further changes you’d like to see?  

We believe the reforms proposed by the SEC represent a constructive and positive effort to improve transparency, increase competition, and ensure that investors can access the best prices available in the market. Ultimately, modernising regulation ensures that market competition among brokers, market makers, and exchanges continues to benefit investors.