SEC Actions Concern Market Participants at STAC Conference
By Jessica Titlebaum (Chicago)
“Blame, Blame, Blame, Ban, Ban, Ban, Tax, Tax, Tax,” were the first words in Congresswomen Judy Biggert’s keynote address at the Security Traders Association of Chicago’s (STAC) 85th Annual Mid-Winter Meeting last week, to describe actions coming out of Washington. Her regulatory concerns were familiar ones.
Congresswomen Biggert spoke critically of Congress and her opposition of H.R. 1068, a bill to tax distressed securities transactions. She also expressed concern over the OTC regulations coming out of Washington which she described as “sorry excuses for reform,” giving too much power to the Commodity Futures Trading Commission (CFTC).
She commented on the way the Securities and Exchange Commission (SEC) approached short selling, which is a strategy investors use to profit from falling stock prices. Congresswomen Biggert believed that the SEC was wrong in their temporary ban of short selling, saying that it provided positive price discovery and liquidity.
Controversy over Flash Trades and High Frequency Trading
Regulatory concerns were also discussed on the Equity Exchange Panel including the recent controversy over flash trades.
The CBOE Stock Exchange (CBSX) was the first U.S. stock exchange to use flash trading, a practice that gives exchange market makers milliseconds to “step up” to the National Best Bid Offer (NBBO) – if not at the NBBO when a marketable order arrives at the exchange – before routing the order to another exchange.
David Harris, the President of CBOE’s Stock Exchange, believes flash trading makes sense and services liquidity for Chicago based traders.
“It is our hope that the SEC takes a holistic view on flash trading and other market structure issues that affect securities exchanges so that not all market participants are painted with one broad brushstroke,” said Harris. “Otherwise, there is the potential to ban flash trading with very little analysis in hand.”
The panelists went on to discuss High Frequency Trading (HFT) and how market participants benefit from transparency and collocation.
“The industry has been utilizing collocation since 2001,” said Paul Adcock, from NYSE Euronext. “The High Frequency trading activity tends to move in lock step with the rise and fall of the VIX because of the fluctuation in volatility.”
Bryan Hawkins, from DirectEdge, explained that everyone benefits from collocation and transparency in the markets. He said that if the SEC were to ban or tax collocation, the market would lose a lot of it’s players.
Further Industry Initiatives
While many market participants talked about the way the SEC was approaching challenges, speakers on the Derivatives Best Execution Evolving Tools and Practices panel discussed initiatives the industry was taking.
Deutsche Bank‘s Joanna Fields, Chairman of the Securities Industry and Financial Markets Association’s (SIFMA) Equity Options Trading Committee, explained that in an effort to provide better transparency and efficiency in the marketplace, SIFMA had requested that Exchanges publish their disseminated data to meet best execution challenges.
“Best execution can mean different things to different market participants. For a retail trader it may mean getting the best possible price, for a proprietary trader it may mean getting the fastest execution, while for an institutional trader it may mean finding the largest quantity,” said conference attendee, Todd Rich of the Boston Options Exchange. “SIFMA is asking for a standardized template of execution statistics so traders can compare apples to apples across different exchanges.”
Congresswomen Biggert also touched upon industry initiatives in her keynote address.
“Washington bureaucrats do not steer the markets during turmoil,” she said. “It was you [industry participants] who got us through those times.”
