April’s Showers

April showers bring May flowers a well known metaphor which not only marks time, but describes how events in one time period provide an indication on future ones. This past April several events took place that whether looked at in isolation and in total provide a good indication on the breadth of changes coming to our industry and when. Whether it was the April 4th SEC EMSAC meeting, FINRA Notices to Members or the publication of the Financial CHOICE Act 2.0, April proved to be a month filled with road marks on where our industry is heading.

“one size fits all” market structure does not serve the interests of all investor types, in particular institutional managers who need to move large blocks of stock.

“One size fits all” isn’t just for issuers anymore

Historically, conversations that included “one size fits all”, were in the context of describing how today’s market structure and regulatory regime do not facilitate the capital formation and secondary trading needs of small to mid-sized issuers. But as we see with every passing SEC EMSAC meeting, in particular the most recent April 4th one, this saying is being used to describe how today’s, “one size fits all” market structure does not serve the interests of all investor types, in particular institutional managers who need to move large blocks of stock. While Congress and the Commission have demonstrated an interest in reforming market structure for improving capital formation and liquidity in smaller cap names, having to consider investor type will add complexity to any review or plan. Having said that, the cases for change from institutional managers and those for status quo from retail brokerage firms are equally strong and well justified, so it appears that any recommendations to improve our market structure will have a degree of being two-tiered.

FINRA; True Reform or Status Quo

In August 2016, Robert Cook assumed the role of President & CEO at FINRA. Mr Cook spent his first months conducting a listening tour with member firms and other interested parties. In seeking industry input, Mr. Cook’s took an additional step on March 21 when FINRA issued a special notice seeking comments on how to enhance the self-regulator’s programs for engagement with its members and other stakeholders. But it was in April when the industry began receiving requests on several specific items that an early glimpse into what seems to be a genuine desire to reform FINRA under its new President & CEO appeared. Requests for comments on; FINRA Rules which impact capital formation (Notice to Members 17-14) and Developing a limited safe harbor from FINRA Equity and Debt Research Rules for Desk Commentary (Notice to Members 17-16) are being viewed by some as proactive and positive steps towards providing member firms regulatory clarity where needed, while also improving the capital formation role our markets play.

The Financial CHOICE Act: Committee vote tomorrow

The Financial CHOICE Act is the House of Representatives’ comprehensive response to Dodd-Frank. It is over 400 pages of various Bills in various stages of the approval process and this past Friday, April 28th Chairman Hensarling and the Financial Services Committee, FSC announced they will consider, or vote on the Act tomorrow, May 2nd. Assuming it passes through the FSC, the CHOICE Act would then move over to the Senate Banking Committee. This would be a significant step in a regulatory overhaul on financial services and market participants should be aware of even those issues that perhaps do not make it into the final Bill because they will serve as good indications on the regulatory priorities Congress would like to see.

Enjoy your May!

Read full April Newsletter here >