April 9, 2014
Dear Members,
As many of you already know, the STA has long advocated for policies which improve the marketplace and foster investor trust, integrity and capital formation. As an association comprised of individuals with diverse skill sets, business models and geographical locations, we are a true “grass roots” organization. Over the course of our 80 year history, we have developed certain principles of rulemaking which have withstood the test of time because they have been forged in actual market events by market practitioners.
Today, our market structure is under intense scrutiny. While many of the recent conversations pertaining to High Frequency Trading (HFT) are not new, it is evident that the debate has intensified and broadened to every participant in the market place. Over the past two weeks, CEOs and other business leaders have issued statements where they believe HFT fits into today’s marketplace and offered a litany of solutions. It is clear that there is a lack of consensus on what is a major piece of today’s market structure.
Conversations pertaining to HFT have also included a host of other micro-market structure issues such as, but not limited to: all forms of payment for order flow; co-location; measurements for best execution; the role and governance of the Securities Information Processor, (SIP); uptick rule, cancellation fees and whether today’s legal definitions provide adequate protection for investors. The breadth and interconnection of these issues is such that STA recommends that the Securities and Exchange Commission undertake a holistic review of the market structure. It is also important to note that “review” does not mean “change”. A review based on empirical data will go a long way towards answering questions where a wide divergence of opinion exists. The STA has longed believed that rules need to be clear, consistent, and balance competition with regulation. In addition, regulation should not favor one business model by picking winners and losers, and a respect for due process needs to be followed in any rulemaking.
In addition, the STA cautions our nation’s Congressional leaders on implementing any new financial transaction tax (FTT). It has long been STA’s belief that such taxes raise the cost of investing and hurt overall liquidity and capital formation. Also alarming are the opinions of some that an FTT in today’s market structure can also reduce risk and volatility. STA believes it is unrealistic to expect that any such tax can achieve a dual mandate of changing behavior which some may consider harmful while also raising revenue for public coffers. If an FTT materially changes behavior, much of the anticipated revenue would not materialize. Leaving those investors, whose behavior was not deemed in need of changing to offset any revenue shortfalls.
Please join our New York Affiliate Conference this Thursday, April 10th, where you can hear further input on these and other issues. A program, which will include Chad Thompson, Esq, Chief Investor Protection, New York State Office of the Attorney General, and an HFT panel, titled; “HFT at a Crossroad”. View agenda HERE
Security Traders Association Board of Governors