Talking Points – December 2017

STA discussion document with congressional staff for the month of December on: Consolidated Audit Trail; ETPs and Tick Size Pilot

Specific Comments:

Consolidated Audit Trail – Recommendation for a Revised Implementation Plan
STA delivered a letter to Thesys CAT, LLC and the Operating Committee on the draft
CAT Reporting Technical Specifications for Industry Members, distributed on
September 7, 2017. In addition to representing the interests of our members on matters
relating to the CAT NMS Plan, STA is also a member on the Financial Information
Forum (“FIF”) Consolidated Audit Trail Working Group. STA and FIF recommend that
the Operating Committee “request that schedule and content relief be granted by the
SEC so that a revised implementation plan can be established.” STA believes that a
revised and comprehensive implementation plan extending existing deadlines and
phasing in other asset classes and certain types of information, such as Personally
Identifiable Information (“PII”), is a more effective strategy.

Holistic review on the impact equity rules have on the trading of Exchange Traded
Products (“ETPs”) – Exchange Traded Funds (“ETFs”) and Exchange Traded Notes
(“ETNs”) are unique investment vehicles which offer investors exposure to the
performance of indices or desired strategies. While ETFs and ETNs trade on equity
exchanges their differences from publicly traded companies merit consideration of
whether there should be different trading rules. STA is considering recommending a
holistic review on the impact equity rules have on the trading and market making in
ETPs and whether investors would be better served if new rules or exemptions to
existing rules were implemented. STA believes evidence exists that when the arbitrage,
market making provision is encumbered, ETPs become less efficient. Rules STA is
reviewing include: Rule 5250, Payments for Market Making by ETP Sponsors; NSCC
Proposed Rule Change to introduce two additional cycles during which ETF agents
could submit creation and redemption instructions; NSCC SR-NSCC-2017-019;
Unlisted Trading Privileges; special consideration, perhaps even exemptions from pilots,
on publicly traded companies; and Regulation M, which is designed to prevent the
manipulation by individuals with an interest in the outcome of an offering.

Tick Size Pilot Data (“Pilot”) – The Tick Size Pilot has been fully implemented for
over twelve (12) months and has produced much data as reported on and debated in the
public domain by numerous firms and entities, including STA. Observations in critical
data selection points such as spreads, displayed liquidity, average trade size, volatility
and costs have been articulated and general consensus and conclusions are beginning to
build. The NMS Plan which governs the Pilot recommends a two-year time frame
followed by a period of time to analyze the data and make final decisions. STA
recommends that a formal process on interpreting data generated from the Pilot begin
January 2018. This process should be led by the SEC with industry participation and
could take the form of an Open Roundtable or Working Group. We believe such an
initiative will create efficiencies in the final determination on proceeding with any of the
criteria found in the three (3) test groups.

PDF version here