Tags: MiFID II

STA Conference First 15 Speakers and DC Meeting Recaps

Newsletter

FINRA holds July 2019 Board of Governors Meeting.

FINRA CEO Robert Cook, Chairman Bill Heyman, Board members and FINRA staff provided updates from the meeting in a video report . 

Emily Westerberg Russell Named Chief Counsel of Division of Trading and Markets

The Securities and Exchange Commission today announced that Emily Westerberg Russell has been named Chief Counsel of the Division of Trading and Markets. Ms. Russell has been a member of the division’s Office of Chief Counsel for a decade, and since 2011 has served as a Senior Special Counsel in the Office of Sales Practices.

Chairman Tarbert Announces CFTC Executive Leadership Appointments

U.S. Commodity Futures Trading Commission Chairman Heath P. Tarbert announced six appointments to key executive leadership positions at the CFTC.

Read July newsletter here

Talking Points – March 2019

Talking Points

Discussion Document – March 2019


Who We Are
STA is comprised of 24 affiliate organizations covering the entire US and Canada. The STA national board of governors is comprised of past presidents and industry specific leaders. Our membership represents INDIVIDUALS from varying business models – buy-side, sell-side, hedge funds, exchange traders and market makers- dealing in equity and derivative trading


SEC Rule 606 – Requests for Guidance
*As with any large scale industry project, regulatory guidance prior to implementation is often needed. As the May 20th compliance date approaches the industry seeks SEC guidance on a range of areas, including but not limited to: options calculations & reporting on amended 606(a); definition of actionable IOIs under amended Rule 606; challenges for introducing BDs.


SEC Transaction Fee Pilot for NMS Securities – Spreads and Canadian Securities Administrator
*STA believes that the impact access fees have on our market structure has evolved since they were originally allowed and then capped. We therefore support a study that includes a pilot.
*STA also appreciates that the Commission, in its final decision, responded to remarks in STA’s letter which recommended reducing the number of securities in the pilot as a means to provide protections in the event that the pilot widens spreads in securities, and coordinating efforts with the Canadian Securities Administrator.


SEC no-action letter under the Investment Advisers Act of 1940 on MiFID II
*STA believes that a meaningful number of market participants anticipate the Commission granting an extension and/or expansion on the existing “no-action” relief. A decision to allow the relief to expire in July 2020 risks to be highly disruptive if firms are not provided adequate time to adjust to the regulatory regime.
*Expiration would have a particular impact on those broker-dealers who may decide to register their research departments as investment advisers to accommodate cash payments. *Additionally, we believe that the demands on SEC resources to process an initial influx of RIA registrations and to facilitate ongoing audit and supervision reporting would be meaningful.

FINRA Working Paper: High Broker-Affiliated ATS Order Routing Associated with Lower Fill Rates, Higher Costs
*STA looks forward to being a conduit for industry input until the paper takes it final form.


Exchange Traded Products (ETPs)
*In 2018 STA established an ETF Working Group partially in response to ETF participants’ willingness and desire to be part of larger and broader equity market structure conversations.
*Some initial areas of focus include: Allowing flexibility on creation/redemption unit sizes and SEC’s Transaction Fee Pilot;
*Proposed New Rule 6c-11 (ETF Rule) – Updates and Discussion
• Disclosure of Bid-Ask Spread Information
• Canadian “ETF Facts” Disclosure Requirements

Thinly Traded Securities – UTP
*It remains STA’s view that shareholders of small to mid-size securities which lack a robust secondary market benefit from the presence of market makers and block traders who can, among other things, provide enhanced liquidity to increase the depth of the market. While the factors in enhanced liquidity provision are numerous, there are certain core ones which include: quote quality; volatility; and reduction in costs.
*While STA understands and appreciates that the goal of suspending UTP is to enable “innovative market structure solutions” we still have concerns regarding a venture or thinly traded exchange regime which allows for the suspension of UTP as part of its construct.


Market Data & Market Access: Core Data – Order Protection Rule (OPR) & Best Execution
*STA looks forward to engaging the SEC as it reviews Regulation NMS. While we do not call for a wholesale revision or rollback, we believe there are certain areas which need to be revisited for their effectiveness in today’s market structure.
*STA is currently reviewing its opinion of the OPR which was last expressed in our May 2008 Special Report:
“STA is of the opinion that a marketplace without this order protection rule will be superior to enforcing the current OPR… While the OPR was well intended, its many complex exemptions complicate compliance and dilute its effectiveness… The STA believes that the elimination of the OPR contained in Regulation NMS will allow for superior executions and will positively impact displayed liquidity.”


Combatting Retail Fraud – Rule 15c2-11
*The SEC has explored eliminating the piggyback exemption and requiring broker-dealers to periodically update 15c2-11 materials (proposals in 1991, 1998 and 1999).
*Costs to broker dealers to maintain 15c2-11 materials are meaningful and the inability to recoup them (FINRA Rule 6432) disincentivizes broker-dealers from providing public pricing and liquidity services, ultimately resulting in less, not more, public information available about small cap issuers.

  • There are workable solutions to achieve the underlying purpose of the rule: to prevent and deter microcap fraud, particularly involving issuers for which public information is limited.
    • Rule 15c2-11 materials should be made public and issuers should be liable for any misrepresentations contained in these materials.
    • Trading venues that make that information publicly available, and indicate when the information is current, should be permitted to file Form 211 with FINRA.
    • For securities of issuers that have not made current information available for a defined period of time, the SEC may want to explore limiting trading to sophisticated investors with a high risk tolerance.

PDF version here

STA Comment Letter

Newsletter

STA files letter with Senate Banking Committee on Capital Formation

STA supports Title IX of S.488 (115 th Congress) and S.2347 (115 thCongress), which would expand testing-the-waters to all issuers, and would level the playing field for issuers trying to compete for capital and provide benefits to investors by providing more time for them to make an investment decision. Here

STA files letter with SEC on no-action relief; MiFID II

STA believes that a meaningful number of market participants anticipate the Commission granting an extension on the existing “no-action” relief. Therefore, a decision to allow the relief to expire in July 2020 risks to be highly disruptive if firms are not provided adequate time to adjust to the regulatory regime. Expiration would have a particular impact on those broker-dealers who may decide to register their research departments as investment advisers to accommodate cash payments. Here

See STA February Newsletter here

Comment Letter: SEC No-Action Letters; MiFID II

Comment Letters

STA believes that a meaningful number of market participants anticipate the Commission granting an extension on the existing “no-action” relief. Therefore, a decision to allow the relief to expire in July 2020 risks to be highly disruptive if firms are not provided adequate time to adjust to the regulatory regime. Expiration would have a particular impact on those broker-dealers who may decide to register their research departments as investment advisers to accommodate cash payments.

Read full letter here

MiFID II Regulations to Impact U.S. Asset Managers

Newsletter

by Ivy Schmerken
Editorial-Director
Flextrade

North American broker-dealers and asset managers domiciled in the U.S. are watching their European counterparts gear up for compliance with MiFID II.

But will MiFID II affect U.S. broker-dealers and asset managers based in the U.S.?

Could the massive regulation that requires asset managers to unbundle research payments from executions, and quantify the value of research for its clients, find its way onto U.S. shores?

That question was the focus of an open call held by the Security Traders Association (STA) on March 2 examining the impact of MiFID II on North American broker dealers and asset managers.

“Most global firms are going to opt into MiFID across the globe, and that’s how the massive regulation will “leak” into the U.S.,” he said. Global asset managers would prefer to adhere to the stringent regulatory standard, so they can operate synergistically across the globe, [Conigliaro] added.

Under the MiFID II delegated acts, which go into effect on Jan. 3, 2018, asset managers will need to pay for research from their own P&Ls, or set up so-called research payment arrangements (RPAs), which are to be funded by a commission sharing account (CSA) or a direct payment by the client.

Although the ruleset impacts firms based in Europe, U.S.-based asset managers competing for mandates against European investment firms could face competitive pressure to adhere to MiFID II rules.

MiFID II is most relevant for global asset managers that are based in the U.S., but have a physical location in Europe where they serve European client, said Tom Conigliaro, managing director at Markit Brokerage and Research Services.

“Technically the European operations of those firms are within the bull’s eye of the regulations,” explained Conigliaro.

While global firms can continue to operate their U.S. divisions under existing U.S. rules, “operating a global business under two starkly different regulatory regimes is very challenging,” says Conigliaro.

“Most global firms are going to opt into MiFID across the globe, and that’s how the massive regulation will “leak” into the U.S.,” he said. Global asset managers would prefer to adhere to the stringent regulatory standard, so they can operate synergistically across the globe, he added.

Buy-side firms that fall under the MiFID II rules on unbundling research payments from executions will need to:

1. Track interactions with research counterparties.
2. Regularly assess the quality of research and its contribution to the investment process.
3. Establish a research budget.
4. Allocate the budget to the strategy level.
5. Manage payments either directly or through a RPA Administrator.

For a U.S. asset manager that doesn’t have a physical presence or any jurisdiction in Europe, these firms are not in the bullseye of the regulation, he said. However, practically speaking, U.S. managers that are managing European mandates or competing for European clients’ assets will face competitive pressure as clients come to expect the level of transparency they are receiving from asset managers in Europe.

Most asset managers will view MiFID II as a positive due to its transparency, disclosure of prices and better reporting.

For instance, a state pension fund or college endowment fund could be evaluating investment managers including a European firm that is following a MiFID unbundled research regime. That firm is providing more transparency and disclosure than a US domiciled manager is providing

In this scenario, a North American asset manager that is not in compliance with MiFID II could be seen as having a competitive disadvantage, Conigliaro suggested.

Rather than sit tight and watch how developments unfold, U. S. asset managers can take steps to align with best practices.

A lot of U.S. asset managers are doing this already, such as setting budgets for their research, having an evaluation program, paying attention to ratings and rankings of their research, and providing data to their clients “to tell a better story” about performance based on the research, which the client is ultimately funding, said Conigliaro. “You can do all of these things that are aligned with the spirit of MiFID to the letter of the law until either there is a seismic shift from the industry, or a client calls demanding more transparency that it gets from reports from its other managers in Europe,” noted Conigliaro.

Rather than being caught flat-footed, this gives asset managers a head start when they have no choice but to comply with a MiFID II-oriented regime.

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