Sec Speeches Cryptocurrency Statement on Proposal to Amend Rules Governing Access Fees and Tick Sizes and to Accelerate Certain Market Data Changes

Thank you, Mr. Chair.  This proposal would amend discrete elements of Regulation NMS that have received significant attention from market participants.  These changes would include finer, variable tick sizes for quotations and orders and—notably—trading.  They also would include corresponding reductions in the access fees that national securities exchanges could charge for access to protected quotations.  In addition, the proposal would accelerate certain elements of the Market Data Infrastructure rule, including the new definitions of round lots and odd-lot information.  The proposal also would establish a consolidated best odd-lot order that would provide information about the price, size, and market of the best-priced odd-lot buy and sell orders.

I support putting this proposal out for public comment.  Based on the data presented in the release and on discussions over the years with market participants, I am persuaded that some stocks trading on our national securities exchanges are tick-constrained.  Whether the proposal gets the new, variable tick sizes correct is a question that commenters can help us answer.

Similarly, although I would prefer that the Commission get out of the rate-setting business altogether, doing so would require a significant overhaul of our markets.  Moreover, given the continued existence of the order protection rule, which forces market participants to access markets without regard for the price of entry, the Commission probably has a role to play in preventing excessive access fees.  Again, public input will be essential to thinking through whether the reduction in access fee caps is calibrated at the right level.  Indeed, the difficulty of this determination is one of the reasons I would like to be out of the rate-setting business entirely.  The proposal, however, appears to be a reasonable attempt to set these caps at a level that does not create unnecessary disruption in the markets.

I also am eager to hear commenters’ views on the acceleration of some of the changes adopted in the Market Data Infrastructure Release.  That rulemaking set out a detailed implementation timeline for its various elements, but the Commission’s recent loss in the litigation over the related governance order seems likely to cause considerable delay in implementing the rule.  In light of the delay, is accelerating these requirements reasonable?

A couple features of the proposal give me pause.  First, the Commission could have made it easier for commenters to perform the necessary analyses to understand and provide us with a reasonably confident appraisal of how they expect these changes to affect the market.  As with the Rule 605 amendments, the proposal does not lay out the Commission’s view as to how this rule will interact with the other rules the Commission is considering today.  Commenters seeking to understand how the entire package fits together have to draw these connections on their own, and, as difficult as the task may be, I encourage them to do so, or to identify where further Commission clarification might be helpful.  Because the proposals taken together are so sweeping in their effect, different commenters are likely to come to different understandings of the interplay between the different rules, which, in turn, is likely to make our job harder when it comes time to finalize these rules.

Another element of the proposal that causes me concern is the proposal to mandate uniform trading increments across the market for NMS stocks.  Although I understand the rationale, I am not sure that I agree with it.  It is true that wholesalers and ATSs are able to provide execution at finer price increments than national securities exchanges, but the release does not really explain why variety in the offerings of different types of market centers is a bad thing.  Indeed, one might argue that the ability of some firms to provide trade execution services at finer increments than others has stimulated innovation by firms that may not have been able to compete with established players otherwise, and that it has done so while improving the investor experience.  The release shows little concern for how this provision may deter further innovation going forward.

Moreover, this concern with eliminating competitive disparities between exchanges, ATSs, and wholesalers does not seem to be given equal weight in all of the releases we are considering today.  In particular, other parts of today’s package of reforms appear to establish requirements that may heavily favor exchanges and certain ATSs over other firms providing trade execution services.  The Commission may need to give further thought to its theory of competition in this area of our regulations.

Thank you again to the staff of the Divisions of Trading and Markets and Economic and Risk Analysis, the Office of General Counsel, and to others throughout the Commission who worked so hard on this release over the past several months.