February 4, 2013
It is instructive to note that while the Securities and Exchange Commission Division of Market Regulation appropriately called for trading in decimals, it did not specify the minimum price variation, (MPV) wisely leaving that important detail to the industry stipulating only that the choice be no greater than 5 cents nor less than 1 cent. Unfortunately we chose 1 cent as the minimum standard, an incredible 84% reduction from the previously existing 6 cent MPV. This extreme reduction has created a negative dynamic affecting all segments of US equity markets. Most notably, it is almost impossible for the NYSE pricing mechanism to show transparency and size (liquidity) consistent with that which we are capable of providing. The only rationale I have heard in support of this fateful decision was to give the small investor a break. If such be the case, it was flawed thinking because, in actuality, the small investor is in fact a very large investor whose assets are managed by more than nine hundred mutual fund companies who represent ninety million investors. Rather, the main beneficiaries appear to be professionals who engage in sophisticated program strategies that many feel obscure market transparency.
While there is no doubt that the industry will continue to fulfill its mission with distinction, the real question is what kind of market we will be able to provide. As currently structured, with a 1 cent MPV we produce a market that falls woefully short of achieving its potential. I am confident that with a 5 cent MPV where liquidity naturally manifests itself at 5 cent increments in high volume stocks, we would be able to provide a preeminent world-class market featuring cost efficiency, speed and simplicity of execution by giving investors the choice of automatic execution at the published bid and offer or the opportunity for price improvement – precisely what the investors want and deserve. Over the past ten years I have lobbied actively for a test marketing initiative setting up a pilot program. I have had discussions with regulators, legislators, academicians, and market professionals and find support for this proposition across all markets.
Responsible leadership requires your attention to the appalling state of affairs that currently grips US equity markets. I am totally frustrated to know that we have it within our grasp to structure a preeminent marketplace. Given the enormity of the consequences, there can be no legitimate objections to a pilot program the results of which would be controlled by the Securities and Exchange Commission. I submit that such an initiative is a compelling obligation to the public trust that must be addressed.
James J. Maguire, Sr.
Short Hills, NJ
N.B: James J. Maguire, Sr. recently retired after having completed 64 years of faithful service to the Wall Street trading community. He recommends Scott Pattersons book Dark Pools to all those interested in the future of our financial market system.