January 17, 2014
The proposed rule as presented for comment is not well defined. Problems range from a lack of clarity through the use of jargon (ETP) to the ambiguity as to the roles and responsibilities of various parties involved in the markets. ETP appears to refer to Equity Trading Permits, although this is not set forth in the notice, which makes it difficult to understand. As published in the Federal Register, the notice states the purpose of the rule can be found at a link to the NYSE website, but the link is to the home page, and no immediately obvious path to a description of the proposed rule exists at least 3 pages deep into the NYSE website.
The larger problem is that the proposed rule apparently allows trading or market making firms (those ETP holders) to set up kill-switch or automatic transaction blocking, for their own risk management purposes, but the nature, triggers, levels, and consequences of such measures are not specifically described in the proposed rule. At a minimum, the rule should provide that any entity making use of such transaction limiting procedures should provide an advance notice, filed with the relevant exchange or market to which such procedures would be applied and the Securities and Exchange Commission, describing a) the securities by type and name if possible to which such procedures would be applied, b)the level of trading, volume, price change or risk which would enable the procedure to be applied, c) the authority, whether discretionary by responsible identified individuals or positions, or automatic by algorithms or other automatic objective procedures, d)procedures for implementation including the persons to be notified and means of notification of the execution of such procedures when applied; and e) the expected consequences in terms of blocking, unwinding, mitigating or otherwise dealing with and protecting third parties trading in the affected securities if the procedures are applied.
Without such description and specification, triggers, authority, notice and management of consequences for third parties including the trading public it is not clear that haphazard, non-similar implementation of such risk management procedures by the entities known as Equity Trading Permit (ETP) holders will serve the public interest in an unbiased manner, consistent with the anti-manipulation and fair public disclosure objectives of the Securities Exchange legislation and regulation FD.