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U.S. Securities and Exchange Commission

Speech by SEC Chairman:
Statement on Market Structure Concept Release Before the Commission Open Meeting


Chairman Mary L. Schapiro

U.S. Securities and Exchange Commission

Washington, D.C.
January 13, 2010

Next, we will consider a recommendation to publish a concept release inviting comment on the current market structure for trading U.S.-listed equities.

In recent years, the equity markets have undergone extraordinary change. The speed of trading has accelerated from seconds to milliseconds to microseconds. Trading volume has expanded, even while the average size of trades has contracted to less than 300 shares. New trading centers have entered the markets and captured a significant share of volume. Liquidity is now dispersed among many different venues, and these venues offer a complex array of order types and other trading services.

In light of these and other changes, the Commission already has engaged in several rulemaking proposals to address specific issues — such as a proposal to ban flash orders, a proposal to bring greater transparency to dark pools of liquidity and our earlier proposal to prohibit unfiltered access.

But, at the Commission, we must continually assess how changes in the market are affecting investors. And, we must try to understand how these changes may impact the markets in the future — so we can steer clear of any unnecessary risks.

For this reason, today we are considering whether to seek public comment on a variety of issues related to the current market structure. The concept release would raise questions about three broad categories:

  • First, it asks about the performance of the market structure in recent years, particularly from the standpoint of long-term investors;
  • Second, it seeks comments on the strategies and tools used by high frequency traders, such as co-location services; and
  • Third, it asks about dark liquidity in all of its forms, including dark pool ATSs, OTC market makers, and undisplayed order types on exchanges and ECNs.

The questions to be raised seek to address issues including, whether the current highly automated, high speed market structure is fundamentally fair for investors and whether investors have the tools to operate in these markets and protect their interests?

It also asks:

Does the current market structure support the capital raising function for companies of all sizes?

How do we measure, for all types of investors, how they have fared in the markets?

What is the impact of the rising prominence of proprietary firms that trade in very large volume — often loosely referred to as high frequency traders?

Do their high-speed systems and enormous message traffic threaten the integrity of trading center operations and present systemic risk?

Or, have they brought greater liquidity and efficiency to our markets?

What is the impact on the quality of our markets from the large volume of trading that occurs in the “dark” — that is at trading centers where trading interest is not included in the consolidated quotation data widely available to the public?

The concept release is intended to provide all interested persons with an opportunity to present their views to the Commission on this broad range of questions.

I look forward to an extensive response from the public with much analysis and data supporting their views. Such a response would provide a sound basis both for continued public debate and for the Commission to assess how best to proceed in addressing market structure issues.

Before I close, I’d like to thank Robert Cook, Jamie Brigagliano, Dave Shillman, Dan Gray, Arisa Tinaves, and Gary Rubin from the Division of Trading and Markets for your work on the recommendations. Thank you as well to David Becker, Meridith Mitchell, and Janice Mitnick from the Office of the General Counsel, and to Henry Hu, Stewart Mayhew, Amy Edwards, Tim McCormick, and Daniel Aromi from the Division of Risk, Strategy, and Financial Innovation.



Modified: 01/13/2010