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U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Market Structure Reform Should Be Guided by Values of Fairness, Transparency, and Efficiency


Commissioner Luis A. Aguilar

U.S. Securities and Exchange Commission

SEC Open Meeting
Washington, D.C.
October 21, 2009

Thank you, Chairman Schapiro.

As you have heard today, the Commission is undertaking a comprehensive review of market structure. It is important that this review be done with investors in mind. Investors, particularly long-term investors, need to know that the Commission will vigilantly oversee how securities are traded — and that it will step in and take action when markets lack fairness, transparency, and efficiency.

Today’s proposals address just one of the many market structure issues the Commission must evaluate in the coming months. Among the others are flash orders, high frequency trading, co-location, and direct market access (also known as sponsored access). Recent technological changes in the markets may have spawned their own glossary of new terms, but it is important that we evaluate these changes according to our long-standing principles, starting with the protection of investors. Analyzing these market structure issues and the suitable response will require a great deal of work, and the bulk of that will be done by our staff. To all of you who have worked so hard, I too want to recognize you. I also want to thank you, in advance, for the labors to come.

Fortunately, Congress foresaw that the Commission would need to effectively oversee dramatic changes in the markets. Thus, when Congress empowered the Commission to regulate the National Market System, it provided us with broad authority to regulate competition among brokers, dealers, exchanges, and other trading venues, and it gave us a clear standard to uphold: “the public interest, the protection of investors, and the maintenance of fair and orderly markets.” This broad mandate enables the Commission to act now — motivated by the right principles — without having to ask Congress for more authority.

Maintaining fair and orderly markets has always been an important component of the Commission’s core mission. And it is worth taking a moment to remind ourselves of the role markets play in our economy. As the Commission itself explained in 2000, “The secondary securities markets exist to facilitate the transactions of investors. Investors should have confidence that their brokers will deal with them fairly and that their orders will be routed to market centers where they will be executed efficiently and at prices that are set by vigorous competition.” Those standards should guide our actions today, and it remains the Commission’s responsibility to step in and provide robust oversight of the markets.

With this responsibility in mind, I turn to the proposals before us today. As our proposing release notes, some dark pools share order information selectively with certain market participants. This concerns me, because it may create two-tiered access to information that is neither fair nor transparent. That’s why, today, I support proposing rules to require that actionable indications of interest be publicly displayed as quotations and to lower the volume threshold that triggers an ATS’s order display and execution access obligations.

I also, however, recognize the interest of large institutional investors, such as the pension funds and mutual funds that represent many individual investors, to be able to trade large blocks of securities without tipping their hand and allowing other traders to take advantage of them. For that reason, I support the staff’s proposal to balance this interest with the general goal of improved price discovery by providing a limited exception to display requirements for orders of substantial size, i.e., those orders of $200,000 or more.

Finally, I support the proposal to further increase the information available to investors and to regulators by requiring that trades executed on ATSs appear on the consolidated tape with an indication of which ATS executed the trade. And I look forward to hearing from investors of all sizes and from other market participants about the potential impact of the proposed rule changes.

While we are in the midst of a broader review of market structure issues, I am ready to support today’s proposals, because they align with the principles and the values we have been entrusted to protect. We have considerable work ahead of us, and I look forward to the discussions ahead.

Thank you.



Modified: 10/21/2009