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U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Opening Remarks Regarding Concept Release on Equity Market Structure


Commissioner Elisse B. Walter

U.S. Securities and Exchange Commission

Washington, D.C.
January 13, 2010

Thank you, Chairman Schapiro. And thanks again to the staff for the broad-reaching and thoughtful concept release you have brought to us for approval.

Rapid advances in technology and a surge in electronic trading activity have contributed to the transformation of the U.S. equity market structure with increased competition among various automated trading centers and new trading practices, strategies, and products. I welcome innovation. But, with these developments, some have expressed concern that regulation has not kept pace or remained as effective in the protection of investors.

While I do not necessarily share this belief, I do believe that it makes sense for the Commission to undertake a comprehensive review of equity market structure, at the same time as it is proposing related rules regarding discrete areas such as flash orders, dark pools, and sponsored access. Among the great strengths of our agency is its willingness to continue to review its regulatory approach and to seek input from the public and, importantly, the industry.

As I have stated before, various market developments that have received recent public attention — including dark liquidity, regulation of ATSs, high frequency trading and co-location — vary both in their potential benefits and the concerns they raise. I, therefore, believe that the concept release — which asks specific questions in all of these areas — and the comments we receive should provide the Commission with valuable information and data to help differentiate the issues. It would enable the Commission to engage in informed and deliberate rulemaking that would target particular developments in the equity market that, at least without additional regulatory safeguards, seem to conflict with our fundamental policy objectives, such as efficient execution of transactions, fair competition among markets, price transparency, and best execution of investor orders.

Further, I agree with the belief that our equity markets are the envy of the world in large part because they are open, transparent, and fair. As a significant step towards evaluating the wide range of complex issues surrounding market structure, I believe the concept release will help the Commission to engage in regulatory actions that ensure our markets remain that way for long-term investors. I am hopeful that any future Commission action originating from the concept release will promote credibility and investor confidence in the national market system.

Finally, in addition to our review of the equity market, I also believe that the Commission should continue to examine the opaque and complex financial practices in other markets before new problems arise. For instance, I believe that the market structure of the fixed income market deserves close Commission attention. The decentralized market structure of the fixed income market, as distinguished from the equity market, may contribute to its higher transaction costs, poor transparency — particularly pre-trade, and lesser liquidity — and thus deserves greater scrutiny.

I want to join my colleagues in calling for comments that are as thoughtful as the release and that supply as much data and economic and business analysis as possible.

Thank you again for all of your hard work, and I am very pleased to support your recommendation.



Modified: 01/14/2010