Equity Market Structure 2019: Looking Back & Moving Forward
Chairman Jay Clayton
Brett Redfearn, Director, Division of Trading and Markets
Remarks at Gabelli School of Business, Fordham University, New York, New York
March 8, 2019
Thank you, Dean Rapaccioli, for your kind introduction and for the invitation to Director Redfearn and me to speak about equity market structure.
I’m delighted that my good friend Craig Phillips was able to take time to be here and lay the groundwork for our speech. Groundwork is the right word; and it extends well beyond today. Secretary Mnuchin, Craig and Craig’s team, with their four “core principles” reports on the state of our financial markets and suggested reforms, produced the most thoughtful, citizen-focused pieces of work I’ve seen in the financial sector. The reports thoroughly frame the issues, narrow the debate and provide a pathway forward. Craig, I cannot thank you enough for your work on behalf of our Main Street investors.
Today, Brett and I are not going to speak in sequence. We’re going to do what we do within the walls of the Commission — we’re going to have a dialogue. I’ll introduce the topics and issues — there are four: (1) a bit of history, including the equity market structure initiatives the Commission completed last year, and then the subjects of the staff’s recent roundtables, (2) thinly-traded securities, (3) combating retail fraud, and (4) market access and market data — and then Brett, with an interruption or two from me, will provide the details.
I’ll emphasize here that each of us is speaking for ourselves. My views are my own, Brett’s views are his and, to the extent we discuss potential future action, you should recognize that there will be significant discussion, analysis and evolution before the staff presents proposals to the Commission.
In April of 2018, Brett and I described our principles-based approach to market structure and identified several initiatives that were on the SEC’s agenda for 2018. I am pleased to be able to say that, with the help of my fellow Commissioners and the hard work of SEC staff, we were able to complete all of the equity market structure initiatives that I mentioned last year. Today, I want to briefly recap last year’s progress and, more importantly, discuss some of the equity market structure initiatives that I anticipate will be on the SEC’s agenda for the coming years.
In an effort to provide context for the Commission’s market structure work, in April 2018, I noted five principles guiding my tenure that are particularly relevant when considering market structure. They continue to guide our work and are integral to the initiatives we will discuss today. Those principles are:
First, fidelity to the SEC’s mission to protect investors, to maintain fair, orderly, and efficient markets, and to facilitate capital formation;
Second, focusing on the long-term interests of our Main Street investors;
Third, facilitating public transparency that can energize competitive forces to benefit investors;
Fourth, retrospectively reviewing Commission rules to assess whether they are functioning as intended, particularly as technology spurs new market mechanisms and trading practices; and
Fifth and finally, coordinating and communicating with other regulators and the stakeholders in the markets that we oversee.
Equity Market Structure Initiatives Adopted in 2018
These principles guided the three equity market structure rules we adopted last year – (1) the transaction fee pilot, (2) greater transparency of broker order routing practices, and (3) operational transparency of alternative trading systems (“ATSs”) that trade national market system (“NMS”) stocks. These principles will guide our agenda going forward as well.
The transaction fee pilot is designed to generate empirical data that will help the SEC and the public assess whether the rules governing exchange access fees—which were adopted back in 2005, and much has changed in the intervening 14 years—continue to promote fair, orderly, and efficient markets today. The transaction fee pilot reflects the Commission’s commitment to retrospective review of our rules, particularly those rules that, day in and day out, significantly affect a wide range of investors.
In addition to the transaction fee pilot, in 2018 we adopted two transparency initiatives. These rules focus on brokers: those that operate ATSs and those that route and execute investor orders. They embody another proven principle — the empowerment of investors through disclosure.
As with the transaction fee pilot, the two transparency initiatives were supported by the Department of the Treasury’s Capital Markets Report,  as well as numerous investors and industry participants. I am confident that this additional transparency will help investors and other market participants better navigate our complex equity market structure.
Brett, would you provide your thoughts please.
I would like to touch upon a few points for each of these significant rules.
I am pleased to say that we have received 34 new initial Form ATS-N filings from NMS Stock ATSs, which reflects all of the currently operational NMS Stock ATSs. The level of detail in these Forms is, as expected, much greater than anything previously available. Form ATS-Ns will be made public later this year and, for several of the ATSs that are operational in the marketplace, this is the first time any information about their operations will be fully public. Market participants will have the ability to better assess features of ATSs to better inform their order routing decisions and the pursuit of best execution.
The staff of the Division of Trading and Markets continues to engage with market participants as brokers work to finalize their Form ATS-Ns. If investors, brokers or other market participants have any questions, you should feel free to contact us.
Broker Order Routing Disclosure, Amended Rule 606.
Amended Rule 606 is a significant step in providing greater transparency for broker order routing decisions. As with Form ATS-N, under amended Rule 606, information will be made available regarding broker routing practices that was heretofore not available. Again, market participants will have the ability to better assess broker routing to further inform their order routing decisions and pursuit of best execution. And, while there has been much focus and detail on institutional order routing, there are significant upgrades to disclosures about retail payment for order flow arrangements that will enable greater transparency into any potential trade-offs being made between payment for order flow and execution quality.
As with the Form ATS-N disclosures, we continue to engage with market participants to answer questions.
Transaction Fee Pilot.
The TFP was born out of a principal recommendation from the SEC’s Equity Market Structure Advisory Committee, and the final rule was the result of a great deal of analysis and deliberation. I want to publicly thank the many commenters who weighed in on the proposing release. As a result of the process, we reduced the number of test buckets and overall size of the pilot while ensuring that we receive the information necessary to conduct a long overdue review and analysis of transaction fees.
Today there are a few points that I would like to address in relation to this pilot.
As market participants are aware, since Reg. NMS went into effect in 2007, the U.S. equity markets have been subject to a regulatory fee cap. When it adopted this fee cap, the Commission explained that the cap is designed, in part, to “preclude individual trading centers from raising their fees substantially in an attempt to take improper advantage of strengthened protection against trade-throughs and the adoption of a private linkage regime.” The fee cap was set at 30 mils or 30 cents per 100 shares. And, notably, the fee cap imposed by Reg. NMS has not been addressed or amended for 12 years.
As we think about the TFP and the existing fee cap and fee structures, we should understand the impact of the existing 30 mil fee cap. Today, on four of the largest five exchanges by volume, the price to take liquidity is set at the 30 mil cap. For these exchanges, market forces alone have not moved the rate to take liquidity off of that cap. Nearly every institutional investor that submitted a comment supported conducting a pilot and testing a zero rebate group.
A final point on the TFP, the final rule includes a zero rebate bucket. This approach will enable us to assess the continued appropriateness of any fee cap in one or more segments of the market, and to test equilibrium pricing for transaction fees.
Equity Market Structure Agenda for 2019
Let me reiterate, one of our key responsibilities as regulators is to strive to ensure that, as technology changes, our regulations continue to drive efficiency, integrity, and resilience. As technology and business practices evolve, so must our regulatory framework. This is irrefutably true for the regulation of our U.S. equity markets, which have undergone a monumental transformation with the deployment of a vast array of advanced technologies in the last decade. As just one example, it is clear that technological change drives our understanding of best execution — said bluntly, for “best execution” to be true to its name, the in-practice requirements should reflect the trading ecosystem of the time. Vacuum tubes with folds of paper are no longer a component of what is “best”. With that in mind, it is important that we reassess Regulation NMS, now 14 years old, as well as our understanding of best execution in today’s marketplace.
Regulation NMS is the primary regulation governing equity market structure, yet it has remained largely untouched since first adopted in 2005. It was designed to address equity market structure challenges that were prevalent over a decade ago. It is clear that the market challenges we faced in the early 2000s are not the same as the issues that we confront over a decade later. Some of the challenges we face today may, in fact, be consequences of Regulation NMS and other rules. My view on Regulation NMS is, in summary: there are many areas that the Commission got right, some that may have missed their mark, and some that were positive in 2005 but may no longer be so.
Let’s turn to particulars. Last year the SEC’s Division of Trading and Markets hosted a series of roundtables to address three equity market structure topics — the market structure for thinly-traded securities, regulatory approaches to combating retail fraud, and market data and market access. The panelist discussions and public comments that the roundtables generated were extremely valuable and provided our staff with a clearer view of areas for improvement and potential rulemaking recommendations. In the remainder of our time today, we will highlight the equity market structure initiatives arising out of the three roundtables that I anticipate will be on the SEC’s agenda for 2019 and beyond.
For each of the three roundtable topics, I will begin by noting some broad issues we are currently considering, and then Director Redfearn will follow with additional details. Note that I used the word “current”. Our comment boxes for the roundtables remain open, and I encourage market participants to make their views known.
The quality of our markets for thinly-traded securities is an area where review is needed. Today, Regulation NMS mandates a single market structure for all exchange-listed stocks, regardless whether they trade 10,000 times per day or 10 times per day. The primary focus of last year’s Roundtable on Market Structure for Thinly-Traded Securities was the particular challenges facing companies and investors in this segment of the market. Roundtable participants presented a wide spectrum of viewpoints, including those of issuers, retail and institutional investors, exchanges, and sell-side firms with expertise in trading less-active securities.
I found the observations of firms that focus on smaller companies to be particularly enlightening. They emphasized that the relative lack of liquidity in the stocks of smaller companies not only affects investors when they trade, but also detracts from the companies’ prospects for success. Illiquidity hampers them in many areas, including in their ability to raise additional capital, obtain research coverage, engage in mergers and acquisitions, and hire and retain personnel.
A potential initiative to address illiquidity, which was discussed at length at the Roundtable, is the Department of the Treasury’s recommendation in its Capital Markets Report to allow issuers of thinly-traded securities to suspend unlisted trading privileges for non-listing exchanges, while continuing to allow off-exchange trading in these securities as a means to maintain competition among trading venues.
To be clear, I recognize the inherent trading volume challenges in thinly-traded securities. The goal, however, is not to significantly increase the volume in these stocks; it is to identify pragmatic steps that could make it easier for buyers and sellers to find each other and consummate trades in this segment of the market.
I have asked our Division of Trading and Markets staff to explore this issue, including considering whether primary listing exchanges should develop pilot programs that would allow us, and market participants, to explore the effects of restricting unlisted trading privileges for certain classes of thinly-traded stocks.
As Chairman Clayton has described, the thinly-traded segment of our equity markets has not received the attention that it warrants. As compared to actively traded securities, securities with lower volumes have wider spreads, less displayed size, and higher transaction costs for investors.
The panelists at our Roundtable were concerned about the lack of liquidity for these stocks. This lack of liquidity particularly manifests itself in the difficulties faced by institutional investors in trading in the large quantities needed to make investing in a smaller company worth their efforts. Roundtable panelists believed that these investors are forced to go from trading venue to trading venue searching for liquidity, while being constantly concerned about the risks of revealing information about their trading intentions, which can cause prices to run away from them. This risk of information leakage and price impact is the reason why one experienced buyside trader said he would avoid displaying trading interest on an exchange in the current market structure.
Unfortunately, illiquidity tends to beget further illiquidity for certain stocks of smaller companies. Why? Because if illiquidity in a stock is expected to lead to higher implementation costs for an investor in the course of accumulating a position, that can be a disincentive to purchase that stock in the first place. As a result, there may be less institutional investor participation in those names, which can perpetuate and exacerbate their illiquidity.
As Chairman Clayton noted, a potential step to address illiquidity would be to evaluate changes to unlisted trading privileges, known as ‘UTP,” by non-listing exchanges in thinly-traded securities. When a company decides to go public, it generally selects a single exchange on which to list its securities for trading. Other exchanges, however, generally are permitted to extend UTP to the newly listed security after the first trade in the security on the listing exchange is reported, allowing these other exchanges to trade that company’s securities too. The Commission has the authority to terminate or suspend UTP in certain circumstances. In evaluating potential changes to UTP for thinly-traded securities, the goal would not be focused solely towards helping to aggregate liquidity in one location; it would be geared towards enabling innovative market structure solutions for thinly traded names that currently may be thwarted by today’s one-size-fits-all rule set. Alternatives might include periodic auctions, manual market making, or something else.
The Division of Trading and Markets staff is exploring whether to recommend that the Commission publish a policy statement discussing these issues. We may consider whether exemptive relief from Regulation NMS is needed to help achieve the goals. I look forward to continued dialogue with investors and the securities industry as we explore ways to enhance our market structure for thinly-traded securities.
Combating Retail Fraud
As we consider enhancements to equity market structure and regulation more generally, we must be ever focused on the long-term interests of our Main Street investors. Protecting investors is a core statutory obligation of the Commission. Last year’s Roundtable on Combating Retail Investor Fraud was focused on regulatory measures aimed at protecting retail investors from fraudulent and manipulative practices, particularly with respect to microcap and digital asset securities.
The U.S. securities markets, like many other markets, historically have attracted fraudsters, often involving schemes related to the latest investment trends. Over the years, these schemes have targeted mining stocks, tech stocks, and, more recently, digital asset securities. And, all too often, they are perpetrated in our penny stock markets. While the Commission has engaged in a robust Enforcement-led response to suspected retail fraud, including bringing cases against scammers and seeking appropriate trading suspensions, I believe that more can be done.
As highlighted during the Roundtable, well-tailored regulatory measures, along with investor education efforts, can help better protect retail investors from fraudulent and manipulative schemes without adversely affecting capital formation or investor opportunity. To that end, we are actively reviewing disclosure rules and registration rules with an eye toward greatly reducing the opportunity for retail fraud.
A particular focus of mine is Rule 15c2-11. This rule was designed to ensure that broker-dealers have sufficient information to understand and evaluate securities that trade off-exchange, or “OTC”, prior to publishing a quotation and also be in a position to provide this information to investors. At the Roundtable, however, panelists noted circumstances where the current operation of this rule may result in retail investors having little or no relevant information about a company. I am concerned that these circumstances are an example of how uneven the information playing field can be for retail investors in this sector. I am particularly troubled by what I see — again said bluntly — as Rule 15c2-11 providing a significant exception to our disclosure rules for companies that (1) have not provided any recent information or (2) have conducted a reverse merger — e.g., a larger private company merging into a smaller or “shell” public company — and the post-merger company has no relevant public information available.
I have asked our Division of Trading and Markets staff to prepare promptly a recommendation to the Commission to update our rules to address these information issues, which experience tells us can be fertile ground for fraud and may be unnecessary to facilitate capital formation.
I also have a heightened level of concern for very low priced stocks known as penny stocks. These stocks, traded in the over-the-counter market, seem to have a special gravitational pull for fraudsters looking to take advantage of retail investors hoping for outsized returns. So I have also asked staff to review the sales practice requirements relating to penny stocks within Exchange Act Rule 15g-9 and the definition of “penny stock” within Exchange Act Rule 3a51-1. Again, I am sure that more can be done to help prevent fraud and manipulation in penny stocks.
First, following up on Rule 15c2-11, this Rule currently requires a broker-dealer, among other things, to review certain issuer information and have a reasonable basis for believing such information is accurate in all material respects and from a reliable source, before the broker-dealer initiates quotations for an OTC security.
The Rule, however, provides an exception from the information and review requirements for continuous quotations, known as the “piggyback exception.” Once a security becomes “piggyback eligible,” it can be quoted indefinitely in an interdealer quotation system without further review by any broker-dealer, provided there is not a break in quotations of more than four successive business days.
As Chairman Clayton noted, panelists at the Roundtable identified circumstances where the current operation of the piggyback exception may result in retail investors having little or no relevant information about a company. I anticipate that the Division of Trading and Markets staff will present a recommendation to the Commission to update Rule 15c2-11 in the near future.
In addition, the Commission’s penny stock rules today require a broker-dealer to complete a number of steps before it allows a customer to engage in penny stock trading. Among other things, the broker-dealer must approve the account for penny stock trading, provide the person with a penny stock disclosure document, and receive from the person an agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased. As a practical matter, these protections are essentially required only in very narrow circumstances to transactions involving relatively new customers of a broker-dealer or customers with limited experience with penny stocks, and when the broker-dealer has solicited the customer to engage in a penny stock transaction.
In light of the questions we have about how these rules are working to protect investors, staff plans to re-examine the current exceptions from the definition of “penny stock” with a view of providing heightened protections for retail customers. Staff also plan to examine the current penny stock sales practice requirements under Rule 15g-9 to determine whether the Commission should provide additional protections for retail investors. Staff plans to examine whether the Commission should consider amendments to narrow the existing exemptions from the sales practice rules and otherwise strengthen the protections under the rules.
Finally, another potential gap in current protection for retail investors relates to transfer agents. Transfer agents who provide services to issuers of restricted and control securities generally are responsible for processing requests from selling shareholders to remove restrictive legends in connection with the intended resale of these securities by their owners. If a transfer agent improperly or inappropriately removes a legend, it could facilitate an illegal public distribution of securities that could harm investors.
This is a topic that was discussed in the Commission’s 2015 Advance Notice of Proposed Rulemaking and Concept Release on Transfer Agents, and was also the subject of a panel discussion at last year’s Roundtable. At the Roundtable, panelists discussed their current practices with respect to the removal of restrictive legends, and noted that there was an absence of specific Commission rules that govern those practices. They also identified and discussed some potential regulatory responses to fill that gap. I anticipate that the Division of Trading and Markets staff will present a recommendation to the Commission to update the transfer agent rules, including considering a rule that would specify transfer agent obligations with respect to the tracking and removal of restrictive legends.
Market Data and Market Access
The third and final Roundtable in 2018 addressed another area where a review is needed — market data and market access. It is clear that technology has shifted this regulatory landscape in fundamental ways since the adoption of Regulation NMS.
We currently have what can be generally described as a two-tiered system of market data and market access in the U.S. equity markets. There are the consolidated public data feeds distributed pursuant to national market system plans jointly operated by the exchanges and FINRA. And there are an array of proprietary data products and access services that the exchanges and other providers sell to the marketplace. The second set, the proprietary data products, generally are faster, more content rich, and more costly than the consolidated data feeds.
Many panelists at the Roundtable raised concerns that the consolidated market data distributed through the NMS plans, known as “core data,” may be no longer sufficient for them to trade competitively in today’s markets. Several panelists noted that, given the centralized infrastructure of core data, it could no longer be considered timely in today’s high-speed markets, and that the content of core data may not provide some key information necessary to trade optimally. Some panelists went further and asserted that they did not believe that core data was sufficient for brokers to achieve best execution for their customers. These panelists included institutional investors and the brokers who serve them. Institutional investors, such as mutual funds and pension funds, represent millions of individual investors who rely on institutions to help them participate in the U.S. equity markets. The market data concerns raised by institutional investors and their brokers therefore implicate the interests of Main Street investors.
Retail brokers also expressed concerns about market data at the Roundtable. They argued that the fee structure for core data, including the definition of a non-professional user, imposes costly administrative burdens on retail customers and their brokers. The burdens cited include the requirements for retail customers to qualify as non-professional users and for retail brokers to prove the non-professional status of their customers.
I believe that we should explore whether core data needs to be upgraded to better meet the needs of investors and market participants in today’s modern markets, and to ensure that it better facilitates Exchange Act objectives. Accordingly, I have asked staff in our Division of Trading Markets to develop recommendations that would consider the concerns raised about core data and the potentially underlying causes that were highlighted during the Roundtable. I expect that, among other things, these recommendations will look to update and upgrade the content and infrastructure of core data. More specifically, the recommendations may address the following:
- At the Roundtable, panelists stated that core data currently only includes the National Best Bid and Offer and top-of-book data and is measurably slower than certain proprietary data. How can we help ensure that core data evolves along with the broader market ecosystem?
- Does the current governance model of the NMS Plans that oversee the core data systems provide an appropriate level of transparency regarding market data and market access, including the associated revenues and costs? Can the current governance model and transparency regime be improved? And if so, how?
- And finally, should we consider introducing greater competitive forces into the dissemination of core data than are currently possible with a centralized processor infrastructure and, if so, how?
As Chairman Clayton highlighted, we currently have a two-tiered system of market data and market access in the United States — core data and proprietary data. This system has its roots in the 1970s when Congress directed the establishment of the NMS. The primary objective of the NMS was to promote fair and efficient markets, and Congress emphasized its belief that market data systems would “form the heart of the national market system.” And, as we have discussed, the U.S. market ecosystem has evolved in very significant and unanticipated ways since the 1970s.
As was illuminated during our Roundtable, many panelists were emphatic in their view that core data is no longer sufficient for brokers to trade competitively. As a result, I believe we must assess whether the current core data system is contributing to a bifurcated landscape of market data that calls into question whether access to markets remains fair and not unreasonably discriminatory. We must also examine whether modifications to core data should be made to ensure that core data continues to facilitate best execution in a complex and evolving trading ecosystem.
As Chairman Clayton noted, there may be shortcomings in core data that require regulatory attention. The Exchange Act highlights several important standards for market data in the national market system. These include the “prompt, accurate, reliable, and fair collection, processing, distribution, and publication” of information and the “fairness and usefulness of the form and content” of information. Furthermore, when the SEC adopted Regulation NMS, it emphasized that, and I quote, “one of the Commission’s most important responsibilities is to preserve the integrity and affordability,” close quote, of core data. Yet we heard repeatedly from investors, brokers, and data technology firms at the Roundtable that these core regulatory objectives have not been sustained in today’s modern marketplace.
At the Chairman’s direction, SEC staff intends to explore several key areas related to core data.
- Speed. As was noted earlier, some panelists at the Roundtable stated that the core data distributed by centralized processors, known as “SIPs,” is measurably slower than proprietary data feeds. The causes for this less timely data may include communications protocols, aggregation times, and geographical latencies associated with single point of consolidation. Regardless of the causes, concerns about latency differentials between the SIPs and the direct feeds are meaningful enough that staff will consider whether to recommend changes to ensure that core data is timely by today’s standards.
- Content: Odd Lots. Today there are many high-priced stocks where the best quote in proprietary data may have significant value and be better than the best quote in core data. Indeed, a great many trades are occurring at those better prices that cannot be seen in core data. For example, an odd-lot quote is the best bid, best offer, or both approximately 75 percent of the day for stocks priced over $500, as compared to approximately 5 percent of the day for stocks priced under $100. Staff will explore whether we should recommend that the Commission adjust the round lot size of more expensive securities, and whether odd lot information should be included in core data generally.
- Order Protection and Best Execution. If we contemplate a market where the round lot size is adjusted to 10 shares or some other number for higher priced stocks, should the order protection requirements of Regulation NMS be applicable to the new round lot size? In this area, I expect staff will consider whether a best execution-based approach is the optimal way to proceed vis-à-vis odd lot displayed liquidity. In fact, adjusting the displayed quote size in core data without changing the definition of protected quotes under Rule 611 could provide a test of the extent to which enhanced best execution, rather than the prescriptive approach of Rule 611, warrants further consideration in the future as the best way to proceed for the benefit of Main Street investors.
- Depth. For many stocks other than high-priced stocks, the top-of-book quotes in core data provide only a small slice of the depth-of-book liquidity that is available. Many Roundtable panelists noted that brokers need to see depth-of-book quotes to handle the large orders of institutional investors. Market imbalance information is relevant past the top-of-book displayed quotes. During the early 2000s, when the markets converted to decimal trading, the extent of liquidity provided by top-of-book quotes in core data dropped significantly. This would likely also be the case if there was any potential reduction to the round lot size for higher priced stocks. As a result, staff will re-examine whether core data should be expanded to include liquidity beyond the top of each market’s order book.
- Governance. Another issue that received a significant amount of attention at the Roundtable pertains to the governance of the NMS Plans that oversee the SIPs. The current governance model provides full voting control to the exchanges and FINRA. This structure was put in place in the 1970s, at a time long before the exchanges converted to for-profit entities. Times have changed. Technology has changed. Today, the exchanges are owned by public companies with obligations to shareholders and have significant revenue streams from the sale of competing data products. Given these changes, staff will explore whether the governance of SIP NMS Plans should be updated to reflect today’s circumstances. Governance changes that could be contemplated include addressing conflicts of interest, confidentiality policies and transparency, and voting representation on the operating committees overseeing the SIP Plans.
- Transparency. Again, transparency is a fundamental underlying principle of the Commission, as the Chairman articulated earlier. This is demonstrated by two of our central 2018 market structure initiatives that focused on enhancements to transparency concerning broker order handling and the operation of certain ATSs. Following the same principle, staff will explore new disclosure requirements related to the costs and revenues associated with the operation of the SIPs, as well as other related exchange businesses. Staff will also explore whether changes should be made to the fee filing process for filings related to core data.
- Fair and Efficient Access. Lastly, we should ask the following question: To what extent has the cost of timely access to competitive data and access affected the goal of fair and efficient access to markets at all venues, including the larger protected venues? In 2005, the Commission discussed its concerns about this question when it adopted Regulation NMS. It wanted to avoid a result where, “[a]s a practical matter, payment of every SRO’s fees would be mandatory . . . .” If this were to happen, the Commission noted that some exchanges “might well propose higher fees to increase their revenues, particularly those with dominant market shares whose information is most vital for investors.” Today, we must assess the extent to which we may have ended up with the very result the Commission hoped to avoid in 2005.
In conclusion, there are a number of important questions and policy initiatives that the staff will consider. All of these policy considerations are guided by the principles articulated earlier by the Chairman. We place a high value on transparency and disclosure. And as we assess how to best reassess and update our regulatory policies related to core market infrastructure, we will remain true to the Commission’s core mission to protect investors, to maintain fair, orderly, and efficient markets, and to facilitate capital formation.
To close, I think it is evident that each of the three Roundtables from last year — in the spirit of the Treasury’s core principles reports — raised and framed important issues that require review. Last year, I ended my equity market structure remarks by asking for investor and securities industry engagement on the issues. I was gratified that you in fact did so engage last year, and your help greatly contributed to our success in moving equity market structure forward in 2018. I ask for your continued engagement this year, and, with your help, I am confident that we will continue to move our equity market structure forward in 2019 and beyond.
 My words are my own and do not necessarily reflect the views of my fellow Commissioners or the SEC staff.
 The four core principles reports regarding financial regulation published by the Department of the Treasury are available at https://home.treasury.gov/policy-issues/top-priorities/regulatory-reform.
 Materials for each of the three roundtables on equity market structure hosted by SEC staff in 2018, including agenda, panelists, a transcript of the panel discussion, and comments from the public, are available at https://www.sec.gov/spotlight/equity-market-structure-roundtables.
 Chairman Jay Clayton, Remarks at the Equity Market Structure Symposium Sponsored by the University of Chicago and the STA Foundation (April 10, 2018), available at https://www.sec.gov/news/speech/speech-clayton-2018-04-10; Brett Redfearn, Director, Division of Trading and Markets, Remarks at the Equity Market Structure Symposium Sponsored by the University of Chicago and the STA Foundation (April 10, 2018), available at https://www.sec.gov/news/speech/speech-redfearn-2018-04-10.
 Transaction Fee Pilot for NMS Stocks, 84 Fed. Reg. 5202 (February 20, 2019) (adopted on December 19, 2018).
 Disclosure of Order Handling Information, 83 Fed. Reg. 58338 (November 19, 2018).
 Regulation of NMS Stock Alternative Trading Systems, 83 Fed. Reg. 38768 (August 7, 2018).
 U.S. Department of the Treasury, A Financial System that Creates Economic Opportunities: Capital Markets, Report to President Donald J. Trump (October 2017) (“Capital Markets Report”), available at https://www.treasury.gov/press-center/press-releases/Documents/A-Financial-System-Capital-Markets-FINAL-FINAL.pdf.
 The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This speech expresses the author’s views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff.
 The Commission received 148 comment letters from 161 commenters on the TFP proposal.
 Regulation NMS, 70 Fed. Reg. 37496, 37545 (June 29, 2005) (“Regulation NMS”).
 See, e.g., Transcript of Roundtable on Market Structure for Thinly-Traded Securities (April 23, 2018), at 21-22 (Adam Epstein, Third Creek Advisors LLC) (“As a result of my firm's work with dozens of exchange listed small cap companies over the last eight years, I see what I would characterize as the insidious nature of illiquidity on a day to day basis. And I use the word insidious because small cap trading illiquidity affects considerably more than capital formation. Trading illiquidity gravely impacts the ability for small cap companies to garner and retain research coverage. Trading illiquidity gravely impacts mergers and acquisitions in the small cap ecosystem. Trading illiquidity gravely impacts the ability for small cap companies to hire and actually retain great employees.”), available at https://www.sec.gov/spotlight/equity-market-structure-roundtables/thinly-traded-securities-rountable-042318-transcript.txt.
 Several Roundtable panelists supported this approach, with some suggesting going even farther and considering whether Regulation NMS rules should be eliminated in this segment of the market. See, e.g., id. at 89 (Brian Harkins, CboeBZX) (“So I think competition has got to drive innovation, and as I said it, I'll throw it out there, let's consider being open minded around Reg. NMS and potentially even revoking NMS for these names.”).
 Id. at 63-64 ((Jason Vedder, Driehaus Capital Management LLC) (“That's a problem with how I have to enter into the marketplace in -- with the current structure, in terms of saying, okay, I've got to be really quiet and I got to be very careful, and I can't really post anything, because if I do I know that someone's going to see my footprint and try to get ahead of me.”).
 Section 12(f) of the Securities Exchange Act of 1934.
 See, e.g., Transcript of Roundtable on Regulatory Approaches to Combating Retail Fraud (September 26, 2108), at 99 (Yvonne Huber, FINRA) (“I think under certain circumstances, piggyback eligibility should be taken away, such as in the reverse merger scenario, where there has been a completely different — a complete shift in the business line of a company, a complete change in ownership, a complete change in officers and directors. That's essentially a new company and it probably doesn't make sense in that space to allow piggybacking to continue.”), available at https://www.sec.gov/spotlight/equity-market-structure-roundtables/retail-fraud-round-roundtable-092618-transcript.pdf.
 Transfer Agent Regulations, 80 Fed. Reg. 81948 (December 31, 2015).
 See, e.g., Transcript of Day One of Roundtable on Market Data and Market Access (October 25, 2018) (“Day One Transcript”), at 136 (Simon Emrich, Norges Bank Investment Management) (“What we find is the use cases for SIP data over the years has just decreased, has decreased substantially. . . . So for the brokers, as has been mentioned before, the brokers can't really be competitive for our sort of trading just using the SIP. They need to have the full depth of book.”), available at https://www.sec.gov/spotlight/equity-market-structure-roundtables/roundtable-market-data-market-access-102518-transcript.pdf.
 See, e.g., id. at 125 (Adam Inzirillo, Bank of America Merrill Lynch) (“So the key difference between proprietary and the SIP feeds is the ability to build a depth of book across all markets. The nature of the SIPs, the nature of the locations of the SIPs introduce unavoidable latency effects.”); 127-128 (Mark Skalabrin, Redline Trading Solutions) (“[T]hese customers cannot be competitive with the SIP. And there are two main reasons that have been talked about. One is latency, the geographic latency. . . And then as also has been mentioned, there's a series of content that exists in the direct feeds, some depth in orders and imbalances and odd lots and other things, that provide valuable information in how to make decisions in trading applications. So a smart order router who wants to get a hit rate for their clients to take their orders and effectively fill them need the direct feed information.”); 224 (Jamil Nazarali, Citadel) (“Well, I wouldn't say the SIP is just for eyeballs. But I would say that having the SIP is not enough. Right? For a number of reasons. You know, we talked about odd lots, we talked about depth of book. And we also talk about speed.”).
 See, e.g., id. at 65-66 (Mehmet Kinak, T. Rowe Price) (“But as far as brokers having a choice of whether or not they can use the SIP or direct feeds, that doesn't exist. There is no choice there. If a broker is routing using SIP data, they are not routing my flow. . . . If I'm slower than the other person, I lose. That's it. That's the fraction of time we're talking about. So when someone says, hey, from a commercial enterprise, it makes sense for you to use a faster system over a slower system -- no. This is a best execution obligation. We are obligated to try and produce best execution on every single order that we have. If our brokers are not aligned in that manner to use the most direct, the fastest, the most robust feeds they can get their hands on, then we will trade with someone else.”); 198-199 (Joseph Wald, Clearpool Group) (“Clearpool and other broker-dealers are compelled to purchase exchanges' proprietary data feeds, both to provide competitive execution services to our clients and to meet our best execution obligations due to the content of the information contained in the proprietary data fees as well as the latency differences between them, which are major and important considerations for brokers.”).
 See, e.g., id. at 134 (Jeff Brown, Charles Schwab) (“But, you know, at the end of the day things aren't free. And when you hear the exchanges talk about there's a free lunch for retail, that just doesn't exist. People pay for it. Our firm has to cover that. And Matt makes a great point that the contracting with the SIP providers is so arcane and full of these distinctions. . . . So there needs to be a real hard look at that whole structure.”); Transcript of Day Two of Roundtable on Market Data and Market Access (October 26, 2018) (“Day Two Transcript”), at 196-197 (Marcy Pike, Fidelity Investments) (“For folks that aren't familiar with the way it works, there is a whole cottage industry that's been set up around being able to navigate and interpret exchange policies and regulations for how you use the data. Most large brokerage firms or asset managers that are consuming this data have significant staffs that are counting and reporting the usage of this data. . . . . There is a whole group of folks that have entered into the industry to help facilitate audits for the exchanges, third parties that they will, in some cases, hire to help them with the auditing process. . . . And if the end game here is to get data out to Mr. and Mrs. 401(k), to the individual investor, I really think we should be rethinking, the whole administration, on what it takes for firms to be able to deliver that data.”), available at https://www.sec.gov/spotlight/equity-market-structure-roundtables/roundtable-market-data-market-access-102618-transcript.pdf.
 See, e.g., Day One Transcript at 111-112 (Matt Billings, TD Ameritrade) (“For retail investors to receive real-time SIP data they are put through multiple steps. . . . The retail client, by default, according to the plans, is considered professional and must prove themselves otherwise. For Main Street investors who open a small business account, a mom or pop shop, they probably would be shocked to find out that they are considered professionals and must pay $92 across all three tapes per month to access real-time consolidated data. . . . “).
 For example, orders smaller than 100 shares are not available, market depth is not available, and auction imbalance information is generally not available.
 Some of the governance concerns articulated at the Roundtable were perceived conflicts of interest and a lack of diverse representation on the operating committees that oversee the NMS Plans.
 Many panelists emphasized that they lacked basic facts about market data and market access and that this precluded their ability to evaluate both consolidated and proprietary market data and market access and their respective fee structures. See, e.g., Day Two Transcript at 230-237 (opening statement of Bill Conti, Goldman Sachs); 237-238 (opening statement of Melissa Hinmon, Glenmede Investment Management); 239-241 (opening statement of Rich Steiner, RBC Capital Markets).
 H.R. Rep. No. 94-229, 94th Cong., 1st Sess. 93 (1975).
 See, e.g., the views of panelists presented in notes 20-22 above.
 Section 11A(c)(1)(B) of the Securities Exchange Act of 1934.
 Regulation NMS, 70 Fed. Reg. at 37503.
 The internal processing time of the SIPs has improved significantly in recent years. The average internal processing time for quotations disseminated by the SIP for NASDAQ-listed stocks declined from 1.17 millisecond in 4th quarter 2013 to 0.017 millisecond in 4th quarter 2018, while the same metric for quotations disseminated by the SIP for NYSE-listed and other exchange-listed stocks declined from 0.38 millisecond in 4th quarter 2013 to 0.101 millisecond in 4th quarter 2018. Statistics on SIP operating metrics are available at https://www.ctaplan.com/sip-metrics#110000121413and at http://www.utpplan.com/metrics. Panelists at the Roundtable, however, noted that the geographical delays inherent in the nature of a centralized processor results in significant latencies between the SIPs and proprietary data feeds that cannot be eliminated in the current SIP infrastructure. Day One Transcript at 145 (Simon Emrich, Norges Bank Investment Management) (“And part of that, the most interesting part of the delay for me is really the location of the consolidator, the geographical delay that's introduced, and the data connection element to the consolidator. Right? So from our perspective, the latency of the consolidator itself, the consolidation engine, the improvements that we've made are remarkable over the years. But it just doesn't measure the physical reality of the brokers that we're using.”); 148 (Michael Blaugrund, NYSE) (“[T]he method of transmission of that information and the timing of the aggregation of that information into a consolidated feed plays a role. As I think we all acknowledge, the aggregation time has improved dramatically. As we've seen that decline, it highlights the fact that the geographic latency becomes a more meaningful portion of the overall time line.”).
 See, e.g., Day Two Transcript at 66 (Paul O’Donnell, Morgan Stanley) (“We all know that, for high-price stocks, there is a market inside the NBBO.”), available at https://www.sec.gov/spotlight/equity-market-structure-roundtables/roundtable-market-data-market-access-102618-transcript.pdf.
 See, e.g., panelist views presented in notes 20-21 above.
 See Regulation NMS, 70 Fed. Reg. at 37529 n. 270 and accompanying text (noting a comment concerning “complaints that decimal pricing has reduced price transparency because of the relatively thin volume of trading interest displayed at the best bid and offer”).
 Although some commenters on proposed Regulation NMS had recommended that the Commission adopt a competing consolidator model to replace the SIP model, the Commission decided not to adopt such a model. At that time, the Commission was concerned that moving away from the SIP model towards a competing consolidator model might undercut the benefits of core data. When explaining this concern, the Commission noted that, “if the benefits of a fully consolidated data stream are to be preserved for investors, every consolidator would need to purchase the data of each SRO.” Regulation NMS, 70 Fed. Reg. at 37559.