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New Special Study of the Securities Markets: Keynote Address

Acting Chairman Michael S. Piwowar

Washington D.C.

March 23, 2017

Thank you, Larry [Glosten], for that kind introduction.[1] I also want to thank you, Merritt Fox, and Edward Greene — the directors of Columbia University's Program in the Law and Economics of Capital Markets — for all that you do to advance informed capital markets regulation. The Program's various projects continue to provide market participants, academic researchers, students, and regulators with valuable resources that are not available elsewhere.

I am delighted to have the opportunity to address you today and to join you in kicking off the Program's newest project, the New Special Study of the Securities Markets. A renewed analysis of securities markets — where we are today, how we got here, and whether we should shift course — is long overdue. And, as I have suggested in connection with my calls for a comprehensive review of equity market structure, the 1963 Special Study of Securities Markets[2] is a great model for that effort.[3]

Columbia University is also an ideal host for this occasion. The original Special Study was initiated at the urging of then SEC Chairman William Cary, who was a Columbia law professor prior to his 1961 appointment to the Commission.[4] Only a few months into Cary's tenure, he sought and secured from Congress $750,000 — the equivalent of about $6 million dollars today — for the SEC "to make a study and investigation of the adequacy, for the protection of investors, of the rules of national securities exchanges and national securities associations."[5]

A former SEC attorney Milton Cohen was selected to lead this study. Cohen accepted the role on one condition: that the study would remain independent, or more specifically, unaccountable to the SEC's leadership. Once assured his stipulation would be met, Cohen built a team of roughly 40 attorneys, economists, statisticians, financial analysts, and support staff. Some subject matter experts were borrowed from the SEC staff, while others were recruited from outside the agency. One such outside scholar was Sydney Robbins, a Columbia economics professor, who served as the Special Study's Chief Economist.

At its completion in 1963, the Special Study report was more than 3,000 pages long and included roughly 175 recommendations.[6] Fifty-four years later, it remains the most comprehensive review of our securities markets that has ever been undertaken. Indeed, it has been described as "undoubtedly . . . the single most influential document published in the history of the SEC."[7]

Given the prominence and quality of the original Special Study, a new special study faces great expectations. I have every confidence your work will meet — and surpass — that exceedingly high standard.

Repair the Roof While the Sun is Shining

The directors of the 1963 Special Study stated, very hopefully:

[B]road-gaged studies of the kind undertaken by the Special Study cannot be once-in-a-generation affairs but should be a major part of the Commission's regular and continuous activities.[8]

I have two words in response: "If only." Despite the best of intentions, neither the Commission nor any external party has undertaken a truly comprehensive review of market structure since the original Special Study.

Yet, one cannot overstate how much our markets have changed over the past five decades. Indeed, in 1988 Milton Cohen reflected:

The [Special Study] serves as an important reservoir of data and concepts, but I have no hesitation in saying that much of its contents has become obsolete. In the quarter century since 1963 there have been even more rapid and far-reaching changes than in the previous quarter century…. Each of these developments has had a substantial train of secondary consequences, and there have been many complex interactions among them.[9]

If Cohen were alive today, I am sure he would agree that market developments over the last 30 years have been even more dramatic and equity market structure has become even more complex.

Though belated, the timing for an updated special study could not be better. In the words of one early observer of the 1963 Special Study:

Unlike many other governmental investigations of economic institutions the [study] was undertaken at a time of prosperity for both the country and for the institution under study. The decision to make the study was not preceded by major economic, financial, or political scandal; and the study was made and reported with a minimum of recrimination by the parties involved. This timing was probably an excellent thing, for it permitted an invaluable analysis of the American securities markets to be made in an atmosphere conducive to unrushed and thorough contemplation of the many interacting complexities in such a market.[10]

Or, as President Kennedy put it in his 1962 State of the Union address in reference to the very same economic fair weather, "the time to repair the roof is when the sun is shining."[11]

The Dodd-Frank Act ("Dodd-Frank") was instead an infamous example of not "wanting a serious crisis to go to waste."[12] It was enacted before any of the official regulatory inquiries into the cause of the financial crisis had been completed. Rather than respond to acute and identifiable causes of concern, Dodd-Frank foisted upon the SEC several special-interest driven mandates that were far outside the scope of our core mission. These overtly politicized obligations have served to distract the SEC from fundamental issues — not the least of which is evaluating how our rules are actually operating.

The Commission is just beginning to return to measured contemplation, turning the page on the frenetic pace of recent years. With Dodd-Frank rulemaking on pause, the Commission will finally be able to put market structure issues at the forefront. The work of this group, and that already done by the Commission's Equity Market Structure Advisory Committee ("EMSAC"), will be an invaluable contribution to potential market structure reforms.

Iron Sharpens Iron: Scholarship and the New Special Study

Iron sharpens iron,[13] and it takes a diamond to cut another diamond. In the same way, the SEC is relying on the wits of the esteemed scholars and devoted practitioners assembled here today to sharpen our own understanding of market structure. The success of the New Special Study will hinge on your leadership and participation. As Milton Cohen noted:

A special study can provide a much broader and deeper perspective on basic developments than can be attained by an already overburdened Commission and staff who continuously must deal with a torrent of routine and not-so-routine matters.[14]

Having spent the past two months as Acting SEC Chairman, I have witnessed this truth firsthand. To be quite frank, a study as comprehensive as what this group envisions would severely tax the Commission if we were to undertake it ourselves.

Moreover, as the primary architect of the current regulatory system, the Commission cannot match your fresh eyes and perspective. Operating independently of the SEC, the original Special Study team achieved phenomenal results. It has been recognized widely that "most of the fundamental reforms achieved in the securities industry during the dozen years after the publication of the [Special Study] were anticipated, at least in part, by the study group," and "it is doubtful that a study directly supervised by the SEC could have made so innovative a contribution."[15] Today, as then, your unbiased and expert point of view will be essential to the task.

As an economist myself, I am particularly glad to see the emphasis placed on our beloved "dismal science" by this conference. Professor Sydney Robbins, Chief Economist of the original Special Study, noted that that there are few areas in which it is more desirable for the lawyer and the economist to cooperate than in studying the securities laws. "But," he continued, "in the history of the securities markets, this cooperation has been marked by the domination of the lawyer with the economist very much in the background." [16] Today, I can see that is not the case — three of the main sessions focus on "Economics and Regulation," with "Economics" noticeably mentioned first. Based on this and the diverse group of practitioners present today, it is clear to me you have the appropriate mix of skills to undertake a sophisticated analysis of how securities markets are working.

Patience is a Virtue

The targeted completion date for the New Special Study is 2020.[17] I appreciate that you intend to take the time to get it right — to "make haste slowly," as the ancient maxim goes.[18] Of course, the SEC nonetheless will continue its work to enhance market structure while the New Special Study progresses toward completion. For instance, just yesterday the Commission adopted a rule to shorten the settlement cycle for equities trading from three business days (T+3) to two (T+2).[19] In addition, EMSAC has made detailed recommendations, which we are currently considering.

One such recommendation is for an access fee pilot. Such a study would test how various levels of access fee caps under Rule 610 of the Securities Exchange Act of 1934 ("Exchange Act") affect equities trading.[20] We have been encouraged by many, including members of Congress,[21] to act prudently with respect to such a pilot. The Commission is quite aware that the key to its success lies in the details of the design.

An access fee pilot could be structured in two ways — namely, as an NMS plan[22] or as an SEC rulemaking. The details of a proposed NMS plan are designed by plan participants — self-regulatory organizations — and filed with the Commission. The Commission publishes a proposed plan for public comment, and ultimately the SEC approves or disapproves. In contrast, the details of a proposed SEC rulemaking are designed by Commission staff, approved by the Commission, and published for public comment. Notably, an SEC rulemaking would include a comprehensive economic analysis at the proposal stage, whereas an NMS plan would not.

I have come to believe that the SEC rulemaking process would be more appropriate for such an important undertaking as the access fee pilot. While it would certainly be more labor-intensive to initiate, it would avoid the inevitable struggles between market participants, each with its own point of view informed by its own business model. Accordingly, I have asked Commission staff to design the specific parameters of an access fee pilot that we can propose via SEC rulemaking. I look forward to being able to bring an access fee pilot proposal up for a Commission vote in the near future and, if we are successful, I encourage each of you to review and submit your feedback through the public comment process.

Some Unsolicited Advice

Given that I have just extolled the benefits of this group operating largely independently of the Commission, I do not want to overstep my bounds. But I do have a few pieces of general, unsolicited advice as you begin the New Special Study.

First, conduct this review with a completely open mind. Do not anchor yourself to the status quo or prior proposals for market reform. One of the things that will make this special study so special is that it may identify entirely new issues and alternatives.

Second, and similarly, be flexible in the scope of your study. As Milton Cohen put it, "If you attempt to say 'We will study this subject but not that subject,' you may quickly find that the first inevitably draws you into the second."[23] The original Special Study thus ended up being much broader than originally contemplated. While it is not feasible to study everything, there is great value in exploring areas that are interconnected with one another. It is also possible that market events may present you with new lines of inquiry. A year after the start of the original Special Study, the U.S. markets suffered a so-called "break," or flash crash, during which some stock prices dropped "relentlessly."[24] The study team incorporated the new data into their review, comparing market dynamics in a time of turmoil with those at steady state. Keep your eyes open and do not be afraid to deviate from your initial plan.

Third, do not hesitate to disagree with one another. Securities regulation is not an area where great minds always think alike. The 1963 Special Study sparked the equivalent of a contemporary Twitter war between two intellectual powerhouses, Nobel Laureate George J. Stigler of the University of Chicago and Professor Irwin Friend of the Wharton School.[25] They actively challenged each other's assumptions, methodologies, and conclusions in multiple journal articles. I encourage you to engage and debate with each other as vigorously in your scholarship today.

Fourth, bring to bear your specific talents and expertise. The Commission has had the benefit of the perspectives of the EMSAC over the last two years, but academics are better represented in this group than on the EMSAC. Your insights will complement EMSAC's great work and will be particularly well timed given that the EMSAC's charter currently expires in August.

Fifth, focus on incentives. What incentives underlie the current equity market structure? What gives rise to the complexity of order types and the variety of competing business models? Why are traders directing flow to so-called "dark" pools rather than "lit" markets? I have no doubt there are numerous market-based and government-based incentives at play. Once those are clear, you will be better poised to consider whether the current system of regulation is supportive of or burdensome to markets.

Sixth, and finally, do not shy away from discussing specific policy recommendations, including offering suggestions for practical reforms based on your research. It is common for academic researchers to focus most of a paper's discussion on research methodology, analysis, and empirical results. Often, policy implications are included as an afterthought just prior to submission to a conference or journal. But, as with a baseball or golf swing, the impact and trajectory of your work will be determined by your follow-through. I am not suggesting that you search for a "silver bullet" — I know such quests are doomed from the start. Rather, I ask that you be as rigorous in thinking through the policy consequences of your research as you are in conducting the research itself.


There is a time for everything. The time for an updated special study of securities markets is now. And you are exactly the group to do it. I wish you luck and will eagerly await the results of the New Special Study.

Thank you very much.

[1] The views I express today are my own and do not necessarily reflect those of the Commission or my fellow Commissioners.

[2] Report of the Special Study of Securities Markets of the Securities and Exchange Commission, April 3, 1963, at xiv,

[3] Commissioner Michael S. Piwowar, "The Benefit of Hindsight and the Promise of Foresight: A Proposal for A Comprehensive Review of Equity Market Structure" (Dec. 9, 2013),

[4] Joel Seligman, The Transformation of Wall Street: A History of the Securities and Exchange Commission and Modern Corporate Finance, 291 (3d ed., 2003).

[5] Id. at 295.

[6] Robert W. Haack, The S.E.C. Special Study and the Over-the-Counter Markets, The Journal of Finance, Vol. 21 (1966), 333.

[7] Seligman supra n. 4, at 299.

[8] 1963 Special Study Report supra n. 2, at xiv.

[9] Milton H. Cohen, "What Should a New Special Study Study?" The Business Lawyer, Vol. 45 (1989-90), 11.

[10] David K. Eiteman, "The S.E.C. Special Study and the Exchange Markets," Journal of Finance, Vol. 21 (1966), 322.

[11] President John F. Kennedy, "State of the Union Message of the President of the United States," 108 Cong. Rec. 62 (1962).

[12] Rahm Emanuel, quoted during a Wall Street Journal conference of top corporate chief executives. Interview available at

[13] See Proverbs 27:17.

[14] Cohen, supra n. 9 at 11.

[15] Seligman, supra n. 3, at 298.

[16] Sydney M. Robbins, "Papers and Proceedings of the Twenty-Fourth Annual Meeting of the American Finance Association," Journal of Finance, Vol. 21 (1966), 339.

[17] See "New Special Study of the Securities Markets," Columbia Law School, The Program in the Law and Economics of Capital Markets,

[18] See Desiderius Erasmus, The Adages of Erasmus (William Barker ed., 2d ed. 2001), at 132 et seq. ("Festina lente / Make haste slowly").

[19] Amendment to Securities Transaction Settlement Cycle, SEC File No. S7-22-16 (Mar. 22, 2017),

[20] U.S. Securities and Exchange Commission Equity Market Structure Advisory Committee, "Recommendation for an Access Fee Pilot" (July 8, 2016),

[21] See Letter from Senators Mark R. Warner and Mike Crapo to SEC Chair Mary Jo White (Apr. 22, 2016).

[22] See Exchange Act Section 11A(a)(3)(B) and Rule 608.

[23] Milton H. Cohen, "Reflections on the Special Study of Securities Markets" (May 10, 1963),

[24] Jason Zweig, "Back to the Future: Lessons from the Forgotten 'Flash Crash' of 1962," Wall St. J. (May 29, 2010).

[25] See George J. Stigler, "Public Regulation of the Securities Markets," The Journal of Business, Vol. XXXVII (1964), at 119 ("When one looks at a well-built theater set from the angle at which the audience is to view it, it appears solid and convincing.  When one looks form another direction, it is a set of two-dimensional pieces of cardboard and canvas, which could not possibly create an illusion of validity.  So it is with the Cohen Report.  Once we ask for the evidence for its policy proposals, the immense enterprise becomes a promiscuous collection of conventional beliefs and personal prejudices."); Irwin Friend and Edward S. Herman, "The S.E.C. Through a Glass Darkly," The Journal of Business, Vol. 37 (1964), 382, 403 ("Professor George J. Stigler attacks both the recent [1963 Special Study] and the United States Securities and Exchange Commission itself, the first on grounds of ineptitude, the second on grounds of ineffectiveness….[W]e feel that Stigler has again demonstrated his faith that government regulation is evil.  He has not made a telling indictment of the [1963 Special Study] and none at all of the S.E.C."); George J. Stigler, "Comment," The Journal of Business, Vol. 37 (1964), 414 ("I Confess to some disappointment with my critics.  I had thought they would have commended me, perhaps fulsomely, for my central arguments…. The Friend-Herman piece, in fact, displays instead what must be described as acerbity, and I feel that I owe them an apology for inadvertently fraying their regulatory nerves.")

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