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Statement at Open Meeting on Regulation of NMS Stock Alternative Trading Systems

Commissioner Michael S. Piwowar

Nov. 18, 2015

I am very happy to support today’s rulemaking, which would meaningfully enhance the transparency of alternative trading system (“ATS”) operations.  But before I discuss the content of the proposal, I want to make a few comments about the deliberative process that preceded today’s meeting. 

It is no secret that I have been critical of the processes that led to some of the Commission’s recent rulemakings.  So I am delighted that the process used to develop today’s rulemaking reflects a much different approach.  In recent days, Commissioner Aguilar, Commissioner Stein, and I jointly offered refinements to the proposed rule.  The proposal that the Commission is publishing today reflects those changes, and is all the better for it. 

By now you have heard the details of the proposal from the Staff and my colleagues.  So I will simply underscore that this rulemaking holds the promise of making ATS operations more transparent to both the Commission and the public, and thus may facilitate better Commission oversight of these important intermediaries and empower market participants to make informed choices about where to direct their orders. 

However, for the sake of clarity, I also want to emphasize what this rulemaking is not intended to do.  The Commission is not introducing a regime of merit review of ATS operations.  This proposal is about disclosure, and disclosure alone.

There are approximately 550 questions in the proposing release, all of which deserve time and attention.  But I want to highlight several broad issues for market participants and other interested parties to consider as they evaluate whether and how to comment.

The Commission has historically – and quite deliberately – applied different rules to ATSs and exchanges.  Today’s rulemaking again prompts comparisons between the regulatory obligations of various types of trading venues.  Please provide us with comment on whether the proposal strikes the right balance.  Would the requirements being proposed come too close to, or effectively erase the line between, exchanges and ATSs?  What impacts will the proposal have on ATSs relative to exchanges, and vice versa?

In addition, have we made reasonable decisions about when and what information ATSs would be required to make public?  In other words, would market participants have access to relevant and useful information at the time it would actually be relevant and useful?

I also hope commenters will tell us whether the extent or type of disclosures that would be required on Form ATS-N might introduce barriers to innovation or to competition.  Would making operational details public cause ATSs to change their product offerings?  Would extending disclosures beyond the broker-dealer operator of the ATS, to include affiliates of the broker-dealer operator, result in adjustments to business structures?

The proposal contemplates that the Commission will deem Forms ATS-N either effective or ineffective.  Is this the appropriate construct?  Will the fact that the Commission has to opine on the effectiveness of the Form incentivize ATSs to engage in a dialogue with Commission Staff in advance of a formal filing, such that the timelines for Commission action laid out in the rule would be moot?  Is it clear what the Commission’s review of the Forms will entail?

In the spirit of the upcoming holiday, let me pose my final question in this way:  is the proposal appropriately balanced, or is it “over-stuffed” with requirements that would simply add extra calories without being particularly satisfying?

Now it is time for the thanks-giving.  The Staff put in a tremendous amount of work on this rulemaking, and their efforts are much appreciated.  I also want to dish out another hearty helping of thanks to Commissioners Aguilar and Stein, and their counsels, for their substantive contributions to, and their collegiality during the development of, this proposal.  I have no questions, and I hope all of you have a safe and Happy Thanksgiving.

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