Innovation, regulation and competition have made the U.S. equity markets the most liquid and efficient stock market in the world, while creating an extremely complex and fragmented market structure. SIFMA, which represents nearly 400 broker-dealers, banks and asset managers, has long called for a comprehensive review of equity market structure to ensure it is working in the best interest of all investors. To sharpen the focus on these important issues, SIFMA has convened a broad-based task force of members from across the country and across the industry, including retail and institutional dealers and asset managers, to develop a series of tangible and actionable market structure reforms. These proposals are designed to promote fair and timely access to market data, address the complexity and fragmentation caused by the current order system, and enhance transparency for retail and institutional investors.

"The U.S. has the deepest and most liquid stock market in the world. Innovation, competition and regulation have made the equity markets more efficient and better for investors today than they ever have been. Spreads have tightened, transaction costs have decreased and execution speeds have increased," said Curt Bradbury, chief operating officer of Stephens Inc., and chair of the SIFMA Board's Market Structure Task Force. "However, the evolution of our equity markets has shown that there are aspects that should be improved or corrected, so that markets operate in a manner that supports fairness and stability. We believe these recommendations will help shape the best path forward."

"The U.S. equity markets are extremely liquid, deep and efficient, resulting in a strong financial system that helps Americans achieve financial security and provides companies with the capital they need to grow and create jobs. However, the same factors that have benefited investors - technology, regulation, and competition - have also led to a market structure that is increasingltructure that is increasingly complex and fragmented. This complexity and fragmentation opens the door to disparate treatment that discourages investor trust and confidence in the markets," said Kenneth E. Bentsen, Jr., SIFMA president & CEO. "SIFMA's recommendations promote fairness, stability and transparency in the equity markets to help ensure the market structure works in the best interests of all investors."

SIFMA's recommendations include changes to current business practices as well as proposals for regulatory reform. The recommendations fall under three areas of today's market structure that can be improved, including promoting fairness in market data dissemination, addressing market complexity and fragmentation, and encouraging robust transparency and disclosure for both retail and institutional investors. Highlights of the recommendations include:

Addressing Market Complexity and Fragmentation

Access Fees

Access fees charged by exchanges should be dramatically reduced or eliminated, and the SEC should reduce the current cap on access fees to no more than five cents per 100 shares or eliminate the fees altogether.
These fees have distorted market pricing as they are a significant percentage of overall trading costs and are several times higher than the fees charged by off-exchange venues. This has led to a proliferation of order types designed to avoid access fees and capture rebates, and that, in turn, adds complexity to the system, requires ongoing technology changes and creates the potential for market instability.

Number of Trading Venues

Regulators should eliminate the requirement for broker-dealers to connect to trading venues that do not add substantial liquidity to the market. This will reduce the risk of market instability associated with multiple linkages and encourage smaller venues to develop innovative new methods for attracting order flow.
In this regard, we encourage the SEC to amend the definition of "protected quotation" under Regulation NMS so that it applies only to market centers with one percent (1%) or more of the average daily dollar volume in all NMS stocks over a period of three consecutive calendar quarters.
Further, we propose that the SEC amend the term "automated quotation" to provide that it must be executable within a millisecond instead of one second.

Promoting Fairness in Market Data Dissemination

All users of market data should have access to data at the same time. Market data feeds provided by the SIPs and the direct feeds provided by the exchanges must be distributed to all users at the same time. This is imperative to help avoid disparate treatment of investors.
In the short term, we encourage the SEC to direct the exchanges to improve the SIPs so that they provide the fastest commercially available services for data aggregation and distribution.
Over time, the central SIP structure should be replaced with multiple processors that would distribute public market data and compete on performance and cost to better serve the marketplace. These processors should also have industry and public participation in their governance structures.
The governance of the SIPs should include direct industry and public participation and the SIPs should provide public disclosure of their operations and performance. These are critical industry utilities and as such should have a governance structure similar to the SROs or a public company.

Encouraging Robust Transparency and Disclosure for Investors

Increased transparency will increase investor confidence, which is essential to a robust equity market system that can stimulate economic growth in the U.S.

Retail Investors

Regulators should direct brokers to provide public reports of specific order routing statistics and metrics. This information will help retail investors better understand how markets work and enable them to compare performance among brokers, ultimately increasing their confidence in the markets.
These reports should streamline information that is currently disclosed into a uniform format that is easy to understand. Examples of metrics that should be reported include percent of shares improved, net price improvement per share, and effective/quoted spread ratio.

Institutional Investors

Regulators should direct brokers to provide institutional customers with standardized venue execution analysis reports.
We encourage the SEC to direct the exchanges to provide standardized public disclosure of their trading volumes through undisplayed and partially undisplayed orders. In addition, we encourage FINRA to expand its ATS disclosure and reporting requirements to apply to all off-exchange broker venues, such as market makers and internalizers.

In the days and weeks to come, SIFMA will look forward to discussing our proposal in more detail with legislators, regulators, and industry participants to help spur adoption.