An ill-advised price-control program would reduce transparency and increase volatility. https://www.wsj.com/articles/were-s...41vMBpROdMfHOk=&reflink=article_copyURL_share 12 Comments By Stacey Cunningham Feb. 14, 2019 6:57 p.m. ET The S&P 500 swung up and down more than 1% on nine different days in December, a gyrating month dominated by uncertainty over the Federal Reserve and a looming government shutdown. On Dec. 18, Treasury Secretary Steven Mnuchin met with reporters to assess the damage. “In my opinion,” he said, “market structure has led to a lot more volatility.” And it wasn’t yet Christmas Eve when the Dow Jones Industrial Average plunged another 653 points. The day after Mr. Mnuchin’s remarks, the Securities and Exchange Commission adopted an experiment that threatens to make the problem worse. Its “Transaction Fee Pilot” program will separate thousands of listed stocks into “buckets,” with different price controls, in an effort to monitor the behavior of broker dealers. In practice, the new rule amounts to an unnecessary exercise in government price-setting that will add a new layer of complexity to equity markets. On Thursday the New York Stock Exchange, which I lead, took the extraordinary step of suing the SEC in federal court to protect the interests of public companies and those who invest in them. Mr. Mnuchin was correct that changes in equity-market structure have led to more volatility. Markets are more fragmented than ever. SEC rules have encouraged the formation of more than 50 “dark trading venues” over the past decade. About 40% of the market is now traded on dark venues, where prices are not displayed and a subset of investors can transact privately with buyers or sellers. These dark pools feature trading in the same blue-chip stocks as the public exchanges. The quotes generated at public exchanges like the NYSE form the foundation of price discovery in the fragmented U.S. equity market. All investors rely on them. So do the dark pools, which keep their own prices hidden. Investors willing to display quotes publicly are doing the equivalent of showing their hand in a price negotiation. That’s why exchanges offer incentives for those willing to set prices in the open, using a fee system to reward brokers who “make the market.” This has benefited public companies and their investors over the years, helping to offset the consequences—such as reduced liquidity—of SEC policies that fragmented the market. The Transaction Fee Pilot imposes government control on the incentives that public markets can offer. Market-maker benefits will be sharply reduced for some securities and fully eliminated for others. To no one’s surprise, dozens of public companies either have asked the SEC to spare them from being selected for forced participation in the pilot or have opposed the pilot in its entirety. The NYSE voiced its concerns to the SEC during its public-comment period. We argued that the pilot will undermine the ability of market forces to drive capital formation and will fail at its goal of measuring broker conflicts. We even offered a less complicated “Alternate Pilot” that would allow the SEC to examine broker behavior without picking winners and losers among public company stocks and exchange-traded funds. We said the SEC should focus on protecting the long-term health of capital markets, not experiment with them. A period of renewed volatility is the worst possible time to turn American public markets into a laboratory with U.S.-listed stocks serving as its guinea pigs. Transparency and price discovery are especially critical for investors at times like this. During volatile periods investors grow more risk-averse. They tend to retreat from dark pools and return to public markets, with the expectation that ample liquidity awaits. Our challenge to the SEC stands on firm legal ground under the Administrative Procedure Act. The SEC has not defined a problem to solve; it has failed to analyze costs or benefits of its experiment adequately; its stated goal of “data gathering” is insufficient to justify the program’s disruptiveness and expense; and the program unfairly penalizes lit exchanges compared with their competitors, the dark pools. The SEC freely admits it has no idea whether its pilot program will help or harm investors. This is a black flag that should worry the White House. The stock market is not a simulation. We operate in a real-world environment with investors’ real dollars. Last year 190 companies went public, raising almost $47 billion on public exchanges. That capital allowed the firms to invest in innovation, build new factories, hire more employees and boost the economy. Our markets allow the public to share in the growth those companies generate. Today the 2,300 companies listed on the NYSE represent $25 trillion in market capitalization. Those companies, with their 45 million workers, are the foundation of American prosperity. Free markets should reign. We don’t look forward to suing our regulator, but by distorting market forces with arbitrary price controls, the SEC’s pilot cuts at the heart of the NYSE’s core mission of providing an orderly, transparent and efficient marketplace. With so much at stake, we have no choice but to ask for judicial relief. Ms. Cunningham is president of the New York Stock Exchange.
We want an abusive model and let us charge whatever we want in our duopoly...I meant, "it's the volatility and markets we care about, it's not about raping the smallest market participants". This is like a physically abusive partner talking about what a caring person they are. Cry me a river.
%% I tend to agree with the SEC, mostly. BUT she[Stacy C,anointed NYSE ; WSJ noted elsewhere ]is right+ i hope she wins on that. If the exchange or many exchange data is priced to high-that may have ticked the SEC off.LOL
%% Hope they settle it out of court; i would not wish a long trial/expensive trial on any but my worst enemies. I also would like the settlement eliminate the $13 million the SEC collects on stock sales; if they really need they money; stick it on bonds or gov bond sales.