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Welcome
Hello and welcome to the 2015 Q3 edition of the Traders’ Guide
to Global Equity Markets. We are halfway through the year and
there is a lot of change on the horizon.
Since Reg NMS eight years ago, there haven’t been any
significant changes to the US market structure, until now. In the
past couple of months the equity markets in the US and Europe
have begun undergoing and planning a lot of major regulatory
changes. The goal of Reg NMS had been to foster competition
that would ultimately lead to price formation and efficiencies
(democratizing US markets). But it did not cover everything—
and obviously, the markets are constantly growing and
changing, demanding new regulation to deal with unpreceded
problems. The need for new regulations stems from the growing
need for transparency and more limits on the potential abuse
and gaming in the markets, as well as:
a. Assuaging concerns about HFTs and front-running.
b. Meeting an increasing demand for transparency, especially into order routing.
c. Adjusting data requirements in dark pools.
d. Increasing level of protection in data feeds to avoid information leaks (ex: ITCH
Feed).
But is there really a need for greater regulation? The easy answer to that is that there
are always things in which we can do better. Interestingly, whereas before the regulation
changes were driven by the US government, this time it’s driven by industry participants.
In other words, the industry is no longer waiting for market structure to change based on
regulation alone, they are beginning to drive change themselves. For example, NASDAQ
launched an experimental access fee program, the buy-side launching Luminex, government
launching Tick Size Pilot (despite the fact that the majority of industry professionals do
not see this as constructive). In Europe, ESMA is now leading large scale updates of MiFID
regulations, which will become MiFID II –about which Philip Gough talked about briefly in our
previous letter.
With all these regulations, the markets are bound to change, hopefully for the better. But it’s
not the intended consequences that are of great concern; it’s the unintended consequences
that will keep us up at night – only time will tell.
A new edition in this guide is a chapter on Transparency: Net of Fees.
Troy Draizen
Managing Director
Global Head of Electronic
and Program Sales