The Committee on Capital Markets Regulation (CCMR) recently released the results of an empirical analysis of U.S. stock orders over the past 20 years, along with a number of committee recommendations for how to make the system fairer for retail traders. According to the report, the committee found that the U.S. equity market structure is generally performing very well.
“We find that the markets are generally highly liquid and that investor transaction costs, as measured by bid-ask spreads, brokerage commissions and price impact, are at record lows,” the report read.
However, there are a number of improvements that the committee suggests should be made.
Of the 26 recommendations that the committee makes to improve equity trading, it urges the SEC focus on two primary objectives: increasing transparency and strengthening the resiliency of the markets.
Increasing the transparency of the markets would boost investors' confidence that they are getting the best price on the market for orders. Strengthening market resiliency would also improve investor confidence by reducing or eliminating “flash crashes” like the ones seen on May 6, 2010 and August 24, 2015.
The committee's recommended changes to improve transparency include the following suggestions:
- The SEC should require that disclosures on the new form ATS-N are published in a standardized format.
- Required disclosures of registered exchanges should include undisplayed “dark” order volumes.
- Retail brokerages should be required to provide execution quality disclosures related to percent of shares with price improvement, effective/quoted spread ratio and average price improvement.
When it comes to strengthening market resiliency, the committee's suggestions include the following improvements:
- Market-wide circuit breaker thresholds should be adjusted so that they are triggered when a pre-determined number or percentage of stocks trigger their individual circuit breakers.
- The SEC should collaborate with the Commodity Futures Trading Commission to integrate the market-wide thresholds of the stock market and the futures market.
- The SEC should establish uniform Limit Up-Limit Down (LULD) intraday price bands instead of wider bands during the market open and close.
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