Good morning, ladies and gentlemen. I am pleased to join my fellow Commissioners and Jamie Selway, director of our Division of Trading and Markets, in welcoming you to today’s roundtable. I should also like to acknowledge and thank the University of Austin for providing the setting for today’s program; our esteemed panelists for contributing their perspectives; and our audience, whether here on campus or by livestream, for taking part in this important discussion. Finally, before I share a few reflections, I must add that the views I express this morning are my own as Chairman and do not necessarily reflect those of the SEC as an institution or of the other Commissioners.
As I noted at our September roundtable, the SEC adopted Regulation NMS at a time of profound transformation. Electronic trading systems were continuing to unsettle old assumptions about how markets could function as handling and routing practices became more transparent, competition drove commissions lower, and penny pricing reshaped the mechanics of trading. Rather than meet these disruptions with a measured approach, in 2005 the Commission decided to impose prescriptive rules and dictate very specific processes to address what it perceived as ills—even as these new trends and technologies were still evolving. Worse, the staff came out with repeated rounds of FAQs to ameliorate the challenges that their problematic rules engendered.
While I fully supported then, as I do now, the worthy goal of enhancing market efficiency, then-Commissioner Cynthia Glassman and I objected to Reg NMS’s adoption because we believed that the rigidity of its regime, especially Rule 611, would hinder, rather than enhance, the long-term growth of our markets.
Two decades have given us the benefit of perspective, and the verdict is clear: Reg NMS, built on flawed foundations, has invited gamesmanship and contributed to the fragmentation of our markets, the dispersal of liquidity, and diminished transparency. The very outcomes that we feared have come to pass. Our warnings are now lessons. And Reg NMS—Rule 611’s trade-through prohibitions in particular—command a fresh look so that we can continue to strengthen our securities markets. Indeed, we must summon the courage to acknowledge when well-intended policies have produced unintended consequences.
To this end, our first roundtable engaged an array of industry participants, academics, and regulators in Washington, for a very fruitful initial discussion. Their perspectives, along with the thoughtful comment letters that we have since received, underscore a broad consensus: revisiting Rule 611 is a worthwhile and overdue endeavor. While views may vary on the scope of potential changes, a significant number of panelists and commenters believe that the rule should be modified or rescinded entirely.
In September, we also heard several potential paths forward, including volume thresholds for protected quotes, block exceptions, rescinding the locked and crossed market prohibition, adjustments to access fee caps, and revisions to the market data revenue allocation formula. Each of these proposals merits serious consideration. Yet as I cautioned two decades ago, we must take a careful, deliberative approach to any changes, lest we make the mistakes that brought us here.
So today, we take a necessary next step in that process. Of course, we will continue our discussion of the trade-through prohibitions. But we will also delve more deeply into how Rule 611 intersects with other parts of Reg NMS rules and our market structure more broadly. Specifically, our first panel will focus on Rule 610 and its requirements relating to fair access, access fees, and locked/crossed markets. Our second group of panelists will then discuss Rule 600, including the defined terms intertwined with the trade-through rule, the effects on the NBBO, as well as the incentives associated with the market data formula revenue allocation from the consolidated market data plans. Finally, our third panel will examine potential enhanced best execution guidance if the Commission modifies or rescinds the trade-through prohibitions of Rule 611.
Today’s roundtable will help to ensure that we do not saddle a future Commission—or the next generation of investors and market participants—with the same set of challenges that we left for ourselves two decades ago. We owe it to them to be thoughtful, to be rigorous, and to be reflective. So, I want to thank our panelists and moderators once more for being here. I should also like to encourage members of the public to continue sharing your perspectives through our comment file. As we undertake this reassessment of Reg NMS, your insights are indispensable.
I look forward to today’s discussions and to the takeaways that will emerge from them. Thank you all for being here, and for your continued engagement in the critical work before us.
