Search results

1 – 10 of 22
Article
Publication date: 27 July 2010

Giovanni Petrella

The purpose of this paper is to evaluate how markets in financial instruments directive (MiFID) and regulation national market system (Reg NMS) affect the competition for order…

Abstract

Purpose

The purpose of this paper is to evaluate how markets in financial instruments directive (MiFID) and regulation national market system (Reg NMS) affect the competition for order flow among trading venues in, respectively, Europe and the USA.

Design/methodology/approach

The paper examines the differences between MiFID and Reg NMS and provides, based on market microstructure principles, insights as to their likely impact on European and the US securities markets.

Findings

Although MiFID and Reg NMS share the common objective of enhancing competition in securities markets, they adopt different provisions with respect to three issues that strongly influence the competition for order flow among trading venues. Specifically, some of the provisions set forth by the US regulation with respect to the best execution duty, the consolidation of market data and the disclosure of execution quality information appear to be more effective, compared to the European Union ones, in strengthening competition for order flow among trading venues.

Research limitations/implications

Regulatory factors can only partly explain the current structure of the European and US securities markets. Technology and heterogeneity in traders' demand are other important factors that concur in shaping the European and US markets.

Practical implications

The degree of competition for order flow among trading venues depends on how regulations define the best execution duty, the availability of updated and consolidated pre‐trade (i.e. quotations) and post‐trade (i.e. transactions) information and the efficiency of post‐trading infrastructures.

Originality/value

The paper addresses issues not yet investigated and provides valuable insights for financial intermediaries, incumbent and prospective exchanges as to the competition in the securities industry, and to regulators as to the likely impact of the new regulations.

Details

Journal of Financial Regulation and Compliance, vol. 18 no. 3
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 1 January 2004

Laura Pruitt and Howard Kramer

The SEC has proposed several rules and rule amendments that, if adopted, would impact market structure of the equities markets for years to come. This article summarizes those…

Abstract

The SEC has proposed several rules and rule amendments that, if adopted, would impact market structure of the equities markets for years to come. This article summarizes those proposed changes and describes some of the early reaction to them by both industry and regulators. Regulation NMS, as the rule proposals are collectively called, is intended to accomplish three primary objectives: (1) to promote equal regulation of market centers, (2) to update antiquated rules, and (3) to promote greater order interaction and displayed depth. Regulation NMS, which is intended to “advance the dialogue” on market structure issues, consists of rule proposals in four substantive areas. First, the SEC has proposed a uniform trade‐through rule for all national market system (“NMS”) market centers that would affirm the principle of price priority while addressing the differences between automated and manual markets. Second, the SEC has proposed a uniform market access rule with a de minimis fee standard intended to assure non‐discriminatory access to the best prices displayed by NMS market centers without mandating hard linkages such as the Intermarket Trading System (“ITS”).

Details

Journal of Investment Compliance, vol. 5 no. 1
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 12 April 2011

Edward J. Ferraro

This paper aims to analyze and discuss the implications of the August 2010 decision of the D.C. Circuit Court of Appeals vacating and remanding to the SEC its December 2008 order…

Abstract

Purpose

This paper aims to analyze and discuss the implications of the August 2010 decision of the D.C. Circuit Court of Appeals vacating and remanding to the SEC its December 2008 order approving a proposed fee filed by NYSE Arca, LLC for its depth‐of‐book product ArcaBook. It also seeks to consider the effect on the court's decision of the Dodd‐Frank Act amendments to Section 19(b) of the Exchange Act.

Design/methodology/approach

The paper analyzes the evolution of the SEC's policy regarding SRO market data fees including the 1999 Concept Release on Market Information, the Advisory Committee on Market Information, the effects of decimalization and the 2005 adoption of Regulation NMS. It focuses on market data fee policy in connection with the Commission's decade‐long project to increase the role of competition in the US securities markets, culminating in the 2006 NYSE Arca fee filing, the SEC's 2008 order approving those fees and the NetCoalition decision.

Findings

The court's decision that a cost analysis is not irrelevant to the SEC's review of proposed SRO fee filings brings clarity and finality to a long‐standing dispute within the Commission and the securities industry and identifies a procedure for reaching an economically sound determination of “fair and reasonable” fees for SRO market data.

Practical implications

A cost‐based analysis of SRO market data fee filings is likely to result in a significant decline in market data revenues for those exchanges that charge fees for their data. For the Commission, cost‐based analysis is likely to require a significant reallocation of its regulatory staff and resources.

Originality/value

The paper presents a useful analysis for securities regulatory lawyers and financial analysts and investors following the stock exchange and financial information industries.

Details

Journal of Investment Compliance, vol. 12 no. 1
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 16 March 2010

Andre E. Owens, Soo J. Yim, Beth A. Stekler and Cristie L. March

The purpose of this paper is to explain rule changes proposed by the Securities and Exchange Commission designed to address regulatory concerns related to “dark pools” of…

274

Abstract

Purpose

The purpose of this paper is to explain rule changes proposed by the Securities and Exchange Commission designed to address regulatory concerns related to “dark pools” of liquidity.

Design/methodology/approach

The paper explains the background and policy issues related to dark pools, discusses the SEC's amended definition of “bid” or “offer” under Regulation NMS to include “actionable indications of interest” (“actionable IOIs”), outlines a proposed reduction of the average daily trading volume threshold that triggers a public display of ATS orders from 5 percent to 0.25 percent, discusses a proposal to require an alternative trading system (“ATS”) to disclose its identity in real time on its reports of executed trades, and explains proposed size‐discovery exclusions to the changes detailed above.

Findings

The paper finds that the proposed rules represent the Commission's attempts to improve the NMS without inhibiting the use or continued technological development of trading strategies that are consistent with NMS goals.

Originality/value

The paper provides a clear explanation of complex market mechanisms and proposed rules by experienced financial institution and securities lawyers.

Details

Journal of Investment Compliance, vol. 11 no. 1
Type: Research Article
ISSN: 1528-5812

Keywords

Open Access
Article
Publication date: 13 October 2017

Ali N. Akansu

The purpose of this paper is to present an overview of the flash crash, and explain why and how it happened.

8978

Abstract

Purpose

The purpose of this paper is to present an overview of the flash crash, and explain why and how it happened.

Design/methodology/approach

The author summarizes several studies suggesting various perspectives on the flash crash and its causes. Furthermore, the author highlights recently proposed and introduced improvements and regulations to reduce the risk of having similar market collapses in the future.

Findings

It is an overview paper that highlights the state of the art on the subject.

Research limitations/implications

Paper does not report any research findings of the author.

Practical implications

High-frequency trading (HFT) along with its pros and cons is the new normal for most of the current electronic trading activity in the markets. It is well recognized by the experts that HFT may have its important shortcomings whenever the rules and regulations are not up to date to match the technological progress offering faster computational and execution capabilities.

Social implications

HFT has created a societal discussion about its benefits and potential deficiencies as the common practice for trading due to potentially unequal access to market data by various categories of participants. Such arguments help the regulators to develop improvements to reduce the market risk and nurture more robust and fair markets for all.

Originality/value

The paper has a tutorial value and summarizes the current state of HFT. The readers of more interest are guided to the most relevant literature for further reading.

Article
Publication date: 23 November 2010

Henry A. Davis

The purpose of this summary is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) Regulatory Notices and Disciplinary Actions issued in July, August…

Abstract

Purpose

The purpose of this summary is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) Regulatory Notices and Disciplinary Actions issued in July, August, and September 2010.

Design/methodology/approach

The paper provides excerpts from FINRA Regulatory Notices and Disciplinary Actions.

Findings

Regulatory Notice 10‐32: Effective August 2, 2010, the Board composition and governance structure of FINRA Dispute Resolution, Inc. (a subsidiary of FINRA) will more closely parallel the composition and governance structure of the FINRA, Inc. Board of Governors (FINRA Board). 10‐34: The SEC approved amendments to FINRA Rule 8312, which governs the release of information 10‐36: Effective September 7, 2010, amendments to FINRA Rule 2360 (Options) extend the cut‐off time for the submission of certain contrary exercise advices (CEAs) by one hour to 7.30 pm Eastern Time (ET). 10‐42: Effective February 11, 2011, and May 9, 2011, are new FINRA rules that extend certain Regulation NMS protections to quoting and trading of over‐the‐counter (OTC) Equity Securities. 10‐43: On September 10, 2010, the SEC approved amendments to FINRA Rule 6121 (Trading Halts Due to Extraordinary Market Volatility) to expand the trading‐pause pilot, originally adopted on June 10, 2010, to include all stocks in the Russell 1000 Index and specified ETPs.

Originality/value

These are direct excerpts designed to provide a useful digest for the reader and an indication of regulatory trends. The FINRA staff is aware of this summary but has neither reviewed nor edited it. For further detail as well as other useful information, the reader should visit www.finra.org

Details

Journal of Investment Compliance, vol. 11 no. 4
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 18 September 2007

Henry A. Davis

The aim of this paper is to provide excerpts of selected NASD actions in April, May, and June 2007.

Abstract

Purpose

The aim of this paper is to provide excerpts of selected NASD actions in April, May, and June 2007.

Design/methodology/approach

The paper provides excerpts from NASD Notice to Members 07‐16, Frequently Asked NASD Financial and Operational Questions; 07‐17, NASD and NYSE Joint Release Regarding Special Measures against Specified Banks Pursuant to Section 311 of the USA PATRIOT Act; 07‐19, SEC Approves Amendments to Expand IM‐2110‐2 to include OTC Equity Securities; 07‐23, NASD Trade Reporting Requirements Related to Regulation NMS; 07‐24, New Requirement for the Reporting of Consolidated Short Interest Positions to the Intermarket Surveillance Group (ISG); 07‐25, NASD Provides Guidance Concerning Trade Reporting Obligations for Transactions in Foreign Securities and American Depositary Receipts; 07‐27, NASD Requests Comment on Proposed Rule 2721 to Regulate Member Private Securities Offerings; and 07‐28, SEC Approves Additional Mark‐Up Policy for Transactions in Debt Securities, Except Municipal Securities.

Findings

The paper finds useful indications of regulatory trends.

Originality/value

These are direct excerpts designed to provide a useful digest for the reader and an indication of regulatory trends. The NASD staff is aware of this summary but has neither reviewed nor edited it. For further detail and NASD contacts for each notice, as well as other notices and useful information, the reader is directed to www.nasd.com

Details

Journal of Investment Compliance, vol. 8 no. 3
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 1 January 2005

Mark Anson

The Trade‐through rule (TTR) was established in 1975; it was designed to ensure that investors got the best price available for a stock trade. Under the Trade‐through rule, a…

Abstract

The Trade‐through rule (TTR) was established in 1975; it was designed to ensure that investors got the best price available for a stock trade. Under the Trade‐through rule, a customer’s order must be routed to the exchange or order market system where the best current price exists at any given moment. For example, if the best price quote for an order is listed by a specialist market maker at the NYSE, a customer order must be routed to the NYSE floor; it may not “trade through” to another exchange. The TTR is really an anti‐trade‐through rule; i.e. it prevents the trading through of orders. In fact, to reflect this reality, the SEC has given the TTR a new name: The Order Protection Rule. In concept, the TTR is a good idea to ensure that investors get the best price possible when trading stocks. At the time the TTR was adopted, it was designed to address a fragmented marketplace for stock trading. However, the financial markets have changed radically since the rule was first adopted. The dramatic increase in the use of personal computers in the early 1980s as well as the advent of electronic communication networks (ECNs) in the 1990s changed the trading landscape.

Details

Journal of Investment Compliance, vol. 5 no. 4
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 27 November 2007

Brandon Becker, Bruce H. Newman, Andre Owens, Soo J. Yim and Christie Oberg

The purpose of this paper is to discuss the implications of a recent SEC settlement with Morgan Stanley & Co. (MS & Co.) with regard to: communication and coordination among…

116

Abstract

Purpose

The purpose of this paper is to discuss the implications of a recent SEC settlement with Morgan Stanley & Co. (MS & Co.) with regard to: communication and coordination among legal, compliance, business, and technology departments when designing, implementing, and maintaining operating systems and compliance policies and procedures; and the SEC's view of best execution in the context of net trading and market making.

Design/methodology/approach

The paper describes the Settlement Order. Itdiscusses, in light of the Order, the need for firms to coordinate among departments when they implement new systems or make changes to new systems; and provides a legal and regulatory analysis of the basis for MS & Co.'s liability, including a brief history of regulations on best execution and riskless principal trading. It also offers principal lessons to be drawn.

Findings

The Settlement Order found that MS & Co. would at times execute with the Street at a better price than it provided to a customer. The SEC noted that MS &Co. violated its duty of best execution in violation of the 1934 Exchange Act but particularly emphasized that the practice was inconsistent with MS & Co.'s established internal policies and procedures and certain disclosures provided by the firm to third‐party broker‐dealers from which it received orders.

Practical implications

Broker‐dealers need to clearly define their processes for implementing new systems or changing existing systems, including approval requirements, responsible individuals, and periodic review procedures to ensure adherence to stated policies and procedures. Broker‐dealers need to disclose net trading practices or similar trading practices to other broker‐dealers that are routing orders to them. They should also review their net trading practices in light of Regulation NMS.

Originality/value

The paper provides practical guidance and review of regulations concerning net trading, riskless principal trading and best execution from experienced securities lawyers.

Details

Journal of Investment Compliance, vol. 8 no. 4
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 14 September 2010

Jessica Forbes, Gregory P. Gnall and Christine M. Lombardo

This paper aims to explain the SEC's new Rule 201 and amended Rule 200(g), which are designed to improve the regulations that address harmful shortselling practices.

129

Abstract

Purpose

This paper aims to explain the SEC's new Rule 201 and amended Rule 200(g), which are designed to improve the regulations that address harmful shortselling practices.

Design/methodology/approach

The paper summarizes Rule 201, discusses the reasoning behind the “alternative uptick rule”, defines “covered securities” to which Rule 201 applies, explains why the commission chose the national best bid as the basis of the execution of short sales during the circuit breaker period, discusses the SEC's policies and procedures approach, explains conditions under which a broker‐dealer submitting a short‐sale order after the circuit breaker is triggered submitting a short sale order after the circuit breaker is triggered may mark the order “short exempt,” explains the reason an exception for market making activities is not included in the rule, and discusses the implementation period and the need for broker‐dealers to develop new policies and procedures.

Findings

Broker‐dealers and other market centers will need to dedicate significant compliance and systems resources to develop the policies and procedures and systems enhancements necessary to comply with the rule.

Originality/value

The paper provides practical guidance from experienced securities lawyers.

Details

Journal of Investment Compliance, vol. 11 no. 3
Type: Research Article
ISSN: 1528-5812

Keywords

1 – 10 of 22