SEC Chair Mary L. Schapiro spoke about “Strengthening Our Equity Market Structure” to The Economic Club of New York on September 7. After an introduction by the new Economic Club Chairman, Andrew Tisch, Schapiro noted that there were two past SEC Chairmen sitting with her on the dais: Harvey Pitt, and William Donaldson. Speaking about “Market Structure,” Chairman Schapiro addressed some of the issues that remain after the May 6 “Flash Crash” and what the SEC is doing to try to prevent a recurrence of that record volatility.
Schapiro spoke of the declining market share of the New York Stock Exchange (NYSE), which now “executes approximately 26 percent of the volume in its listed stocks.” The rest is “split among 10 public exchanges, more than 30 dark pools, and more than 200 internalizing broker-dealers.” She noted that “nearly 30 percent of the volume in U.S.-listed equities is executed in venues that do not display their liquidity or make it generally available to the public.”
In addition, some of the rules that apply to exchanges and market makers do not apply, yet, to some of these other electronic exchange-like entities. Should, for example, these electronic entities be allowed to just stop trading in times of stress–when exchanges and market makers must continue to make a market? Some of the firms that are “very active” in providing liquidity are not even broker-dealers, Schapiro said. Should they be allowed to “fall entirely outside the regime for regulated entities,” like exchanges or market makers?
Schapiro also noted that electronic trading systems at high frequency trading firms can “generate more than a million trades” a day, and “represent more than 50 percent of equity market volume.” But they often make, and then, in fractions of a second or mere seconds, cancel some of those orders. “Many firms,” Schapiro said, “will generate 90 or more orders for each executed trade.” That means “a firm that trades one million times per day may submit 90 million or more orders that are cancelled.”