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Clayton Says ‘Sooner the Better’ for SEC Fiduciary Rule

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Securities and Exchange Commission Chairman Jay Clayton said Tuesday that the fiduciary rule remains a priority for the organization he leads, though he didn’t share an exact time frame for its release.

“I’ve been clear, the sooner the better. We’re working through the process. I’d like to see it very soon,” Clayton said at the Equity Market Structure symposium in Chicago. “I don’t think there are any new issues. Really, the question is getting proposal out the door. It’s been around a long time, so I’m looking forward to getting [it] out the door.”

After his presentation, Clayton told ThinkAdvisor that the next priority for the SEC, after the fiduciary rule, is “retail fraud,” especially concerning ICOs and cryptocurrencies.

The morning-long symposium, sponsored by the STA Foundation and the University of Chicago Booth School of Business, drew about 130 market professionals; several market experts gave their views on potential weaknesses to the equity market structure.

Hal Scott, director of the Committee on Capital Markets Regulation and the Nomura Professor at Harvard Law School, noted that overall the market structure was sound, “but just needs to be adjusted.”

He highlighted problems with market data, in which his committee recommended that the SEC require all self-regulatory organizations to publicly disclose revenues from proprietary data feeds and operating securities operating processors or SIPs, as well as performance data.

Speed is a key metric for data consolidators, Scott said, and a “significantly slower SIP would not survive competitive pressure. This change also would level the playing field between those who rely on SIPs and those who use proprietary data feeds.”

Robert Cook, president and CEO of the  Financial Industry Regulatory Authority, discussed his experience with gathering market data when asked about the current Consolidated Audit Trail (or CAT) development.

Cook explained that he was at the SEC during the May 6, 2010, Flash Crash, and noted it was a “significant  challenge” to gather the market data, which is why he believes it’s so important to finalize the CAT project, which would track market trading activity.

CBOE President Chris Concannon and Virtu CEO Doug Cifu had a “fireside chat” about market structure.  According to Cifu, there aren’t problems with  the market structure or the maker-taker program, but there is a “fragmentation problem” of market liquidity.

Virtu is willing to discuss the process in detail on  where and why orders were sent to an exchange, and if clients/firms got  rebated (due to paid order flow).  “We pay for queue priority,” he said. “That’s the algorithm, trying to get the best execution possible.”

In his speech, Clayton said that after hearing Concannon and Cifu speak, he “liked to see candidness among people who are knowledgeable; it’s nice to see that, and have to respond to pointed questions.”

Clayton also said the SEC would be hosting staff “round tables” about key challenges, including market access, market data and fraud, and “we welcome written comments.”

One round table will look at thinly traded companies, and if there should be a separate market structure for these firms. “Should a stock with only 30,000 shares be traded the same as a company with 9.6 million shares?” Clayton asked.

He also expressed his concern “about the delay of development and building of the CAT. It’s a serious question being addressed: comprehensive data is necessary. Our current system of collecting data is cumbersome.” Clayton noted that they need to find a “prompt solution.”

That said, fraud prevention is a significant issue for the SEC, he said, adding that he is “shocked by the amount of fraud in the ICO space” as well as in the penny stock space. “Both issues are troublesome, and we should dedicate SEC resources to deal with it,” Clayton stated.


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