The SEC Needs a Market Structure Reset

At this stage, market participants are left with two options: lobby the regulator to change the rules in a way that will increase their profits at the expense of others or ask for a total reset of how the game is played. We support the later.

Securities and Exchange Commission Chair Clayton thoughtfully entered the market structure debate in a speech earlier this year saying the “focus on market structure issues will, as always, start and end with ensuring that our markets meet the needs and serve the interests of our long-term Main Street investors.” We believe the Chair was signaling his concern that small business owners looking to take their company public and retail investors who seek market stability may not be adequately served by today’s market structure.

Market structure is a function of regulation, technology, and competition. Government sets the rules in a zero-sum game and market participants compete to obtain the best technology, so they can extract profits before everyone else catches up. Today, we have a hyper competitive market because everyone whose business model depends on it has access to similar technology and the rules haven’t changed. As a result, both costs and margins have come down significantly and the market has reached a point of maximum efficiency, while innovation has become increasingly difficult.

At this stage, market participants are left with two options: lobby the regulator to change the rules in a way that will increase their profits at the expense of others or ask for a total reset of how the game is played. We support the later.

To read the full op-ed in RealClearMarkets, click here.