Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues - White Papers
Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues - White Paper - Recommendations Regarding Regulatory Response to the Market Events of May 6, 2010 - February 18, 2011
With Dismissal of Another Set of Major High-Frequency Trading Suits, Litigation Risk From Providing Fast Data and Other Services to High-Frequency Traders Fades
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Studies produced by the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues.
Released on February 18, 2011, this report highlights several issues, and makes recommendations for each:
- Volatility recommendations
- Single stock pauses, or "circuit breakers;"
- Streamlined procedures for the breaking of trades during times of "aberrant price movements;"
- Implement minimum quoting requirements by market makers;
- Implement and coordinate limit up/limit down policies; and
- Consider a "second tier" pre-trade risk safeguards during instances of insufficient liquidity.
- Restrictions on co-location and direct access recommendations:
- Direct access through registered broker-dealers, who must have screens in place to reduce occurrence of erroneous orders;
- CFTC rulemaking should address "disruptive trading activities" with respect to large orders.
- Liquidity enhancement recommendations
- Liquidity pricing and rebates -- could contain incentives for providing "peak load" liquidity
- Market maker obligations -- quotations should be "reasonably related to the market."
- Fairly allocate the cost imposed by high levels of order cancellations, perhaps by assessing a fee.
- Preferencing, internalization, and routing protocols;
- Information provision to address reporting requirements for measures of liquidity and order imbalances; and
- Regulators' access to information recommendation:
- SEC and CFTC should implement a consolidated audit trail for the US equity markets and augment existing data collection regarding orders and executions.