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Better Markets’ Market Structure Advocacy Through the Years

March 15, 2021

Better Markets has long recognized the myriad problems with the securities market structure1 and has repeatedly advocated for critical market reforms at the Securities and Exchange Commission, including testimony before the Equity Market Structure Advisory Committee2, in the courts, and before Congress. This advocacy has spanned a number of market structure issues.
 
Better Markets has called for more robust oversight and regulation of critical parts of the current securities trading infrastructure, including comment letters to the SEC in support of Reg. SCI, which enhanced cybersecurity and systems' security at stock exchanges and self-regulatory organizations, such as Financial Industry Regulatory Authority and Municipal Securities Rulemaking Board3, and enhancements to Reg. ATS that strengthened the SEC's oversight of Alternative Trading Systems4. We also supported the SEC when it rescinded a rule that allowed exchanges to increase access and data fees essentially without the SEC's involvement5.
 
Better Markets has also addressed the ways that current market structure, and in particular market fragmentation, has created opportunities for predatory market participants, including brokers, high-frequency trading firms, and others, to take advantage of retail traders, through payment for order flow, maker-taker fee structures at exchanges, and other issues that create conflicts of interest between brokers and their clients, lead to inferior execution and, relatedly, enable certain privileged market participants to take advantage of retail investors.
 
Better Markets has supported SEC efforts to address these issues (and urged it to do more). For example, Better Markets issued a comment letter in support of an SEC proposal that mandated important disclosures which brokers, exchanges, and ATS must make with regards to their order routing decision6. Better Markets also advocated in favor of the SEC’s Transaction Fee Pilot for NMS Stocks that sought to assess the potential impact of reforming the maker-taker exchange fee model, filing a comment letter in support of the Pilot7 and an amicus brief with the D.C. Circuit in defense of the Pilot against the industry’s (unfortunately, ultimately successful) attack8.
 
Better Markets also filed an amicus brief in the 8th Circuit in support of the plaintiffs in a class action lawsuit alleging that TD Ameritrade routed orders to maximize profits from order routing revenue rather than fulfilling its fiduciary duty to its clients to seek best execution9. Where appropriate, we have also supported efforts by the industry to ameliorate the effects of market fragmentation, including supporting IEX’s “D-Limit” order type that seeks to enable a more level playing field by preventing privileged traders from using latency built into the system to take advantage of other investors10.
 
Better Markets has also urged the SEC to improve the trading data available to the public and regulators. For example, Better Markets filed a comment letter in support of a rule that upgraded the market data infrastructure (the so-called Securities Information Processors or SIPs), highlighting the significant deficiencies in the current state of market data, and urged the approval of the proposal11.
 
Most prominently, Better Markets has been a tireless advocate of efforts to implement the Consolidated Audit Trail, which, as Better Markets pointed out in an op-ed in American Banker, is a critical tool for the SEC to monitor trading.12 Better Markets has filed at least two comment letters addressing CAT-related rules proposed by the SEC13 and also supported the implementation of CAT by sending the SEC a letter pushing back on the false narrative that the CAT would jeopardize fundamental privacy rights14.
 
More urgently, Better Markets, through a letter to former Chair Clayton, pressed the SEC not to delay implementation of the CAT15, and as it became clear that implementation of the CAT was facing unreasonable delays, sent at least three letters critical of various aspects of the SEC’s implementation (or lack thereof) of the CAT, highlighting the unreasonable delay in implementing the CAT and how the process of implementation had become riddled with industry conflicts of interest16. In light of the SEC’s failure to timely implement the CAT, Better Markets has sent at least two letters to the Senate Banking Committee urging it to conduct oversight of the SEC’s implementation of the CAT17.
 
Finally, many of the market structure issues Better Markets has highlighted over the years, and sought to reform, came to a head in the GameStop saga, and Better Markets has produced a plethora of materials related to that ongoing fiasco, including: (1) a letter to the House Financial Services Committee explaining the various market structure issues at play18; (2) a memorandum19 and fact sheet20 detailing the issues raised by the GameStop Saga; (3) a fact sheet on Citadel, one of the key players in the GameStop saga (and in market structure issues more generally)21; (4) fact sheets on PFOF and how it relates to GameStop22; (5) a fact sheet on CAT and how it relates to GameStop23; and (6) a letter to the Financial Stability Oversight Council, urging it to address the various market structure issues implicated by the GameStop saga24.
 
Footnotes:

[1] See Better Markets, Comment Letter to SEC on Roundtable on Market Data and Access (Feb. 4, 2019), https://bettermarkets.com/sites/default/files/Ltr%20SEC%20Market%20Data%20Fees%202-4-2019%20-%20Final.pdf; see also Better Markets Blog, The SEC at a Technical Crossroads (June 13, 2016), https://bettermarkets.com/blog/sec-technological-crossroads.

[2] Lev Bagramian, Better Markets, Testimony Before the EMSAC (Apr. 5, 2017), https://bettermarkets.com/sites/default/files/EMSAC%20Bagramian%20Remarks%2004-05-2017%20FINAL.pdf. 

[3] Better Markets, Comment Letter on Regulation Systems Compliance and Integrity (Jul. 8, 2013), https://bettermarkets.com/sites/default/files/documents/SEC-%20CL-%20Systems%20Compliance%20and%20Integrity-%207-8-13.pdf. 

[4] Better Markets, Comment Letter on Regulation of NMS Stock Alternative Trading Systems (Feb. 26, 2015), https://bettermarkets.com/sites/default/files/SEC%20-%20CL%20-%20Regulation%20of%20NMS%20Stock%20ATS%20-%202-26-2016.pdf. 

[5] Better Markets, Comment Letter on Rescission of Effective-Upon-Filing Procedure for NMS Plans Fee Amendments (Dec. 10, 2019), https://bettermarkets.com/sites/default/files/Better_Markets_Rescission_of_Effective-Upon-Filing_Procedure_for_NMS_Plans_Fee_Amendments_S7-15-19.pdf. 

[6] Better Markets, Comment Letter to SEC on Disclosure of Order Handling Information (Sept. 26, 2016), https://bettermarkets.com/sites/default/files/SEC%20-%20CL%20-%20Disclosure%20of%20Order%20Handling%20-%209-26-16_0.pdf.   

[7] Better Markets, Comment Letter on Transaction Fee Pilot for NMS Stocks (May 24, 2018), https://bettermarkets.com/sites/default/files/CL%20SEC%20Transaction%20Fee%20Pilot%205-24-18%20-%20Final.pdf. 

[8] Amicus Brief of Better Markets in Support of SEC in NYSE v. SEC (D.C. Cir. No. 19-1042) (filed Aug. 1, 2019), https://bettermarkets.com/sites/default/files/NYSE%20v.%20SEC%2C%2019-1042%20%28Final%20for%20Filing%29.pdf. 

[9] Amicus Brief of Better Markets in Support of Plaintiffs in Ford v. TD Ameritrade (8th Cir. No. 18-3689) (filed May 8, 2019), https://bettermarkets.com/sites/default/files/Better%20Markets%20Amicus%20Brief%20Ford%20v.%20TD%20Ameritrade.pdf. 

[10] Better Markets, Comment Letter on IEX Proposed D-Limit Order Type (May 15, 2020), https://bettermarkets.com/sites/default/files/Better_Markets_Comment_Letter_on_IEX_Proposed_D-Limit_Order_Type.pdf. 

[11] Better Markets, Comment Letter on The SEC's Market Data Infrastructure Proposal (May 26, 2020), https://bettermarkets.com/sites/default/files/Better_Markets_Comment_Letter_on_Market_Data_Infrastructure-5-26-2020.pdf. 

[12] Lev Bagramian, Better Markets, BankThink: Regulators Shouldn’t Bail on Plan to Prevent the Next Flash Crash, American Banker (Nov. 8, 2017), https://www.americanbanker.com/opinion/policymakers-shouldnt-bail-on-plan-to-prevent-next-flash-crash; see also Better Markets Blog, SEC Should Stay the Course on CAT (Jan. 18, 2018), https://bettermarkets.com/spotlight-series-investors-and-markets/sec-should-stay-course-cat,; Better Markets Blog, Flash Crash Anniversary a Reminder of Why We Need CAT and Why the SEC Should Flex Its Muscle to End Industry Procrastination (May 4, 2018), https://bettermarkets.com/spotlight-series-investors-and-markets/flash-crash-anniversary-reminder-why-we-need-cat-and-why-sec.

[13] Better Markets, Comment Letter on Proposed Amendments to the National Market System Plan Governing the Consolidated Audit Trail (Nov. 30, 2020), https://bettermarkets.com/sites/default/files/Better%20Markets%20Comment%20Letter%20on%20Proposed%20Amendments%20to%20the%20National%20Market%20System%20Plan.pdf; Better Markets, Comment Letter Proposed Amendments to the National Market System Plan Governing the Consolidated Audit Trail (Oct. 28, 2019), https://bettermarkets.com/sites/default/files/CL_SEC_CAT_Amendments_10-28-19FINAL.pdf. 

[14] Better Markets, Letter to Chairman Clayton Addressing ACLU Concerns about the CAT (Jan. 24, 2020), https://bettermarkets.com/sites/default/files/Ltr%20Clayton%20Re%20ACLU%20on%20CAT%201-24-2020.pdf. 

[15] Better Markets, Letter to Chairman Clayton Supporting Decision Not to Delay the CAT (Nov. 15, 2017), https://bettermarkets.com/sites/default/files/Ltr%20SEC%20Chair%20Clayton%20re%20CAT%2011-15-17.pdf. 

[16] Better Markets, Letter to SEC on the National Market System Plan Governing the Consolidated Audit Trail (Jul. 18, 2016), https://bettermarkets.com/sites/default/files/CL%20-%20SEC%20-%20Consolidated%20Audit%20Trial%207-18-2016.pdf; Better Markets, Letter to Chairman Clayton Expressing Disappointment with CAT Implementation (Sept. 24, 2018), https://bettermarkets.com/sites/default/files/BM%20Ltr%20to%20SEC%20Chair%20Clayton%20On%20CAT.pdf. Better Markets’ criticism of the SEC for excessive deference to industry has not been limited to implementation of the CAT. In 2015, Better Markets sent a letter to the SEC and separately published an op-ed, pointing out that several industry members of the EMSAC had a lengthy history of violating SEC rules. Better Markets, Letter to Chair White on Serious Market Structure-related Civil and Criminal Illegal Conduct by a Number of Firms Represented on the SEC's Equity Market Structure Advisory Committee (Oct. 22, 2015), https://bettermarkets.com/sites/default/files/Illegal%20Conduct%20by%20Firms%20on%20SEC%27s%20EMSAC_0.pdf; Dennis Kelleher, Better Markets, BankThink: Special Interests Dominate SEC Trading Advisory Panel (Nov. 13, 2015), https://www.americanbanker.com/opinion/special-interests-dominate-sec-trading-advisory-panel. 

[17] Better Markets, Letter to Senate Banking Committe Regarding Oversight of the CAT Implementation (Oct. 21, 2018), https://bettermarkets.com/sites/default/files/Ltr_Senate_Banking_Committee_Hearing_re_CAT_10-19-19_-_Final_%28002%29.pdf; Better Markets, Letter to U.S. Senate Banking Committee Calling on Oversight for The SEC's to CAT Implementation (Apr. 14, 2017), https://bettermarkets.com/sites/default/files/Senate%20Banking%20Committee%20Economic%20Growth%20Proposals.pdf.

[18] Better Markets, Letter to House Financial Services Committee on GameStop (Feb. 16, 2021), https://bettermarkets.com/sites/default/files/Critical%20Issues%20to%20Adress%20in%20the%20Game%20Stop%20Hearing.pdf. 

[19] Better Markets, Key Topics for GameStop, Robinhood, Citadel, Reddit, Roaring Kitty Hearing at the House Financial Services Committee (Feb. 18, 2021), https://bettermarkets.com/sites/default/files/Memo%20GameStop%20Hearing%20Interested%20Parties%202-17-2020.pdf. 

[20] Better Markets, Fact Sheet: Reddit, Robinhood, GameStop & Rigged Markets: The Key Issues for Investigation (Feb. 1, 2021).

[21] Better Markets, Fact Sheet: What You Need to Know About Citadel’s Role in the Robinhood and the GameStop Saga (Feb. 16, 2021), https://bettermarkets.com/sites/default/files/documents/Better_Markets_Citadel_Role_in_GameStop_02-16-2021.pdf. 

[22] Better Markets, Fact Sheet: Payment for Order Flow—How Wall Street Costs Main Street Investors Billions of Dollars through Kickbacks and Preferential Routing of Customer Orders (Short Version) (Feb. 16, 2021), https://bettermarkets.com/sites/default/files/documents/Better_Markets_Payment_for_Order_Flow_Short_02-21-2021.pdf; Better Markets, Fact Sheet: Payment for Order Flow—How Wall Street Costs Main Street Investors Billions of Dollars through Kickbacks and Preferential Routing of Customer Orders (Long Version) (Feb. 16, 2021), https://bettermarkets.com/sites/default/files/documents/Better_Markets_Payment_for_Order_Flow_Long_02-21-2021.pdf. 

[23] Better Markets, Fact Sheet: The Consolidated Audit Trail is a Long Overdue Transparency and Accountability Measure to Protect Investors and the Integrity of the U.S. Securities Markets (Feb. 16, 2021), https://bettermarkets.com/sites/default/files/documents/Better_Markets_CAT_Fact_Sheet_02-16-2021.pdf.

[24] Better Markets, Letter to FSOC Regarding GameStop (Feb. 3, 2021), https://bettermarkets.com/sites/default/files/Better%20Markets%20Letter%20to%20FSOC%20Regarding%20Gamestop%202-3-2021.pdf.  

Article Keywords:
market structure
advocacy
SEC
reforms
Consolidated Audit Trails
CAT
comment letters

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