MFA Submits Comment Letter to the SEC on the Equity Market Structure Proposals

MFA submitted a comment letter to the Securities and Exchange Commission (SEC) on the proposed rules regarding U.S. equity securities trading and market structure regulation. MFA supports some of the more targeted proposed changes from the SEC but argues that the more far-reaching proposals could be disruptive and counterproductive.

MFA members are some of the most significant and active participants in the U.S. equity securities markets, including on national securities exchanges, alternative trading systems, and as customers of over-the-counter market makers and other broker-dealers. MFA expresses in its letter that the current U.S. equity market structure is effective in promoting transparency and liquidity, even during extreme market volatility. The letter puts forward targeted recommendations that would enhance U.S. equity markets without causing disruption for market participants.

In its letter, MFA recognizes that markets continue to evolve with technological and product innovation, and supports improvements to financial regulation that provide reliable, stable marketplaces with integrity that meet the needs of investors, businesses, and the economy. In the comment letter, MFA recommends a gradual and incremental approach that focuses on targeted changes to core market components:

  • Rule 605: MFA generally supports the Rule 605 Proposal but calls on the SEC to:
    • Prioritize the Rule 605 Proposal ahead of other proposals; and
    • Ensure the Rule 605 Proposal does not impose additional reporting requirements on order or execution management systems.
  • Regulation Best Execution: MFA calls on the SEC to avoid duplication of existing self-regulatory organization (SRO) rules by not adopting a Commission-level best execution standard. However, if the SEC deems the rule necessary, MFA calls on the SEC to:
    • Allow broker-dealers to consider appropriate factors other than price in best execution determinations; and
    • Provide institutional customers with appropriate protection by allowing institutional customers to determine exemptions from the best execution standard.
  • Regulation NMS: MFA agrees with the SEC that the one-penny tick size needs to be reduced in appropriate cases but argues that aspects of the Regulation NMS proposals would likely reduce liquidity and harm execution quality, especially for institutional investors. MFA calls on the SEC to:
    • Reduce the minimum tick size only to a half-penny increment for tick-constrained securities without introducing finer tick sizes;
    • Not prohibit trade execution at prices finer than the applicable minimum pricing increment;
    • Reduce access fees proportionately to the proposed reduction in tick sizes; and
    • Prioritize the acceleration of the implementation of certain aspects of the MDI Rule.
  • Order Competition Rule: MFA highlights that the Order Competition Rule would represent a fundamental shift in U.S. equity market structure by imposing specific, prescriptive requirements on how certain orders are executed. MFA calls on the SEC to:
    • Pause consideration until the implementation and assessment of other aspects of the Proposed Rules are complete;
    • Avoid an overly prescriptive approach to minimize unintended negative consequences; and
    • Ensure that the proposed dealer rule does not discourage institutional investor participation in qualified auctions.