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Markets Structure and Liquidity
Treasury recommends that the SEC allow issuers of less liquid stocks, in consultation with their underwriter and listing exchange, to partially or fully suspend unlisted trading privileges for their securities and select the exchanges and venues on which their securities will trade.
Treasury recommends that the SEC evaluate whether to allow issuers to determine the tick size for trading of their stock across all exchanges and whether to additionally limit potential tick sizes to a small number of standard options to manage complexity.
Regarding Treasury’s concern that maker-taker markets and payment for order flow may create misaligned incentives for broker-dealers:
- Treasury recommends the SEC adopt rules to mitigate potential conflicts of interest due to maker-taker rebates and payment for order flow compensation arrangements.
- Treasury supports a pilot program to study the impact reduced access fees would have on investors’ execution costs or available liquidity.
- Treasury recommends that the SEC exempt less liquid stocks from the restrictions on maker-taker rebates and payment for order flow if such exemptions promote greater market making.
Regarding market data rules:
- Treasury recommends that the SEC and FINRA issue guidance clarifying that broker-dealers may satisfy their best execution obligations by relying on securities information processor (SIP) data rather than proprietary data feeds if the broker-dealer does not otherwise subscribe to or use those proprietary data feeds.
- Treasury suggests that the SEC consider whether proposed selfregulatory organization (SRO) rules establishing data fees are “fair and reasonable,” “not unreasonably discriminatory,” and an “equitable allocation” of reasonable fees among persons who use the data.
- Treasury recommends that the SEC consider amending Regulation NMS as necessary to enable competing consolidators to provide an alternative to the SIPs.
Treasury recommends that the SEC consider amending the Order Protection Rule to give protected quote status only to registered national securities exchanges that offer meaningful liquidity and opportunities for price improvement. Treasury recommends that the SEC consider amending the Order Protection Rule to withdraw protected quote status for orders on any exchange that do not meet a minimum liquidity threshold. Treasury recommends that the SEC should consider proposing that any newly registered national securities exchange receive the benefit of protected order status for some period of time.
In order to reduce complexity in equity markets, Treasury recommends that the SEC review whether exchanges and alternative trading systems (ATSs) should harmonize their order types and make recommendations as appropriate.
Treasury recommends that the SEC adopt amendments to Regulation ATS substantially as proposed but revise aspects of the proposal to: (1) eliminate unnecessary public disclosure of confidential information, (2) require disclosure of confidential information only to the SEC and only if it would improve the SEC’s ability to oversee the industry, (3) ensure that disclosures related to conflicts of interest are tailored to provide useful information to market participants, and (4) simplify the disclosures to reduce the compliance burden and to increase their readability and comparability across competing ATSs.
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