This past Sunday, Punxsutawney Phil emerged from his hole, saw his shadow and scurried back in just ahead of the snowstorm. We now have six more years of “holistic market structure review” – so there’s that then…

This brings us to yesterday’s SEC release of its 2014 – 2018 Strategic Plan, which you can review here. The 39-page document is shorter than the 523-page final Reg. NMS document, so rejoice!

The document is organized well and begins with the Mission of the SEC, which we always love to quote:

 The mission of the SEC is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.

The document then goes on to highlight four strategic goals that will keep the SEC focused, as well as some metrics for how the SEC plans to measure its success in achieving those goals. We will not take you through the whole document, however we will happily point out that the SEC recognizes full well the nature of our market structure, and the topic is featured prominently at the beginning of the document:

Increasingly Dispersed and Complex Financial Markets

Driven by competition, technology, regulation and market participants’ innovation, today’s financial markets offer more products, services, strategies, and opportunities than ever before. Investors are confronted by a growing number of increasingly complex product offerings. Sophisticated technology brings remarkable speed and efficiency to the financial markets, making both routine trades and complex transactions easier and less expensive to execute. At the same time, this technology brings new risks of accidental or intentional disruptions which are capable of spreading across markets, international borders and institutional firewalls. In addition, market structure has become highly fragmented as trading volume is dispersed among many highly automated trading centers that compete for order flow of securities.

 The SEC also specifically addresses market structure in Strategic Objective 1.2 – where they intend to promote capital markets that are fair, efficient, transparent, competitive, and that foster capital formation. They will specifically:

1)      Review algorithmic and automated trading.

2)      Strengthen incentives for investors and traders to display trading interest.

3)      Up post-trade transparency at dark pools, in order to address fragmentation and facilitate best execution.

4)      Continue and expand a comprehensive market structure review.

5)      Consider a comprehensive options market structure review.

In this Strategic Objective they will also:

–          Continue to oversee SROs (exchange SROs as well as FINRA), which they state is very important in light of the degree of conflicts of interests.

–          Work on enhancing resilience of the market from a technical “glitch” standpoint.

–          Be on the lookout for market manipulation.

We specifically think it is very important, and welcome, that the SEC is acknowledging the importance of price discovery, and public quotes (see item (2) above). Our sincere hope is that they understand that the encouragement and incentivizing of robust public quoting – that emanates from diverse market participants (HFT, retail, institutional) – will be the best protection for investors in terms of price discovery, as well as system robustness in times of stress.

It is appropriate that the SEC have market structure at the top of their agenda for the next four years. After all, it has already been five years since the SEC first started talking about dark pools, and four years since the SEC released its 2010 Concept Release on Equity Market Structure. We hope that after 8 years (or two Presidential terms) the SEC will have a good handle on how the industry operates, and have appropriate regulations in place.