Richard Ketchum has a long and distinguished career in the securities industry. He is the current CEO of FINRA. He has served as the CEO of NYSE Regulation, General Counsel of Citigroup, as well as President of NASD, and a director of Market Regulation at the SEC. He delivered a speech last Thursday to the STA at their Annual Conference in Palm Beach, FL. You can read his speech here: http://www.finra.org/Newsroom/Speeches/Ketchum/P124661

His speech summarizes some market structure changes over the past year and a half, and we would like to highlight those for you this morning, as Mister Ketchum is someone with a broad level of perspective and expertise in the markets. These are all his quotes:

Since the flash crash of May 6, the markets have not really stabilized. The CBOE Volatility Index has hovered between 35 and 50 since August 2011 with no apparent end in sight.

In September of this year, the new “Manning” rule went into effect. Retail order flow in NMS stocks can be walled off from a firm’s market-making desk, provided there is an adequate information barrier in place separating the two areas, and providing that customers receive adequate disclosure of the arrangement.

A significant enhancement to FINRA’s audit trail is the expansion of OATS to include all NMS issues and the elimination of the NYSE’s OTS system.

We propose that a firm must have an order in hand to call it a natural IOI. This proposal frankly has not been without debate within FINRA and its committees and so we are asking for comments on the proposal and have posed several questions in the Notice.

We have created an environment marked by higher volume, very aggressive competition and low spreads. And liquidity is spread across multiple books and in some cases across books that are not transparent. When these conditions are combined with free and extremely cheap access to electronic trading, the result is an environment where liquidity can very quickly disappear.

It is difficult to design algorithms to perform well during periods of extreme volatility where fundamental assumptions of the market are challenged.

In a highly volatile market environment, it’s absolutely critical to have pauses and limits that work in a way to allow human beings to make a determination that the market has not been fundamentally changed and to convey that there are buying or selling opportunities.

A step that I think is absolutely critical for the integrity of our markets going forward is the SEC’s action on naked access and the requirement that anyone directly interacting with the marketplaces be a broker-dealer.
With respect to high frequency and algorithmic trading, we are focused on the detection of so-called “momentum ignition” strategies.

We are continuing to look at purported instances of “quote stuffing,” in which extremely high levels of message traffic occurs in a particular security.