The Single Best Line Ever Written In An SEC Comment Letter

“We have created such a monstrosity that a metaphorical instance of minor varicosity could become an aortic aneurysm.”

The above line was written by Tim Quast from ModernIR and could be the single best line ever written in an SEC comment letter .  Tim was responding to a request for comment by the SEC on their new Limit Up/Down circuit breaker proposal.   The proposal was written by the exchanges and submitted by the SEC. Immediately, that should be a tipoff that there may be more than meets the eye in this proposal.  As with any SEC proposal, market participants are encouraged to comment publicly to make sure their voice is heard.  Tim has been a long time friend of Themis’ and has written some excellent comment letters in the past. Tim’s firm, ModernIR,  uses technology to help investor relations officers make sense of their stock price movements. The corporate issuer’s voice has been mostly silent in the market structure debate and Tim has been trying to change that. Here is a bit of Tim’s letter:

Markets benefit from an orderly system for pausing activity during periods of marked uncertainty. But proposals thus far only hope to halt contagion, and offer no path for blunting aftershocks and restoring vibrancy. Avoided again is the elephant in the room: Current market structure crafted by rules is the root cause of systemic risk. To sustainably diffuse risk, the system must be disaggregated. Instead, recommendations thus far move the opposite direction giving rise to grave concern.”

“The reason for risk of systemic contagion is the existence of a system. If a panic occurs at Safeway in the canned-goods aisle, it doesn’t spread to the fresh-foods section at Kroger. No system links all grocery stores by law. But in trading markets, by rule, all SROs must be connected to facilitate compliance with Reg NMS rules. All protected quotes are automated, all order types conformed to Reg NMS protocols, all markets conjoined by order-routing requirements. We have created such a monstrosity that a metaphorical instance of minor varicosity could become an aortic aneurysm.”

“A concluding word on public perception: Imposing complex controls in markets will not instill the public with confidence. On the contrary, the populace at large may conclude that market function has become so byzantine, the fear of structural failure so great, that they stop participating. By contrast, regulations that look not only to prompt a market to “take a breath,” but which also genuinely examine and let go of failed rules send the message that money should return”

Well done Tim, we hope the SEC is listening