How Conveeenient! Looking at NASDAQ’s “Blueprint” For Fixing Ailing Public Markets
NASDAQ’s CEO’s Adena Friedman wrote an op-ed in the Wall Street Journal on May 3rd, titled Nasdaq’s Blueprint For a New Era of Trading. In her op-ed she laments the slow pace of IPOs, noting that 92% of job creation occurs only after a company comes public, and she points us all to read The Promise of Market Reform, which is NASDAQ’s 17-page “blueprint” to fix ailing public markets.
NASDAQ talks about lowering disclosure hurdles, and other onerous requirements you have all read about before. We won’t go into that part of the blueprint. However, we note that she gets specific on a few issues regarding issue of a legal and enforcement nature. For example, NASDAQ would like Congress to:
- Ease standards for imposing sanctions on lawyers who bring lawsuits.
- Tighten requirements for granting a class-action status lawsuit.
- Allow appeals from the denial of a motion to dismiss.
- Allow a plaintiff to amend a complaint ONLY once.
- Require proof of lying over material statements, as opposed to just recklessness.
- Make SEC consent decrees private – and non-admissible in private litigation.
Wow! I can’t help but think of the class-action lawsuits brought by Rhode Island, as well as Lanier, which targeted the stock exchanges, and the details of those lawsuits… and how the reforms requested by NASDAQ would very much shield them from potential wrong-doing. I also can’t help but think how the SEC’s ruling that commercial activities – like selling faster exchange access and faster enriched data feeds – are not entitled to be shielded with legal exchange immunity.
Oh well – it’s always good to have reforms that help one’s organization; we get that.
NASDAQ also addresses market structure specifically. They lament fragmentation, and invoke the “one-size-market-structure-hurts-small-caps” argument. They note:
- Relatively small orders can create dramatic price movements.
- Today, liquidity is spread thinly across fifty or more venues.
- Every venue has a very thin crust of liquidity (hey- we coined that term in Broken Markets!) for small and medium growth companies, a crust that can be broken by a single large order. When the liquidity crust is broken, the order can quickly impact the market’s ability to efficiently absorb it.
And NASDAQ conveniently believes that “concentrating that disaggregated liquidity onto a single exchange, with limited exceptions, will allow investors to better source liquidity.” NASDAQ advocates allowing issuers to choose a platform that is exempt from pesky UTP rules like protections in Reg NMS (think trade through Rule 611).
NASDAQ also believes in intelligent tick sizes (think tick pilot), and sites allowing small and mid-caps to trade in “sub-penny, penny, nickel, and even dime” increments. (you should read that as only sub-penny).
And NASDAQ warns against trying to limit rebates – as they will really remove incentives for high speed market makers.
Finally, NASDAQ advocates for promoting “Long-Termism”.
I’ll tell you what we think. We think NASDAQ’s blueprint for market reform looks like a giant thinly-disguised request to protect their oligopolistic market position from upstarts.
- They want legal reforms that would make it even more difficult to sue a stock exchange than already exists.
- They hypocritically bemoan fragmentation, while running multiple sub exchanges.
- They desire sub-penny pricing – which would aid their largest short-term trading clients.
- They desire an end to Rule 611, which would aid their largest short-term trading clients, and make their own market data more valuable.
- They want rebates to continue, which aids their largest short-term trading clients, as well as their data-selling businesses.
- They finally “promote long-termism”, and long-term investing, as they with straight faces promote high-speed short term-trading.
Read NASDAQ’s blueprint. And be sure to do so with Dana Carvey’s Church Lady voice when you do…