Better Markets filed a comment letter in response to the Securities and Exchange Commission’s proposal to expand the definition of “as a part of a regular business” in the definition of “dealer and government securities dealer.”
Why It Matters. The increasing usage of algorithmic, electronic trading by high frequency trading firms has fundamentally changed how the markets operate. Every day, these firms trade heavily in the markets for their own accounts and as part of their regular business. They have grown tremendously in recent years, now representing roughly 50% of the trading volume in the U.S. equities markets and 48% of the volume in the U.S. Treasury interdealer market. While some have touted the benefits that high frequency trading firms can bring to markets, namely liquidity and price discovery, others have criticized those same firms for raising prices on retail and institutional investors, engaging in market manipulation and frontrunning, and exacerbating market moves. Recent liquidity crises in both the U.S. equities and Treasury securities markets have shown the effects on markets dominated by, and heavily reliant on, high frequency trading firms.
What We Said. High frequency trading firms play such a dominant role in our capital markets that more oversight and transparency into their activities is clearly necessary and appropriate. As technology changes the way markets operate and the manner in which people trade, the regulations that govern our capital markets must evolve accordingly. Despite the volume of trading represented by high frequency trading firms, and the concerns they raise about predatory trading practices and market instability, many of these firms are not registered with Commission as a dealer, even though they provide dealer-like functions. The SEC’s proposed rule will clarify and expand the definition of a dealer, conferring numerous benefits by making sure that these firms register with the SEC and adhere to capital, reporting, examination, and anti-manipulation rules. And the rule will promote fairness and competition among registered and unregistered dealers by applying similar rules to all dealer activities.
Bottom Line. Better Markets supports the Commission’s proposed rule to modernize and expand the definition of “dealers” and “government securities dealers” to capture firms performing dealer-like activities. This Proposal will enhance transparency, market resilience, and investor protection. The proposal will also promote fair competition by establishing similar regulatory requirements for all market participants engaged in essentially the same dealer-like activities.
Read our full Comment Letter here or click the button below.
