June 8, 2021
The Honorable Gary Gensler
Chair
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Dear Chair Gensler:
On behalf of the Equity Markets Association (“EMA”), congratulations on your confirmation as the 33rd Chair of the Securities and Exchange Commission. You bring a wealth of market experience across many asset classes at a critical time for the Commission.
Established in 2015, the EMA provides federal policymakers, regulators and investors with in-depth analysis on important issues that impact the U.S. capital markets. Its members, Cboe Global Markets, Nasdaq, and NYSE Group, believe in fair and transparent markets that incentivize capital formation and ensure a robust secondary market for trading securities.
Operating our nation’s equity markets for more than 225 years, U.S. exchanges have developed robust real-time and post-trade regulatory capabilities that make them a vital partner to the Commission in protecting U.S. investors. Exchanges are uniquely positioned to fulfill their obligations as self-regulatory organizations (SROs), enhancing the Commission’s mission to protect investors and foster fair, orderly, and efficient markets in an increasingly complex environment.
Since the COVID-19 pandemic hit the United States, U.S. equity and options markets and their members have unquestionably demonstrated resiliency by handling historic volatility, message traffic and the repeated activation of market-wide circuit breakers. Our displayed markets — the reference prices for trillions of dollars of equities, options, mutual funds, ETFs, and derivatives — stood strong under severe pressure. Simply stated, our markets continue to instill confidence at a time when investors and issuers are coming to the market in greater numbers than ever.
Meticulous capacity planning, engineering talent and deep client relationships allowed EMA members to handle the huge spikes in message traffic and volume. These outcomes were not by sheer luck; they were the result of intensive planning, system programming and vigorous testing that allowed the U.S. exchanges to handle extreme market turbulence, providing a forum for investors to manage their risk and in many cases access the cash they needed in the midst of trying times. This outcome was also part and parcel of a robust trusted relationship between the markets and the SEC built over many decades.
Markets demand operational and regulatory certainty - regulators should be thoughtful and cautious when changing those rules. As demonstrated over the past year, the U.S. securities markets are not broken, and the overall investor experience is better than ever. Market structure reform raises highly complex regulatory issues. EMA members support incremental and thoughtful improvements to the well-functioning market infrastructure we have today and believe that it would be valuable for the Commission to focus anew on the issues impacting market participants, including newly active retail investors. With nearly 50% of the executions of U.S. equities regularly occurring on trading venues other than exchanges, the essential function of price discovery is increasingly impaired. In addition, the EMA is hopeful that the new Commission will focus on strengthening displayed markets and the value of the public quote they provide for investors.
Recognizing our SRO responsibilities, we look forward to supporting you and the Commission in protecting investors. Specifically, this means continuing to implement a Consolidated Audit Trail that provides the Commission and SROs with data to detect and investigate market manipulation and other securities law violations. This mission must not be thwarted by those arguing to limit SROs’ access to data and ability to regulate industry members, the raisin d’etre of the CAT. We should instead focus on implementing already agreed upon safeguards to limit the collection of and protect personally identifiable information.
The EMA is ready to work with you, your staff and the Commission on proposals that solve problems and advance market structure changes. We look forward to a partnership that enhances transparency and levels the playing field for all trading venues and investors.
Sincerely,
Kevin R. Edgar
Counsel, Equity Markets Association
Counsel, Baker & Hostetler LLP