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US Stock Market Reform has wrong focus, outgoing regulator says

Publisher: Reuters
Author: John McCrank

The piecemeal approach taken by the U.S. Securities and Exchange Commission in regulating the stock market is not likely to lead to any major changes in the coming years, outgoing SEC Commissioner Daniel Gallagher said on Wednesday.

“We need to do something more dramatic than nipping around the edges,” he said.

The U.S. market has been the focus of intense scrutiny in recent years following a number of operational issues, including the 2010 “flash crash,” when a trillion dollars was briefly erased from the market. That scrutiny increased last March after author Michael Lewis claimed in his book “Flash Boys” that the markets were rigged to favor brokers and exchanges.

The last major U.S. stock market reform initiative, called Regulation National Market System, came ten years ago.

It and other such rule sets are at the root of many of the problems in the market and they need to be reviewed, said Gallagher, speaking on a panel at a conference held by investment banker Sandler O’Neill & Partners.

The SEC has said it plans to undertake a comprehensive market review and it recently convened the first meeting of its new 17-member market structure advisory committee that will debate and make recommendations on various market fixes.

The committee is expected to look at a raft of issues and perceived market conflicts, including the fee and rebate system used by exchanges, payments brokers make for retail stock orders and rules around high-frequency traders and off-exchange trading venues known as dark pools.

Relying too much on the market structure advisory committee is the “wrong thing” to do, Gallagher said.

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