Panel
2014 London Summit - The Future of Trading
Milken InstitutePhilip Allison, Adena Friedman, Mark Hemsley, Barb McKenzie, Seth Merrin, Jamil Nazarali
- Securities regulators globally, including the SEC and European authorities, are expected to evolve rules dynamically to address modern market conditions, technology, and the need for market stability, transparency, and investor confidence.
- Private capital markets, such as Nasdaq Private Market, are positioned to provide liquidity for private companies, while private equity buyouts of public firms typically last four to five years before an exit via re-IPO or subsequent sale.
- Institutional investor participation in equities faces risks from shifting accounting rules, tax regulations, the transition from defined benefit to defined contribution plans, and volatility concerns that may cause a generational loss of wealth creation.
- Regulators in the US and Europe are moving toward a view that dark pools must provide value beyond exchanges, with approximately 40% of US volume and 35% to 45% of London trading occurring off-exchange.
- The fixed income market faces a potential "huge cliff" as dealer capital has decreased by 75% while corporate bond issuance has increased fivefold, compounded by rising interest rates and a lack of liquidity among 40,000 issuances.
- European regulations like MiFID II have created complex dark pool structures and proportionate tick sizes, whereas the US utilizes a "dollar bar" system and is currently adjusting tick sizes through a pilot program.
- A consolidated tape is viewed as necessary in Europe to support best execution, limit up/limit down structures, and enable regulators to access common reference points for price improvement.
- The US regulatory framework is characterized as rule-bound and historically less designed than European models, with ongoing concerns about unintended consequences from rapid changes and disparities between the SEC and CFTC.
- Market structure challenges include the high-frequency trading "arms race" reducing transparency, payment for order flow potentially disadvantaging retail investors despite average price improvements of 0.3 to 0.4 cents, and the difficulty of regulating timing-based information edges.
- Future regulatory focus includes increasing fixed income transparency via pre-trade price discovery or post-trade reporting, standardizing bond terms to improve liquidity, and exploring faster settlement models like straight-through processing.
- Capital formation in banking is viewed as inefficient and opaque, prompting calls for practitioner-regulator collaboration and new trading models that accommodate instruments at different lifecycle stages.
- A significant portion of the capital market infrastructure, including the SEC's acceptance of secondary liquid capital markets, supports a belief that regulatory adjustments are needed to maintain appropriate activity levels for IPO buyers and prevent wealth erosion.