Securities traders are gathering in Washington. The big topic: trying to figure out what the Securities and Exchange Commission is doing.
You know it’s bad when one of the session’s topics is titled, “A Buy Side Guide to Navigating the SEC.”
I’m in Washington for the annual meeting of Security Traders Association (STA), the national association of professionals involved in the business end of the financial services industry. These are the broker-dealers and others who execute trades for clients, and everyone around them who provides the technology. Think of them as the ones that make things happen whenever you press a button to make any type of trade, whether it’s equities, bonds, options, mutual funds or ETFs.
This conference is dedicated to market structure, but its scope has broadened over the years. There will be over 800 people attending, and it’s a very different group from when I first started attending in the late 1990s.
The trading business is changing
In 1999, the Securities Traders Association of New York held its annual conference at the Marriott Marquis in Times Square. There were 4,000 people in attendance, and the band that night was Kool and the Gang.
Things have changed a lot since then. Most members in 1999 were sell-side traders who either worked on the trading floor or “up” on the trading desk for broker-dealers.
Today, due to the spread of electronic trading, that group has become much smaller. In their place is a more diverse group. Options trading has exploded, as has the ETF business, as well as the online brokerage community. Data providers, exchanges and clearinghouses are far more prominent, as well as companies that provide trading services such as algorithms. There are also plenty of buyside firms (hedge funds) here.
Hot Topics: Aggressive SEC Agenda, AI, Market Structure and Crypto
As always, the SEC is at the center of the discussion. There is always a little tension between the broker-dealer community and the SEC, but this is a very contentious time, especially since SEC Chairman Gary Gensler is busy with nearly 50 proposed and final rules that are greatly impacting the financial services industry.
Some hot topics:
1) Predictive Data Analytics and Artificial Intelligence (AI). The SEC suspects that investment advisors are using AI to monitor their clients’ trading habits and use that information to encourage them to trade more, or to direct or manipulate their trading activities. Have been. Putting your own interests ahead of your client’s is a conflict of interest and the SEC is proposing rules to address it. Undoubtedly, the industry believes this is regulatory overreach, particularly because it would require companies to file voluminous reports.
2) Market Structure Proposal. Gensler has been critical of payment for order flow (PFOF), whereby some retail brokers (including Schwab, ETrade, and Robinhood) send orders to electronic market makers known as wholesalers (including Citadel Securities and Virtu), Who pay brokers for access to it. Order flow. These wholesalers may send orders to exchanges, but often match orders to their own internal order flow. Gensler says he wants to increase competition between exchanges and broker-dealers by creating an auction process. The industry believes this is unnecessary, that there is plenty of competition and that the companies involved already offer competitive pricing.
3) Crypto. At the conference a year ago, the general consensus was that by this time the US would have a stablecoin and a spot Bitcoin ETF.
So far we are 0-2.
Gensler will soon be forced to decide whether to approve the spot Bitcoin ETF or engage in further litigation. Gensler is not at the conference, but the commissioner is. hester piercea Republican, will be interviewed by Jonathan Kellner, CEO of MEMX, Pierce has been a vocal supporter of crypto and has been very critical of the Democratic majority’s stance towards crypto.
Although Gensler is absent, NYSE General Counsel Hope Jarkowski will talk with CFTC Chairman Rostin Behnam, Which will also likely address jurisdictional questions between the SEC and CFTC over crypto.
Dan Gallagher, Robinhood’s chief legal, compliance and corporate affairs officer Will be interviewed by Matt Andresen, Co-Founder and CEO of Headlands Technology, Gallagher, a former SEC Commissioner himself, has also been critical of the SEC’s stance toward crypto and the way the SEC makes its rules. Gallagher will also likely put a burden on paying for order flow.
STA chief going into politics
One interesting annoyance: long hours STA CEO Jim Toews Recently announced he was running for Congress on Long Island as a Republican in an effort to unseat Representative George Santos, who is fighting federal fraud charges (additional charges were filed yesterday ).
Toews told me he’s running because he’s unhappy with congressional leadership: “80% of the reason I’m running is because I’m concerned about the direction of the country and the division that exists in our society,” he said, describing . Describes himself as “a staunch liberal with unshakable principles”.
The other 20% reason to flee is Santos, whom he described as a “fabulist and liar”.
Toews acknowledged that he was bucking a long-standing trend.
“Normally you go into politics, then you leave politics and go into trade unionism,” he told me, laughing. “I’m turning everything upside down, I’m leaving a trade group and going into politics, but sometimes you have to move on.”
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