Today’s financial markets can be summed up in three words – global, fast, and complex. But as the market structure evolves, so must the regulatory structure that oversees it. John Lothian News has spoken with several industry experts to create this series on the evolution of financial market structure.
In Part 3, Keith Ross, CEO of PDQ ATS offers his thoughts on high frequency trading, Regulation NMS, maker-taker arrangements, and dark pools. He also expresses concern that the recent furor over HFT may lead to hasty decision making by legislative bodies rather than measured, thoughtful changes overseen by regulatory bodies better equipped to understand market structure and the consequences of change.
“I’ve always thought that a healthy functioning capital market wants to be able to include all flavors of participants, whether it be the little one-lot guys that used to be important in the pits on the floor, high-speed traders, agency brokers, retail – they are all part of the ecosystem.”
Ross has spent nearly four decades developing his market structure perspective. He has been an equity analyst, member of two exchanges (AMEX and CBOE), market maker and executive. He was CEO of proprietary trading firm and HFT specialist at GETCO from 2002-2005. He now serves as CEO of PDQ ATS, a Chicago area broker-dealer and dark pool. Here is a sample of his viewpoints on key equity market structure issues:
A 500-millisecond (or other) cancellation lockout – “Would be akin to putting rumble strips on Route 80 to slow down traffic.”
On maker-taker arrangements – “Liquidity providers need to make a little money in order to keep providing liquidity. They will either get it through spread capture or… by a ‘service fee.”’
On Reg. NMS – “The last 15 years have served to break down the specialist monopoly of the New York Stock Exchange”
Ross has his views and he expresses them poignantly. He closes with his greatest fear, which is that Congress may step in and legislate market structure. His hope is that they do the right thing and empower regulators such as Finra and the SEC to study market structure and recommend changes in the right way.