Andy Brooks just wants to get something done, about the structure of equity markets.
The Securities and Exchange Commission put out its Concept Release on Equity Market Structure in January 2010. It's been forgotten.
The SEC proposed the creation a Consolidated Audit Trail of details on all stock and options transactions in May 2010. Responses to a request for proposals are due June 30. But the system likely won't be in place for another three or four years.
The Dodd-Frank Wall Street Reform Act went into effect in July of 2010. As of May 1, the SEC had finalized 35 of its pending 95 rules coming out of that reform.
Yes, there's a ban on electronic access to markets without risks getting checked first. Yes, there are now limits on how far up or down stock prices can go, in their infancy. And market-wide circuit breakers, ditto.
But the Head of U.S. Equity Trading for T. Rowe Price Group, which manages $617 billion in assets, is itching for more. Particularly as the relationship between high-speed automated trading for microsecond profit and purchases and sales made for long-term investing in mutual funds gets more complicated.
Take for instance the growth of off-exchange trading, which hurts the ability of public markets to determine real prices for securities. Now, 35 percent of consolidated volume gets transacted off exchanges.
Driving this: To some degree, anonymity. The ability to move big blocks of stock, without rippling the market.
But, more, it's savings. Brokers can avoid paying access fees of about 30 cents per 100 shares to exchanges, if they match orders elsewhere first. Or they can make money, by chasing the highest rebates paid by the lit exchanges.
"It would be really interesting and really fun," Brooks said May 13 at an equity market structure roundtable in New York, if the industry tested what would happen to 50 stock symbols or so during a six-month pilot under these conditions:
* Forget rebates. No payments for order flow. Or inconsequential amounts, if allowed.
* Demand price improvement. At least half the spread, in trades within a penny increment. A penny or more on larger increments.
* Require real size on trades off public exchanges. Say, 2,000 shares per trade, minimum.
Or 6,200, the number Brooks actually used in the roundtable put on by Rep. Scott Garrett of New Jersey and attended by several other House members as well as SEC member Dan Gallagher.
His point: Even dark pools aren't trading in blocks. The anonymous trading, in almost all cases except Liquidnet, is done in the same 200- or 300-share slices that are dominating public exchanges.
So move that back onto public exchanges.
These simple steps, he contends, would make markets "come together" as well as create clear roles for market makers, stock buyers and stock sellers. He's betting the result would be greater transparency, deeper liquidity on displayed markets and smaller intraday spreads. A trifecta in the race to improve equity markets.
"If you put all those together in a pilot, that would be a pretty interesting test case to experiment with," Brooks said.