SEC Commissioner Michael Piwowar Commits to Equity Market Structure Review

Steven Lofchie Commentary by Steven Lofchie

SEC Commissioner Michael Piwowar affirmed the importance of equity market structure in promoting healthy markets and facilitating capital formation.

In remarks at the FINRA and Columbia University Market Structure Conference, Commissioner Piwowar suggested that the SEC's focus on fulfilling Dodd-Frank mandates and its "broken windows" enforcement approach did not contribute to improving investor protection. Commissioner Piwowar vowed a renewed focus on facilitating capital formation. He said the SEC will better utilize its enforcement resources through its new specialized Cyber Unit, and on the protection of retail investors through the new Retail Strategy Task Force.

Commissioner Piwowar expressed confidence that the vast capital markets knowledge and experience of new SEC leaders will advance efforts to focus on market structure. Commissioner Piwowar noted previous market structure achievements including (i) work by the Equity Market Structure Advisory Committee to make recommendations to the SEC on issues including market quality, execution quality, order handling disclosures and an access fee pilot, (ii) the tick size pilot program, and (iii) the shortening of the standard securities settlement cycle (from T+3 to T+2).

Commissioner Piwowar supported a comprehensive market structure review. This review, he said, must be retrospective, taking into account the evolution of market structure in addition to its current state. He recommended that the review seek to identify how regulation and competitive forces contribute to the state of market structure and incentives that inform behaviors of market participants. He identified Regulation NMS as a particular point of focus, and added that the review must take into account public input.

Commentary

Although most of Commissioner Piwowar’s speech addressed regulatory aspects of market structure, his comments on the SEC’s enforcement efforts are particularly interesting.  Commissioner Piwowar described “charting a new course at the Commission” which involves abandoning the “broken windows” approach of the previous leadership and better utilizing enforcement resources by focusing on cyber threats and protecting retail investors.  While these comments are consistent with recent public statements by Stephanie Avakian and Steven Peikin, the Co-Directors of Enforcement, regarding the Enforcement Division’s increased focus on cyber threats and retail investors, they are the most direct comments by an SEC official to date signaling a change in its enforcement approach under the new administration.

Commentary

Out with the new; in with the old! The SEC is finally returning to its traditional missions of improving corporate disclosure and of overseeing market structure. This is what the SEC should be doing, not wasting resources on issues out of either its control or expertise.

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