Senators Crapo and Johnson Send Letter to SEC Chair White Regarding SEC's Equity Market Structure Review (with Lofchie Comment)

Senate Banking Committee Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) wrote a letter to SEC Chair Mary Jo White regarding the SEC's progress with respect to an equity market structure review.

Senator Johnson and Senator Crapo referred to a July Senate Banking Committee hearing, titled "The Role of Regulation in Shaping Equity Market Structure and Electronic Trading," during which members stressed the importance of a holistic equity market structure review and questioned what the SEC is doing to help to build better markets for smaller companies.

According to the Senators, these topics appear not to have been advanced at the SEC. To gain a better understanding of how the SEC plans to proceed with its review of equity market structure, specifically with respect to market resiliency and issues facing small public companies, the Senators requested that Chair White indicate:

• what progress has been made at the SEC since Chair White's October 2013 speech regarding a review of equity market structure and of regulations, including Regulation NMS;
• what is being done to ensure that the existing equity market structure is "resilient and durable";
• what data analysis and formulation for a holistic review the SEC has conducted to date and when the SEC will provide the public with the ability to comment on such a review; and
• what the SEC is doing currently to address the market structure concerns of small companies and to ensure the liquidity of a secondary trading market for small company stocks.

Lofchie Comment: The task of developing a secondary market for small company stocks will require liberalizing regulations, which always entails the risk of some greater degree of wrongdoing. The SEC should be looking at how it can encourage the writing of research on small companies (which means allowing those who write the research to make a profit) because few investors are likely to have the resources to conduct their own investigations into small companies, and no one is going to write research on such companies if there is no way to profit from the writing.

See: Senators' Letter to Chair White.

Related news: Senate Banking Committee Hearing on HFT and Market Structure (with Delta Strategy Group Summary) (with Lofchie Comment) (July 8, 2014).