Bryan Corbett: “The SEC should focus on the more meaningful changes in these proposals, including an appropriately tailored reduction in tick sizes and access fee caps, that would enhance equity markets without harming investors.”

WASHINGTON, DC – Today, Managed Funds Association (MFA), the trade association for the global alternative asset management industry, submitted a comment letter to the Securities and Exchange Commission (SEC) on the proposed rules regarding U.S. equity securities trading and market structure regulation. MFA supports some of the more targeted proposed changes from the SEC but argues that the more far-reaching proposals could be disruptive and counterproductive.

MFA members are some of the most significant and active participants in the U.S. equity securities markets, including on national securities exchanges, alternative trading systems, and as customers of over-the-counter market makers and other broker-dealers. MFA expresses in its letter that the current U.S. equity market structure is effective in promoting transparency and liquidity, even during extreme market volatility. The letter puts forward targeted recommendations that would enhance U.S. equity markets without causing disruption for market participants.

“The broad-based changes proposed by the SEC risk undermining the strength and resilience of U.S. equity markets. Alternative asset managers rely on these markets to deliver for their investors, including pensions, foundations, and endowments,” said MFA President and CEO Bryan Corbett. “While we understand the Commission’s focus is primarily on retail investors, it is essential that any changes do not adversely impact institutional investors, who play an important role in these markets and ultimately serve retail investors in many cases.”

“The SEC should focus on the more meaningful changes in these proposals, including an appropriately tailored reduction in tick sizes and access fee caps, that would enhance equity markets without harming investors. MFA is committed to working closely with the SEC to ensure that any changes will enhance meaningful transparency, maintain liquidity, and promote the long-term stability and integrity of U.S. equity markets,” Corbett concluded.

In its letter, MFA recognizes that markets continue to evolve with technological and product innovation, and supports improvements to financial regulation that provide reliable, stable marketplaces with integrity that meet the needs of investors, businesses, and the economy. In the comment letter, MFA recommends a gradual and incremental approach that focuses on targeted changes to core market components:

• Rule 605: MFA generally supports the Rule 605 Proposal but calls on the SEC to:
  • Prioritize the Rule 605 Proposal ahead of other proposals; and
  • Ensure the Rule 605 Proposal does not impose additional reporting requirements on order or execution management systems.
• Regulation Best Execution: MFA calls on the SEC to avoid duplication of existing self-regulatory organization (SRO) rules by not adopting a Commission-level best execution standard. However, if the SEC deems the rule necessary, MFA calls on the SEC to:
  • Allow broker-dealers to consider appropriate factors other than price in best execution determinations; and
  • Provide institutional customers with appropriate protection by allowing institutional customers to determine exemptions from the best execution standard.
• Regulation NMS: MFA agrees with the SEC that the one-penny tick size needs to be reduced in appropriate cases but argues that aspects of the Regulation NMS proposals would likely reduce liquidity and harm execution quality, especially for institutional investors. MFA calls on the SEC to:
  • Reduce the minimum tick size only to a half-penny increment for tick-constrained securities without introducing finer tick sizes;
  • Not prohibit trade execution at prices finer than the applicable minimum pricing increment;
  • Reduce access fees proportionately to the proposed reduction in tick sizes; and
  • Prioritize the acceleration of the implementation of certain aspects of the MDI Rule.
• Order Competition Rule: MFA highlights that the Order Competition Rule would represent a fundamental shift in U.S. equity market structure by imposing specific, prescriptive requirements on how certain orders are executed. MFA calls on the SEC to:
  • Pause consideration until the implementation and assessment of other aspects of the Proposed Rules are complete;
  • Avoid an overly prescriptive approach to minimize unintended negative consequences; and
  • Ensure that the proposed dealer rule does not discourage institutional investor participation in qualified auctions.

MFA’s full letter is available here.

About the Global Hedge Fund and Alternative Asset Management Industry

The global hedge fund and alternative asset management industry, including hedge funds, credit, managed futures, and hybrid funds that invest in private companies, has assets under management of $4 trillion (Q4 2022). The industry serves thousands of public and private pension funds, charitable endowments, foundations, sovereign governments, and other global institutional investors by providing portfolio diversification and risk-adjusted returns to help meet their funding obligations and return targets.

About the Managed Funds Association

Managed Funds Association (MFA), based in Washington, DC, New York, and Brussels, represents the global alternative asset management industry. MFA’s mission is to advance the ability of alternative asset managers to raise capital, invest, and generate returns for their beneficiaries. MFA advocates on behalf of its membership and convenes stakeholders to address global regulatory, operational, and business issues. MFA has more than 150 member firms, including traditional hedge funds, crossover funds, and private credit funds, that collectively manage nearly $2 trillion across a diverse group of investment strategies. Member firms help pension plans, university endowments, charitable foundations, and other institutional investors to diversify their investments, manage risk, and generate attractive returns over time.

MFA Recommends the SEC Narrow the Scope of the Equity Market Structure Proposals on Managed Funds Association.