Monday, March 16, 2015

Commissioner Piwowar Asks for Markets Input from Academics

[This story previously appeared in Securities Regulation Daily.]

By Mark S. Nelson, J.D.

SEC Commissioner Michael S. Piwowar told a group of financial academics today that he wants them to be more engaged in policy debates over securities regulations. Piwowar spoke about how academic research may aid the SEC’s nascent efforts to study equity market microstructure in a presentation to the Center for the Study of Financial Regulation at the University of Notre Dame’s Mendoza College of Business.

Piwowar lamented the SEC’s being slow to address market structure issues after last year’s “unsolicited prompting by a bestselling author” (a likely reference to Michael Lewis’s book Flash Boys, which prompted Congressional hearings about high-frequency trading and market structure after Lewis appeared on CBS’s 60 Minutes and said the U.S. stock market is “rigged”). Chair Mary Jo White has noted since that the SEC has brought its first cases against high-frequency trading firms, and has said the markets are neither "fundamentally broken" nor "rigged."

According to Piwowar, market microstructure academics can help the SEC to better understand market dynamics by evaluating the impact of the agency’s tick size pilot for small companies, and by following the activities of the new Market Structure Advisory Committee. But Piwowar said the agency needs to do more to push these initiatives forward. Piwowar said one step would be for the SEC to hold the roundtable he has asked Chair White to arrange so the Commission can review the Self-Regulatory Organizations’ assessment of the tick size pilot’s impact.

How else might academics aid the SEC’s market structure inquiries? Piwowar said academics can design their research to consider policy implications from the start, and not just as addendums to papers soon to be published. He also urged academics to submit public comments on rulemakings, especially the “data-driven” kind they alone can make.

But he worried that academics now submit too few comments. As an example, Piwowar observed in a footnote to his prepared remarks that only 10 academics (about 4 percent of all commenters) had offered their views on the SEC’s Concept Release on Equity Market Structure, which the agency published in 2010.

Piwowar said another way academics can get more involved in market policy is to mine the data published by the SEC from its Market Information Data Analytics System, or MIDAS. Still other possibilities include contacting regulators and other policymakers directly, and making sure to reply when these officials reach out to the academic community.