Abstract
ROBERT SCHWARTZ: I am very much looking forward to our next speaker, Seth Merrin. Our friendship and working relationship go back a long way. As you well know, Seth is a pioneer in his field. In my opening remarks, I said we need more competition in the area of innovation. We need innovators. And so it was only natural for me to call Seth, who is a great innovator. He accepted my invitation without any hesitation. I’m now delighted to introduce Seth.
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Notes
- 1.
Liquidnet was established in 2001. See more on http://www.liquidnet.com/#/about-us/
- 2.
See James C. Collins, Good to Great: Why Some Companies Make the Leap…and Other Don’t. (HarperBusiness 2001).
- 3.
Kevan Cowan, the then President, TSX Markets and Group Head of Equities at TMX Group, operator of the Toronto Stock Exchange and other entities, at time of the conference.
- 4.
Referring to TSX, which today has a broad panoply of cash and derivatives markets.
- 5.
Assets held by US institutional investors totaled nearly $11 trillion, as of 2014, according to Greenwich Associates.
- 6.
FINRA concluded that the average execution size in dark pools was much smaller tha.n the average at exchanges. At the time of the conference, the average size in dark pools was 187 shares.
- 7.
Technically, 10,000 shares are regarded as the minimum size of a block trades. Average execution size at Liquidnet was 43,000 in 2014.
- 8.
The speaker is referring to the New York Stock Exchange. While the NYSE handled most of the listed volume in the USA, it had some smaller competitors including crosstown rival, the American Stock Exchange.
- 9.
In late 2014, FINRA started publishing volume for Alternative Trading Systems, or ATSs. For each ATS, FINRA published the total number of shares and trades for each symbol. The data for Tier 1 Securities is delayed by 2 weeks; the data for Tier 2 Securities is delayed by 4 weeks. The Tier 1 symbols comprise the vast majority of the volume. Brokers and other analysts have been utilizing this data to measure ATS market share.
- 10.
Average execution size at Liquidnet was 43,000 shares in 2014.
- 11.
Venues refers to “execution” venues.
- 12.
In a follow-up, Seth Merrin’s office explained that he was talking here about the burden of obtaining and understanding all of the information provided by venues. Even with full disclosure and transparency from venues, traders ultimately had to handle the burden.
- 13.
In a follow-up, Seth Merrin’s office explained that the dynamics he outlined, which is full transparency in how Liquidnet handle their orders, was not realistic in the practical world.
- 14.
In March 2014, Liquidnet announced its acquisition of bond trading platform Vega-Chi.
- 15.
Refers to the more manual market structure of the US listed and over-the-counter markets prior to the introduction of advanced technology and new regulations.
- 16.
Comparing the voice, or manual-based bond trading markets, to the electronic bond trading markets.
- 17.
The issue, as Seth Merrin’s office elaborated in a follow-up, is that there was not even one full body at the Securities and Exchange Commission dedicated to the oversight of the fixed-income markets.
- 18.
Refers to MiFID in particular.
- 19.
In recent years, some observers note, the SEC has moved more toward this “principles-based” regulation, in which regulatory guidance offers broad compliance principles, entrusting the regulated firms with applying those principles to their own circumstances. Historically, the SEC’s rule-making has been “rules-based,” its regulations aiming to prescribe specific and detailed rules for reporting, or other obligations.
- 20.
Referring to how retail orders are typically small compared with institutional orders which are much larger.
- 21.
See Flash Boys: A Wall Street Revolt. Michael Lewis (2015, WW Norton & Company, LLC.).
- 22.
A form that Alternative Trading Systems (ATSs) are required to file with the Securities and Exchange Commission pursuant to Regulation ATS. Form ATS provides important information on the operation of an ATS.
- 23.
In other words, this value added is the equivalent of price improvement.
- 24.
Enhanced Liquidity Provider.
- 25.
See NY Attorney General Goes After Barclays. Melvin Backman. CNNMoney.com. June 26, 2014. http://money.cnn.com/2014/06/25/investing/barclays-ny-ag-lawsuit/index.html
- 26.
A trade is internalized for an investor when it is handled and executed by their “internalizing” brokerage firm using securities held by this investor’s brokerage. Brokerage firms that internalize orders can sometimes benefit from the spread, in this case the difference between what they pay for the shares and what they sell them for.
- 27.
Referring to the New York Stock Exchange’s critical role for price setting on stocks traded across US equity markets.
- 28.
In a competitive program to encourage trading on exchanges, maker-taker fees offer a transaction rebate to trading participants who provide liquidity, charging customers who take liquidity.
- 29.
See related, At Senate Hearings, Brokerage Firms Call out for Conflicts. Willliam Alden. New York Times, June 17, 2014. https://dealbook.nytimes.com/2014/06/17/trader-who-called-markets-rigged-tempers-his-critique/
- 30.
National Best Bid and Offer. In simple terms, the National Best Bid and Offer requires brokers under US regulation, to guarantee that customers receive the best prevailing ask price when they buy securities and the best prevailing bid price when they sell.
- 31.
Refers to pools of liquidity, and the equity markets specifically, and to a lack of shares available in the market to complete large orders, in particular block orders, resulting in average trades size of 187 shares.
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Merrin, S. (2021). A Closer Look at How to Improve and Repair Market Structure. In: Schwartz, R.A., Byrne, J.A., Stempel, E. (eds) Equity Trading Round-Up. Zicklin School of Business Financial Markets Series. Springer, Cham. https://doi.org/10.1007/978-3-030-51015-2_6
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