Hester Peirce: Dissenting Statement on Proposal to Amend Regulation ATS (and limited comment period)

SEC | Hester Peirce | Jan 26, 2022

alternative trading system - Hester Peirce:  Dissenting Statement on Proposal to Amend Regulation ATS (and limited comment period)Thank you, Chair Gensler.

Events in the U.S. Treasury market (as well as the related repo market) over the past several years strongly suggest that the market for government securities suffers from inadequate levels of intermediation, liquidity, and transparency that in times of stress can dramatically decrease its ability to function properly and significantly increase risks to market participants.  Commentators have suggested a number of possible reforms, and, although I am skeptical of some of these suggestions, I agree that the Commission should be considering carefully how it might use its authority to make changes that could relieve some of these pressures and help ensure that the market continues to perform its vital functions in the U.S. and global economy.

See:  Active trading system list (data)

Careful consideration of fundamental issues of market structure is particularly important in the government securities market.  It performs a central role in fiscal and monetary policy, as well as in our financial markets more broadly.  The market is enormous, with over $22 trillion in U.S. Treasuries outstanding as of December 2021 and with over $600 billion in average daily trading volume.   Any efforts to reform this market must take into account the potentially cataclysmic risks of inadvertently making things worse through sloppy or rushed rulemaking that introduces uncertainty for market participants or that deprives the public and the Commission of the opportunity to devote careful attention to thinking through the full implications of the proposed rules.

The proposal we are considering today is certainly not sloppy, but at the same time it is too wide-ranging and, given its length, too unwieldy to facilitate careful consideration.  The document weighs in at a hefty 650 pages, contains over 220 separate comment requests (with many requests containing multiple questions), and addresses about a dozen significant issues, several of which affect trading venues of all types (including currently unregulated communication protocol systems).  And the release goes well beyond government securities, or even fixed-income securities; key parts of the proposal affect trading venues that make any type of security available for trading.

Notwithstanding the literal and figurative bulk of this release, the Commission has determined that it is appropriate to provide the public with 30 days to read, understand, consider, consult, identify, model, assess, and discuss these rules and how they are likely to affect trading venues for every type of security that is traded in our markets.  It would have been an irresponsible abdication of our role as the primary overseer of the U.S. capital markets to limit the public to a 30-day comment period on fundamental changes to the $22 trillion Treasury market; it is unconscionably reckless to do so for a proposal the effects of which will reverberate through all of the markets that we regulate, in ways that we cannot foresee.

See:  Gensler is short-changing public comments

I cannot comprehend why we insist on blindfolding ourselves, rather than embracing the notice-and-comment process that has been so valuable in unearthing issues for our consideration. Our self-imposed unrealistic time constraint will prevent us from thinking seriously about the possible effects—intended and otherwise—of our rules by refusing to give the public sufficient time to provide us with informed comment.

We face no emergency in these markets that compels us to limit comments to 30 days; indeed, the Commission’s precipitous rush to plow through the comment period—almost as if it were a mere formality in our process—presents a greater immediate risk to the market than any of the issues that have led to this recommendation.

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