[NEW YORK] The piecemeal approach taken by the US Securities and Exchange Commission in regulating the stock market is not likely to lead to any major changes in the coming years, outgoing SEC Commissioner Daniel Gallagher said on Wednesday. "We need to do something more dramatic than nipping around the edges," he said.
The US market has been the focus of intense scrutiny in recent years following a number of operational issues, including the 2010 "flash crash," when a trillion dollars was briefly erased from the market. That scrutiny increased last March after author Michael Lewis claimed in his book Flash Boys that the markets were rigged to favor brokers and exchanges.
The last major US market reform initiative, called Regulation National Market System, came ten years ago.
It and other such rule sets are at the root of many of the problems in the market and they need to be reviewed, said Gallagher, speaking on a panel at a conference held by investment banker Sandler O'Neill & Partners.
The SEC has said it plans to undertake a comprehensive market review and it recently convened the first meeting of its new 17-member market structure advisory committee that will debate and make recommendations on various market fixes.
The committee is expected to look at a raft of issues and perceived market conflicts, including the fee and rebate system used by exchanges, payments brokers make for retail stock orders and rules around high-frequency traders and off-exchange trading venues known as dark pools.
Relying too much on the market structure advisory committee is the "wrong thing" to do, Mr Gallagher said. "Each one of those issues will be a shiny object to the SEC that we'll chase down some hole for two years," said Mr Gallagher, who recently announced he is leaving the agency.
He said the biggest initiative approved by the SEC recently has been a program to test whether increasing the minimum trading increments of small public companies will prompt more trading in those stocks.
But the results of that experiment are likely years away, Daniel Coleman, chief executive officer of trading firm KCG Holdings Inc, said earlier at the conference. "If this pilot is the first major market-structure thing we're looking at right now in equities and any result is likely four years away, I think what it says to me is that we're looking at the status quo for a while," Mr Coleman said.