Transparency in alternative trading systems one way SEC can deal with fintech change, regulator says

31 January 2017 9:55am

12th October 2016. By Robert Thomason

Greater transparency in alternative trading systems could help the US Securities and Exchange Commission address emerging financial technology, the agency’s director of trading and markets said on Wednesday.

Stephen Luparello said during a panel discussion that the SEC could look at regulations that would provide more transparency about orders and types of orders in an ATS.

Computer platforms have given rise to alternative trading systems, including “dark pools” that provide trading and other intermediary functions outside traditionally regulated exchanges. The SEC already has proposed a rule that would require some disclosure by dark pools, but the SEC’s investor advocate has said transparency rules should be broadened.

Nimble regulation

Just as technology has presented challenges, it can also be a tool to shed light on new forms of technology-driven markets, Luparello said. “It is our expectation that it is going to be reasonable to comply with,” he said of the pending regulatory regime addressing technologically innovative markets.

Financial market regulators must stay nimble to respond to technological changes without stifling innovation, he said.

Nonetheless, certain technological changes may stray into areas that run afoul of the rules, he said. For instance, an e-commerce site that attempts to connect buyers and sellers of financial securities might have trouble complying with regulations.

He said “the doors are open” to talk to the SEC about ways market participants want to use new technologies.

Luparello said conversations concerning concrete business ideas about the distributed ledger technology known as blockchain “have been few and far between.”

J. Christopher Giancarlo, a commissioner on the US Commodity Futures Trading Commission, said regulators need to keep abreast of technological change, never falling more than a couple steps behind it. “Blockchain will be here before we know it,” he said. “It is going to come fast and furious and it is going to be transformational.”


Giancarlo also expanded upon a statement that he had made before about liquidity and “flash crashes” in various markets (see here).

Giancarlo had expressed concern about last week’s sudden drop in the value of the British pound versus the US dollar. He said he is concerned that capital requirements of Dodd-Frank might be keeping money in the reserves of institutions when those funds might be better used providing liquidity to markets.

“I understand that the prudential regulators want more on the balance sheet,” he said, referring to the regulators that look at the health of institutions. By contrast, he said, he is a market regulator who looks at the stability of the interactions between those institutions.

“I am disappointed that the Financial Stability Oversight Council has not done a robust analysis of liquidity in trading markets,” Giancarlo said.

Fintech Regulation in 2018