A week ago, we were surprised to learn that one of the most prominent critics of HFT, Joseph Stiglitz, had been barred from an SEC Panel [17]that will "advise regulators on issues facing U.S. equity markets." Today, a day after the SEC busted DirectEdge [18]for failing to "accurately describe the order types being used on the exchanges" namely the infamous Hide not Slide, even after said order had repeatedly made the front page of the WSJ [19], the SEC finally announced the full list of members of the "New Equity Market Structure Advisory Committee" which will focus on the structure and operations of the U.S. equities markets.
Here is what it said [20]:
The Securities and Exchange Commission today announced the members of a new Equity Market Structure Advisory Committee, which will focus on the structure and operations of the U.S. equities markets.
The committee will provide a formal mechanism through which the Commission can receive advice and recommendations specifically related to equity market structure issues.
The members of the committee come from different sectors of the financial services industry, academia and from public interest groups. The members were approved by all five Commissioners.
“Additional expertise from a diversity of backgrounds and viewpoints will be invaluable to us in ensuring that our markets continue to operate openly, fairly and efficiently to benefit investors and promote capital formation,” said SEC Chair Mary Jo White. “This impressive committee will provide extremely helpful input as we continue to move forward in our efforts to enhance our equity market structure.”
Among the issues the committee is expected to be asked to discuss are those relating to the review of SEC Regulation NMS (national market system), the role of exchanges in the current market structure, and the presence and effect of conflicts in the routing and execution of equity orders.
The committee is expected to hold public meetings approximately four times a year. The committee’s first meeting is expected to be held after the announcement of the establishment of the committee is published in the Federal Register. The committee has a two-year term, which can be renewed by the Commission.
Stephen Luparello, Director of the Division of Trading and Markets, will be the designated federal officer on the committee.
There were some surprising names among the member participants as shown below:
- Matthew Andresen, Co-Chief Executive Officer, Headlands Technologies LLC
- Reginald Browne, Senior Managing Director & Global Co-Head, ETF Group, Cantor Fitzgerald & Co.
- Kevin Cronin, Global Head of Trading, Invesco Ltd.
- Brad Katsuyama, President and CEO, IEX Group Inc.
- Ted Kaufman, Professor, Duke University Law School and former U.S. Senator from Delaware
- Richard Ketchum, Chairman and CEO, FINRA
- Manisha Kimmel, Managing Director, Financial Information Forum
- Mehmet Kinak, Vice President and Head of Global Equity Market Structure and Electronic Trading, T.Rowe Price Group
- Andrew Lo, Charles E. and Susan T. Harris Professor of Finance and Director, Laboratory for Financial Engineering, MIT Sloan School of Management and Chairman and Chief Investment Strategist, AlphaSimplex Group
- Joseph Mecane, Managing Director, Barclays PLC
- Eric Noll, President & CEO, Convergex Group
- Maureen O’Hara, Robert W. Purcell Professor of Finance, Johnson Graduate School of Management, Cornell University and Chairman of the Board, Investment Technology Group Inc.
- Joe Ratterman, CEO, BATS Global Markets Inc.
- Nancy Smith, Corporate Secretary & Chief Integration Officer, AARP
- Chester Spatt, Kenneth B. and Pamela R. Dunn Professor of Finance, Tepper School of Business, Carnegie Mellon University and Director of its Center for Financial Markets
- Gary Stone, Chief Strategy Officer, Bloomberg Tradebook LLC
Most of the named individual above are, sadly, placeholding figureheads. Because there is only one person on the list whose participation matters, and whose presence is not at all surprising. The following:
The same Citadel whose Citadel Tactical Trading fund returned 20% in 2014 [22]and was in the Top 10 of all best performing large hedge funds.
The same Citadel which while running hundreds of billions in prop capital (recall that at nearly 10x Citadel is the most levered hedge fund [23]in the world), and making billions in profits, also handles 25% of all US listed stock trades for retail, 20% of all equity options and 13% of total consolidated volume.
The Details [24]:
As an automated market maker from its 2006 inception, Citadel Execution Services had the advantage of not being weighed down by legacy systems. Jamil Nazarali well remembers how hard the transition from manual trading could be: Currently head of the CES unit of $14 billion, Chicago-based hedge fund firm Citadel, Nazarali was on Knight Capital Group's strategy team in 2000 when the New York Stock Exchange was moving toward decimal pricing; he became co-leader of Knight's automation project. Within two years the vast majority of trading was automated, and by 2005 Nazarali had risen to global head of Knight's electronic trading. He joined Citadel in 2011 and took the helm of CES in 2012 after Andrew Kolinskys retirement. Citadel's execution business is one of the world's biggest, handling 25 percent of all U.S.-listed stock trades for retail investors, 20 percent of equity options volume and more than 13 percent of consolidated volume in equities. If you trade, there's a 1-in-7 chance that Citadel is on the other side of the trade, notes Nazarali, 46, a University of Chicago MBA and former Ernst & Young and Bain & Co. consultant.
But surely not frontrunning the trade... or steering momentum away from the herd especially if the herd is selling. Because clearly there is no conflict of interest there.
More importantly, as regular readers know by now, when it comes to preventing the proverbial "plunge", or is otherwise in need of algo-facilitated support at key market inflection points, the New York Fed, which never transacts on its own behalf - after all that is illegal - does so through an intermediary entity: the one named above. Which is why we have no doubt that with the above fortress protection, pardon the pun, there is little if anything that can happen to change the manipulated, centrally-planned and, please don't laugh, fair market.
In fact, everything will remains just as it is. Which, incidentally, is precisely how the Federal Reserve likes it.
