My Congressional Testimony on the U.S. Equity Market Structure Reforms

Last week, I had the honor of testifying before Congress at the House Financial Services Subcommittee hearing on the potential impacts of the SEC’s regulatory agenda. My comments were informed by Nasdaq’s perspective as a market operator, including the extensive insights and experience we have from running markets and our global network of economic research teams.

Although Nasdaq shares many of the Commission’s concerns about market structure and support some of its reform objectives, I am concerned that such a substantial and rapidly adopted series of proposals to fix an already competitive market risks creating unintended consequences.

Nasdaq’s Unique Vantage Point

Nasdaq has a unique and up-close understanding of every aspect of the market ecosystem. We facilitate capital formation, initial public offerings (IPOs), price discovery, trading, risk management, and compliance among many other things. From this view, it is clear that the U.S. capital markets are efficient, competitive and robust. After all, we benefit from unrivaled investor participation, deep liquidity, and a healthy trading environment – an environment that helps investors secure their financial future. Companies from all sectors around the world, whether that be technology startups, community banks or manufacturers, come to the U.S. capital markets to raise capital, innovate and grow.

From my own perspective, I have spent my professional life in the markets in a variety of positions, including as an equity and derivative trader, a board member of the Options Clearing Committee (OCC), the President of the Philadelphia Stock Exchange, an advisory member of the Commodity Futures Trading Commission (CFTC) and currently as the Head of Nasdaq’s North American Markets. Through these roles, I have seen firsthand how the U.S. markets have evolved and continue to evolve to serve the interests of investors and issuers alike as the bedrock of our global economy.

I understand that even with all those strengths there is always room for improvement, and at Nasdaq we have a long history of working with the SEC and our industry to adopt thoughtful and data-driven changes to drive efficiency, competition and liquidity. However, given the complexity and interconnectedness of our markets today, we should expect and consider that changes to one part of the markets can, and will, have an impact on other parts of this intricate system.

Potential for Unintended Consequences

At Nasdaq we often refer to the NBBO – The National Best Bid and Offer – and how important it is to the markets – something I highlighted repeatedly in my testimony. The National Best Bid and Offer (NBBO) refers to the highest displayed buy and lowest sell prices among the various exchanges trading a security. A tight NBBO benefits investors, issuers and all type of market participants by lowering trading costs, increasing liquidity and lowering cost of capital for issuers. The quality of NBBO is paramount, particularly in highly fragmented U.S. equity markets as it ensures that all investors receive the best possible price when executing trades. The information is used by over 58% of U.S. households and billions of investors around the world. Any negative impact on NBBO therefore hurts our markets, issuers and investors of all levels.

Any alteration of equity market structure – no matter how well-intended – must therefore be approached with thoughtful consideration, foresight, and supporting data. Sweeping changes without thorough analysis and stakeholder engagement will harm market quality and undermine the industry’s effort in enhancing displayed liquidity which is fundamental to the NBBO.

We have serious concerns that the net effects of the SEC’s proposals will be to undermine the integrity and reliability of the NBBO as the true best available price for stocks, and render it more difficult and expensive for Americans to invest in our markets. Moreover, the proposals will harm the capital formation process by impairing the ability of companies to use the capital markets efficiently to raise funds for expansion, job creation and growth.

Working Collaboratively With Regulators and Market Participants

At Nasdaq, we facilitate billions of transactions every single day and we take our responsibility as a critical component of our economy very seriously. For the past five decades, we have worked diligently and cooperatively with our regulators and market participants to put in place programs designed to strengthen the transparency, liquidity and efficiency of the lit markets, contributing to the quality of NBBO.

We hope to continue this effort advocating for and on behalf of investors and issuers as we seek to drive sustainable growth and make our capital markets better, and more accessible to all.

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