But our interest in market structure reform began long before May 6th. Our US equity market structure is highly fragmented. There are ten exchanges, approximately 37 alternative trading systems-including dark pools- Electronic Communications Networks, and more than 200 broker-dealers that execute orders internally. Today, the New York Stock Exchange only trades about 25% of the shares of NYSE listed stocks.
These trading venues are accessed electronically through highly automated trading systems, many of which can respond to orders with executions in less than one millisecond. This speed has spawned the development of high frequency traders who account for 50% or more of daily trading volume and can enter thousands of orders per second. To further complicate matters, some trading venues, such as dark pools, do not make their orders accessible to the public.
The advent of high frequency trading, in combination with our fragmented market structure, present enormous challenges to investors and to regulators alike. Our efforts to address comprehensively our concerns about fairness and accessibility of our markets, led us to issue a release seeking broad input on the impact of different trading venues, strategies and tools-including high- frequency trading-on markets, capital formation and investors.
This concept release led to a roundtable earlier this month where academics and industry experts discussed stock price performance and volatility, the growth of high-frequency trading, and issues around undisplayed liquidity.
We also proposed two rules that will provide us with much faster and more complete information about trading activity, by requiring registration of large traders and creating a consolidated audit trail. If adopted, these ruleswill allow us to better reconstruct market activity, analyze data and investigate unusual or potentially abusive or illegal trading activity.
We appreciate the technological changes that make markets more efficient, reduce costs, and increase liquidity. But when these changes have the potential to destabilize markets without significantly contributing to key market functions, we believe they deserve a second look. And, that process is well underway.
Investor Protection
A second focus is better safeguarding the interests of investors, both large and small. Not surprisingly, we believe that a cornerstone of that protection is ensuring that investors get the timely and accurate information they need to analyze a company’s operating results, financial position and risk, and thus make informed investment decisions.
An important part of that is our commitment to a single set of high- quality, globally-accepted accounting standards-standards which will benefit U.S. investors and all others who make capital allocation decisions. We continue to encourage the convergence of U.S. GAAP and International Financial Reporting Standards, or“IFRS”and expect that their differences will become fewer and narrower, over time.
Bringing the two systems together has proven a challenging process. But we believe that it‘s important to provide for adequate due process and commentary on new standards, in order to ensure the informational value, integrity and political independence of the final outcome. And, while we are committed to global standards, a key priority is and must be protecting investors in American markets. We are executing a comprehensive work plan, dedicating significant resources to it and providing periodic progress reports. And we believe that the accounting scandals and financial crisis of the lastdecade underscore the importance of quality global accounting standards.
The importance of accurate information has always been the impulse behind one of the SEC’s original, core functions: collecting and making publicly available financial and other relevant information from public companies. Our staff seeks to enhance the quality of that information by asking companies questions about their disclosures and asking them to make changes where it appears that the disclosures may not be accurate or as complete as they should be. Although this is one of the original functions that the SEC has been performing for 76 years, we believe we can still do it better.
So we are reevaluating all of our corporate filing forms and disclosure requirements, asking ourselves whether the information that is being sought is still relevant, or whether another type of information or a different form of presentation would be more meaningful to investors and to the markets.
This is a major undertaking and, given the demands that financial regulatory reform legislation will likely impose on our rulemaking agenda, it may be a while before a proposal is presented to the Commission. Our staff is already reviewing existing disclosure requirements that have not been updated recently, however; reviewing recommendations made by previous advisory committees such as CIFIR, by academics and by other experts; and asking individuals who prepare and review disclosures day-in and day-out what rule-changes they think would elicit better information.
After this review, I expect the staff will present individual recommendations that we can act on quickly-such as revising the risk disclosure requirements. They will also present more sweeping recommendations that will take more time-such as possibly changing filing formats so that basic information can be more easily digested by investors and updated by companies.
And one key task will be tackling the problem of needless repetition in company filings. If you have suggestions for improving our disclosurerequirements, we would love to hear from you.
Corporate Governance