The U.S. Securities and Exchange Commission published remarks by Commissioner Hester M. Peirce arguing that SEC policy should be more firmly grounded in economic fundamentals and that the agency should reassess how its equity market structure framework shapes competition, innovation, and the exchange landscape. The speech also reiterated her objection to the Commission’s rationale for shortening beneficial ownership reporting timelines, criticizing the idea that fully informed traders are a prerequisite for fair markets. Peirce highlighted the proliferation of equity exchanges, citing 16 currently operating exchanges, three new equity exchanges approved in the prior half-year that have not yet started operating, and two additional exchange applications under consideration, which could bring the total to 21. She argued that exchange homogeneity and expansion may be driven in part by the Order Protection Rule and related connectivity and market data fee economics, noting that half of the 16 exchanges each capture less than 1% of total market volume, while about half of equity trading occurs off-exchange. The remarks contrasted exchanges’ self-regulatory organization obligations, including Exchange Act Section 19(b) rule filing requirements and constraints linked to the SEC’s interpretation of “facility” and Section 6(b)(5), with the greater flexibility of alternative trading systems (33 ATSs were cited). Potential reforms raised included eliminating, narrowing, or otherwise modifying the Order Protection Rule, narrowing the “facility” interpretation or creating exemptions, allowing greater flexibility to concentrate liquidity for less liquid stocks or to give issuers more choice over how their shares trade, reassessing exchange liability limitations, and enabling targeted experimentation similar to the SEC’s 2019 initiative for thinly traded securities. She also suggested revisiting whether exchanges should retain SRO status, while noting that any change would require Congressional action and would need careful consideration of market quality implications. On options market structure, Peirce pointed to continuing exchange proliferation (18 options exchanges) and proposed that the SEC hold a roundtable to discuss the Options Regulatory Fee, strike proliferation, and new types of options, alongside more economic research to inform future regulatory choices.
U.S. Securities & Exchange Commission 2025-05-16
U.S. Securities and Exchange Commission Commissioner Hester Peirce calls for review of the Order Protection Rule and exchange self-regulation model
SEC Commissioner Hester M. Peirce urged SEC policy to focus on economic fundamentals and its impact on competition and innovation in equity markets. She suggested reforms, including changes to the Order Protection Rule and exchange liability limitations. Peirce also proposed a roundtable on options market structure and advocated for more economic research to guide regulatory decisions.