How BlackRock Thinks The Stock Market Should Be Tweaked

BlackRock, Inc. Thinks The Stock Market Should Be Tweaked by Jake Mann, Benzinga

A new report from BlackRock, Inc. (NYSE:BLK) is making its way around the web. The document, which was recently sent to the Securities and Exchange Commission, offers a few tips on how to improve the U.S. equity markets.

Although it’s not as gloom and doom as some make it out to be — BlackRock, Inc. (NYSE:BLK) says the stock market isn’t “broken or in need of large scale change” — there are some noteworthy suggestions.

Some of those suggestions are listed below (emphasis given by author).

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Reduce conflicts of interest by addressing exchange access fees… exchange access fees give rise to a conflict of interest between reducing trading costs for brokers and achieving the best execution for clients. The current cap of 30 cents per 100 shares was established based on the prevailing pricing at trading centers prior to 2005. Since then, commissions and spreads have decreased dramatically, making these anachronistically large fees a significant component of trading cost in today’s ecosystem. The access fee cap should be reduced to 5-10 cents per 100 shares.”

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Enhance transparency and regulatory surveillance… Broker-dealers should be required to provide periodic standardized reports on order routing and execution metrics to retail and institutional investors [and]… Mandatory ATS disclosures should include greater detail on how the platform calculates reference prices, determines order priority, matches orders between client segments, monitors execution quality, advertises orders, interacts with affiliates and is compensated by subscribers.”

Curtail complexity in market structure… Innovation and competition have led to a more efficient and highly performing US equity market… this has also fostered a more complex market where order flow must navigate across multiple trading venues, placing a burden on investors… Regulators and exchanges should conduct a comprehensive review of existing order types to ascertain the extent to which they continue to promote just and equitable principles of trade and if any should be eliminated.”

Ensure equal access to market data… Exchanges should synchronize their timestamps and ensure that they are accurate to the microsecond… 23% of cancellations and 19% of trades occur within a 50 millisecond timeframe. Although this is a minority of overall trading activity, it does highlight that investors and regulators increasingly need to conduct analysis at high-frequency intervals. Accurate and consistent exchange timestamps are an integral component to enabling investors to understand the market and regulators to oversee it.”

Read the full letter here.