May 14, 2015 / 12:36 AM / 2 years ago

U.S. SEC advisory panel begins review of stock market regulation

May 13 (Reuters) - A raft of suggestions to help make U.S. equities markets fairer and more efficient were on the table on Monday as an advisory panel kicked off its first meeting by presenting regulators with what some called a long-overdue review of market rules.

Issues like the cost of trading on exchanges, trading incentives and broker standards, were discussed by the U.S. Securities and Exchange Commission's Market Structure Advisory Committee at its day-long meeting in Washington, D.C. The panel's 17 members include representatives from fund companies, an exchange, off-exchange trading venues, dealers and academia.

"Everything, including statutes, regulations, interpretations, must be on the table. There cannot be any sacred cows," said outgoing SEC Commissioner Dan Gallagher, who has been critical of what he sees as overly complex regulation.

Many rules underpinning the market are more than 10 years old, and the last comprehensive and actionable market review came more than two decades ago.

The SEC had asked the group of financial industry veterans to focus on one specific rule requiring brokers to send client stock orders to the trading venues with the best prices. But the meeting took on a broader context from the start.

The broad nature of the meeting highlighted the complexity of the mostly electronic marketplace, made up of 11 public stock exchanges, more than 40 alternative trading venues, and hundreds of brokers vying for the business of retail and institutional investors.

Last March, author Michael Lewis published a best-selling book "Flash Boys: A Wall Street Revolt," which claimed the markets are rigged.

That added to concerns caused by high profile market snafus, like the 2010 "flash crash" that temporarily erased $1 trillion from the market, the 2012 trading error that cost Knight Capital Group $461 million, and a glitch in a key data processor in 2013 that led to a three-hour trading halt in stocks listed by Nasdaq OMX Group.

"The flash crash highlighted the fragility brought on by our highly automated and fragmented markets," said committee member Joe Ratterman, Chairman of BATS Global Markets, who added that the SEC had taken several steps to prevent a similar occurrence.

The committee will meet four times a year and come up with recommendations the SEC can use to guide its rule making, said Stephen Luparello, head of the agency's Trading and Markets unit. (Reporting by John McCrank in New York)

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