Measuring the Impact of Changing the Tick Size on the Liquidity and Trading of Smaller Public Companies

The Securities and Exchange Commission in 2015 issued an order approving a plan to implement a Tick Size Pilot by the exchanges and FINRA. The Order approved the Pilot for a two-year period beginning October 2016, and it introduced a new quoting and trading rules for smaller public companies that were included in one of three Test Groups created by the Pilot. The Equity Markets Association believes the Pilot is a first step toward assessing whether liquidity in smaller companies can be enhanced.

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Importance of Market Data to Investors and Regulators

The market data used by professional and nonprofessional investors – as well as by federal regulators – is a critical component to the transparency of U.S. equity markets, according to a new report by the Equity Markets Association (EMA), an industry association representing the interests of U.S. exchanges.

In a whitepaper issued for federal policymakers, the EMA report provides an overview of market data’s role in the U.S. capital markets, including identifying different types of market data, the role of consolidated Security Information Processor (SIP) market data, and the responsibility for and governance of SIPs.

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Anatomy of a Trade

The Equity Markets Association hosted a briefing on Capitol Hill with an overview of U.S. equity markets, market participants, regulatory structure and how trade orders are executed.
The briefing for staff of the House Financial Services Committee and staff of lawmakers who serve on the committee was designed to provide visibility into how trades are executed, from retail investors trading through online services to market makers.
Stacey Cunningham, chief operating officer of the NYSE Group, and Frank Hatheway, NASDAQ’s chief economist, led the discussion into the mechanics of how trade orders are executed.

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An Introduction to Equity Markets

The Equity Markets Association (“EMA” or “Association”) was created in 2015 to provide policy makers, regulators and investors with in depth analysis on important issues that impact the U.S. equity markets. Its founders, Intercontinental Exchange, Inc. and NASDAQ, believe in a fair and transparent market place that incentivizes capital formation and a robust secondary market for trading securities.

The Association was created in response to the void of regular and consistent viewpoints from exchanges on issues that impact the nation’s capital markets. Consequently, the founding exchanges intention is for the Association to assist policy makers by providing periodic summary and research papers on specific topics impacting investors, issuers and equity market intermediaries, such as proxy governance, corporate and investor disclosures, and equity market structure. In addition, the Association will work to coordinate industry initiatives and discussions regarding topics such as coordination among markets during natural disasters and cybersecurity threats to financial markets. 

This paper starts with a high level overview of the role the U.S. equity market plays in our broader economy, followed by an explanation of the different market participants that operate within the equity markets, and closes with a summary of the current market structure issues at the forefront of any market structure discussions.

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