Two Congressmen Raise Concerns Over Plan for End-of-Day Auction -- Update
August 10 2017 - 6:04PM
Dow Jones News
By Alexander Osipovich
Two members of Congress have written the head of the Securities
and Exchange Commission to voice worries about an exchange's
proposal to shake up the crucial 4 p.m. closing auctions that
determine the final end-of-day prices of thousands of stocks.
The Wednesday letter from Rep. Sean Duffy (R., Wis.) and Rep.
Gregory Meeks (D., N.Y.), shows how a dispute between exchange
operators has become a high-stakes fight drawing in index giant
S&P Dow Jones and companies like Procter & Gamble Co.
Bats, a unit of Chicago-based CBOE Holdings Inc., is seeking to
create an alternative to the closing auctions run by the New York
Stock Exchange and Nasdaq Inc. Such auctions are an important
source of revenue for NYSE and Nasdaq, which have both lobbied
against their rival's proposal.
In June, NYSE President Thomas Farley attacked the Bats plan in
testimony before members of the House Financial Services Committee.
Mr. Duffy and Mr. Meeks are both committee members. Both have
accepted donations from the political-action committee of
Intercontinental Exchange Inc., the owner of NYSE, according to
OpenSecrets.org.
Bats's plan "could disrupt the closing auction process for
determining the closing price of listed companies, which today is
viewed as an incredibly well-functioning part of the capital
markets," they wrote in the letter to SEC chairman Jay Clayton,
seen by The Wall Street Journal.
More than a dozen NYSE-listed corporations have criticized the
Bats closing-auction plan in letters to the SEC, including P&G,
FedEx Corp. and gas and electric utility Southern Co.
S&P Dow Jones Indices, which calculates indexes that
underpin more than a trillion dollars' worth of exchange-traded
funds, voiced skepticism about the Bats proposal in a letter filed
with the SEC in July. The index provider relies on exchanges'
closing prices to calculate its official closing index values each
day. Bats is a major listing exchange for ETFs.
NYSE and other critics have said that allowing Bats to implement
the proposal would introduce unnecessary complexity into the U.S.
stock market and create new opportunities for market manipulation.
Bats has rejected such criticism. Last week it filed a response
with the SEC accusing NYSE and Nasdaq of "fearmongering".
Bats declined to comment on the letter from the two
congressmen.
Mr. Meeks denied that the letter was aimed at sinking the Bats
proposal. "Nowhere in this letter did we take a position on the
proposal,'" he said, in an statement emailed by his spokesman. "Any
indication to the contrary would be a clear and blatant
mischaracterization of our intent, which was to encourage the SEC
to weigh the impact on 'Main Street.'"
The proposal, called Bats Market Close, would give traders a new
way to buy and sell shares of companies listed on NYSE and Nasdaq
at the daily closing price.
Instead of submitting so-called "market-on-close" orders to NYSE
or Nasdaq, traders could submit similar orders to Bats by 3:35 p.m.
Bats would seek to fill as many of them as possible, using the
day's final price published by its competitors.
Bats says it will undercut the fees that NYSE and Nasdaq charge
for trading at the close, which have grown in recent years. Its
plan has won support from Wall Street's biggest lobbying group, the
Securities Industry and Financial Markets Association. Sifma told
the SEC in June that approving the Bats plan would "increase price
competition and resiliency in the closing auction process."
During the trading day, a stock can be traded on any exchange.
But at the close, it reverts to the exchange where it is listed.
That means NYSE has an effective monopoly on closing auctions for
shares of companies listed on the Big Board, while Nasdaq has a
similar grip on closing auctions for Nasdaq-listed stocks.
Write to Alexander Osipovich at
alexander.osipovich@dowjones.com
(END) Dow Jones Newswires
August 10, 2017 17:49 ET (21:49 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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