- U.S. Edition October 27, 2018
Today's Paper
SEC Won’t Release ‘Speed Bump’ Study It Promised Two Years Ago
Investors expressed surprise at decision not to publish the study, which the agency committed to in 2016
The SEC declined to share any of the study’s findings and said it has “no immediate plans to release it to the public” because the report is internal. PHOTO: STEPHEN VOSS FOR THE WALL STREET JOURNAL
5 COMMENTS
By
Cezary Podkul
Oct. 24, 2018 1:14 p.m. ET
The Securities and Exchange Commission won’t release a study of the impact of brief delays in stock trading on market quality and pricing that investors have been expecting for two years.
The SEC committed in June 2016 to complete the study when it reinterpreted one of its rules to allow so-called “speed bumps” that briefly pause trades before relaying them to exchanges for execution. The move allowed IEX Group Inc. to become the first exchange to offer a trading venue that slows the speed of trading.
IEX argued that the 350-microsecond delay helps prevent rapid-fire traders from racing ahead of typical investors and unfairly profiting off of their speed advantage. That claim was disputed by high-tech trading firms that warned the speed bump could increase trading costs for investors.
In late June, shortly after the two-year window expired for the SEC to complete the study, The Wall Street Journal filed a public-records request to obtain a copy. The agency responded on Oct. 16 with a heavily redacted, 18-page document, “Report on the Effects of IEX’s Intentional Access Delay on Market Quality, Including Price Discovery.”
A spokesman for the SEC declined to share any of the study’s findings and said the agency has no “immediate plans to release it to the public” because it deems the report internal.
The SEC has premised policy actions on in-house economic studies before and has publicly issued studies after rules became effective to assess how well they worked. But the agency also has discretion to withhold records it deems to be part of the “deliberative” rule-making process.
Investors expressed surprise at the decision not to publish the study.
“The expectation was that this would be public information,” said Ken Bertsch, executive director of the Council of Institutional Investors, which represents pensions and other large investors. “I don’t know why it’s so secret.”
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The Modern Markets Initiative, a Washington organization representing high-frequency-trading firms, also expected the SEC’s study to be published. “It’s in the public interest for this information to come out,” said Kirsten Wegner, the group’s chief executive.
In June, SEC economist Edwin Hu published a separate study that looked at the impact of IEX’s speed bump on trading quality. That study—which does not represent the views of the SEC or its commissioners—found a decrease in trading costs for some stocks.
A spokesman for IEX said the exchange does not know the findings of the SEC’s report but expects the results to be similar to Hu’s study, which IEX lauded as a validation of its business model.
Since the SEC granted IEX’s application to become an exchange, others have also begun to experiment with trading delays, including the Chicago Stock Exchange and the New York Stock Exchange. However, exchanges utilizing speed bumps still account for only a small fraction of overall trading volume.
Without more guidance from the SEC, it’s hard for exchanges to know if they’re making the right choice by introducing speed bumps, according to Tyler Gellasch, executive director of Healthy Markets Association, which represents large investors.
“This looks like it may have some of that information,” he said of the SEC’s study.
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