The SEC has decided to take a close look at the modern structure of the markets, which some think have been so altered by technology that the goals of Reg NMS and other regulations have been undermined. We've seen some regulatory activity on short selling, flash orders, naked access and dark pools. We may see even more. The dark pool proposals have generated a lot of interest and the SEC's proposals have been widely reported. 

The gist of the proposals call for the SEC to:

• Treat "actionable" IOIs as "similar to a typical buy or sell quote."
• Display the best price on orders when the volume of a stock in a particular ATS exceeds one-quarter of one percent of that stock versus 5 percent now
• Disclose more post-trade trade data   

Do not expect Wall Street to take this lying down. Goldman Sachs (GS) has met with SEC officials and forwarded a 55-page memo that defends the current market structure. Goldman, which operates the largest internalized dark pool Sigma X, certainly has a dog in this fight. As does Credit Suisse and most other banks. The dark pool movement in fact ranks as one of the most profound of the last five years. Most agree they now account for up to 15 percent of U.S. stock volume.  

Goldman Sachs apparently listed five myths about dark pools, one of which is that retail investors are at a disadvantage. Hopefully, the report will be made public in full at some point. The crux of the issue at the public-debate level may indeed turn on whether the current market structure has evolved to the point that retail investors are placed at a disadvantage. In fact, regulators will need to be careful to make sure that any tinkering with dark pools does not actually harm retail investors. 

Retail orders often make up the bulk of a lot of large orders, which then interact with dark pools and thus the entire modern market machinery. Others would argue that a lot of retail orders are consummated via wholesalers who can offer price improvement. 

But the industry has to be very careful, not to dig in too deep. Everyone acknowledges that some fine tuning, perhaps around actionable IOIs may be beneficial. The industry is going to have to give a bit--maybe a lot. To that end, it's probably a good idea for more companies to participate in the NYSE's effort to get more firms to report more data from ATSs. 

It has inked deals with Barclays Capital, Getco, Goldman Sachs Execution & Clearing, Knight Equity Markets and UBS to begin reporting via a FINRA facility next month. Other firms are expected to sign on as well. This is a somewhat symbolic move, but it would be much better for the industry to propose some solutions. The again, the Nasdaq's decision to submit its co-location business for SEC regulation may suggest that some think strong regulation is fait accompli. - Jim