On September 17, 2015, a standing room crowd attended the Financial Markets Quality Conference put on by the Georgetown Center for Financial Markets and Policy and the Financial Times.
The first keynote was SEC Commissioner (and Georgetown MBA alumnus) Michael Piwowar. He discussed the structure of financial regulation in the U.S., and pointed out that the debate in most countries is between a “single peak” regulator in which a single entity regulates banks and markets, and a “twin peaks” approach with separate regulators for banking and markets. In the US, we have a “rolling hills” model with multiple agencies regulating similar functions. “It makes absolutely no sense”
The recent volatility on August 24th was the hot topic at the next panel, “Market Stability in the Digital Age”, moderated by Gina Chon from the FT. The panelists were Stacy Cunningham from the NYSE, Chris Concannon from BATS, Andy Brooks from T. Rowe Price, Daniel Ciment from JP Morgan and Sapna Patel from Morgan Stanley. There was a heated discussion over whether a slower human-moderated opening is better than a faster automated market opening.
James Angel then moderated a panel on the empirical evidence on market quality. Krista Schwarz from Wharton presented evidence on market anomalies and declining liquidity in the Treasury market. Dealers are now less willing to hold positions and the market now relies more on automated HFTs to provide liquidity. Larry Harris from USC presented shocking data on the bond market: 43% of trades traded through the best bid or offer in the market indicating very poor execution quality for investors. Finally Charles Jones from Princeton highlighted a problem with pilot experiments in financial markets, in that the control stocks are not unaffected by the pilot. Greg Berman and Erik Sirri provided insightful comments.
Nasdaq president Adena Friedman discussed many of the innovations occurring in the market. For example, Nasdaq is planning on using blockchain technology to record and transfer shares in non-public companies. Short-termism is a fundamental flaw in market structure around the world.
Disruptive innovations were the topic of the last panel, moderated by Guy Adami (Georgetown 1986) of Fast Money, as the world awaited news of the Fed’s interest rate decision. Bob Gasser (GU 86, former CEO of ITG), Frank Hatheway from Nasdaq, Kashif Riaz from Blackrock, Cynthia Meyn from PIMCO/DTCC, Cromwell Coulson, CEO of OTC Markets, and Sayee Srinivasan of the CFTC joined the fray. Not only are technological developments potentially disruptive, but also activist investors. Bonds are 20 years behind OTC equities in terms of market structure evolution.
See below for videos of the conference: