Outlook 2018: Tyler Gellasch, Healthy Markets Association

Which market structure changes do you expect to take place in 2018? 
After years of contemplating reforms to how markets operate, the SEC is finally poised to act. With the European regulators, the NY Attorney General, FINRA, and even the courts driving market structure reforms over the past couple years, we expect the SEC to retake its rightful position as the world’s leading trading regulator. A full Commission and a true market structure expert at the top of the SEC could help a lot. We expect the agency will finally adopt ATS and order routing disclosure reforms, propose a maker/taker pilot (with a “zero” bucket), propose reforms to market data and the roles of exchanges, issue long-overdue guidance on best execution, crack down on coin offerings and cryptocurrencies, propose reforms to increase oversight of fixed income trading, and kill the tick pilot. Put simply, we think they’re going to make a big dent in the massive backlog of basic reforms.

Which market structure changes should take place in 2018?
As Healthy Markets has talked about quite a bit, start with the major equities reforms that have been debated for the past several years, and then bring the fixed income markets into this century.

What do you see as the next watershed moment for the industry?
A race between a crackdown on cryptocurrencies and coin offerings and a broad market correction

The new year will be known as “The Year of…?”
The year a fully staffed SEC finally addressed the trading markets.

What do you view as the most important lesson of 2017? 
The future is dark for the current equities exchange business model.

Which hot topics/hype should be retired? 
The notion that removing information and rights from investors will spur investment.

What do you expect to be the skill sets most in demand in 2018? 
Blockchain developer and M&A lawyers for financial firms.

Why do you expect investments in fintech to rise, plateau, or trail off in 2018? 
Expect modest increases, while investors start to discriminate more, and focus on tangible cost savings…

Read the article in Markets Media here.

SIFMA Wants a PII-less CAT

The industry body is working on possible alternatives such as legal entity identifiers or a mechanism for large trade reporting. Both of which Tyler Gellasch, executive director of the Healthy Market Association, recommended in his testimony before the House Financial Services Committee’s Subcommittee on Capital Markets, Securities, and Investments in early December.

Read more in Markets Media.

Broker-Dealer Firms Raise Alarms That SEC’s CAT Database Isn’t Secure

Tyler Gellasch, executive director of the Healthy Markets Association, is against any delay in implementing the CAT. The group is made up of buyside firms – including large asset managers, pension plans and hedge funds – seeking to promote data-driven reform in the U.S. equity market structure.

“Exchanges and Finra have not provided new info as to why the provider they selected [Thesys] and the expectations and standards that they set are somehow inadequate,” he said.

Gellasch suggested detractors of the CAT are simply playing on “convenient public fear” to try and derail the CAT. The draft legislation to require the SEC to produce a cost-benefit analysis of the CAT would “leave it tied up in legal complexity for years … if it doesn’t kill [it] in entirely,” he said.

Read more in Financial Adviser IQ here.

House Subcommittee Considers CAT Delay

Fellow witness, Tyler Gellasch, executive director of the Healthy Markets Association, testified that the use of legal entity identifiers or large trader IDs could provide regulators with an elegant method to identify a trade's beneficial owner without relying on PII, "but that is not how the plan was developed.

Without access to PII or its alternatives, regulators will still need to gule together Order Audit Trail System data and data from SRO proprietary data feeds and "blue sheets" to detect market manipulation, which it does quite well, he added.

"FINRA has great surveillance capabilities, but without knowing who is doing the trading, you either need a whistle-blower or get luck scanning the screens to detect market manipulation."

Legislators ponder cybersecurity of market auditing system

But Tyler Gellasch, the executive director of the Healthy Markets Association, argued that the cybersecurity concerns raised by Huizenga and others are little more than a smokescreen to continue to delay CAT's release.

CAT has been under development since 2010 and has had repeated deadline extensions. It took until this year to finally select a contractor to design the system.

"We are ostensibly here to talk about data security," he said, "but I’ll assert that this hearing is really about whether for-profit market participants — some of whom may have the most to lose by the creation of the CAT — are able to exploit a convenient public fear to continue to deny regulators the basic tools they need to police the markets."

"After years of delays and exemptions, they have simply run out of other excuses," he later added.


Gellasch argued that the security processes in place have been well-vetted at this point and delaying the process any further only allows market manipulators to continue. 

Read more in The Hill here.

U.S. stock trading audit system delayed by hack fears

One worry is that the system does not, at present, identify who is trading. Without such information it will be less useful and have weaker cyber security, said Tyler Gellasch, executive director of pension plan and investment advisor trade group Healthy Markets Association.

“The legislation this committee ... is considering would unquestionably delay the CAT and leave it tied up in legal complexities and red tape for years, frankly, if it doesn’t kill it entirely,” Gellasch said.

Read more in Reuters here.

Hearing Prep:

“The U.S. stock exchanges will be under pressure at a House hearing on Thursday to defend their opposition to the Securities and Exchange Commission’s “consolidated audit trail,” a market surveillance tool envisioned after the “flash crash” of 2010. The hearing is being held to consider legislation designed to stop the CAT. “The for-profit exchanges have worried about the costs,” says Tyler Gellasch, one of the hearing witnesses and the executive director of the Healthy Markets Association, which represents CalPERS and other asset managers.

“Put simply, for-profit exchanges should not be empowered by the government to set the terms and the costs of the regulatory apparatus that oversees the markets—including their competitors,” he says in prepared testimony. Gellash will face off at the hearing against Chris Concannon, president at Cboe Global Markets, and a skeptic of the CAT.

Read more in Politico here.

Higher data fees prompt backlash against US equity exchanges

US equity exchanges increasingly depend on charging for data in a world of rapid-fire automated trading and that has sparked plenty of friction with the broader market. In the latest salvo, Healthy Markets Association, an investor trade group whose dozen or so members include Calpers and OppenheimerFunds, this week released a report on market data that describes a system rife with conflicts and calls for a broad overhaul led by chief US regulator the Securities and Exchange Commission.

Echoing a recent report from the US Treasury, Healthy Markets makes the argument that market participants are under increasing pressure to buy premium data both to stay competitive and comply with rules requiring them to execute trades at the best price available in the market at any given moment.

In its 80-page report, Healthy Markets says “exchanges have exploited an overwhelmed regulatory approval process to push through numerous significant changes and fee hikes in both the public and private data feeds that impact nearly all market participants, sometimes raising fees hundreds of per cent over just a few years”.

It found that a market participant who wanted the fastest connections with the most relevant trading information for CBOE, New York Stock Exchange and Nasdaq has seen its costs rise from $72,150 per month on June 1 2012 to $182,775 per month on June 1 2017.

“This has evolved from a problem that was really constricted to vendors and brokers to now impact every investor and other market participant,” says Tyler Gellasch, executive director at Healthy Markets. “Investors pay for these fees directly and they also have them passed through from their brokers and other service providers. Add it all together, and they get to be very significant.”

NYSE, Nasdaq and CBOE declined to comment on Healthy Markets findings or for this article.


Among Healthy Markets’ recommendations are a review of fee changes for “fairness, reasonableness and potential discriminatory impacts and undue burdens on market participants” as well as allowing investment advisers and broker-dealers greater say in market governance.

Read more in the Financial Times here.

Conflicts of Interest Rarely Kept SEC Chairmen From Voting

On enforcement matters, SEC staff “try to negotiate their way through things to keep it all moving” and avoid complications, said Tyler Gellasch, a former Stein counsel and executive director of the Healthy Markets Association trade group.

“Commissioners typically aren’t eager to hold up a case just because they may deadlock on something political that is outside of the case,” he told Bloomberg Law.

Read more in Bloomberg Big Law.

MiFID II: The Big Picture

The UK’s Financial Conduct Authority drew up MiFID II with two primary concerns: that individual investors were overpaying — albeit indirectly — for research, and that investment advisors were not providing sufficiently robust trade-execution protections. That’s according to Tyler Gellasch, executive director of industry trade group Healthy Markets Association.

U.S. trading and investing firms that don’t transact in European markets aren’t specifically covered by MiFID II need not worry about complying with the regulation on January 3, but over time those that aren’t aligned with its broad intent risk falling behind the curve. “I suspect that those firms are going to catch up and will adopt many of the same best practices as the global firms,” Gellasch said.

Continue reading in MarketsMedia here.

Wall Street Resigned to a CAT Delay

“It’s not surprising to see so many folks using the SEC’s mishandling of its own data breach to call for yet another delay,” added Tyler Gellasch, executive director of Healthy Markets Association. “It is probably not lost on the SEC that most of those same voices have been fighting the CAT for years on every front.”


The EDGAR breach is a bit of a red herring regarding the CAT since the platforms use different technology, noted Gellasch.

“I suspect the SEC and market participants will take comfort in the fact that the technology firm working on the CAT has been working on the SEC’s MIDAS for years without any known incidents,” he said.


It is hard to argue against taking a few months to make sure the CAT is up to snuff from a cyber-security perspective, given the amount of time and effort that has already gone into the project, according to Gellasch.

“After seven years of planning and fighting, the SEC might finally get a surveillance tool that is about half as valuable what most Americans would suspect the SEC would have had for decades,” he said. “The data breach is not the biggest threat to the CAT’s successful implementation, the enormous holes in its design, including the failure to include futures market information and legal entity identifiers, are much greater concerns.”

Continue reading on MarketsMedia here.

U.S. Shields Wall Street From MiFID Threat to Research Model

The SEC “went out of its way to make things worse for U.S. retirees and education savers, in an effort to help a few Wall Street banks,” said Tyler Gellasch, who runs the Healthy Markets Association, whose members include the California Public Employees’ Retirement System and Janus Henderson Group Plc. The reprieve “has empowered some banks to force bundling of commissions -- even though that means higher costs and less transparency for investors.”

To continue reading this Bloomberg article, click here.

Stock Exchanges Question SEC’s Plan to Revamp Trading

Tyler Gellasch, a former SEC lawyer who now leads an industry trade group, said he didn’t think the letter would dissuade the commission from launching the experiment.

“It’s aggressive, but they are basically trying to buy time,” said Mr. Gellasch, who leads the Healthy Markets Association. “An extended maker-taker pilot program could threaten their competitiveness when there is already a significant amount of off-exchange volume.”

Continue reading in the Wall Street Journal here.

New Skirmish in an Old Battle: Wall Street vs. the Customer

“Separately shopping for research and trading will significantly reduce investors’ costs,” said Tyler Gellasch, executive director of the Healthy Markets Association, a nonprofit organization focused on improving the integrity of the nation’s financial markets. “That directly translates to higher returns and more money for retirees and college savings funds.”

For the rest of The New York Times article, click here.

Banks Lobbying to Stem MiFID II Spread Sparks US Client Revolt

“It’s understandable that some very large firms that provide research and trading would want to preserve a cash cow,” said Tyler Gellasch, who runs the Healthy Markets Association, whose members include the California Public Employees’ Retirement System and Janus Henderson Group Plc. “What I don’t necessarily understand is how anyone could think that it’s good policy to do that.”

Please click here to continue reading in Bloomberg News.

Dalia Blass could tackle fiduciary standard as first order of business at SEC

Ms. Blass has the chops to navigate a controversial rulemaking like fiduciary duty, according to Tyler Gellasch, executive director of the Healthy Markets Association and a former counsel to SEC Commissioner Kara Stein.

"Directing the staff is only part of the job; it's also about working with the commissioners to find consensus," Mr. Gellasch said.


"That could fundamentally change how retail investors invest in the markets," said Mr. Gellasch. "You could have a real significant change in how we think actively managed funds should look. It will be interesting to see how she addresses the risks that come with a lack of transparency in funds that are traded in real time."

Continue reading in InvestmentNews.

Treasury Preps Market Review

“Just by the number of meetings they have been having and the discussions, there are signs that this is not a knee-jerk, ideological report but a much more thoughtful and carefully measured study and recommendations,” he said. “They were very careful not to tip their hand as to one side of things or the other. I was very encouraged by the types of questions that they brought to the discussion. They are looking at the key issues for market participants.”

Although the Treasury has not announced when it will publish its capital markets review, Gellasch senses that the regulator is close to shifting into a new phase. “They made it clear that they are wrapping up some of the outreach,” he said.

Continue reading on Markets Media here.

Wall Street Wins Round in Fight With Exchanges Over Audit System

“It’s not surprising that the funding structure is under scrutiny,” said Tyler Gellasch, a former SEC official who’s now at the Healthy Markets Association, a market-structure advisory group with members including OppenheimerFunds and Janus Capital Group. “It is surprising that it’s taken this long for the SEC to show any inclination that it appreciates the conflicts of interest posed by having one set of for-profit entities setting the costs for other market participants, including some of their competitors.”

College Kids Pitched on a Secret Stock Exchange to Help Pay Off Student Debt

“Its structure is very unusual in retail trading,” said Tyler Gellasch, executive director of the Healthy Markets Association and a former SEC counsel. “I would expect regulators might have a lot of questions about how the firm manages its conflicts of interest.”