SEC Warns Investors on Cryptocurrency Exchanges

“The SEC is going to regulate not only the products but the places where they trade and who trades them,” said Tyler Gellasch, a former SEC official who is now executive director of Healthy Markets Association, an investor-backed trade group. “There ought to be some pretty deep soul searching for those operating some of these trading platforms.”


The statement, jointly issued by the agency’s enforcement division and its trading and markets division, shows the regulator’s interest in policing the worst abuses through litigation while nudging the broader industry toward regulated status, Mr. Gellasch said. “I’d expect the SEC is already eyeing up cases of potential abuse and would probably go after platforms related to those,” he said.

Read more in the Wall Street Journal.

SEC Nixes CHX Acquisition

However, the industry should not view the Commission’s decision as a shot across the bow regarding foreign investment in SROs, according to Tyler Gellasch, executive director of the industry organization Healthy Markets Association.

“The structure of the deal and the opacity of the ownership, and accountability, likely made this an easy call for the Commission,” he said. “While all potential deals with foreign investors will receive heightened scrutiny, this one seemed particularly unlikely to withstand that test. Going forward, don’t be surprised to see a private equity buyer materialize for the exchange. Whoever buys it is doing so of the license and opportunity, and certainly not for its current market share and revenue.”

Continue reading in MarketsMedia.

Most Mini-IPOs Fail the Market Test

“Many of us were concerned as RegA+ was being developed that it would be a disaster for investors,” says Tyler Gellasch, a former SEC staffer who now runs the Healthy Markets Association. “A few years into this experiment, and these results are about as bad for investors as anyone could have predicted.”

“A market—an entire market—losing half its value when the rest of the stock market was going through the roof is a massive problem,” Gellasch says.

Continue reading in Barron's.

Amateur Investors Get Burned By Wall Street's Hottest Trade

The availability of such products to individual investors is part of a trend that has given people more control over their finances and retirement. It has also exposed more of them to getting ripped off, said Tyler Gellasch, executive director of Healthy Markets Association, a Washington-based investor-advocacy group.

“We don’t want to deny ordinary Americans the ability to trade in ways that can help them,” Gellasch said. “At the same time, these things are very complicated, they can really blow up.”


Still, the Securities and Exchange Commission “doesn’t really ever look at whether an ETF is a ‘good idea’ or ‘risky’ for investors, but rather focuses on the mechanics of how it operates and the accuracy of its disclosures,” Gellasch said. “The agency doesn’t generally pass judgment on the risks or wisdom of a product. An accurately described time bomb for an investor could be approved.”

Continue reading in Bloomberg.

Fears grow as exchanges up sales of data

Sources interviewed for this story agreed the SEC has not been thorough in its assessment of exchanges' market data proposals. The SEC generally "rubber stamps" exchange data product proposals, said Tyler Gellasch, executive director of Healthy Markets Association, Washington, a non-profit group of money managers, brokers and pension funds with a combined $1.5 trillion in assets held or under management that lobbies on trading and market structure issues. "Information leakage and cost issues all stem from a fundamental problem — for-profit firms are writing these rules and the SEC is approving them," Mr. Gellasch said.

Among Healthy Markets Association's 10 members are the $355.5 billion California Public Employees' Retirement System, Sacramento; PSP Investments, which manages the assets of the C$135.6 billion ($109.2 billion) Public Service Pension Investment Board, Montreal; Janus Henderson Group PLC and Brandes Investment Partners. In a Jan. 17 letter to SEC Chairman Jay Clayton seeking to revamp the SEC's procedures for approving exchange market data proposals, the association said for-profit exchanges "have been able to exploit their essential role in the market infrastructure to add complexity and costs to a broad swath of market participants. And we found that almost no information related to the volumes and impacts of these fees is public."

Read more in Pensions & Investments.

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.

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.

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.

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.