Hearing of the Capital Markets and Government-Sponsored Enterprises Subcommittee of the House Financial Services Committee - Market Structure


By:  Scott Garrett
Date: June 20, 2012
Location: Washington, DC

Rep. Scott Garrett (R-NJ), Chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, delivered the following opening statement today at a subcommittee hearing to examine the quality, innovation and competition in the U.S. equity markets:

"Today's hearing is entitled: "Market Structure: Ensuring Orderly, Efficient, Innovative and Competitive Markets for Issuers and Investors.'

"I believe when examining the state of our equity markets, we first need to look at the data. And, the data tell us, that by any traditional measuring stick, the U.S. equity markets are the best in the world.

"Whether it is execution speed, liquidity, or pricing, both retail and institutional investors are recognizing the direct benefits of this evolving marketplace.

"What I am hopeful to learn from our two esteemed panels today are ways that Congress, the regulators and market participants can continue to ensure that our markets remain the envy of the world. Specifically, I look forward to hearing ideas on: promoting improved competition between market participants; increasing innovation in the marketplace; and facilitating additional capital formation for small businesses.

"First, I believe improved competition in the wake of the implementation of Reg-NMS has been a major contributor to the improved data seen in our equity markets. Narrower spreads, faster execution and increased liquidity have all been direct results of the additional competition in the marketplace.

"Promoting improved competition should be achieved by lowering barriers to entry and establishing a more efficient process to bring new technologies to bear, not by saddling market participants with additional burdens and raising transaction costs on investors.

"Second, increasing innovation in the marketplace must be a priority. The technological innovation in our equity markets over the last decade has been amazing to behold. Markets have become more automated and I believe this automation has yielded significant positives for investors.

"While there have been isolated instances of technological problems with the "Flash Crash' and Facebook IPO, we must look at the empirical data as a whole. Focusing on a couple of isolated and anecdotal events takes away from the extraordinary strides that have been made, in large part, because of the technological innovation in our markets.

"Finally, on the heels of the successful, bipartisan JOBS Act -- I look forward to examining ways to facilitate additional capital formation for small businesses. While the JOBS Act will help small businesses go public, I am interested in further discussing ways to help increase liquidity and trading once they do.

"Two proposals, Mr. McHenry's draft legislation to implement a Market Quality Incentive Program and Mr. Schweikert's proposal to allow for increased tick sizes for smaller companies, could be ways to provide much needed support to small businesses. While I believe Reg-NMS has achieved many benefits for large cap stocks, I am not certain that the current one-size-fits-all approach is best suited for all public issuers.

"In conclusion, I quote my good friend from Texas, Mr. Hensarling in giving some advice to the regulatory community, "first do no harm.' Any changes to the rules of our equity markets should be after a thoughtful empirical analysis of the costs and benefits of any potential change.

"Ensuring we maintain the deepest, most liquid and most efficient equity markets in the world is a top priority of this subcommittee. I'm looking forward to a robust discussion today on these important issues and examining ways to better facilitate investment and capital formation so American businesses can grow our economy and create American jobs."

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