SEC Names J.P. Morgan Executive as Top Regulator of Exchanges

By Dave Michaels Features Dow Jones Newswires

The Securities and Exchange Commission on Wednesday tapped J.P. Morgan Chase & Co.'s top electronic-trading executive as a senior regulator, signaling an appetite for shaking up rules that are blamed for fragmenting trading across dozens of venues and fomenting the rise of high-frequency trading.

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Brett Redfearn will become the SEC's director of trading and markets, making him the agency's point person for regulating exchanges, broker-dealers and high-speed trading firms. As J.P. Morgan's global head of market structure, Mr. Redfearn has criticized some exchanges' business models and privileges, including the legal immunity they enjoy from many lawsuits.

Mr. Redfearn has particularly needled exchanges over their practice of packaging and selling expensive market-data feeds. The real-time price reels play a part in high-speed traders' secret sauce, and many Wall Street banks also buy them to stay competitive.

"I am particularly interested in market data and market access, and ensuring we have a very fair and competitive landscape," Mr. Redfearn said in an interview Wednesday.

Mr. Redfearn, 53 years old, went to Evergreen State College in Washington state and holds a master's degree in political science from the New School in New York City. He started his career not on Wall Street but as an economic development official at the Port Authority of New York and New Jersey. He joined the American Stock Exchange in 1996 and in 2004 moved to Bear Stearns Cos., which was acquired by J.P. Morgan during the 2008 financial crisis.

The J.P. Morgan executive said he would join the SEC soon without giving a date. He is one of the final top hires of SEC Chairman Jay Clayton, a Trump administration appointee who took over the regulator in May.

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Mr. Redfearn is part of a wave of Wall Street veterans who have joined Mr. Clayton's staff, a practice known as the "revolving door" that accelerated after the agency courted industry experts after the 2008 crisis. Mr. Clayton earlier hired Alan Cohen, Goldman Sachs Group Inc. 's former global head of compliance, and David Metzman, former chief compliance officer of hedge-fund manager Aurelius Capital Management LP.

Other high-ranking regulators, including Mr. Redfearn's predecessor as director of trading and markets, have left the SEC to join Wall Street firms such as trading behemoth Citadel Securities.

"Brett's extensive markets experience and his longstanding, active engagement with investors, financial services firms, exchanges, and the SEC make him exceptionally well-positioned to lead the Division of Trading and Markets," Mr. Clayton said in a statement.

Part of Mr. Redfearn's role at J.P. Morgan involved helping long-term investors such as mutual-fund managers navigate the Byzantine structure of the stock market. He has been an outspoken critic of the regulatory privileges -- such as legal immunity -- that stock exchanges maintain despite their move a decade ago to become for-profit companies.

The feud stems from federal judicial decisions that found exchanges enjoy limited liability for decisions they make as operators and regulators of markets. The dispute exploded into the mainstream in 2012 when brokers complained Nasdaq Inc. didn't adequately compensate them for losses stemming from the exchange's botched initial public offering of Facebook Inc.

"Exchanges' immunity and limitations on liability provide exchanges with an unfair advantage in areas where they are competing with broker-dealers, alternative trading systems, and vendors," Mr. Redfearn wrote in testimony prepared for an SEC advisory committee hearing in April.

His most immediate assignment will be shepherding the SEC's move to revamp incentives that exchanges offer to attract trading. Many large investors believe the incentives -- rebates of trading fees handed back to brokers -- skew where their orders are routed. The SEC is preparing to propose a pilot program that would reduce the rebates on a sample of stocks to see if market quality improves.

A bigger challenge awaits after that. Mr. Clayton has shown an interest in reconsidering a package of SEC rules passed in 2005, known as Regulation NMS, which helped disperse stock trading across more than 50 platforms, including exchanges and private venues known as dark pools. The fragmentation has caused complexity that critics say has increased breakdowns and malfunctions.

Mr. Redfearn declined to say whether he would support rule changes that could rein in the proliferation of U.S. equity exchanges, now numbering more than a dozen. "Anytime somebody talks about fragmentation, you are also talking about competition," he said. "We are in a very pro-competition environment."

"It's going to be important to go back and discuss these issues with the chairman, the other commissioners and the staff, and see how we can work together to arrive at some more efficient outcomes," he added.

Some Republican critics of the rules, including former SEC Commissioner Paul Atkins, argue the rules also stripped brokers of discretion for how to best fill clients' orders. Mr. Redfearn declined to say how he might approach an overhaul of the rules, but signaled the time is right for an in-depth review.

"It's been 10 years since the implementation of Regulation NMS and certainly it's time to revisit that set of rules," he said. "The SEC is more in control of its agenda and it's a good place to focus on some of these important issues."

Write to Dave Michaels at dave.michaels@wsj.com

(END) Dow Jones Newswires

October 18, 2017 16:37 ET (20:37 GMT)