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Two Industry Experts Relaunch Market Structure Consulting Firm

Christopher Nagy teamed with Dave Lauer to relaunch KOR Group, focusing on data-backed research, while lobbying for more transparency in U.S. equities market structure.

Simplifying Access to Order Routing Data

They are collecting all of the data that deals with the broker order routing information and execution statistics from Rule 605 and Rule 606, and making that data accessible. “We’re just bringing those filings into a modern web framework in which technology can help make sense of this,” said Lauer. This data will be stored in a database with tools that enable members to visualize them with charts and show what is happening over time, “letting you pivot those data points by broker or by wholesalers,” he explained. In addition, KOR will provide the raw data so that people can draw their own conclusions and own analysis. “Everything we’re going to be advocating for is going to be data driven,” said Lauer, citing the new tick-size pilot that the SEC is going to run as an example. “If the SEC is going to be altering tick sizes to increase volume in small and medium-size stocks, that’s a claim that can’t be made against data," he said. “We’re going to be riding hard on what that data should look like,” he said. Nagy said the firm is “putting that out for members to view in ways that were not possible before at a price point that is very effective for the marketplace.”

[To hear about how financial firms are managing their complex data architectures, attend the Future of the Financial Services Data Center panel at Interop 2014 in Las Vegas, March 31-April 4.

Lobbying for Change: A Broad Coalition

By setting up a lobbying effort, KOR aims to be vocal on many structural issues. For instance, Nagy and Lauer, are attending a meeting with a lot of regulatory and Congressional stakeholders at the end of March. Nagy who spent time in Washington, D.C., working independently has noticed how “under represented” some of the firms are in the industry. While there are factions such as SIFMA and the big banks that can hire their own lobbyists, that’s not the case for other sectors. “We’re bringing a coalition of like-minded individuals to lobby for transparency and to bring a voice to a lot of these organizations that don’t have a voice or their voices aren’t powerful,” he said.

While Nagy and Lauer are both registered lobbyists, who have testified before the House and Senate, Nagy said, “We’re not lobbyists per se. We’re market structure experts,” which he said differentiates them from typical lobbyists. Now that they’ve built their web site, database and newsletter, they are moving forward with building The Common Sense Coalition. Nagy said they are in the process of recruiting members. Unlike standard lobbying efforts, where the client hires the lobbyist, and pays them a lot of money to lobby for whatever they want, “We’re trying to turn it on its head,” said Lauer. In KOR’s case, they are formulating a platform with improvements to make market structure simpler and more transparent and operate more fairly. And if you believe it then sign up for it because you don’t have a voice,” said Lauer.

They are pushing for action on three main issues: 1) bringing more transparency into execution and order routing practices of brokers; 2) implementing a Trade-At regime in U.S. equities, and 3) introducing more transparency into the make-or-taker model as a form of payment for order flow.

“When you look at the [Rule] 605 and 606 rules they are more than 14 years old,” said Nagy. Nagy said by modernizing those rules a lot of good could be done with market structure by updating those rules. Second, Nagy and Lauer want regulators to examine a Trade-At regime in the U.S. equities marketplace, mandating that trades take place on exchanges, unless there is a significant price improvement on alternative venues. Nagy notes that U.S. options markets have a Trade-At regime and they work more efficiently. “Many times you see more liquidity in the options than equities,” he said. “We think forms of Trade-At like what has been done in Canada and Australia would be very beneficial for the industry,” he said. KOR also wants to shine the spotlight on the maker-taker model, bringing more transparency to that price. Acknowledging that it’s probably difficult to eliminate that altogether, there are ways to significantly reduce the impact of those models in the marketplace, he said.

Lauer said the firm is trying to assemble a broad coalition of members and has been talking to a couple of large firms on the buy side. He has also spoken with HFT firms that want to see a more fair, democratic access for attracting order flow, “in which the best strategies have access to order flow rather than firms that have made backroom payment for order low deals,” and other electronic trading venues, agency brokers and some exchanges. The two groups missing from the conversation are big banks who have a voice already and retail brokers for which regulation has gone their way.

When’s he’s talking to people, Lauer tells them, “You’re not going to get everything you want, but you’re going to get a lot of it. We all agree these improvements will be a huge improvement to what we have today,” he said, adding, “It’s a compromise.”

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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