January 12, 2021 | Stamford, CT USA — Although overshadowed in a year of unprecedented crisis and volatility, U.S. equity markets experienced several important changes in 2020 that will have significant implications for how markets function in the future.

A new report from Greenwich Associates, Investors’ Take on Market Structure Issues 2020 / 2021, analyzes the potential impact of these developments and reveals how the buy side views these important alterations to market structure.

Perhaps the biggest development came near year-end, when the U.S. Securities and Exchange Commission surprised markets with the scope and breadth of its Final Order on Market Data Infrastructure. One of the key elements of the proposal is a revision to the definition of “odd lot” orders, which have been growing as a share of overall market trading volume. Because much of the trading in higher priced securities is done in odd lots—both in terms of actual trades, as well as in terms of what is actually quoted—odd lots contain tremendous information.

“When you consider that you have to place an order valued at well over $300,000 in order to get a protected quote in Amazon (AMZN), it certainly seems like it is time to make some changes to the odd lot regime,” says Shane Swanson, Senior Analyst for Greenwich Associates Market Structure &Technology, and author of the new report. “Although these rules are sweeping in scope, we’re pleased to see that the SEC did take into account feedback from the buy side in several areas when writing the final proposal.”

The launch of three new U.S. equity exchanges last year triggered renewed debate about rules providing exchanges with “protected quote status” under Regulation NMS. To date, the debuts of the MEMX, MIAX and LTSE have attracted more media attention than realized market share.

Concerned about the additional complexity and potential market fragmentation, the buy-side institutions participating in annual Greenwich Associates U.S. Equity research now favor higher thresholds for protected status. In 2019, a majority of investors thought exchanges should be required to hit 1% of market volume to qualify for protected status. In 2020, that thinking has shifted toward 2.5% or even 5%.

Meanwhile, investors continued seeking solutions to their difficulties trading thinly traded securities, with 42% of investors favoring suspending Unlisted Trading Privileges (UTP)—which allows for stocks listed on one exchange to be traded on all others—with the goal of consolidating liquidity for thinly traded stocks on a single exchange.