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The $1.4tn asset manager was an early backer of IEX, the equity exchange with a speed bump

Capital Group, one of the world’s biggest investment groups and a cornerstone backer of upstart stock exchange IEX, wants the incoming Trump administration to stymie high-frequency traders by overhauling one of the US equity market’s biggest but controversial regulatory planks.

Matt Lyons, global head of trading at $1.4tn Capital Group, was a big supporter of the anti-HFT exchange made famous by Michael Lewis’s book Flash Boys, making his firm its first investor and championing IEX’s business model to regulators, which last year gave it full exchange status.

But with the advent of a new government in Washington and fresh leadership of the Securities and Exchange Commission, Mr Lyons is eyeing an even more radical overhaul of the US equity market: changing parts of Regulation National Market System, or RegNMS, which critics say have led to conflicts of interest and dangerous complexity.

“I am hopeful,” he said. “I’ve been pleasantly surprised that over the past few years we finally have the ears of regulators. And I think that with a pro-growth and less regulatory attitude we could actually get something done.”

RegNMS was introduced by the SEC in 2007 to enhance the efficiency of US equity markets by encouraging competition between individual exchanges, and requiring all orders to be routed to all bourses to ensure the best possible prices.

This has woven individual US exchanges together into one highly liquid, electronic marketplace, with $7.3tn of orders whizzing around every day on average last year.

But to attract trading activity in this more competitive environment, exchanges have in recent years started offering various rebates for firms that “take” or “make” liquidity, in other words offer to post orders on their bourses or to fill them. Critics say these maker-taker rebates have proven catnip to hyperfast trading firms that machinegun orders at exchanges and have led to unnecessary and harmful complexity.

While Mr Lyons said the US stock market’s electronic evolution on the whole has been positive, bringing down costs to investors like Capital Group, he argued that there is still room for improvement, especially “low-hanging fruits” like scrapping the maker-taker model.

“We have now seen RegNMS operating for almost 10 years and we have a lot of data and understanding of the impact. I certainly think that some unintended consequences have come about, and changes to that could be benefit to the market,” he said.

Mr Lyons concedes that getting rid of the rebating structure might initially hurt liquidity, but overall improve the market’s health by reducing some of its immense complexity.

IEX was envisaged as a partial counter to increasing complexity, introducing a flat fee on all shares traded with no rebates and a “speed bump” aimed at holding HFTs at bay. However, in spite of its new exchange status, its share of the US equity market has remained steady at 2 per cent, in part because its fees are more expensive that those of rivals.

There is industry chatter that under new management the SEC could revisit RegNMS more broadly — or even scrap it altogether.

The Trump administration has nominated Jay Clayton, a capital markets lawyer at Sullivan & Cromwell, to chair the SEC. His views on the stock market’s structure and RegNMS in particular are not known, but Paul Atkins, a former SEC commissioner who is advising Mr Trump on regulatory matters, voted against RegNMS in 2005, warning that the reforms would spawn complexity and market distortions.

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Trump regulatory regime expected to look kindly on consolidation in telecoms sector

2017 is shaping up to be a landmark year in the US telecoms sector, with industry executives and analysts predicting a frenzied period of mergers under the more deal-friendly regulatory regime of President Donald Trump.

The sector is readying itself for a period of upheaval. “Now is the time to consider that which in an earlier time might have been unthinkable”, says Jonathan Chaplin, analyst at New Street Research. A “Big Bang consolidation” this year is inevitable, he says.

Mr Trump has boosted confidence that his administration will be more open to megadeals since assuming the presidency. He picked Ajit Pai — a Republican commissioner on the Federal Communications Commission sympathetic to arguments that telecoms groups need to merge to compete with Silicon Valley rivals — to chair the US telecoms watchdog. And Jeff Eisenach, a consultant who has supported previously blocked telecoms mergers, is head of the FCC transition team.

The prospect of lighter regulation has lifted shares across telecoms companies since election night. Sprint and T-Mobile USA, which are viewed as the first companies likely to tango under the Trump regime, have emerged as the biggest winners: Sprint’s stock has gained 49 per cent, while T-Mobile has jumped 43 per cent since the vote.

Telecoms groups are temporarily banned from discussing deals because they are in the midst of a government-run auction of airwaves. However, the auction is expected to close in the next few months, which will kick off a “wild and woolly” period of rumours and dealmaking “like none we have ever seen”, said Craig Moffett, analyst at Moffett Nathanson.

“Over the next few months, we suspect that every conceivable combination will get its 15 minutes of fame,” added Mr Moffett.

Barack Obama’s administration had taken an interventionist approach to antitrust regulation, blocking an unprecedented number of big-ticket deals, including Comcast’s $42.5bn proposed takeover of Time Warner Cable in 2014 and AT&T’s $39bn bid for T-Mobile USA in 2011. It also signalled it would block any attempt by Sprint and T-Mobile to merge.

As a result the US telecoms sector looks much as it did five years ago, dominated by the “big two” wireless carriers: Verizon and AT&T, and the smaller challengers, Sprint and T-Mobile.

But telecoms and cable companies are looking now to fend off digital disruption from technology groups such as Netflix, while insulating themselves from the price wars launched by smaller players like T-Mobile, which has offered aggressive promotions to steal customers from larger rivals.

Observers are mulling a chessboard of potential combinations. Flirtations between Sprint and T-Mobile date back to 2013 when Masayoshi Son, chief executive of Japan’s SoftBank, took control of Sprint and sought to merge the two companies.

However, the FCC signalled at the time it would not approve any merger that cut the number of carriers from four to three.

Fast forward four years and Mr Son was among the first executives to visit the president-elect, after which Mr Trump told reporters the Japanese executive was “one of the great men of industry”.

“It is clear that [Masayoshi Son] wants to do a deal,” one telecoms banker said.

Analysts estimate the merger could generate significant savings, thanks to a larger network and stockpile of spectrum. The combined group would boast 97m mobile phone subscribers, making it a big enough company to compete with Verizon’s 114m and AT&T’s 91m subscribers.

However, Mr Son should probably not pop the champagne bottles yet. Getting the deal approved is “not a layup”, said Barclays analysts. Many of the staff at the FCC and the Department of Justice, which have supported a four-player market, are likely to remain, meaning the “threshold for approval is unlikely to completely reverse”, they said. Financing could also pose a challenge, as Sprint and T-Mobile USA combined hold some $70bn in debt.

Other suitors might also emerge. The two big US cable companies — Comcast and Charter — have flagged their ambitions to enter the wireless market this year. Buying T-Mobile, viewed as a prized asset due to its red-hot customer growth, would make for a quick entry.

Charter has already hired bankers to explore a deal with Verizon, which would create the world’s largest telecoms and cable group, the FT reported last week. While talks are in early stages, the interest underscores the likelihood of cable operators teaming up with wireless carriers — a tie-up that regulators are expected to look upon more favourably.

Flirtations between Verizon and Charter come as US regulators begin evaluating rival AT&T’s proposed $85.4bn purchase of content powerhouse Time Warner. While still preliminary, the chess game suggests that the “big two” are putting their faith in diverging strategies for the American wireless space. “So which will it be? Verizon’s bet on infrastructure, or AT&T’s on content?” asked Mr Moffett.

The AT&T-Time Warner megadeal could set a precedent for further transactions, although its chances of approval were dealt a blow by Mr Trump, who on the campaign trail vowed to block the combination. However, last week, Randall Stephenson, AT&T’s chief executive, said he was “very confident” it would get done.