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EPISODE 225

NYSE’s Hope Jarkowski, Navigating Markets at the Crossroads of Washington and Wall St.

50 minutes · March 8, 2021

Hope Jarkowski, the Head of Equities at the New York Stock Exchange, makes her inaugural visit Inside the ICE House to look back on a wild year on the anniversary of the March 2020 market correction. ICE’s longtime Co-Head of Government Affairs, Hope is armed for her new role with deep experience working on regulatory issues to help drive the NYSE’s stature as the premier global equities exchange to the next level. Hope shares her thoughts on the Biden-era SEC, the democratization of trading, and what changes to market structure may be needed to meet the modern needs of investors.

Speaker 1 (00:03):

From the library of the New York Stock Exchange at the corner of Wall and Broad streets in New York city, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership, and vision and global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now at the NYSE and at ICE Exchanges and clearing houses around the world. And now welcome Inside the ICE House. Here's your host, Josh king, of Intercontinental Exchange.

Josh King (00:47):

We're at the one-year anniversary of an unforgettable week that shaped everything in the markets in 2020 and now beyond. The week started normally, it was really celebratory even. On Monday, March 9th, a year ago, 2020, Jane Fraser, President of Citigroup, that's NYSE ticker symbol C, who now, by the way, is the firm's CEO, was joined by ICE Data Services president, Lynn Martin, to ring the, "Our opening bell," an annual right to celebrate International Women's Day. The bell podium featured the classic filled perch, a group of esteemed women enjoying the moment and welcoming the new trading day with a chorus of clapped hands.

Josh King (01:29):

As I watched in real time from the trading floor below, the only notable difference was a series of elbow bumps instead of the usual hugs and shaking the pants. A week earlier, New York city had announced the first case of Corona virus. There was a measure of concern, of course, but like so many things that breathlessly occupy a few days of headlines and coverage, my wife and I couldn't imagine it going much beyond that. Before the group on the podium was able to descend down the one flight of stairs from the bell podium to my spot on the trading floor, the market had dropped over 7%. That's a significant number on the floor of the New York Stock Exchange. It triggers what's known as the market wide circuit breaker. It was put in place after the 1987 crash, and hadn't been triggered since 1997.

Josh King (02:21):

A mechanism unused for 23 years, responded to the fervor and panic across the economy, met by a determined mood of calm on the floor. Like boxers between rounds, the designated market makers and floor brokers took their corners to analyze and strategize a plan 15-minute break. The markets reopened 9:48 AM, and despite massive volume, almost all of it, a sell off the markets operated flawlessly. This was the start to a week that would see unprecedented volatility that would trigger more circuit breakers as the raging pandemic spread globally, mixed with the first widespread lockdowns and backdrop by an oil dispute between Russia and OPEC.

Josh King (03:09):

My colleague and our guests today Hope Jarkowski watched the market's response and the beginning of the country's COVID battle from her vantage point in Washington, DC. Hope along with her colleagues in our DC office serves as ICE's eyes, ears, and voice in the nation's capital tirelessly advocating on behalf of investors and clients. Our conversation with Hope Jarkowski, now the New York Stock Exchange's Head of Equities on the lessons of March 2020 is volatility ticking off the biggest issues facing the equity markets, and how her career has taken her from the halls of Congress to the floor of the NYSE. That's all right after this.

Speaker 3 (03:54):

Whether it's markets, exchanges, or networks, connection makes everything possible, the connection between data and technology, innovation and expertise, and most of all, between people and opportunity. For over 20 years, ICE has transformed markets, products, and processes to make things work better, faster, smarter, from modernizing energy and commodity trading to revolutionizing the bond markets. Whether it's the world's largest stock exchange or the dream of home ownership, we do more than see the big picture. We create it. You may not know our name, but we bet you know our network. ICE, Make the Connection.

Josh King (04:53):

Our guest today, Hope Jarkowski, is the New York Stock Exchange's Head of Equities, where she leads the strategy and operation of the NYSE's five equity exchanges. Hope's been with Intercontinental Exchange and the NYSE since 2016, serving as co-head of government affairs, before shifting to our equities role earlier this year. Her experience combining public policy development, securities regulation, and advocacy on behalf of the NYSE and ICE, along with our community of listed companies... Her experience combining public policy development, securities regulation, and advocacy on behalf of the NYSE and ICE, along with our community of listed companies has been impactful across the organization. Her new role focuses on extending the NYSE leadership as the premier global equities exchange. Hope Jarkowski, welcome Inside the ICE House.

Hope Jarkowski (05:48):

Josh, thanks for having me. It's great to be here.

Josh King (05:51):

So, Hope, when that market wide circuit breaker hit, you may have been in the only place that rivaled the frenzy happening on the trading floor. You were in Washington, DC, where you live and work. It's the last year of the Trump Administration. We're just getting to know people like Tony Fauci on the stage of these daily White House coronavirus briefings. You've never really worked outside or work remotely, but take us through your version of events that day, March 9th and the weeks that followed, and how you basically adapted to government affairs work after that point.

Hope Jarkowski (06:29):

We were in constant contact with the White House, people on Capitol Hill, leadership at the SEC. Everyone was very focused on the turmoil in the markets and many were focused on the NYSE, in particular. I had lots of conversations about what the NYSE was doing, how important it was for the trading floor to remain open as a symbol of the stability in the markets and frankly, a symbol of the stability in the country. So a lot of my time was spent just with inbounds from very worried people in Washington, trying to make sure that we were okay, that the markets were okay, and hearing how we were thinking about the evolving situation. I also spent a lot of time trying to help people understand that having daily COVID coronavirus briefings, a half hour for the market closed, wasn't the best timing. We had some success, but not total success.

Josh King (07:33):

I mean, there were also calls at the time, and you go back and look at the clips, lawmakers, staffers, opinionaters, pundits, they would say, "Why don't we just shut the markets down for a couple of days, just to get a breather, and let everyone take a breath?" Stacey Cunningham, the President of the NYSE and others said, "That's the worst thing to do."

Hope Jarkowski (07:55):

Yeah. She said that, the chairman of the SEC said that. And to this day, it's unclear to me where in Washington that rumor originated, but it was there and I heard it daily.

Josh King (08:06):

What would be wrong with taking a break?

Hope Jarkowski (08:09):

I think importantly, investor confidence is paramount in these types of situations. And when the markets can demonstrate that they are resilient in really unprecedented times of volatility, that instills confidence. So shutting down the markets is the opposite of instilling confidence that the market's resilient and we can handle these kinds of situations.

Josh King (08:37):

During the volatility from those early days of the pandemic, Hope, the equity markets are experiencing record volume levels, and I think the exchange is processing upwards of about 300 billion messages on some single trading days. A year out, as you think about the last 12 months of conversations you've had with people in the Hill, people in treasury, people at the SEC, what's the conversation about the market's response to COVID?

Hope Jarkowski (09:04):

The importance of the markets really came into view in 2020 in a few ways. First, as you mentioned, just the extraordinary resilience that our markets have. And I'll actually add to your 300 billion message number because on one day in March, we process upwards of 329 billion messages. Just to put a comparative point on that in the rest of 2019 and 2020, our average is around 50 or 60 billion messages a day. So just put that into perspective as to what that meant in terms of the stress that was being put on this systems within NYSE and within the markets on the whole. And they performed flawlessly.

Josh King (09:49):

As we were talking about earlier, during that time, you were at a very different role at ICE than you are in your current one. At the close of 2020, you decided to take a different job within the New York Stock Exchange, now Head of Equities. That means you're coming into this seat, following that unprecedented year. That is so far tracking, if you look at the way things are going day to day at the market, another eventful one. How's the transition been so far? And what interested you in this opportunity to change positions on the ICE team?

Hope Jarkowski (10:21):

Yeah, I didn't really get a slow on-ramp into my new job. I came in at the end of November. And one of the first orders of business was contending with some shifting policy positions around Chinese listed companies. The next was around the events of late January with GameStop. So it's been kind of dropped into the end of the swimming pool. It was a lot of help. As it turns out, the key things that I'm working on have such a touch point with regulatory policy, and to some degree politics. It clarified that every business strategy decision that we make has a strong grounding and Washington thinks about it. And so I'm able to use the skills that I've cultivated over my career in a different way, but really towards the same end goal. And so far, it's going well.

Josh King (11:24):

Let's talk about that career for a second because although the last eight weeks have been about delisting Chinese telecom companies per the president's executive order, President Trump's Executive Order, or chair woman, Maxine Waters, calling Roaring Kitty to testify before her, her panel in Washington, DC. Different year, different issues, but it's always a bit of nuttiness. But let's jump back to the beginning of your, Hope. You started in the Office of the General Counsel for FINRA, and I've worked in the securities industry ever since, but you earned a bachelor's degree in biology and anthropology from Emory. How does that background lead you first, to the world of Washington and also to the world of finance?

Hope Jarkowski (12:13):

You're right. I come from a background in the sciences. I thought I was going to be a biologist and change the world in that way through that course of study. And like any scientist, I decided to go to law school. So it was kind of an unexpected path. And when I was in law school, every day in my corporate finance class, we were reading cases about Wall Street, and I looked at the newspaper and the above the fold stories were inevitably about things that were happening in the markets. It was around the time of the research analysts scandals, and you had Regulation FD coming online. And I thought, well, this is really interesting and why not? Maybe I'll be a lawyer and everything I do, I'll just be working on things that are on the front page of the paper. And that, in a combination of excellent teaching and excellent early mentoring in my early career, set me on that path.

Hope Jarkowski (13:15):

And so I've been working on these issues for such a long time. I was thinking about this, this morning that Reg NMS is 15 years old, and I remember working on the law firm summary memo for Reg NMS when it was adopted in the early 2000s. So I've been living with Reg NMS and its impacts in one way or another for a long time.

Josh King (13:43):

You live with it so long that you sort of adopt the abbreviations within the nation's capital. But Reg NMS, Regulation National Market System, the year 2000, what is it, and why is it put in place?

Hope Jarkowski (13:57):

We do live in alphabet soup down here in Washington, and it's easy to forget that not everybody follow these things every day. So Regulation NMS is a comprehensive set of market structure requirements that were adopted in the early 2000s, that gave rise to tremendous competition in the equity markets and also tremendous fragmentation. So it took us from a time when the New York Stock Exchange accounted for the vast majority of market share, and there were some upstart exchanges in the marketplace to a time where there are over 15 exchanges that are registered with the SEC, where one can trade as well as over 100 off exchange venues, that account for nearly 50% of the market, depending on the day. But it's been over 40% for some time.

Josh King (14:50):

Now with all the perspectives that you have on this, going back in 15 years or so or more, what are the good things about market fragmentation, and what have we lost with a fragmented market?

Hope Jarkowski (15:01):

The good things with market fragmentation, the competition, that having multiple venues, presents opportunity for people to get the best result that they can because it's a very competitive environment. The downsides of all of that is it's created a market where market participants feel obligated to connect to these many venues in order to seek the best execution for their clients. And so as a practical matter, that means that the fixed costs of being in the business and on Wall Street have gone up. At a time when the cost of trading, commissions are at zero, transaction costs are at a corresponding way, transaction revenue, is at historic lows. So it's created a system where regulatory obligations have driven business to a point where it's hard to make a dollar the same way it was 20 years ago. And that's led to unfortunate disagreements within the Wall Street industry about what ought to be done about it, and has led to unfortunate interactions with the SEC in that same regard.

Josh King (16:20):

Talking about how you make a dollar, as your career progressed, Hope, you spent several years in the private sector at the law firm, doing things like writing the memo about Reg NMS, and then you joined the regulator, the Securities and Exchange Commission, as counsel to one of its commissioners troy parodies. A few months after you started, another huge piece of legislation Dodd-Frank Congress's Wall Street reform bill in response to the 2008 global financial crisis becomes law. What is the SEC's role in implementing the act?

Hope Jarkowski (16:55):

It was an unprecedented time at the SEC with literally an 800-page proposed rule dropped on our lap almost every Friday evening without fail. And it was a time of a commission who historically tents its garden of regulating the exchanges, regulating broker dealers, examining entities, regulating investment advisors, to a new place of regulating the credit default swap market, and implementing sweeping public company disclosures around extractive mining and another various requirements that came out of Dodd-Frank. And working with other regulators, what I have to believe, was an unprecedented way, not just regulators in Washington, but the CFTC and the Prudential regulators, many joint rulemakings, such as the Volcker Rule and others, but also working in a very significant way with global regulators as they sought to implement change in Europe, coming out of the Pennsylvania court and working on message too, and other such set of requirements.

Hope Jarkowski (18:18):

So it was a fascinating time to be at the SEC and also an exhausting time. It wasn't what I would call your typical government job.

Josh King (18:29):

I mean, as your aperture is expanding to see the bigger world and the engagement of global regulators on these issues coming out of the financial crisis, coming out of the G20, meeting in Pittsburgh, you're also seeing a lot more of these corporate players involved in the ecosystem, one of which is Intercontinental Exchange, ICE. I'm curious from where you sat at the SEC at the time, how did ICE become increasingly sort of part of what you were seeing looking at as a facilitator of market structure?

Hope Jarkowski (19:05):

I first came to know ICE when I was at the SEC, because we were learning in real time about how the swap markets worked. And with this new requirement to regulate a certain component of the credit default swap market, we had to understand who was in the marketplace and ICE was the biggest player. And so that's how I was first introduced to the ICE business model. And then started learning that there's this whole new world of commodities and derivatives clearing, and for the first time, appreciated how important the ICE clearing house model had been in the derivative space. So it was very much a learning curve when it came to understanding all of those markets. And then just left the SEC, and I was counsel on the Senate Banking Committee, advising, then ranking member, Mike Crapo on securities matters.

Hope Jarkowski (20:04):

And Jeff and Co came to have a chat with the Senate Banking lawyers, and to tell us about how he had just bought one of the oldest U.S. financial institutions, the NYSE. So at the time, I think ICE was 13 years old, buying a 200 and something odd old company. So it was astounding on many levels and also fascinating to meet Jeff who you could talk to about pretty much anything. That was my first introduction to him. And a couple of years later, I was fortunate to join his team.

Josh King (20:42):

So you join this unique company, and we should probably get this out of the way, because we read a lot about how big tech, Amazon, Facebook, Apple, they are staffing up in Washington by the score offices with lobbyists and multiple firms on retainer. For Intercontinental Exchange, up to this point, before you took on this new role, there was Alex Albert, and there was you, you've now brought on Rob Eskridge, but how do you do more with less?

Hope Jarkowski (21:14):

It's a very roll up your sleeves and get your hands dirty kind of organization. And we focus on the substance and we're bipartisan to the extent humanly possible. The issues that we work on are not partisan issues. So we've always come at it from a very substantive point of view. And when you become a resource for substance, that just naturally builds relationships because people come to you because they know that you're going to give them an honest answer, and you're going to be a straight shooter, and that you'll be helpful and put them in touch with the world's leading experts on topics. Maybe that makes us unique, but I know it makes us special.

Josh King (21:52):

Special in one way, but sometimes it's like so many other companies, you have to defend your interests. And there's one person in the DC office whose name I didn't mention, that's Elizabeth King, the General Counsel of the NYSE and also ICE's Chief Compliance Officer. And over the course of your tenure in government affairs, the NYSE did take steps to defend its interests, suing its regulator five times. Last year, the exchange won its case on the transaction fee pilot, and there are still four outstanding lawsuits. Bringing the lawsuit against a regulator is not a decision that an exchange can take lightly, let alone five times in just a couple of years. How does this reflect on the exchanges relationship with the SEC?

Hope Jarkowski (22:39):

This is not a position we would ever want to be in. Suing our primary regulator, we now have, as you mentioned, five pending matters involving disputing SEC decision-making. And so we've tried to explain through the comment file through industry colloquy and interactions more informally with the commission. We've tried over the years to put forth a set of policy alternatives, and unfortunately we were unsuccessful in that regard. So when your business is affected by decision-making, that in our opinion was not subject to the proper rigorous analysis and is not reasoned, it is not legal, we have to challenge it for our current business and for the business that comes in the future. And not just our business, it's a matter of good government in many respects.

Hope Jarkowski (23:33):

So the proceedings that we've brought against the commission are not necessarily because we're vehemently opposed to the policy outcome. It's the manner in which they've gone about it. So we're hopeful that we're turning a new leaf at the commission with new leadership, and perhaps we won't find ourselves in this situation, in the future.

Josh King (23:57):

Beyond advocating for your own company's interests, the New York Stock Exchange and Intercontinental Exchange, so much of your work, Hope, has also focused on advocating for the 2000 plus listed companies who list their shares on the New York Stock Exchange. One of the things, in that regard, that you've fought so hard for in your time in Washington was the SEC's proxy advisor rules. Some have said that the role of proxy advisors play has contributed to the decline in the number of public companies, and the loss of opportunity that that represents for Main Street investors. What does the new rule do and why do you think it was needed at this time?

Hope Jarkowski (24:40):

If you were to stop the CEO of an NYSE-listed company in the hallway and ask her or him, "What are the top two regulatory issues that you worry about?" If they're just coming out of proxy season, it would most certainly be proxy advisors. At any other point in the year, it would probably be the modernization of institutional investor disclosure under 13F, which is an SEC rule that requires the disclosure of certain holdings for long positions on a very long timeframe. So proxy advisors has been an area of focus for a long time in our listed companies. The final rule the SEC put out in 2020, for the first time, brings those two entities, specifically ISS and Glass Lewis, who are really a duopoly in the market for provision of proxy advisor services, brings them under the SEC regulatory umbrella through some rulemaking, as well as commission level guidance.

Hope Jarkowski (25:46):

At the end of the day, the rule is intended to benefit issuers and investors by ensuring that issuers have some role in ensuring that the information that is ultimately delivered to investors is accurate and is based on the most recent information from the issuer and that it's subject to a rigorous process based on criteria that's transparent and understandable and rational. There are many in the marketplace who didn't like the SEC's final role, and we'll see if there are any refinements to it under the new administration. The other big issue is 13F reform. And again, that is a rule that is very important to our listed companies, because it allows them to have a window into who owns their stock. People think that this is common information that's just easily accessible. And, of course, public company knows who owns them, but it's just not true. And that's for reasons related to 13F, as well as the way that stock is held in certain street name or other ways.

Hope Jarkowski (26:57):

So it's not a transparent process and it needs modernizing. The SEC sought to do some 13F modernization last year, and instead of increasing transparency, unfortunately, they decreased it by raising the bar on how much an institutional investor has to own before they have to disclose his information. Anecdotally, if an investor takes a large position in a company on July 4th, under this antiquated rule set, which requires disclosure 45 days after the end of the quarter, a company won't know that that investor has that position until Thanksgiving. So this was a rule set that was developed when things were filled out in paper triple kit, and you looked at it, stamp, and put it in an envelope, and walked it down the hallway and sent it to the SEC. Times have changed, and the rule should change as well. So we're hopeful that that will be a priority area for the incoming chairman and the division of corporate finance.

Josh King (28:05):

Outside of Washington, Hope, another big development that has spanned both your government and your new role is this renewed discussion around financial transactions, taxes, and stock transfer taxes at both the state level, places like New Jersey and New York, and if not there, at the federal level. Last month, our NYSE president, Stacey Cunningham, wrote an op-ed in the Wall Street Journal saying that the New York Stock Exchange isn't leaving New York yet, but that threat has been wielded like a hammer in recent months. And governors and mayors from more tax-friendly states have been rolling out the red carpet, texting, emailing, trying to get into Stacey's ear any way that they can. Why should legislators be wary of implementing these levies?

Hope Jarkowski (28:57):

The financial transaction tax concept is wrong for two primary reasons. It's bad for the markets, and it's ultimately bad for investors. It's bad for the markets because it hurts market quality. It will reduce liquidity. It increases costs. It's bad for investors in a couple of ways. First and foremost, taxes are always passed on. So proponents of an FTT that believe that they're taxing Wall Street to help Main Street, they're actually doing the opposite because that tax is going to be passed on through intermediaries, down to the end client. And that end client is an investor in a public pension fund, they're an investor in a 401k, and they're maybe an actual employee of the financial services industry that will move out of a state if they're subject to attacks.

Hope Jarkowski (29:53):

So it's a short-sighted way of looking and trying to solve. What is a very real question particularly today, as states are finding themselves with incredible budget shortfalls coming out of COVID, I'm very sympathetic as to why it's an appealing idea, but it just doesn't work. At the federal level, there are a lot of open questions about what the approach is going to be. You have an administration that has not yet said one way or the other, whether they support or don't support the concept, but there are proposals out there that are most certainly going to work their way through the Congress. A lot is being debated and it's too early to tell, but in this environment, it is definitely going to receive a lot of attention and have a lot of momentum as compared to years prior.

Josh King (30:52):

And we will go from years prior, two years, looking ahead. After the break, Hope Jarkowski, the New York Stock Exchange's Head of Equities, and I turn our attention to the stats that are dominating equities from tick sizes, to the number of markets and how retail participation is changing the playing field. That's all coming up right after this.

Speaker 3 (31:16):

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Josh King (32:26):

Welcome back. Before the break, Hope Jarkowski, the New York Stock Exchange's Head of Equities, and I were reflecting on her career path and some of the current advocacy initiatives that she's helped manage in Washington for the New York Stock Exchange. Hope, now looking at sort of your new role as Head of Equities, so many of your counterparts at the NYSE are spending their time helping bring new corporate issuers to market, the idea that more companies should be public than are now. From your perspective, why is so important to have a robust IPO market?

Hope Jarkowski (33:03):

The rigor of being a public company, the transparency that comes with being a public company makes companies better citizens. So we want companies to go public as early as they can. We're very focused on creating pathways of all sorts for that to happen on the NYSE.

Josh King (33:21):

A running theme we've heard from the exchange when it comes to the new path to the public markets is the democratization of investing. Why is this such a pressing topic now?

Hope Jarkowski (33:34):

We think a lot about the bifurcation of wealth and the wealth divide in this country and access to the financial markets with respect to companies going public, but also, as I'm sure we'll get to later in the conversation, the way that people access the markets is severely important question that we're all thinking about.

Josh King (33:57):

Like so many other folks, I watched chairwoman, Maxine Waters of the House Financial Services Committee, oversee these hearings for Robinhood and GameStop a few weeks back. Notable among the representatives who were clearly immersed in market structure was French Hill, the representative from little rock, Arkansas, who was a guest on this show sometime back, but he's sort of the exception rather than the rule. We've had the Financial Services Committee, a delegation from the committee up to the New York Stock Exchange to kick our tires, show them how we operate. Talk about the journey that you go from being elected and getting this committee assignment to actually learning the substance of what's going on in our capital markets. Where, if there is one, is there a disconnect between service in Washington and understanding Wall Street?

Hope Jarkowski (34:51):

Yeah, it's a complicated area and it takes time and repetition to learn it. And time and repetition is sometimes not something that a lot of Washington policy makers have. So in that regard, it's easy to glom on to rhetoric and one liners and things that will get you a soundbite in what is clearly a 24-hour news cycle. And that's unfortunate because it means that the importance of our markets isn't appreciated to people who have a lot of power to make decisions about how they operate.

Josh King (35:34):

We are in the early days of a new administration and awaiting the confirmation of President Biden's pick to head the Securities and Exchange Commission, Gary Gensler. Wearing both of your old hat and your new hat, if you were to wave a magic wand, what would you hope to see from chairman Gensler's SEC?

Hope Jarkowski (35:54):

To come to the commission with such an interesting set of perspectives. Not necessarily better, but different than some of the other chairman that we've had in recent years, he has market's experience. He was on Wall Street for a period of time. He has written and implemented legislation, specifically the Dodd-Frank Act, and he carried out the lion's share of its implementation at the CFTC during the financial crisis recovery. And he's spent a lot of time with global regulators. So going back to what we discussed earlier about how important that global perspective is, I think he's just going to have a very fresh take on a markets-oriented and fresh take on how the equity markets and how not just trading, but also public company regulation, how it operates, where there's some inefficiencies, and whether there are frameworks from other parts of the markets, other asset classes, other jurisdictions, that might make sense.

Hope Jarkowski (37:05):

So my hope is that he's going to be very open-minded with some of the ideas that we've tried to put forth in prior commissions without success. And we're really excited to see him take the helm and see where he's going to go.

Josh King (37:21):

What's a focus on me, one of these issues that you could sort of put over the transom at the SEC and hope it gets taken up harmonizing tick size requirements is one of those. And while it may sound like a weedy market structure point, the issue is emblematic of the retail trading trend and the shift of trading volume to these off exchange venues over the past year. Tell us why increased retail investing means more trading off exchange and what tick sizes has to do with it.

Hope Jarkowski (37:55):

Yeah. Harmonizing tick sizes is really a way of just letting the exchanges compete. We're handcuffed because of Reg NMS in a number of ways, and most importantly, our ability to price and sub penny increments. And so this harmonizing take increments, as unexciting as that sounds, would be a hugely impactful way for us to allow us to compete for order flow that is currently happening in off exchange venues that don't have as much transparency.

Josh King (38:26):

You can go back to the early 2000s when stocks are traded in one-sixteenth tick sizes, or even one-eighth tick sizes, then in 2005, the SEC's sub penny rule required most stocks to be quoted in these 1 cent increments. It seems like there is a correlation between the rise of electronic trading and the smaller tick sizes. Can you explain that?

Hope Jarkowski (38:49):

Yeah, the retail experience is better than ever now in today's markets. So lots can be said about the advent of electronic trading and what that means to retail investors. At the end of the day, spreads are really tight and investors have a great experience, and that's really what matters. The markets are here for the benefit of issuers and investors, and the rest of it is kind of a squabble over the rent with market participants.

Josh King (39:16):

In 2020 alone, talking about the number of players on the stage now, Hope, there were three new equity exchanges launched, which now bring the total number of venues in the United States to 16. The New York Stock Exchange group alone operates five of these venues. There are reportedly even more exchanges to plan to launch in the near future. What does this expansion of the number of venues mean for market participants?

Hope Jarkowski (39:46):

We spend our time thinking about how to make our technology competitive, how to harness the same technological expertise across our platforms. That makes our systems more resilient, it makes the workflow easier for customers to interact with. And so over the past couple of years, we spent a ton of time and investment into our pillar technology system, which we rolled out for the five equity exchanges. And we're working towards a late 2021 advent of pillar technology for our options markets. So while the markets are fragmented, in some ways, the consolidation and delivering of best in class technology is a way of making the environment more beneficial to our customers and end investors. So we're really focused on those pieces of it.

Josh King (40:40):

At the end of last year, the SEC approved the New York Stock Exchange's plan for direct listings with a capital raise. We'd seen direct listings happen in the prior years, Spotify and Slack. That was when they weren't raising new capital because they had all the money they wanted, but along with the surge in SPACs, how are these new avenues to going public really reshaping the landscape of listed companies?

Hope Jarkowski (41:06):

Our job is to give as many pathways to the public markets within the bounds of the federal securities laws as we can, and people will take their own path. It's not something for us to dictate. It's what works for the company at the time. And the direct listing 1.0 version was a very special initiative that the NYSE pioneered. The capital race will be a different flavor in that it allow companies to have a direct listing and also a capital raising opportunity. And then you have the special purpose acquisition company or SPAC, which is yet another pathway that companies can take to the public markets. All are subject to SEC regulation and companies have the ability to choose their own path, and the NYSE, our job is to make the road to public as free of potholes as we can.

Josh King (42:09):

Right before you and I started this conversation, you sent an email to the New York Stock Exchange management team with a news release from the SEC. SEC announces enforcement task force focused on climate and ESG issues. We're reminded by a recent piece in barons, this statistical now that one in every $3 under professional management by these huge asset management firms now use an environmental, social, and governance or ESG criteria. How do you think ESG data is going to change the face of investing in the years ahead?

Hope Jarkowski (42:45):

Yeah. ESG underpins one out of $3 in portfolios today. And it's really a fundamental question about what is the role of government in advancing change in this area. Historically, it has been a very market driven approach because investors are asking companies to disclose information about their environmental, social, and governance practices. There are lots of entities out there that provide ratings as to how good of a job companies are doing in that regard, including apropos of our earlier discussion, proxy advisors. Now, I think we're at the tipping point of what role does the SEC, which is a disclosure and enforcement agency, what role does the SEC have in advancing ESG practices in America? So it's very much an open question as to what they're going to do. I suspect it's going to start with climate change disclosure proposals, and at least at minimum, a study and deep thought on what ought to be done.

Hope Jarkowski (43:55):

So we'll see. I think it's a top priority for the new SEC, and there's going to be a lot of interesting developments, and it's not going to be two years before we see them. I think it's first 100 days.

Josh King (44:08):

First 100 days. And comparing it to a year ago, Hope, now, as we wrap up our conversation, thinking about where we started it, this image of Jane Fraser and the team from Citigroup up on the podium to mark International Women's Day in March of 2020, but that's also when this volatility started as a result of the oncoming pandemic, we are going to be publishing this episode, dropping it on International Women's Day, 2021. And today, there are more women than ever working in finance, even reaching 50% or more in certain areas of the industry. But female traders remain a distinct minority on the floor of the New York Stock Exchange, and in trading generally. What are your thoughts about that and how does that change?

Hope Jarkowski (44:58):

I might have a background in biology and anthropology, but I'm not a scientist on this, and I don't pretend to know the finer points of the data, but I think there's lots of work to be done, and it starts early and it ends in the C-suite. So it starts with encouraging girls and providing access to STEM education early on. I have a daughter who I think about these questions all the time, I want to set her and other young girls up for success to get involved in STEM education as early as possible. It's providing investor education, which is something we're really focused on here. Whether that education should be specific to women is a different question, but just providing Americans with access to education about the financial markets is critically important. The more you know, the more the less intimidated that you are.

Hope Jarkowski (45:57):

So that's really important. And continuing to provide a pipeline for women to come into the financial industry, and then finally, where women fit in on corporate boards and the role that they have in the C-suite. We've been focused on that for quite some time at the NYSE with our Board Advisory Council and trying to address the pipeline issue for companies who want to have women involved in their management teams or their board, but they don't know they're struggling to find those women. And so we're serving a very exchange function of matching buyers and sellers, in this instance, matching those who are interested in having women on their boards and women who are interested in being on boards. So I think there's a ton of work to do, and it starts very early, and it requires time and repetition and grit to get it done, but it's possible. And I hope that there's a role that I can play and that the NYSE can play.

Josh King (47:08):

From the makeup of corporate boards, Hope, to the actual community and population of retail investors, the gender gap translates into the retail market. A recent article in the Wall Street Journal found that trading platforms from those aimed at younger investors like Robinhood, that we were discussing earlier, to industry stalwarts like Fidelity, are still disproportionately male. How can more women be encouraged to invest, and who bears responsibility for increasing financial literacy, regardless of gender?

Hope Jarkowski (47:39):

We have the responsibility and the obligation to make it happen, where we sit in seats, where we have access to the information, and we have plenty of ways to provide it. So I think as an industry, it's incumbent on us to figure out ways to deliver that information.

Josh King (48:00):

We've covered a lot of ground in our conversation, Hope, but one final question, as COVID, the new Biden Administration, and geopolitics continues to test market resilience in 2021, as it did in 2020, what are going to be your key focus areas for, I guess, the next 10 months of this year, as you lean further into your head of equities role at the New York Stock Exchange?

Hope Jarkowski (48:24):

I'm really focused on advancing our business through constructive dialogue with our customers, with investors, and with policy makers. There's a lot of change of foot in Washington, both at the regulatory front and political, all of which touches our business. So we have to think about how we're going to tell our story, how we're going to tell a story of resiliency and the importance of the financial markets have played, and the NYSE's role in that.

Josh King (48:56):

Well, on that note, Hope, it's been a great tour from Washington to Wall Street, and you've been a wonderful tour guide. And we thank you so much for joining us Inside the ICE House.

Hope Jarkowski (49:08):

Thanks for having me, Josh.

Josh King (49:09):

That's our conversation for this week. Our guest was Hope Jarkowski, the New York Stock Exchange's Head of Equities. If you liked what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us at ICEHousePodcast. Our show is produced by Grace Devlin with production assistance from Pete Ash and Ian Wolfe. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you soon.

Speaker 1 (49:44):

The information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor his affiliates make any representations or warranties, expressed or implied as to the accuracy or completeness of the information, and do not sponsor, approve, or endorse any of the content here-in, all of which is presented solely for informational and educational purposes. Nothing here in constitution offered to sell a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the proceeding conversation may have been edited for the purpose of length or clarity.

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Information contained in this podcast was obtained in part from publicly available sources, and not independently verified. Neither ICE nor its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of the information and do not sponsor, approve, or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice.