Washington / New York June 9 / Us Get the best trading price.
US Securities and Exchange Commission Chairman Gary Gensler told an industry audience that he wants to require trading firms to compete directly to execute trades from retail investors, Reuters reports.
The Wall Street watchdog plans to examine the growth in recent years of the practice of Pay for Order Flow (PFOF), which is banned in Canada, the United Kingdom and Australia.
Some brokers, such as TD Ameritrade, Robinhood Markets and E*Trade, accept these payments from wholesale market makers for orders. In December 2020, Robinhood already paid a fine related to the practice, which the SEC said raised costs for investors using online brokerages. Read more
Gensler said banning PFOF is not on the table. On Wednesday, he said the practice has “inherent struggles,” while noting that some no-commission brokers operate without PFOF.
“I’ve asked employees to take a comprehensive, multi-market view of how we can update our rules and bring greater efficiencies in our stock markets, particularly for retail investors,” Gensler said.
Investor supporters hailed the SEC’s plan, which would be the biggest change in US stock market rules in more than a decade. But financial industry executives quickly criticized the plans, saying they could hinder zero-commission brokers from serving more investors.
“Many in the financial industry today are getting rich from anti-competitive and predatory practices in highly fragmented markets that lead to retail investors being mistreated if not robbed,” said Dennis Keeler, CEO of Washington-based Better Markets Group. Who supports the SEC’s plans?
Joseph Makani, Head of Execution Services at Citadel Securities, warned that there are broad plans to revamp the market.
“We’re talking about our markets the envy of the world,” said Mikani. “We need to be very careful about … inadvertently sending us back to a period that looks worse than it does today.”
“Let’s keep an eye on the retail investor who has never had better liquidity and low-cost trading,” said Kirsten Wegner, who leads the Modern Markets Initiative, a Washington-based group that represents high-speed trading platforms.
Gensler said that if PFOF is still allowed, the Securities and Exchange Commission wants rules that force market makers to disclose more data about the fees these companies earn and the timing of deals.
Gensler’s announcement will generate no official proposals in the fall. The public can then think before the Securities and Exchange Commission vote on whether to adopt.
Dan Gallagher, Robinhood’s chief legal, compliance and corporate affairs officer, said his company “looks forward to reviewing the Commission’s final bylaws proposal and engaging with the Securities and Exchange Commission during the rule-making process for notice and comment.”
The intended changes will fundamentally change the business model for wholesalers. It can also affect the ability of brokers to offer commission-free trading to retail investors. Reuters first learned about the reforms in March.
PFOF came under regulatory scrutiny last year when an army of retail investors bought “meme stocks” like GameStop and AMC, putting pressure on hedge funds that had been discounting the shares. Many investors have purchased shares using commission-free brokers such as Robinhood.
To promote ranking-based competition, the new rules will call for “open and transparent” auctions aimed at providing investors with better prices. They will also require traders who execute trades to ensure the best price for investors and to improve transparency about the procedural standards that brokers must meet when handling and executing orders.
Gensler said they will also ask broker-dealers and market centers to disclose more data, including a monthly summary of price improvement and other statistics.
The rules will seek to limit the minimum increase in pricing or the so-called hash size to ensure that all trades occur with a minimum increase.
overall wholesale
Currently, retail brokerages can send clients’ orders directly to a wholesale broker for execution, as long as the broker matches or improves on the best price available on US exchanges. The big market makers usually improve the best price by a fraction of a cent. Gensler criticized this model as limiting competition for retail orders.
“It is great to see the SEC taking a comprehensive approach to this issue – there is no one answer, we need changes in different parts of the market,” said Dave Lauer, CEO of financial platform Urvin Finance.