“The SEC should engage all market participants before proposing significant untested changes that would harm retail investors’ execution quality and reduce retail investors’ access to our capital markets,” Mr. This could end up being more profitable in the short term for wholesalers, he said, but wouldn’t necessarily help investors. Gensler could allow trading firms more discretion in choosing which trades they fill. They say the current system, including payment for order flow, has underpinned a broad reduction to trading costs that has made the stock market more accessible.ĭouglas Cifu, chief executive of Virtu, said the order-by-order competition sought by Mr. Virtu and Citadel Securities, in particular, have argued against the sort of changes the SEC is considering. Wholesalers and brokers ramped up their lobbying and campaign spending in Washington and published their own plans for improving the stock market. Gensler was targeting their business models. Such a mechanism would fundamentally alter the business model of wholesalers, which can make more money by trading against small investors than they do on public exchanges, where they might find themselves trading with other sophisticated trading firms or institutional investors.Ī number of Wall Street firms pushed back forcefully last year when it became apparent that Mr.
Investor’s trade, according to people familiar with the agency’s plans. Under the auctions being considered by the SEC, different firms would compete with each other to fill an individual Gensler has said this practice, known as payment for order flow, creates a conflict of interest and limits competition for individual orders. and Robinhood Markets Inc., accept compensation from wholesalers for routing trades to their venues. Some brokers, including Charles Schwab Corp. Many brokers route orders to big electronic trading firms called wholesalers, including Citadel Securities or Virtu Financial Inc., rather than to exchanges such as the Nasdaq Stock Market, arguing that the wholesalers provide the best prices. Gensler has said he wants to ensure that brokers execute orders at the best possible price for investors - the highest price for when an investor is selling, or the lowest price if they are buying.Ĭurrent rules require brokers to perform “reasonable diligence” to determine the likely best market for executing a trade. Market orders, which account for the majority of individual investors’ trades, don’t specify a minimum or maximum price the investor is willing to pay. The most consequential change being discussed would affect the way trades are handled after an investor places a so-called market order with a broker to buy or sell a stock. Gensler is planning to detail some of the potential changes in a speech today, these people added. SEC staffers have begun floating plans with market participants in recent weeks, and Mr. While aspects of the effort are in varying stages of development, one idea that has gained traction is to require brokerages to send most individual investors’ orders to be routed into auctions where trading firms compete to execute them, people familiar with the matter said.
Chairman Gary Gensler directed SEC staff last year to explore ways to make the stock market more efficient for small investors and public companies. The Securities and Exchange Commission is preparing to propose major changes to the stock market’s plumbing as soon as this fall.
SEC chairman Gary Gensler’s plans have drawn opposition from some Wall Street firms.
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