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The SEC will meet on Wednesday to discuss a number of proposals, one of which is an effort to obtain better transaction pricing for small investors.
It is a component of the reform of market structure that SEC Chair Gary Gensler alluded to in June when he said that not all investors were playing on an even playing field.
“It’s not clear, with such market segmentation and concentration, and with an uneven playing field, that our current national market system is as fair and competitive as possible for investors,” Gensler said at a Piper Sandler conference in June.
What Happened: A process of routing trades made by small investors, known as Payment for Order Flow (PFOF), has drawn criticism from Gensler. PFOF is used by retail brokers including Charles Schwab SCHW, ETrade, and Robinhood Markets Inc HOOD to send orders to electronic market makers known as wholesalers who pay the brokers for access to that order flow.
Although they may submit the orders to exchanges, these wholesalers frequently compare the orders to their own internal order flow. The gap between the buying and selling prices is how wholesalers generate revenue.
Pension funds and other institutional investors, according to Gensler, are unable to engage with that retail order flow.
Additionally, according to Gensler, the brokers are prioritizing their financial gain over their obligation to offer their customers the best prices.
The two biggest wholesalers, Citadel Securities and Virtu Financial VIRT, as well as many other brokers, disagree with the SEC chair. Gensler is considering holding auctions where trading companies would compete with one another to meet investor orders before they could be carried out internally in an effort to increase competition.
Why It Matters: Minimum price increment regulations say currently, exchanges like the NYSE and Nasdaq are only permitted to accept orders at a penny increment; however, dealers who internalize their orders are permitted to trade in less-than-penny increments.
Additionally, the SEC might be thinking about establishing a minimal standard trading increment. For instance, it might think about enabling all market participants to trade in increments of a half-cent or even a tenth of a cent.
Investors need a greater understanding of how successfully their trade orders are being executed, according to the SEC chair. In order to guarantee that broker-dealers send orders to the venue that will get the best price for buyers and sellers, he is proposing a new rule called “Regulation Best Execution.”
The commission is also thinking of tightening the disclosure guidelines for company insiders who wish to sell their own stock. CEOs and other senior executives are permitted to create a trading plan under Rule 10b5-1 in order to sell equities.
To avoid breaking the rules governing insider trading, the SEC permits insiders to sell a predetermined amount of stock at a predetermined time.
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Image and article originally from www.benzinga.com. Read the original article here.