SEC sets out sweeping overhaul of US stock market

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The foremost watchdog of US markets has proposed the most sweeping overhaul of stock trading in nearly two decades in a bid to improve pricing and transparency for retail investors.

Gary Gensler, chairman of the Securities and Exchange Commission, said the measures outlined in more than 1,500 pages of documents Wednesday would “improve competition and benefit both regular and institutional investors.” But his plans led to resistance from market-making firms that dominate the system.

Taken together, the proposals would mark the biggest changes to U.S. stock trading rules since 2005, reshaping deal execution for retail investors.

The most immediately contentious of the regulator’s proposed rules was a new auction mechanism that would force brokers to offer retail investor orders to a larger group of trading venues if they are less than $200,000.

Another proposal, on so-called best execution, requires brokers to document exactly how they looked at locations to ensure they get the best price for their clients.

Currently, the definition of best execution is determined by the financial industry regulatory authority, not the SEC.

“I believe a best-execution standard is too important, too central to the SEC’s mandate to protect investors, to be off the books as committee rule text,” said Gensler, a Democrat nominated by President Joe Biden. .

The proposals have the potential to boost trading for exchanges by enabling them to offer share prices in fractions of a cent, as dark pools and off-exchange wholesalers already do.

Ronan Ryan, president of the IEX exchange, supported the reforms, calling them “a constructive and positive effort to improve transparency, increase competition and ensure that investors have access to the best prices available in the market.” “.

A wave of retail investor trading in the early months of the coronavirus pandemic highlighted the practice of payment for order flow, where retail brokers like Robinhood were paid by major trading firms like Citadel Securities to forward customers’ orders to them.

While the practice helps brokers offer discounted prices or free trades, the SEC fears it may not yield the best prices for clients. The regulator’s research estimates that small investors lose out as much as $1.5 billion annually, or 1.08 cents per $100 traded, because of what it describes as a “competitiveness deficit.”

Gensler said that in September, off-exchange trading accounted for 42 percent of total stock trading volume. Earlier data showed that in 2009 this share was about one third.

While the SEC’s proposals wouldn’t ban order flow payment, they would likely make it much less attractive to brokers and wholesalers alike. Shares of Virtu Financial, a New York-listed trading company, fell 6.4 percent on Wednesday. Virtu declined to comment.

Citadel Securities said, “The US stock market is the envy of the world, and any proposed changes must provide demonstrable solutions to real problems while avoiding unintended consequences that will harm US investors.”

A majority of the SEC’s five commissioners voted in favor of each of the proposals, but two voted against the auction and best execution plans. Hester Peirce, a Republican commissioner, said the regulator “has a habit of trying to micromanage the markets, a habit that I think is fully visible today.”

The proposals are open for comment until at least March 31. Steve Sosnick, chief strategist at Interactive Brokers, predicted “very shrill” reactions from many groups. “You mess with people’s business models,” he said.

Gensler said reform was needed. “The markets are increasingly hidden from view, especially for individual investors,” he said. “This is partly because there is no level playing field between the different parts of the market: wholesalers, dark pools and lit exchanges.”

Separately, commissioners began Wednesday’s meeting by approving a final rule that forces company executives to wait 90 days to sell stock after creating so-called 10b5-1 plans, which are designed to allow automatic stock sales that meet insider trading rules.

The 90-day period would end a controversial practice of executives selling stock days after a plan was created, raising suspicions that they may have traded insider information.

Peirce also expressed concern about some of the details of the insider trading reforms, but said they would “do more good than harm” and allow insiders “to trade without fear of liability while making it more difficult to abuse the rules”.

The Valley Voice
The Valley Voicehttp://thevalleyvoice.org
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.

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