NEW YORK, Dec. 14 (Reuters) – The U.S. Securities and Exchange Commission voted on Wednesday to propose some of the biggest changes to the structure of the U.S. stock market in nearly two decades, aimed at increasing transparency and fairness and increasing competition for individual investors’ share orders.
The proposals include requiring retail tradeable stocks to be sent to auctions before executing, a new standard for brokers to show they are getting the best possible execution of client orders, and lower trade markups and exchange access fees, the SEC said. .
Opening up individual investor orders that can be immediately executed to competitive auctions could lead to “significantly” better prices for investors, the SEC said. In current practice, retail brokers send most such orders to wholesale brokers, sometimes for a fee.
“The competition shortfall could be worth about $1.5 billion annually, compared to current practice — money that could go back into the pockets of private investors,” said SEC Chairman Gary Gensler.
The changes, if passed, would represent the biggest shakeup of stock market rules since the SEC introduced the Regulation National Market System in 2005, which aimed to modernize and improve an increasingly fragmented and largely electronic marketplace.
Ronan Ryan, president and co-founder of IEX Group Inc said the reforms were a “constructive and positive effort to improve transparency, increase competition and ensure investors have access to the best prices available in the market to be.”
“It has been 17 years since the existing equity rules were passed, and since then the stock market has undergone significant changes, including the emergence of high-frequency trading, a dramatic drop in displayed liquidity on the exchange, and a substantial increase in off-market trading. stock market,” said Ryan.
“Regulatory modernization ensures that market competition between brokers, market makers and exchanges remains favorable for investors.”
The order competition rule, which would require tradable retail orders to be sent to auctions, could lead to more such orders being matched on exchanges such as the Nasdaq (NDAQ.O) or Intercontinental Exchange Inc’s (ICE.N) New York Stock Exchange, rather than through wholesale brokers, such as Citadel Securities and Virtu Financial VIRT.O. read more
Citadel Securities said in a statement that “any proposed changes should provide demonstrable solutions to real-world problems and avoid unintended consequences that will harm U.S. investors.”
The regulator also voted to propose that brokers should provide more information about the quality of their client trades, while also increasing the number of firms required to file order execution reports.
The proposed changes will be submitted for public comment until at least March 31 before the regulatory body finalizes the rules, which will also be voted on.
The regulator also voted to expand disclosures around company stock trading by insiders, such as executives and directors, who have received share-based compensation.
Reporting by John McCrank; Edited by Richard Chang and Marguerita Choy
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