Emphasizing the need to protect small investors, US securities regulators Wednesday proposed new rules to ensure competition in the execution of stock market trades.
The Securities and Exchange Commission proposal aims to replace the current system in which retail brokers route more than 90 percent of trades by individual investors to wholesalers — financial middlemen who provide liquidity.
Wholesalers, or “off-exchange” dealers such as Citadel Securities and Virtu Financial, benefit from lower costs on these transactions than are available on the New York Stock Exchange and other exchanges.
But the SEC maintains that not all of the savings are being passed on to consumers, pointing to a $1.5 billion “competitive shortfall” in a press release.
The proposed change — which now will be subject to a 60-day public comment — would require orders by individual investors to go onto “fair and open” auctions, the SEC said in a news release.
“Today’s markets are not as fair and competitive as possible for individual investors — everyday retail investors,” said SEC Chair Gary Gensler. “This is in part because there isn’t a level playing field among different parts of the market: wholesalers, dark pools, and lit exchanges.
“Today’s proposal is designed to bring greater competition in the marketplace for retail market orders,” Gensler added.
But SEC Commissioner Hester Peirce, a Republican appointed by former President Donald Trump, said the proposal “threatens to create disorder in the capital markets” and should be rejected.
“The Commission has a habit of trying to micromanage the markets,” Peirce said.
“Regulation has a role in ensuring that market participants have information and that markets are orderly, but issuing decrees about how each order should be routed is outside of that role.”
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