SEC Chairman Examines Incentives For Stock Trading
U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler is seeking an audit of laws governing the U.S. stock market, including best execution requirements, the Wall Street Journal (WSJ) reported Wednesday (June 9).
Following the stock market rallies, the rules governing the market are now under closer scrutiny, including how wholesale brokerage firms – such as Citadel Securities and Virtu Financial – work in partnership with retail brokers to finalize deals. traders orders.
“Brokers profit when investors trade,” Gensler said in a speech at the Piper Sandler Global Exchange & FinTech conference, according to the WSJ.
“For brokers who have these deals – and not all of them – a higher transaction volume generates more payment for the order flow. What makes the current commission-free brokerage environment different is that investors don’t see their costs when they execute trades, so they can perceive them as free, ”Gensler said, according to WSJ.
The SEC is considering rule changes regarding how US stocks are traded and the price incentives used to attract orders, Gensler told the conference. He also described a larger investigation into the structure of the market. Gensler once asked why investment orders are usually sent to big wholesalers instead of public exchanges, according to the outlet.
“The question is whether our stock markets are as efficient as they could be, in light of technological changes and recent developments,” Gensler told the conference, according to the WSJ.
The SEC is already examining the price spike surrounding even stocks such as AMC and GameStop. Goldman Sachs, Citigroup, Bank of America, and Jefferies Financial Group are just a few of the banks and brokerage houses that review risk controls in blue chip brokerage operations.
The SEC is also examining Special Purpose Acquisition Companies (SPACs) and how investors can be better protected. Gensler submitted written testimony to the U.S. House Appropriations Committee last month that indicated stronger protections are needed. At the end of May, around 118 traditional initial public offers (IPOs) had been filed, compared to only 138 for the whole of 2016.
Gensler said earlier in May that the agency wanted to know how retail brokerage apps drive stock trades and profits when trades are executed. He said there could be a conflict of interest and indicated that gamification could be at work in apps.