Gensler’s plan would require trading companies to compete directly to execute trades from retail investors, thus increasing competition.
The SEC plans to scrutinise the controversial payment for order flow practice which sees some brokers paid by wholesale market makers for orders.
Gensler said the new rules would push market makers to disclose more data on how much these companies receive in fees as well as the timing of trades in favour of investors.
“I asked staff to take a holistic, cross-market view of how we could update our rules and drive greater efficiencies in our equity markets, particularly for retail investors,” Gensler told an industry audience on Wednesday.
The announcement by the SEC is one of the largest shake-ups of US equity market rules in recent times. It will probably lead to formal proposals in the Autumn, with the public given the opportunity to consider them before a vote by the SEC takes place.
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Gensler told Barron’s that the payment for order flow — the backend payment that brokerages obtain for directing clients’ trades to market makers — has “an inherent conflict of interest”.
For trading platform Robinhood, payment for order flow is one of its largest revenue sources. It is currently how the platform is able to provide zero-commission trading. Yet, payment for order flow is controversial and has amassed attention from Main Street and the Financial Industry Regulatory Authority. For several months now, Gensler had said that a ban on payment for order flow is an option that the regulator could look to introduce. As a possible alternative, the SEC has said it would also consider better defined and more rigorous brokerage disclosures.
In January, Robinhood was forced to limit trading on certain securities after a short squeeze in GameStop’s stock. This saw Robinhood’s CEO Vlad Tenev testify to the US House Financial Services Committee in February. Legislators condemned payment for order flow for the conflict it has with market makers.
However, Robinhood has previously said that it believes payment for order flow is a better deal for its customers in comparison to the old commission structure. The trading platform says that if the payment for order flow model changed, the brokerage and the wider industry would be capable of adapting.
New US Securities and Exchange Commission (SEC) chief Gary Gensler took over the role in April and has since expressed that he wants to see more regulation of cryptocurrency in order to protect consumers. Gensler says that the nation has a duty to protect investors against fraud.
Naeem Aslam, chief market analyst at Avatrade, has pinned bitcoin’s price drop on Gensler’s recent comments. Just before 9am in London, bitcoin was down 3.8% to $38,587. The drop saw a return to levels seen last Friday, before a weekend rally pushed bitcoin over the closely-watched figure of $40,000.
As he is one of the very few experts on cryptocurrencies amongst international financial regulators, Gensler had been marked as a potential booster for the industry by cryptocurrency enthusiasts. As such, the drop in bitcoin comes as a particular disappointment to many.
