The Securities and Exchange Commission yesterday unveiled a far-reaching plan to “do better” for retail investors. Collectively, it looks like a pretty radical plan that is going to piss off a lot of people.
Setting aside the fact that things have arguably never been better for US retail investors — with free trading and near-free index funds — it’s long been clear that the SEC at least has to do something, even if it is just to counter the widespread view that “markets are rigged”.
And honestly, the proposals chair Gary Gensler unveiled yesterday at a Piper Sandler conference (and trailed in the WSJ a few days earlier) seem at first glance to be pretty sensible?
Goldman Sachs’ Alex Blostein has a good report out on handful of main areas of focus for the SEC and what the implications are. Below in block quotes are his thoughts.
The first Gensler proposal is to standardise tick-sizes across trading venues, which will hopefully lead to more volumes returning to “lit” public markets:
The second is to improve the prices that investors get, the national best bid/offer, in the industry’s argot.
The third is Gensler’s desire to improve transparency around orders executed on behalf of investors by trading firms, and perhaps articulating the SEC’s version of a “best execution rule”.
The next two are the biggest and most controversial proposals. Gensler wants to make market-makers compete order-by-order for retail flow, rather than the current bundled approach, and revisit the payment-for-order-flow system.
Here’s Blostein again on order-by-order competition:
And on PFOF, everyone’s favourite market structure culture war.
Gensler is known to be pretty unsympathetic to finance industry complaints, and he already seems to be girding for a fight.
As our FT colleagues report, the SEC chair stressed that while the proposals were at a preliminary stage, “we’re representing 330mn Americans [and] you’re representing . . . frankly, your revenues. We might have a different perspective”.
So what do you all think? What should the final list of proposals look like?
