February 1, 2023

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SEC’s Gensler speaks Wednesday, and rules that overhaul market operations could be coming

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Gary Gensler, chairman of the U.S. Securities and Exchange Commission (SEC), at the SEC headquarters office in Washington, D.C., U.S., on Thursday, July 22, 2021.

Melissa Lyttle | Bloomberg | Getty Images

SEC Chair Gary Gensler is trying to make good on his promise to address what he believes are deficiencies in the U.S. trading system.

Each fall, the Securities and Exchange Commission puts out a “Rule List,” essentially a wish list of rule changes the agency would like to implement. Gensler’s fall list in 2021 includes almost 50 proposed rule changes, one of the largest lists in decades.

It also includes the following proposal: “The Division is considering recommending that the Commission propose rule amendments to modernize rules related to equity market structure such as those relating to order routing, conflicts of interest, best execution, market concentration, and the disclosure of best execution statistics.”

While the SEC has been silent so far on what they are proposing to do, industry participants have quietly been saying that Gensler will likely use a speech at the Piper Sandler Global Exchange & Brokerage Conference on Wednesday to float several proposals. 

These may include best execution and payment for order flow.

Best execution and payment for order flow

Gensler has been critical of ordinary investors’ lack of understanding of what they are paying for when they execute a trade. He wants more transparency for investors about how trades are executed and their cost. 

He has been especially critical of payment for order flow (PFOF), in which brokers send their orders to market makers in exchange for payments. This enables some brokers to charge zero commissions. Gensler has said there may be a conflict of interest for brokers and that too much power is concentrated in a handful of market makers.

To crack that concentration, industry participants say Gensler may propose that retail orders would be routed to an exchange, an automated trading system or some…

2022-06-07 10:20:00

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