The US Securities and Exchange Commission (SEC) has proposed the most sweeping overhaul of stock trading in almost two decades in an effort to improve prices and transparency for small investors.
According to the Financial Times, Gary Gensler, chair of the SEC, said the measures outlined in more than 1,500 pages of documents on Wednesday would improve “competition and benefit both everyday investors and institutional investors”.
But his plans led to resistance from market-making firms that dominate the system, the paper noted.
Taken together, the proposals would produce the biggest changes to US equity trading rules since 2005, reshaping the business of executing deals for retail investors.
The most immediately contentious of the regulator’s proposed rules was a new auction mechanism that would force brokers to offer retail investor orders to a wider group of trading venues if they are less than $200,000.
Another proposal, on so-called best execution, would require brokers to document exactly how they had looked at venues to ensure they got the best price for their customers.
Currently, the definition of best execution is set by the Financial Industry Regulatory Authority, not the SEC.
“I believe a best execution standard is too important, too central to the SEC’s mandate to protect investors, not to have on the books as commission rule text,” Gensler is quoted by the FT as saying.
The proposals have the potential to boost business for stock exchanges by allowing them to offer share prices in fractions of a penny, as off-exchange dark pools and wholesale traders already do.
Ronan Ryan, president of the IEX exchange, supported the reforms, calling them “a constructive and positive effort to improve transparency, increase competition, and ensure that investors can access the best prices available in the market”.