SEC Chief Wants Fair-Play Rules for US Brokers and Exchanges

The Securities and Exchange Commission (SEC) staff has received a new order from Chairperson, Gary Gensler to draft new capital market rules that will ensure fair competition between exchanges and brokers, Reuters reported.

Speaking at a virtual conference on Wednesday, organized by Piper Sandler, Gensler revealed the regulator’s aim to make the equities fair, especially after the embracement of new market models.

Gaps in the Market

His primary concern was to bring rules around the controversial ‘payment-for-order-flow’, ‘best Execution Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Read this Term’ and the ‘national best bid and offer’.

The payment-for-order-flows model was brought to light by stock market disrupter Robinhood, which makes money by routing trade orders to large private trading platforms in exchange for fees, thus offering commission-free services to the traders.

Though the model looks good for the traders at a glance, there are major concerns of conflict of interest. The broker might send the order to the Trading Platform Trading Platform In the FX space, a currency trading platform is a software provided by brokers to their respective client base, garnering access as traders in the broader market. Most commonly, this reflects an online interface or mobile app, complete with tools for order processing.Every broker needs one or more trading platforms to accommodate the needs of different clients. Being the backbone of the company’s offering, a trading platform provides clients with quotes, a selection of instruments to trade, real In the FX space, a currency trading platform is a software provided by brokers to their respective client base, garnering access as traders in the broader market. Most commonly, this reflects an online interface or mobile app, complete with tools for order processing.Every broker needs one or more trading platforms to accommodate the needs of different clients. Being the backbone of the company’s offering, a trading platform provides clients with quotes, a selection of instruments to trade, real Read this Term that offers the best fees but not the best execution.

“Are customers getting best execution in the context of that conflict? Are broker-dealers incentivized to encourage customers to trade more frequently than is in those customers’ best interest?” Gensler asked.

The US regulator slapped a $65 million civil penalty to Robinhood last year for concealing its payment-for-order-flow model and not offering the best execution to a number of traders.

The latest Reddit group-pumped demand for GameStop and a few other stocks have further blown up the shortcomings of the current market structure in place.

“Market concentration can deter healthy competition and limit innovation. It also can increase potential system-wide risks, should any single incumbent with significant size or market share fail,” he added.

Meanwhile, many brokers like Public.com have steered away from the controversial payment-for-order-flow model, but the market disrupter Robinhood is still clinging to the model.