Gensler tells SEC to review payment for order flow


The first U.S. market regulator seeks to change the rules around the stock exchange, including the fees paid by large Wall Street groups to deal with customer orders, following the January explosion in “stock meme” highlighted what he called “inefficiencies” in the market.

Gary Gensler, chairman of the Securities and Exchange Commission said Wednesday he had asked agency staff to make recommendations to change a number of market structure rules – an announcement that sent shares into Virtu Financial down 7.5 percent.

The magazine will cover the controversial issue of payment for order flow, In which retail brokerages receive fees from marketers like Virtu and Susquehanna to handle their trades. Instead they promise to execute the trade at, or better than, current market prices.

Gensler said the SEC would also look into applications that encourage “gamification” of trading through e-mail alerts, requests and moving images to invite investors.

“The question is whether our stock markets are as efficient as they could be, in light of technological changes and recent developments,” he said at a conference held by Piper Sandler in New York.

Many of the issues came to the forefront of the attention of regulators and policy makers in January, when users of Reddit’s chat rooms took action on GameStop and other dramatically higher-profile companies.

The major moves have drawn attention to the payoff for order flow and dominance of one group, the Citadel Private Securities, which executes nearly half of all retail sales in the United States. Virtue is the second largest marker.

“Mediators profit when investors trade,” Gensler said. “For those brokers who have these arrangements – and not all of them do – a higher trading volume generates more payment for the order flow. What makes the current brokerage environment at zero commission different is that investors do not. they don’t see their costs while they’re doing business, so they can perceive them as free. ”

Gensler had expressed concern on payment for order flow in other public comments since he became president of SEC in April, but his comments Wednesday suggested he intended to follow up with a full review of market structure. .

He indicated that staff will also monitor minimum price increases for stocks and rules that ensure customers get the best possible price for their offers, enrolled in a system known as Best National Offer and Offer.

Gensler also questioned whether the U.S. system to ensure customers had the best price was complete enough, since existing rules do not cover business done on the internal trading books of banks and private markets. Known as dark pools.

The SEC chair also supported calls to reduce the time required to resolve U.S. equity trades from the current two days, after some market participants, including Robinhood retail brokerage, cited it. as a critical factor in decisions to restrict trade in some meme stocks in January.

“I remember an old saying in the markets,” Gensler said. “Time is risk.”



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