On Wednesday, December 14, the US Securities and Exchange Commission (SEC) voted to propose key changes to the country’s equity market structure. It is the biggest overhaul of the stock market rules since 2005. The proposed changes are aimed at improving transparency and fairness. They would also increase competition among stock orders of individual investors.
One of these proposed changes suggested sending marketable retail stock orders to auctions before their execution. The proposed change on best execution would require brokers to document how they get the best possible prices for their clients. Lowering access fees and trading increments on exchanges were also proposed.
The previous shakeup to the stock market rules was done in 2005 with the SEC introducing Regulation National Market System. The purpose was to modernize and enhance a marketplace that was getting fragmented and digitized. The recently proposed reforms were described as a constructive and positive effort to improve transparency by Ronan Ryan, president and co-founder of IEX Group Inc.
Under the current system, retail brokers send most orders of individual investors to wholesale brokers. This is sometimes done by charging a fee. Gary Gensler, Chairperson of the SEC, said that allowing orders to interact with each other will increase competition and yield better prices. Nasdaq is looking forward to reviewing the proposals of the SEC, as it believes in transparent, efficient, fair, inclusive, and competitive markets.
Stephen Hall, the Legal Director and Securities Specialist at Better Markets, has cautioned about the repercussions. According to him, the beneficiaries of the current system are likely to stand against these proposals. He also added that the SEC must consider the inputs of stakeholders and resist industry pressure before finalizing an appropriate set of rules that help investors.