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Gensler’s gambit | Financial Times

The Securities Authority yesterday unveiled a far-reaching plan for “Do better“For retail investors. Collectively, it seems like a pretty radical plan that is going to annoy a lot of people.

Leaving aside the fact that things have never been better for U.S. retail investors – with free trade and almost free index funds – it has long been clear that the SEC must at least do something, even if it’s just to deal with popular opinion.The markets are fake“.

And honestly, the chairman of the proposals, Gary Gensler, revealed yesterday in a Piper Sandler Conference (And towed b WSJ A few days earlier) seems at first glance quite logical?

Goldman Sachs’ Alex Blushtein has a good report on a handful of key areas of focus for the SEC and what the implications are. Below in block quotes are his thoughts.

Gensler’s first proposal is to standardize the size of tics between trading venues, which will hopefully lead to more volumes returning to “bright” public markets:

U.S. stocks are trading at one-penny intervals in lightweight markets (exchanges) as opposed to off-penny sub-penny pricing. This will be achieved in harmony between the sizes of ticks and the reduction of minimum sizes of ticks.

Implications: We believe that normalizing the size of tics between market makers and stock exchanges may improve the competitiveness of the stock market and may lead to more lighting volumes, and therefore potentially more revenue to stock exchanges, with potential weight on the margins of market markers.

The second is to improve the prices that investors receive, the best offer / national offer, in the ergot of the industry.

The Chairman believes that the NBBO can be improved to better reflect the true market price of the shares. Currently, NNBO is only based on round-lot transactions (100 shares), with odd parts not reflected in the NBBO. When NBBO used as a test to measure The improvement in prices, the chairman sees as a wrong measuring rod and the inclusion of deals in bizarre lots will improve it.It is similar to a proposal presented a few years ago as part of the SEC market data reform and the chairman seeks to speed up the implementation process here.

Implications: Potential to reduce the margin at which market makers are able to earn an economy.

The third is Gensler’s desire to improve transparency around orders placed on behalf of investors by trading companies, and perhaps to express the SEC’s version of the “best execution rule”.

The chairman is examining whether the exposure around the quality of workmanship to broker traders should be expanded along with “market centers”.

Implications: Increased detection efforts by broker traders may marginally increase G&A expenses and increase regulatory risks.

The chairman is considering their own version of the best workmanship rule, which we believe will increase oversight of workmanship quality.

Implications: Potential increase in regulatory risks for broker traders.

The next two proposals are the largest and most controversial proposals. Gensler wants to get market makers to compete order-by-order on the flow of retail, rather than on the current package approach, and to re-examine the order-of-payment system.

Here again in Bluestein in the custom competition:

The chairman explores a way to improve competition on retail on an order-by-order basis, as opposed to a more unifying approach in which market makers interact with retail brokers. More transparent / auction will improve the quality of workmanship for retail investors. Here, the SEC will look at U.S.-listed options markets as an example of what cash stocks might look like – although we should note that options markets also have some major players dominating the field.

Implications: Market makers have suggested that in the unifying approach to purchasing retail orders flow, there is a combination of profitable orders purchased and unprofitable orders for the market maker, but they guarantee the best execution in all orders. They suggested that in an auction process, this could mean that unprofitable orders would not be of interest to market makers and these transactions would end up being done less well for retail customers. It should also be noted that existing market makers operate on a significant scale that allows them to provide competitive pricing to the market, and it is less clear how sub-scale players in the US stock market will significantly change this competitive landscape.

And in PFOF, culture war the market structure preferred by all.

While it is unclear whether the SEC intends to repeal PFOF, the chairman reiterated PFOF’s view that there is a built-in conflict of interest and could, at least, influence where the flow of retail orders is directed and its impact should be further. calculated. Interestingly, given that the chairman suggests that the stock markets are an example on which cash shares can be drawn, and that PFOF is an important part of the options markets, this could suggest that PFOF will not be eliminated directly in Cash Equities. Do not accept PFOF and are still able to offer no-commission trading to retail investors.

Implications: A reduction in PFOF may be a marginal negative for some retail brokers.

Gensler is known to be quite unsympathetic to financing complaints in the industry, and seems to be already gearing up for the fight.

Like ours FT colleagues reportThe SEC chairman stressed that while the proposals were at an early stage, “we represent 330 million Americans [and] You represent. . . Honestly, your income. Maybe we will have a different perspective. ”

So what do you all think? What should the final list of proposals look like?

Gensler’s gambit | Financial Times Source link Gensler’s gambit | Financial Times

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