In the wake of last year’s “meme stock” phenomenon, the U.S. Securities and Exchange Commission (SEC) is preparing to consider a series of possible changes to the U.S. equity market structure designed to make markets friendlier to retail investors.
In a speech to an industry conference today, Gary Gensler, chair of the SEC, voiced concerns about the fairness and efficiency of the way markets currently operate, noting “there isn’t a level playing field among different parts of the market: wholesalers, dark pools, and lit exchanges.”
Additionally, he said that markets are increasingly opaque.
“It’s not clear, with such market segmentation and concentration, and with an uneven playing field, that our current national market system is as fair and competitive as possible for investors,” he said.
Given these concerns, Gensler outlined a series of possible reforms that SEC staff are being asked to explore.
Among other things, he said that the staff of the SEC are being asked for reform recommendations on reducing and harmonizing tick sizes; accelerating planned changes to the rules surround the national best bid and offer (NBBO), and enhancing disclosure of order execution quality to retail investors.
He also indicated that the SEC will consider proposing its own best execution rule, and measures to address conflict of interest concerns raised by the practice of paying for order flow, including making exchange fees more transparent, and reducing caps on market data fees.
Gensler also said that he’s asked for proposals on enhancing order competition, such as requiring auctions for retail orders.
“I think we can do better here for retail investors,” he said, adding that, without reforms, the U.S. equity market’s pre-eminence in the world isn’t assured.
Commenting on Gensler’s remarks, industry trade group the U.S. Securities Industry and Financial Markets Association (SIFMA) said that it supported some of the ideas raised in his speech, including reduced access fees, change to lot size requirements and disclosure. However, the group also warned against other possible reforms.
“While our equity market structure is more fragmented today, it is also highly competitive and retail investors in particular enjoy the greatest access and lowest cost to investing that they have ever experienced,” SIFMA said.
“Changes that could impact those costs by eliminating low or zero-dollar commissions or limiting order execution venues should be reviewed closely and be subject to robust cost benefit analysis,” it said.
“Moreover, any changes to the rules governing the current equity market structure should be considered holistically with a view to ensuring there are no negative, unintended consequences for investors,” SIFMA concluded.