Then the news hits SEC Could Issue Proposals on Key Stock-Market Rules This Fall, Sources Say -- WSJ *SEC Weighs Pushing Retail Investors' Stock Trades Into Competitive Auctions, Sources Say -- WSJ *SEC's Gensler Expected to Outline Market-Structure Reforms on Wednesday -- WSJ Frontrunners
Whatever "reforms" the SEC will force on the industry will end up costing retail traders money. It will be like most (but not all) government interferences in freemarkets. The law of unintended consequences will kick in to the detriment of active traders.
Here's the article. It mentions lots of changes that are being discussed: https://www.wsj.com/articles/sec-cl...-market-operates-11654544799?mod=hp_lead_pos3 WASHINGTON—The Securities and Exchange Commission is preparing to propose major changes to the stock market’s plumbing as soon as this fall. Chairman Gary Gensler directed SEC staff last year to explore ways to make the stock market more efficient for small investors and public companies. While aspects of the effort are in varying stages of development, one idea that has gained traction is to require brokerages to send most individual investors’ orders to be routed into auctions where trading firms compete to execute them, people familiar with the matter said. SEC staffers have begun floating plans with market participants in recent weeks, and Mr. Gensler is planning to detail some of the potential changes in a speech Wednesday, these people added. The most consequential change being discussed would affect the way trades are handled after an investor places a so-called market order with a broker to buy or sell a stock. Market orders, which account for the majority of individual investors’ trades, don’t specify a minimum or maximum price the investor is willing to pay. Mr. Gensler has said he wants to ensure that brokers execute orders at the best possible price for investors—the highest price for when an investor is selling, or the lowest price if they are buying. Current rules require brokers to perform “reasonable diligence” to determine the likely best market for executing a trade. Many brokers route orders to big electronic trading firms called wholesalers, including Citadel Securities or Virtu Financial Inc., VIRT -3.34% rather than to exchanges such as the Nasdaq Stock Market, NDAQ 0.03% arguing that the wholesalers provide the best prices. Some brokers, including Charles Schwab Corp. SCHW -2.87% and Robinhood Markets Inc., HOOD -0.65% accept compensation from wholesalers for routing trades to their venues. Mr. Gensler has said this practice, known as payment for order flow, creates a conflict of interest and limits competition for individual orders. Under the auctions being considered by the SEC, different firms would compete with each other to fill an individual investor’s trade, according to people familiar with the agency’s plans. Such a mechanism would fundamentally alter the business model of wholesalers, which can make more money by trading against small investors than they do on public exchanges, where they may find themselves trading with other sophisticated trading firms or institutional investors. An SEC spokesman declined to comment. A number of Wall Street firms pushed back forcefully last year when it became apparent that Mr. Gensler was targeting their business models. Wholesalers and brokers ramped up their lobbying and campaign spending in Washington and published their own plans for improving the stock market. Virtu and Citadel Securities, in particular, have argued against the sort of changes the SEC is considering. They say the current system, including payment for order flow, has underpinned a broad reduction to trading costs that has made the stock market more accessible. Douglas Cifu, chief executive of Virtu, said the order-by-order competition sought by Mr. Gensler could allow trading firms more discretion in choosing which trades they fill. This could end up being more profitable in the short term for wholesalers, he said, but wouldn’t necessarily help investors. “The SEC should engage all market participants before proposing significant untested changes that would harm retail investors’ execution quality and reduce retail investors’ access to our capital markets,” Mr. Cifu said in an emailed statement. Citadel Securities declined to immediately comment. The SEC commenced its review of market structure after the frenzied trading in GameStop Corp. and other meme stocks in early 2021 brought fresh scrutiny to the handling of individual investors’ trades. After a year of internal deliberations, the agency has homed in on a narrowing set of proposals. If the SEC votes to release them for public comment later this year, they would have a path to implementation, as Democrats hold a majority of seats on the commission. The agency is also considering creating a more-stringent version of the so-called best-execution rule that directs brokers to find the most favorable terms for their customers, two of the people said. The rule that brokers currently follow was written by the Financial Industry Regulatory Authority, an industry body overseen by the SEC. The SEC is also weighing a proposal to allow stock exchanges to quote shares in increments of less than 1 cent. This could enable venues like Nasdaq or the New York Stock Exchange to better compete with wholesalers, which can beat the prices publicly displayed on exchanges by adding or subtracting hundredths of a penny to the price of a stock. Two people familiar with the matter said the agency is also considering an idea to harmonize the price increments, known as tick sizes, that are available on exchanges versus other venues. In addition, SEC officials are aiming to reduce the maximum fee that exchanges can charge brokers to access their quotes, two of the people said. Like some of the other changes under consideration, such a move could encourage more orders to be sent to exchanges rather than to other venues.
No so sure. Theoretically, they might want to send stock orders like options order are sent now, where multiple dealers and others BID for the trade, instead of just one frontrunner like Citadel.
I follow Schwab...Have 200 shares. I think 100 shares are optioned at $72.50, the other is at $90...Covered calls for Jan 23. Schwab should make a ton of money once interest rates rise. They should gain hundreds of millions of dollars on their money market funds, bank, and the float on transactions. As I have shared before, I see generational money moving down to kids and grand kids. I think the younger people will wise up and not go with Robinhood. I can see them going with IB...That does make sense. But, at some point younger people will want customer service...Hand holding. They will get it a Schwab and Fidelity. They won't get it at the big brokers without paying an arm and a leg. Yeah, there is much money to be gained by using market makers. It will be made up in different ways. Just like a car registration or your property tax bill (even your insurance bills), you will see different fees popping up at Schwab, Fidelity, or IB if this does go through. You will still get free trades...Just more fees!! You can't get blood from a turnip... I still feel Schwab is a great buy (today Monday after market close).
That is your opinion about front running. I will be commenting to the SEC that payment for order flow with proof that it has has saved me money with a zero commission plan. Furthermore your remark about option pricing is plain wrong. The spread beween bid and ask are wide and there is little competion between market makers.
If the SEC can pull this off it will be amazing for traders. Right now you can't put an order into this market without paying a tax to citadel, virtu et. al. The market structure is rigged so that it's almost impossible to find your natural counterparties without an HFT or wholesaler in the middle. Saved you money compared to what? NBBO? There is lots of price improvement available out there -- check out IB's price improvement statistics. Besides, the very existence of PFOF causes spreads to widen, so the current spreads are not a valid benchmark.
While that might be true, it did behave technically as one would expect in a bear market (resistance at major pivot highs, etc)