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SEC to Propose the Biggest Trading Reforms in Decades

Whatever rules the SEC votes on Wednesday will be put out for public comment.

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Saul Loeb/AFP/Getty Images

Six months ago, Securities and Exchange Commission Chair Gary Gensler alarmed Wall Street with some provocative ideas for changing how stocks trade.

At 11 a.m. on Wednesday, the commission will unveil proposals derived from Gensler’s market structure musings and vote on whether to put them out for public comment.

Fireworks will likely ensue. The proposed rules could threaten the key role now played by market makers such as Citadel Securities and
Virtu Financial
(ticker: VIRT) in completing the trades of individual investors.

Retail stockbrokers like
Charles Schwab
(SCHW) send most small orders for execution by those computerized market makers, but the SEC may call for the creation of a new auction process where dealers could compete for each order.

Industry forums have roundly criticized the feasibility of order-by-order auctions, warning that small traders would get worse results than those provided by today’s market structure.

Another expected proposal would allow stock exchanges to execute trades at price increments smaller than the one cent moves to which they are limited under current rules. The off-exchange market makers have no such constraints, and they have gained order flow by executing trades at prices that are fractions of a penny better than the exchange prices.

Few expect the SEC to propose an outright ban on payments made by market makers to induce brokers to send retail order flow. Instead, the agency may propose standards for “best execution” that brokers must heed.

Whatever rules the SEC votes on Wednesday will be put out for public comment. Some SEC comment periods have been as short as 30 days, but Gensler’s market structure ideas have drawn wide industry criticism, so the agency will probably allow 60 days after its proposals appear in the Federal Register. The SEC would then spend some months digesting the feedback before issuing the final rules sometime in the middle of 2023.

That is when any radical changes to today’s trading would likely face a court challenge by industry incumbents. Virtu already sued the agency in federal court seeking Freedom of Information disclosure of SEC records on its market structure plans.

Other expected proposals on Wednesday would be less controversial. The agency will probably seek to update Wall Street’s reporting on how well retail customer’s trades are executed.

As Barron’s showed in a series of data journalism pieces, market makers are required to report on the pricing they provide on customer trades—but stockbrokers aren’t. There is widespread support for the SEC to standardize execution quality reporting by brokers.

Write to Bill Alpert at


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