UPDATED: June 9, 2022: On June 8, Gary Gensler, the Chairman of the Securities and Exchange Commission (SEC) proposed changes to stock-trading rules in the U.S. According to a report by The Wall Street Journal, the move has attracted skepticism from financial executives, who said that the changes are not required as “the market is functioning well for ordinary investors.”
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By fall, the agency plans to propose changes in the way the stock market operates in the U.S. The changes are the result of volatility in the stock price of Texas-based videogame retailer GameStop Corp. (NYSE: GME) and other meme stocks at the beginning of last year.
This led to the SEC investigating how brokerage firms handle the trades of individual investors.
The changes under consideration by the SEC include sending stock orders by individual investors to auctions, where investors will be able to get the best price for their order. This is in stark contrast to the current working of the stock market.
At present, orders of individual investors go through brokerages to electronic market-making firms that finally execute them. In return, brokerages get cash payments from market makers.
The SEC is of the opinion that the retail market-making segment is very concentrated, and by sending individual investors’ business to auctions, investors would stand a chance to get better prices for their orders.
The Chief Legal Officer of California-based financial services firm Robinhood Markets, Dan Gallagher, told The Wall Street Journal that in the current operating system, individual investors are benefitting from zero-commission trades.
“It is a really good climate for retail, so to go in and muck with it right now, to me, is a little worrisome,” Gallagher added.
Further, Joe Saluzzi, Partner and Co-Founder of New Jersey-based brokerage firm Themis Trading, said, “Any time you threaten an existing status quo that benefits a lot of people, they will fight you tooth and nail.”