SEC proposes rules to enhance competition for retail order flow execution

The Securities and Exchange Commission proposed a rule that would require certain orders of individual investors to be exposed to competition in fair and open auctions before such orders could be executed internally by any trading center that restricts order-by-order competition. That proposed rule said in part: "Today’s markets are not as fair and competitive as possible for individual investors – everyday retail investors. This is in part because there isn’t a level playing field among different parts of the market: wholesalers, dark pools, and lit exchanges," said SEC Chair Gary Gensler. "Further, the markets have become increasingly hidden from view, especially for individual investors. These everyday individual investors don’t have the full benefit of various market participants competing to execute their marketable orders at the best price possible. Thus, today’s proposal is designed to bring greater competition in the marketplace for retail market orders. I think it makes sense for the market, and for everyday individual investors, to allow the broader market to compete for their orders."…Wholesalers typically execute the marketable orders of individual investors internally, without providing any opportunity for other market participants to compete to provide better prices. As a result, these orders are not merely segmented; they are also isolated from order-by-order competition. While wholesalers provide some price improvement to these orders relative to prices available on national securities exchanges for unsegmented order flow, data analysis conducted for the proposal suggests that the amount of price improvement falls short of what would be expected if these orders were subject to order-by-order competition. The annual amount of this "competitive shortfall" is estimated to be $1.5B." Reference Link