Elections Have Consequences

The SEC, now helmed by Biden appointee Gary Gensler, is proposing new rules which would make it more difficult for so-called "market makers" to steal from their customers.

Increasingly, it looks like Joe Biden is the most liberal President since ……… Checks Notes ……… Richard Nixon.

The Securities and Exchange Commission voted Wednesday to advance the biggest changes to U.S. stock-market rules since the mid-2000s, aiming to give small investors better prices on their trades and reduce some advantages enjoyed by high-speed trading firms.

Democratic commissioners, who hold three of the SEC’s five seats, supported moving forward on each of the four proposals. Republican commissioners voiced objection to two of the measures. Voting to advance the rules opens them to public comment until at least March 31 before the agency can decide whether to finalize them.

The proposals grew out of a review prompted by last year’s frenzied trading in GameStop Corp. They would fundamentally alter the relationships between brokerages that take investors’ orders to buy or sell securities, the high-speed traders that often handle those orders, and stock exchanges. The broad idea motivating the proposals is to use greater competition for investors’ orders to deliver better prices, while stepping up regulations of the firms that profit from handling retail stock trades.

“Today’s markets are not as fair and competitive as possible for individual investors,” SEC Chair Gary Gensler said.
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SEC economists estimated that more competition in the business of filling stock orders could save individual investors $1.5 billion a year, according to a fact sheet released by the agency.

The centerpiece of the SEC’s plans is a proposal for brokers to send many small-investor stock orders into auctions. This would enable a mix of high-speed traders and institutional investors such as hedge funds or pension funds to compete to fill the orders, with the idea that investors would get better prices as a result—higher prices if they are selling shares, or lower prices if they are buying.

The auctions would apply to so-called marketable orders—in which investors buy or sell stocks at the currently available price—less than $200,000 in size and placed by investors who average fewer than 40 trades a day. They would be required to last between one-tenth and three-tenths of a second, roughly the duration of a blink of an eye, and would likely be run by exchanges.

Requiring such auctions would be a big change. The SEC says brokers send more than 90% of marketable orders to wholesalers. Unlike exchanges, which display price quotes publicly and allow a variety of market players to attempt to fill orders, wholesalers trade directly against the incoming retail flow, an arrangement that effectively prevents other market players such as institutional investors from interacting with individual investors’ orders.

What they are talking about is eliminating payment for order flow, a system pioneered by Bernie Madoff (Yes, that Bernie Madoff) and similar systems, which are designed to create information asymmetry that is exploited by Wall Street.

This is a good thing, so the Banksters are implacably opposed to this.