The SEC Is Outlining a Plan To Revamp How The Stock Market Operates

U.S. Securities and Exchange Commission
U.S. Securities and Exchange Commission

The Securities and Exchange Commission (SEC) is preparing a plan to transform how the US stock market operates — which could see trading firms compete in auctions to carry out retail stock orders.

According to several reports citing people familiar with the matter, the SEC’s chairman, Gary Gensler, will share some of its potential changes in a speech Wednesday,

The formal proposals could come as soon as this summer or early fall, the Financial Times reported Tuesday. 

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The SEC has been researching ways to bring more efficiency to the stock market for small investors since the GameStop saga in early 2021, when retail traders led a historic rally in shares of meme-stock companies.

It plans a possible proposal to force trading firms to directly compete in auctions for retail stock orders, according to Bloomberg and the Wall Street Journal. If those rules go ahead, the new model would significantly alter the functioning of the stock market. 

The regulator started exploring new options after traders relied on social platforms like Reddit to raise prices of heavily-shorted stocks like GameStop, ultimately driving a more than 1,200% surge in the video-game retailer’s stock last year. 

Gensler said last year he wanted to save investors money by toughening regulations around profits made in the financial industry.

Brokers profit when investors trade,” Gensler said at the time. “For those brokers who have these arrangements — and not all do — higher trading volume generates more payment-for-order flow.”

“What makes the current zero-commission brokerage environment different is that investors do not see their costs as they’re executing trades, so they may perceive them as free.”

The SEC is also considering other potential reforms, reports said. This includes adjusting the display prices and trading data on stock exchanges, so that venues such as the Nasdaq or the New York Stock Exchange can better compete with wholesalers.