SEC to Float Proposals to Get Small Investors Better Prices on Stock Trades
Agency has set a Dec. 14 meeting to consider advancing four proposals that could reshape how the stock market operates
WASHINGTON—The Securities and Exchange Commission signaled plans to issue four proposals next week that aim to help small investors get better prices on their stock trades.
The SEC said Wednesday its five-member commission will consider proposing the rules in an open meeting Dec. 14. If a majority of the panel, which includes Chair Gary Gensler and two other Democrats, support the proposals, they will be opened to public comment before the SEC decides whether to finalize them.
The proposals are a key element of Mr. Gensler’s policy agenda. He has repeatedly said U.S. equity markets can be improved for ordinary investors who often pay no commissions for trading but face other, more-opaque, costs. In a June speech he outlined a series of potential regulatory changes that SEC staff were drafting.
Most small investors, when they place an order with their broker to buy or sell shares, pay little heed to what happens next. Sometimes the broker sends the order to a public exchange like the New York Stock Exchange, which matches it with a counterparty. But in many cases, brokers sell their customers’ orders to high-speed trading firms such as Citadel Securities or Virtu Financial Inc., which profit from the small difference between the buying and selling price of the stock.
Mr. Gensler says the practice, known as payment for order flow, represents a conflict of interest for brokers, which are required to act in the best interest of their customers. He left open the possibility of banning it in a 2021 interview that dinged the stock price of Robinhood Markets Inc., one of the many brokers that rely on the practice to offer zero-commission trading.
Mr. Gensler has since backed away from an outright ban of payment for order flow, saying more recently that he wants to increase transparency and competition in the business of executing stock trades.
The proposals on next week’s agenda include an “order competition rule.” That would require some trades by individual investors “to be exposed to competition in fair and open auctions before they could be executed internally by any trading center that restricts order-by-order competition,” the SEC meeting notice said.
The Wall Street Journal detailed some of the contours of that idea, which seeks to ensure that small investors get better prices when buying or selling stocks, in October.
Additionally, the SEC plans to consider proposing a “best execution” regulation for broker-dealers. Such a rule would require brokers to take steps to ensure that they send investor orders to the trading venue that offers the best-available price to their customers—meaning the highest price for a seller or the lowest price for a buyer.
The agency also plans to propose updating mandatory disclosures from market intermediaries about “execution quality” for stock trades, and to shrink the minimum increments at which stock prices are quoted.
Nominated by President Biden, Mr. Gensler took office in April 2021 when the SEC was facing questions from Congress about the GameStop Corp. trading frenzy a few months earlier. The episode helped put the normally obscure internal workings of the stock market near the top of his regulatory agenda.
Write to Paul Kiernan at paul.kiernan@wsj.com
Corrections & Amplifications
Securities and Exchange Commission Chair Gary Gensler outlined a series of potential regulatory changes to stock trading in a June speech. An earlier version of this article incorrectly said the speech was in July. (Corrected on Dec. 7)