Securities and Exchange Commission head Gary Gensler spoke at the Piper Sandler Global Exchange Conference on Wednesday, proposing sweeping changes to crucial policies regulating stock trades. The proposal could drastically shake up markets and introduce much more lively competition to Wall Street.
The proposed changes appear to directly target "payment for order flow," which Gensler has criticized as a conflict of interest in the past. The potential rule change has been pitched as benefitting smaller "retail investors," average Americans who execute smaller transactions through apps such as Robinhood
Under the current status quo, the typical American retail investor places their stock order through an app, which the brokerage company behind the app then forwards to a wholesale market. This is presented as a means to get the investor the best price for their chosen asset; however, these markets pay firms such as Robinhood for the traffic they provide, hence the "payment" for the "flow" of transactions. The SEC's proposed changes would require apps to submit orders to an open auction market, where orders would be filled at the best available price for the investor.
Already, established giants on Wall Street that benefit from the current system are mobilizing in defense of it, critiquing Gensler's proposal. Among other stated benefits, firms such as Virtu Financial and Citadel Securities pointed to the current system allowing for zero-commission trading and assurances that every trade will be executed at the exchange price or better.
While the SEC hasn't addressed critiques yet, Gensler, in the past, has pointed to the infamous GameStop
Gamification of securities trading has been a common complaint against Robinhood in particular, with the app also fined by the SEC for withholding information about its business practices. Not being forthcoming about its payment for order flow model stemmed from Robinhood's belief that "payment for order flow might be viewed as controversial by customers," according to the SEC.
