Apr. 01, 2023
April 1, 2023
The SEC ought to minimize conflicts of interest by enhancing transparency in the routing of orders by brokers and wholesalers, thereby ensuring that investors have access to the best-priced quotations available in the National Market System (NMS). Proposed changes to Alternative Trading Systems (ATS) regulations, aimed at better alignment with the regulatory frameworks for exchanges, would be advantageous for individual household investors.
SEC-regulated electronic trading platforms that match buyers and sellers of stocks, such as ATS, should submit comprehensive disclosures regarding their operations. This includes information on conflict of interest management, order routing practices, and customer order handling. Such disclosures would enable investors to better comprehend the workings of ATS and the execution of their orders.
ATS should establish and enforce written policies and procedures to prevent fraudulent and manipulative practices, thereby safeguarding individual investors from abusive practices in the ATS market. Detailed information about the operation of their systems, including data on order execution, order routing practices, and dark pool usage, should be provided to the SEC. This would enhance the SEC's ability to oversee ATS and ensure compliance with regulatory requirements.
ATS should operate in accordance with the broader regulatory structure of the securities markets, promoting fair and transparent trading practices that benefit individual investors. The implementation of a variable minimum pricing increment model for both quoting and trading of NMS stocks would further promote fair and transparent pricing across trading venues, ultimately benefiting investors.
Household investors are supportive of initiatives that aim to identify and prevent fraudulent practices undermining the credibility, integrity, and functionality of American markets. Sending orders to a wholesaler for internalization should not be the sole option available to investors, and brokers should not be allowed to charge excessive commissions or fees in lieu of Payment for Order Flow (PFOF). Therefore, implementing a cap on such fees would be prudent.
Retail investors stand to save an estimated $1.12 billion to $2.35 billion, primarily through increased competition to supply liquidity to marketable orders. Competition in the marketplace is essential for improved market regulation, and barriers to competition, such as the conflicted nature of PFOF, should be eliminated. The SEC must prioritize the establishment of a competitive market structure that benefits investors and fosters transparency.