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The Wall Street Journal reported late Monday that the Securities and Exchange Commission is readying significant changes to the way the stock market operates as soon as this fall.
The article authored by Paul Kiernan and Alexander Osipovich states that after Chairman Gary Gensler asked SEC staff last year to look into ways to make the stock market more efficient for small investors and public companies, one idea that stuck was to require brokerages to route the majority of individual investors’ orders to auctions. From there, trading firms will compete to execute them, the article reads, citing people familiar with the matter.
The SEC has started speaking with market participants about their potential plans.
The potential new rule would mean market orders are handled differently, with Gensler wanting to make sure orders are executed at the best possible price.
Gensler has previously said the SEC is assessing the future of payment for order flow, a practice where some brokers, such as popular trading app Robinhood (NASDAQ:HOOD), accept payments to route trades to specified parties for execution.
The change under consideration would mean firms compete with each other to fill orders, altering their business model, which is under scrutiny. The current model allows the firms to make more money by trading against smaller retail investors.
The WSJ said some Wall Street firms pushed back last year after finding out their business models would be targeted. As a result, they have increased lobbying and campaign spending in Washington.
Shares of online retail broker Robinhood dipped lower following the WSJ article, closing down 0.7%. Market maker Virtu Financial, Inc. (NASDAQ:VIRT) closed down 3.3% amid the news.
