SEC Chair Gensler Delivers Remarks on Potential Areas for Market Structure Reforms

In June, SEC Chair Gary Gensler delivered a speech at the Piper Sandler Global Exchange Conference detailing specific areas where market structure reforms could be beneficial to investors. In his remarks, Gensler noted “Right now, there isn’t a level playing field among different parts of the market: wholesalers, dark pools, and lit exchanges.” The speech outlined several areas that Gensler believes need attention, including:

• Minimum Pricing Increment
• National Best Bid and Offer
• Disclosure of Order Execution Quality
• Best Execution
• Order-by-Order Competition
• Payment for Order Flow, Exchange Rebates, and Related Access Fees

The issues discussed during his speech represent a preview of potential rulemaking, undoubtedly several of the proposed changes will be controversial. Gensler did not provide a timeline for publishing any proposals for public comment, but given the recent pace of SEC rulemaking, proposals could be released this year. Additionally, the inclusion of “equity market structure modernization” in the SEC’s regulatory agenda is further evidence of the likelihood that the SEC will consider rules in this area.

Another area Gensler has asked the SEC staff to make recommendations in is the enhancement of order-by-order competition for retail equity transactions. Proposals could include requiring retail brokers to send investor stock orders to auctions, where trading firms and other investors could compete to fill the order at the best price instead of these orders flowing directly to wholesalers. Gensler also noted disparities in tick size, the minimum increments at which securities are priced, between the lit markets and off-exchange venues. He asked the SEC staff to make recommendations that would harmonize tick size across trading venues and shrink the minimum tick size to better align with off-exchange activity.