On December 14, 2022, the U.S. Securities and Exchange Commission (SEC) proposed four separate rules aimed at improving prices and transparency for investors by changing the way securities trades are routed and executed. Certain highlights as follows:
- An SEC-established best execution standard that would require broker-dealers to find the best market and the most favourable price for the security to trade. Additionally, brokers would be required to document how they ensured they received the best price for their clients. Currently, the definition of best execution is established by FINRA – the Financial Industry Regulatory Authority.
- Require certain retail orders (less than $200,000 in size) to be exposed to competition in fair and open auctions where high-speed traders and institutional investors would compete to fill the orders. Currently, brokers send more than 90% of their marketable orders to wholesalers.
- Adopt variable minimum pricing increments (tick-sizes) for the quoting and trading of stocks. Exchanges would be allowed to quote prices in increments ranging from one-tenth of a penny to a penny. Wholesales would be required to trade stock in the same increments.
- Expand disclosure requirements to include larger broker-dealers who are to prepare execution quality reports, more order types, and sizes, and recording of time-based metrics. Currently, market centers that execute investor orders are required to make monthly disclosures of basic information concerning order execution quality for stocks listed on a national securities exchange.
The proposals are below and are open for comment until at least March 31, 2023:
Proposed rule: Disclosure of Order Execution Information (sec.gov)
Proposed rule: Regulation NMS - Minimum Pricing Increments, Access Fees, and Transparency of Better Priced Orders (sec.gov)
Proposed rule: Order Competition Rule (sec.gov)
Proposed rule: Regulation Best Execution (sec.gov)
Some market reactions are here:
Reactions: SEC Market Structure Changes - Markets Media