One Of Gary Gensler's Most Contentious Proposals Is Facing Opposition From Wall Street

CNBC reported that investors and the trading industry had time until March 31th to provide their feedback on Securities and Exchange Commission Chair Gary Gensler's contentious proposal to partially revamp the U.S. trading system.

The proposal is quite intricate and significant, so Gensler has divided it into four distinct proposals. While two of these have garnered substantial support from the industry and are expected to be approved, the remaining two have faced opposition. One of these proposals, which aims to replace payment for order flow with an auction process that arose from the GameStop meme stock debacle, may be contested in court to prevent its implementation.

SEC Chair Gary Gensler's proposal to partially revamp the U.S. trading system has sparked controversy, particularly regarding the payment for order flow (PFOF) system. This involves some retail brokers routing orders to wholesalers who pay for access to that order flow and may match orders against their own internal order flow, profiting from the price difference.

Gensler claims that institutional investors cannot interact with this retail order flow and that brokers prioritize their financial gain over providing the best prices to clients. To increase competition, Gensler proposes setting up auctions in which trading firms would compete to fill investors' orders before they are executed internally, potentially saving investors $1.5 billion annually.

Wall Street is not a fan of Gensler’s plans

The auction proposal put forward by SEC Chair Gary Gensler has received a large number of comment letters, with many submissions from individual retail investors supporting the proposal due to the events around Gamestop and other "meme stocks" earlier this year. However, most of Wall Street opposes the proposal, arguing that it is too complex and could lead to market disruption.

Trade groups, including SIFMA, have called for the proposal to be withdrawn, and letters from NYSE, Citadel, Charles Schwab, Cboe, State Street Global Advisors, T. Rowe Price, UBS, Virtu Financial, and Nasdaq have also recommended against the proposal. SEC Commissioners Hester Peirce and Mark Uyeda have also opposed the proposal.

Gary Gensler has recently been met with harsh criticism, not least because of his crackdown on the crypto industry.

Moving on

After the comment period has closed, the Commission will assess the feedback on all four proposals, a process that may extend for several months or more. Subsequently, the Commission has multiple options, including reopening the comment period, modifying the proposals, seeking further comments if significant modifications are made, eliminating one or more proposals, or proceeding to the final rulemaking phase.

While it is possible for the SEC to vote on the proposals in a shorter timeframe, the auction proposal's complexity and the Commission's 3-2 Democratic majority under Gensler make this possibility improbable.

Resources:

CNBC