Bipartisan lawmakers raise concerns about SEC best-execution proposals

Bipartisan lawmakers raise concerns about SEC best-execution proposals
The agency is targeting so-called payment for order flow, which proponents say allows for low-cost trading but critics say doesn't give customers a good deal on their orders.
DEC 08, 2022

Pending SEC proposals meant to help customers get better prices for securities transactions are drawing bipartisan pushback even before they’re released.

The Securities and Exchange Commission next Wednesday will vote to propose several rules that focus on increasing competition for orders. One would require open auctions for certain equity orders. Another, Regulation Best Execution, would set a standard for broker-dealers and other market participants, and require policies and procedures on finding the most favorable price points for customers.

The proposals stem in part from concerns about payment for order flow, a process in which brokerages sell customer orders to market makers that offer the highest prices. Proponents say the arrangement allows brokers to offer low- or no-cost trading.

But SEC Chairman Gary Gensler has questioned whether payment for order flow is in the best interests of customers. The issue was at the heart of the GameStop trading frenzy in early 2021 and is the linchpin of the operations of online brokers, such as Robinhood.

The SEC and the Financial Industry Regulatory Authority Inc. have brought best-execution enforcement cases in recent months. The coming SEC rulemaking is part of Gensler’s push to increase competition and transparency among market intermediaries to lower costs for investors.

But Rep. Bill Huizenga, R-Mich., raised doubts about the SEC’s market reform efforts.

“Gary Gensler didn’t see the FTW collapse coming, but now he wants to redo how our markets work … with little analysis or stakeholder engagement,” Huizenga tweeted Thursday, referencing the recent bankruptcy of the cryptocurrency exchange. “I look forward to working with my colleagues to understand this soon to be released proposal.”

Huizenga and Rep. Josh Gottheimer, D-N.J., who are both members of the House Financial Services Committee, sent a letter to Gensler Wednesday questioning whether the agency had assessed the costs and benefits of its best-execution proposals. They asserted that “retail investors enjoy better prices, increased liquidity and, in many cases, no transaction fees” thanks to technological innovation.

“We are concerned, however, that certain changes being considered at the Commission, in particular one that would require order-by-order auctions, are not supported by robust empirical evidence that demonstrates the potential benefit these changes provide to American investors,” Huizenga and Gottheimer wrote. “We believe a thorough analysis of the current functioning of the market is necessary to eliminate the risk of unintended consequences.”

The five-member SEC almost certainly will vote next week to propose the rules, although it could do so on a 3-2 split between the Democratic majority and Republican minority. Once the proposals are made public, the agency will take comments and could modify them before final rules are promulgated.

‘IN the Office’ with CNBC reporter and author Bob Pisani

Latest News

'Bogged down' advisors just want to have fun (again)
'Bogged down' advisors just want to have fun (again)

Jim Cahn, of Wealth Enhancement Group, lifts the lid on his firm's partnership model, his views on RIA M&A, and the widely slept-on reason why advisors are merging into larger organizations.

Vestwell unveils new emergency savings account offering
Vestwell unveils new emergency savings account offering

The fintech firm is cementing its status in the workplace savings space with its latest ESA offering, which employers can integrate into their existing benefits package.

'Money Mimosas' and other ways to show your Valentine financial love
'Money Mimosas' and other ways to show your Valentine financial love

Wealth managers offer unique ideas for couples to grow closer emotionally and financially.

Limra research finds financial confidence on the rise among Black American workers
Limra research finds financial confidence on the rise among Black American workers

Survey findings suggest increased sense of financial security and more optimistic 2025 outlook, while highlighting employers' role in ensuring retirement readiness.

DOGE efforts sideswipe muni bonds backed by federal lease payments
DOGE efforts sideswipe muni bonds backed by federal lease payments

Falling prices for some securities within the $4 trillion state and local government debt market spotlight how the push to shrink spending is sending shockwaves across the US.

SPONSORED Record growth: Interval funds emerge as key players in alternative investments

Blue Vault Alts Summit highlights the role of liquidity-focused funds in reshaping advisor strategies

SPONSORED Taylor Matthews on what's behind Farther's rapid growth

From 'no clients' to reshaping wealth management, Farther blends tech and trust to deliver family-office experience at scale.