(Bloomberg) — US Securities and Exchange Commission Chair Gary Gensler said he’s open to changing the agency’s proposed overhaul of Wall Street trading rules as market participants vigorously debate and, in some cases, mount opposition to the measures.
While institutions have been quick to provide input on the proposed rules, the regulator is also very interested in hearing from individual investors, Gensler said Thursday. Ultimately, the agency is more inclined to hold the interests of the investing public above others, he said.
“Weigh in, give us your best advice,” Gensler said of the debate among investment firms, brokerages, exchanges and other market participants. “But our client is different, our client is the American public. And Congress has laid out in very specific ways that we have to focus on competition and we have to focus on efficiency to help investors and help issuers.”
The agency unveiled its four proposals — totaling more than 1,600 pages — in mid-December to update the market’s plumbing, from order routing to pricing to disclosures brokers make to clients. While the new rules mostly focus on the mechanics of trading stocks, they would also seek to ensure investors get “best execution” across a variety of markets, affecting equities, options and fixed-income assets.
Transparency, eliminating conflicts of interest and “leveling the playing field” are the main goals, said Gensler, a former executive at Goldman Sachs Group Inc.
He spoke at the Bloomberg Market Structure Conference and in a Bloomberg Technology TV interview.
Critics have blasted the plans, arguing, for example, that the changes could upend brokerage business models and will require firms to update or replace their technology. There’s no evidence of dysfunction that would require such a “wholesale revamping of the U.S. equity markets,” the Securities Industry and Financial Markets Association trade group said.
“Most market participants are either supportive or very sympathetic to the policy objectives that these proposals are pursuing,” NYSE Chief Operating Officer Michael Blaugrund said Thursday at the conference. “But I think there’s a lot of appropriate concern that the breadth and scope of what’s being undertaken, and the synchronicity of all these changes at once, will have unintended consequences.”
The plans could lead to more stock orders filled on exchanges like Nasdaq and NYSE. Currently, a significant chunk of retail trades are handled by wholesale brokerages like Virtu Financial Inc. and Citadel Securities, which pay to process customer trades from firms such as Robinhood Markets Inc.
The measures could lower payments for order flow between brokers like Robinhood and wholesalers like Virtu or Citadel, according to analysis by Bloomberg Intelligence.
Such payments lead to conflicts of interest, along with claims of “zero commission” trades in which retail investors still bear costs, Gensler said.
The SEC is separately taking a close look at how artificial intelligence and predictive data analytics may be used to influence investors, he said in the TV interview. Such analytics can derive from a variety of sources, such as apps and devices. Marketers and financial-service providers can use the data to help steer investors toward certain products or transactions.
“This is one of the most transformative technologies of our time,” Gensler said. But it also raises concerns that robo advisers or other financial services companies could put the interests of their platforms before their customers, he said.