Some are already threatening litigation if one of the new rules goes through.
The seal of the U.S. Securities and Exchange Commission hangs on the wall at SEC headquarters in Washington.Today is the final day for the trading industry and investors to submit comments on one of Securities and Exchange Commission Chair Gary Gensler's most controversial proposals: a partial overhaul of the U.S. trading system.
To increase competition, Gensler is floating the idea of setting up auctions in which trading firms would compete with each other to fill investors' orders before they could be executed internally. "SIFMA's members believe the order competition rule should be withdrawn," Kenneth Bentsen, President and CEO of the Securities Industry and Financial Markets Association , said in a statement to CNBC. SIFMA is a trade group representing securities firms, banks and asset management companies.
Nasdaq has also registered its opposition to the proposal, saying "the SEC risks too much by solely focusing on qualified auctions," instead recommending that the SEC should define a minimum price improvement threshold that broker-dealers must meet in order to internalize retail order flow. "The strongest way to challenge an agency is to say that the agency is doing something outside of their statutory authority," the attorney said, noting that he thought it unlikely such a challenge would succeed in this case.
The attorney declined to comment on the likelihood of a lawsuit. However, another attorney familiar with the submissions that have been made, who also asked to remain anonymous, noted that, "Some of these submissions look they are the opening round of a litigation process."The minimum trading increment was set at a penny nearly 20 years ago. A second proposal being considered could alter that.
Why start trading in sub-penny intervals? It's been known for some time that many stocks are "tick-constrained", that is, they almost always have a bid-offer spread that is one cent wide. This implies that if the tick size was smaller than a penny, investors might get better prices. Second, Gensler wants to expand the group that has to issue reports on execution quality to include large broker-dealers, in addition to market centers.
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