The head of the US Securities and Exchange Commission unveils plans that could mean the biggest reform of US stock exchange rules in more than a decade, but leave online brokers like Robinhood in trouble. The rash was the stock market mania for meme stocks like GameStopp.
After the stock market mania surrounding meme stocks, the head of the US Securities and Exchange Commission has presented a reform plan for small shareholders. The aim is to ensure that retail investors are getting the best price for their stock trades from online brokers. The project, which SEC boss Gary Gensler has now published, provides for trading houses to compete directly with each other when they receive orders from small shareholders. In this way, competition should be strengthened.
Gensler is particularly concerned with fees that online brokers such as TD Ameritrade, Robinhood or E*Trade receive from intermediaries for passing orders to them. The SEC states that these "Payment for Order Flow" (PFOF) fees increase the cost to online brokers for investors. The new SEC regulations are now intended to oblige brokers to create transparency about what fees they collect and how trading orders are processed for the benefit of investors.
It would be the largest reform of US stock exchange rules in more than a decade. A formal proposal is expected in the autumn. Fees came into focus in 2021, when a multitude of retail investors bought "meme" stocks like GameStop or AMC in a big way. Many investors had used commission-free brokers such as the Robinhood app.
Robinhood stock slipped Tuesday after the Wall Street Journal reported on the SEC's plans. With this reform, Robinhood and other online brokers such as E*Trade would lose their main source of income. The changes could also shake up the business model of large trading houses. So far it has been more lucrative for them to process orders from small investors via their internal trading platforms instead of via the stock exchange because they are in competition with other brokers or institutional investors there.
