After Meme Stock Frenzy, SEC Poised To Change Stock Market Rules To Ensure More Transparent Operations

The SEC looks to propose significant changes to the stock market’s mode of operation by this fall, the Wall Street Journal reports.

The SEC initiated its review of the market structure after frenzied trading in GameStop Corp GME and other meme stocks in early 2021, triggering scrutiny in handling individual investors’ trades.

The SEC weighed creating a more rigid version of the so-called best-execution rule that directs brokers to find the most favorable terms for their customers.

The SEC explored a proposal to allow stock exchanges to quote shares in less than $0.01 increments.

The SEC also aimed to reduce the maximum fee that exchanges can charge brokers to access their quotes.

In 2021, SEC Chair Gary Gensler directed the staff to figure out ways to make the stock market more efficient for small investors and public companies. 

A popular idea emerged that required brokerages to send most individual investors’ orders for routing into auctions where trading firms compete to execute them.

The SEC staffers began floating plans with market participants in recent weeks, and Gensler looks to detail some of the potential changes on June 8. The most significant change under discussion would affect the mode of handling trades after an investor places a so-called market order with a broker to buy or sell a stock. 

Gensler looks to ensure that brokers execute orders at the best possible price for investors. The auctions under the SEC consideration will help different firms compete to fill an individual investor’s trade. 

The mechanism would fundamentally alter the business model of wholesalers, which can make more money by trading against small investors than they do on public exchanges.