SEC to Determine if Payment for Order Flow Should Be Changed, Banned

Securities and Exchange Commission (SEC) Chairman Gary Gensler said the regulator is looking into whether or not payment for order flow needs to be changed or banned, with the objective of keeping the marketplace competitive, CNBC reported.

The idea is to aid buying and selling trading volume, if possible, Gensler said, according to the report. He explained that although modern broker and market maker agreements have had positive effects on the cost of trading and its efficiency, conflicts still remain.

“Our markets have moved to zero commission, but it doesn’t mean it’s free,” he said, per the report. “There’s still payment underneath these applications. And it doesn’t mean it’s always best execution.”

Gensler, alongside others in the industry, worries that because only a few firms handle most of the trading volume in the U.S., those companies might be able to use that influence to charge too much to execute trades, the report stated.

Gensler said there have been cases recently in which there was a conflict between the broker and the payment for order flow, according to the report.

There won’t be a decision on how to regulate payment for order flow for months, the report stated. Gensler said the SEC has many options, though — including greater disclosure and acknowledgement requirements or simply banning the practice — with the goal being to boost transparency.

Gamification of the stock market has been a hot topic since early this year, when turbulence in the prices for GameStop and AMC occurred. In its report on the GameStop incident, the SEC didn’t put the blame on any one individual, per CNBC, instead writing that payment for order flow and the incentives it makes “may cause broker-dealers to find novel ways to increase customer trading, including through the use of digital engagement practices.”

Earlier this month, Gensler spoke about the need to regulate cryptocurrencies and special purpose acquisition companies (SPACs), saying both need “investor protections.”

Read more: SEC’s Gensler Says Crypto, SPACs Need ‘Investor Protections’