Who will be affected by the SEC’s proposed stock market reforms?

Traders work on the trading floor of the New York Stock Exchange (NYSE) on Dec. 14 in New York City.Andrew Kelly/Reuters

The U.S. Securities and Exchange Commission is set to vote on Wednesday on proposed rules related to the processing and execution of stock orders, in what would be the biggest change to the stock market in nearly two decades.

SEC Chairman Gary Gensler said the changes will make the market fairer by improving transparency, creating a more level playing field between stock exchanges and over-the-counter venues, and exposing retail orders to more potential buyers and sellers and more competitive.

What are the proposed changes?

Five SEC commissioners, including Gensler, will vote on Wednesday to consider four measures related to how U.S. markets work, as well as a measure to enhance disclosure of insider trading arrangements.

Of the four proposals related to market structure, “order competition rules” are the biggest potential change.

The rule would require individual investor stock orders with no price limit to be sent to auctions where market participants can compete to complete.

Most of these orders are sent by the retail broker to the wholesale broker, sometimes in exchange for payment, and the wholesale broker executes them at a price equal to or better than the best price available on the exchange.

The SEC commissioners will also vote to create new standards for brokers to show they are getting best execution for their clients’ orders.

Another proposal would allow exchanges that currently only show buy and sell prices in one-cent increments to offer sub-cent prices, allowing them to better compete with broker-operated venues that have no quote limits, so Better prices can be offered. The rule will also reduce exchange access fees.

The regulator will also consider whether to strengthen existing rules requiring brokers to provide information about the quality of their clients’ trade executions.

Who will be affected by these changes?

Order competition rules require marketable retail orders to be sent to auctions, which may lead to more such orders being matched on exchanges such as Nasdaq or ICE NYSE rather than by wholesale brokers ( Such as Citadel Securities and Weitu Financial.

NYSE, Nasdaq and Citadel Securities declined to comment.

Virtu recently sued the SEC for failing to respond to the company’s public information requests about who the regulator was meeting with and what data it was looking at as it drafted new rules.

The proposed order competition rules could also dent profits at retail brokers, such as Charles Schwab Corp and Robinhood Markets Inc, which collect payments from wholesale brokers in exchange for customer orders.

Schwab declined to comment, and Robinhood did not respond to a request for comment.

The proposal to allow exchanges to display sub-cent prices could allow exchanges to better compete with broker-run trading venues that sometimes execute nearly half of U.S. stock trading volume. Lowering exchange access fees could also make exchanges more attractive venues for trade execution, but would also reduce the ability of exchanges to offer rebates to win order flow.

New best execution standards for brokers could also affect wholesalers and exchanges paying retail brokers for order flow.

When do the changes take effect?

The SEC’s rulemaking process can take years. If the rule proposals are adopted, they will be open for public comment, usually for 30 to 60 days, and the SEC will then consider the comments when drafting the final rule.

The last major adjustment to the market was the Regulatory National Market System, passed in June 2005 but not becoming law until 2007.

The SEC declined to comment further

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