By Kirsten Wegner, CEO of the Modern Markets Initiative
As the House Financial Services Committee reconvenes at a hearing this Thursday to look at the nation’s equity market structure, there’s one looming question that is the elephant in the hearing room: What are the real problems for investors that SEC Chairman Gary Gensler should try to fix?
New data in a study released by the Modern Markets Initiative definitively indicates that U.S. markets are the envy of the world, and the proof points make for a long list. Stock trading has never been more inexpensive, nor the speed of execution so immediate, than in today’s modern markets. Bid-ask spreads have narrowed by half over a decade, yielding 30% more lifetime retirement savings in modern markets. A middle-class investor can retire years earlier as a result of market efficiencies, according to the report, and a mid-size state pension fund saves over $290 million a year each as a result of low-cost trading. Even 529 plan participants in a mid-size state, for example, saving for education reap $549 million a year in savings.
Chair Gensler has admitted that the U.S. equity markets are the “gold standard” of the world. It is true that the markets must evolve over time, and they can always be improved incrementally. However, the cost of retail trading is at historic lows (typically commission-free at most major retail brokerages), and investors can trade whenever they want. Retail investors in this country have never had it better.
With their limited time and resources, regulators and lawmakers should focus on areas where retail investors need bipartisan attention, including:
- Crypto Clarity. Data indicates that about 28% of Americans have held some form of crypto. These investors would benefit from a clear regulatory landscape to ensure they receive consumer protections. With the global Web3.0 blockchain market estimated to reach over $44.2 billion by 2031, lawmakers should create clarity, protect investors, and attract jobs in the U.S.
- Future of AI – Artificial Intelligence. Gensler himself has called AI the “next transformative technology.” With the hype and public infatuation with ChatGPT and other AI, there is room for lawmakers and regulators to host roundtables and learn more about AI as a transformative innovation, a tool for professionals and individuals, and potential applications in the trading environment. As this technology emerges, now is also a critical time to address policy questions.
- Cultivating Bipartisanship Generally – Debt Ceiling Clarity. Congress should work toward mending relationships and improving bipartisanship, as retail investors’ savings are put at stake by repeat debt ceiling crises.
While it is positive for the SEC and its chair to look at potential improvements in the U.S. equities markets, it would be wise to ensure that rule changes spotlight areas most in need. Lawmakers and regulators should focus attention on crypto, AI, and the future of fintech – emerging areas that demand consideration now so that investors are protected, there is regulatory clarity, and the U.S. remains the envy of the world for the innovation economy. The future of retail investors is inextricably linked to America’s competitive future.
