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It wasn’t quite the level of the infamous 1975 New York Daily News headline “Ford to City: Drop Dead”, but U.S. Securities and Exchange Commission Chair Gary Gensler indicated he’s fine with not being on the same page as brokers and exchanges with regard to pending regulatory changes in U.S. equity market structure.
Speaking virtually at the Bloomberg Intelligence market structure conference on March 2, Gensler said he understands financial services businesses operate a for-profit business model, but the SEC works on behalf of the American public and issuers of capital, and saving those two constituencies money might mean less money for intermediaries.
“We may not be a friend to everyone in the audience,” Gensler said. “What’s good for the public may not be good for the bottom lines of dealers in the middle.”
Gensler stated the de rigueur big-picture mission of the SEC: the regulator wants to ensure U.S. equity markets continue to be the best in the world, and that will be achieved by promoting competition and transparency and maintaining fair, orderly, and efficient markets.
The Chair addressed some of the specifics of the proposed rule changes. “There are gaps and issues in each of these areas,” he said.
Gensler said when he arrived at the SEC he was surprised to learn there was no in-house best execution rule. “I frankly thought it was way too important not to have the SEC speak to it,” he said.
With regard to the proposed rule changes on enhanced competiton for individual investor order execution, Gensler noted that most marketable retail investor orders get routed to wholesalers for execution on “dark” venues, which may not provide the fairest deal vis a vis lit markets.
Gensler emphasized, multiple times, that the SEC is aiming to “level the playing field” between dark and lit trading venues, which would in turn boost competition.
When asked whether he was worried that the previous conference panel – consisting of executives from exchanges, brokers, and liquidity providers — was largely in consensus about how the SEC’s equity market proposals should be revised, scaled back or even scrapped, Gensler simply said “no,” drawing uneasy laughter from the audience.
Industry practitioners on that panel indicated support for the SEC’s broad aims, but the panelists said the proposed rule changes are overly prescriptive, and there are significant concerns about how the specific rule changes might impact market liquidity.
“Big picture, most market participants are supportive or sympathetic of the proposals,” said Michael Blaugrund, Chief Operating Officer at New York Stock Exchange. “The concern is with the breadth and scope, and synchronicity of doing it all at once.”
Gensler encouraged all market participants to “weigh in and give us your best advice” in comment letters. But he made clear that commenters need to bear in mind the SEC’s mission.
“Our clients are different than your clients,” Gensler said. “Our client is the American public, and Congress has laid out in very specific ways how we have to focus on competition and help investors and issuers.”
