SEC seen pushing bond, option brokers for better prices on trades – report

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The U.S. Securities and Exchange Commission may propose overhauling rules for the stock market that would also expand its oversight of bond and options trading, Bloomberg reported Wednesday, citing people familiar with the matter.

A draft being circulated in the SEC, Wall Street’s main overseer, would require that brokers in fixed income and some derivatives, along with equities, to focus on the best deal for their clients, the people said. The industry-backed Financial Industry Regulatory Authority (known as Finra) already has a “best execution” rule, but brokerages would face tougher enforcement measures if the SEC adopts the same standard.

The commission may introduce the proposals at a public meeting in December, the people told Bloomberg, with some saying the SEC may strive to implement the measures in five pieces. It would still be months before any changes are actually made. The process requires a public comment period after the proposals are made and before the SEC votes to finalize any changes.

In June, SEC Chair Gary Gensler said he asked his staff to weigh changes that would require brokerages to route retail orders to transact stocks into competitive auction, in an effort to provide investors with more transparency when trading stocks.

The SEC is likely to propose an order-by-order auction process to help retail traders get the best pricing, the article said. And it’s also considering a plan to require brokers to disclose more about how much trading costs compared with benchmarks, a measure called price improvement, the people told Bloomberg.

In any case, it appears the agency will stop short of an outright ban of payment-for-order flow, the way most online brokers are able to offer commission-free trading. Under that process, the brokers send their retail orders to high-frequency trading firms like Virtu Financial (NASDAQ:VIRT) and Citadel Securities in exchange for a fee.

BofA analyst Craig Siegenthaler expected that the changes to the equity market structure proposed in June would benefit equity exchanges Nasdaq (NASDAQ:NDAQ) and New York Stock Exchange operator Intercontinental Exchange (NYSE:ICE), and be a drawback for Robinhood Markets (NASDAQ:HOOD).

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