Thread by @dlauer

SEC open meeting getting ready to begin here:
sec.gov/news/upcoming-…

🧵A high-level thread with our initial view of the proposed rules, which are split into four proposals.

1. Changes to Rule 605 that will modernize execution quality disclosures and extend those disclosures to retail brokers.

This means brokers will finally have to publish standardized execution quality metrics that we can use to compare how good of a job they’re doing at executing orders, and what kind of execution quality they’re getting from their counterparties.

2. Significant changes to tick sizes, access fee caps and transparency for better priced orders. This is a somewhat complicated part of the rules that will likely have a very significant impact on order routing and execution.

The most important part of this is the tick size changes. Today, internalizers have a regulatory advantage over exchanges - they can execute orders at any pricing increment - that’s why we see so many 1 mil price improvement trades and prices that go out to 4 decimal places.

These changes would end that practice and level the playing field. It will mean that retail investors have the opportunity to get the same level of price improvement on-exchange, and change the incentives for retail brokers.

3. The proposal to enhance order competition would effectively end internalization and wholesaling as we know it, although it wouldn’t end it completely.

They’re basically saying from now on, when a retail broker gets an order, unless it’s executed at the mid, the order has to be sent to an auction facility (it can be on-exchange or off, but bar for running one off-exchange is very high) where anyone can compete to fill the order.

Only if the auction fails (nobody wants to fill it) can the order be executed by an internalizer. #WeTheInvestors prefers a simpler approach known as the trade-at rule to the added complexity of this approach, but this is an improvement over the current system.

I know one of the most important things to this community is knowing that your trades impact the NBBO and execute on-exchange, and this would go a long way to making that happen.

4. Finally, Regulation Best Execution would establish a best execution standard (the SEC does not have one - only FINRA does), and this standard would hold brokers that engage in “conflicted transactions for or with a retail customer” to a higher standard.

In our opinion this doesn’t go far enough: there should be an even stronger standard for these conflicted brokers that recognizes payment for order flow is not compatible with best execution and they should be held to an order-by-order standard.

That’s all for today. But check back here often. We’ll be examining the proposed rules closely and sharing information with the community as we go along. You can also stay on top of #WeTheInvestors efforts or submit your email for alerts here: urvin.finance/advocacy/equit…

Fact sheets now available for the new rule proposals:

Retail auctions: sec.gov/files/34-96495…

Tick sizes, access fees: sec.gov/files/34-96494…

Best execution: sec.gov/files/34-96496…