SEC Weighs Sending Retail Stock Orders to Auctions for Execution

Doug Cifu, Virtu’s chief executive officer, said the SEC should be careful not to make changes that unintentionally make trading more expensive. “Order-by-order competition enables selective competition because it removes the retail brokers’ ability to demand best execution from wholesalers on every order,” he said in a statement.

“The current market structure has resulted in tighter spreads, greater transparency, and meaningfully reduced costs,” a spokesperson for Citadel Securities said in an emailed statement. “We look forward to reviewing the proposals and working with the SEC and the industry towards our longstanding objective of further improving competition and transparency.”

Changes would also impact the exchange businesses which display prices and aggregate trading data. Representatives from Nasdaq Inc. and the New York Stock Exchange declined to comment.

Online brokers argue that replacing customer-paid commissions with revenue that comes from market makers has opened up investing to millions of young people, including women and minorities who traditionally have kept their money out of the securities markets. Firms also argue that the vast majority of the retail orders they offload are executed at a lower price. That complies with SEC rules that demand investors get the “best execution” for trades.

Opponents, however, say the order payments are difficult to understand and include hidden costs that investors pay without even knowing. They also say it gives massive trading firms knowledge of where the market is heading.