Brokerage Industry Looks for Alternatives to Payment for Order Flow amid Sec’s Threatened Crackdown

Gary Gensler, SEC chair, urges the brokerage industry to look for alternatives to payment for order flow. An idea is originating from Apex Clearing, according to CNBC. SoFi, Webull, and other fintech companies use the clearing firm to manage their trades and develop a marketplace for matching customer orders. According to Apex’s CEO, an “auction” process could enable stock exchanges to directly compete with market makers such as Citadel Securities and Virtu. “It creates more competition, which will translate into better prices,” Bill Capuzzi, CEO of Apex, told CNBC. “The big winner is the retail investor.”

Earlier this week, SEC chairman Gary Gensler proposed changing the rules that govern how Wall Street deals with retail transactions. The top securities regulator explained that his plan would require firms to compete directly to execute trades from retail investors. Among other things, Gensler wants more disclosure about fees and data. Several SEC commissioners have expressed concerns about potential conflicts of interest and the concentration of power among selected market makers. “I asked staff to take a holistic, cross-market view of how we could update our rules and drive greater efficiencies in our equity markets, particularly for retail investors,” Gensler said at a Piper Sandler fintech conference on Wednesday. Payment for order flow (PFOF) refers to brokerage commissions for directing customer trades to a market maker such as Citadel Securities or Virtu. The fee is usually a fraction of a penny, but it brings in the bulk of Robinhood’s revenue and allows them to offer commission-free trading.

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