Sep 17, 2023 - Last Updated: Nov 30, 2023
On June 8, 2022, SEC Chairman Gary Gensler spoke at the Piper Sandler Global Exchange Conference, commenting on the role technology has played in transforming equity markets. During this talk, he covered a number of topics, including the uneven playing field for retail investors:
Right now, there isn’t a level playing field among different parts of the market: wholesalers, dark pools, and lit exchanges. Further, the markets have become increasingly hidden from view. In 2009, off-exchange trading accounted for a quarter of U.S. equity volume. Last year, during the meme stock events, that share swelled to a peak of 47 percent. What’s more, 90-plus percent of retail marketable orders are routed to a small, concentrated group of wholesalers that pay for this retail market order flow.
It’s not clear, with such market segmentation and concentration, and with an uneven playing field, that our current national market system is as fair and competitive as possible for investors.
Apex Fintech Solutions welcomes SEC Chairman Gary Gensler’s call for improvements in stock trading procedures to help raise returns for retail investors and lower cost of capital for public companies by reducing excessive market segmentation and increasing competition. In particular, we support, and are fully ready to implement, pending SEC approval, a trading solution based on high-powered auction technology to maximize competition for every retail order.
Our modern auction technology provides many of the fair and competitive features that Gensler advocates:
- Enhances liquidity and price discovery by helping to bring a fragmented market together to find the right price based on market supply and demand, supporting lower market impact costs.
- Executes more of an institutional order with lower market impact.
- Trade with multiple participants simultaneously:
- Neutralizes advantages of speed.
- Eliminates need for serial, bi-lateral trades at multiple venues.
- Minimizes information leakage and opportunity costs.
Apex Fintech Solutions currently enables more than 24 million retail accounts in the United States. We also facilitate hundreds of thousands of automated institutional sub-second auctions each trading day. Helping to maximize competition for every single retail order, which includes marrying retail with institutional trading within a transparent structure that provides best execution without relying on mere pledges to search for it with “reasonable diligence,” is a long-overdue reform that we embrace as a matter of both regulatory principle and business logic.
Since the elimination of fixed commissions in the 1970s, retail trading has become vastly less costly. Zero-commission trading is now the norm. Still, the present structure of our equity markets remains an inefficient remnant of the pre-computer days. In contrast, auction technology batches multiple orders so that all prices can be compared simultaneously before the best one is selected. Doing so helps to ensure that trading costs are minimized, and investment returns can be maximized, by grouping orders, in real-time.
Tight spreads are good, but no spreads are best. Although there is much to celebrate about the current state of retail trading, the need to guess at best execution with “reasonable diligence” applied to selecting counterparties without knowing exactly what price is being offered is a costly and unnecessary feature of an antiquated market structure. We therefore support the SEC’s efforts to effect such modernization in a manner which allows brokers and wholesalers to compete for the orders of retail and institutional traders — to the benefit of both — and we invite all industry participants to join us in collaborating to preserve the most beneficial elements of the current structure while simultaneously raising the bar of competition and transparency to a new standard.
This blog reflects the opinions of the author.
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