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- Retail investors rout 90% of their orders to a handful of market makers.
- This costs retail traders $1.5 billion a year, SEC chief Gary Gensler said.
- The regulator wants to promote heightened competition among market makers.
Retail investors are routing the majority of their orders to just a handful of market makers, and it's time to "breathe more competition" into the stock market, according to Securities and Exchange Commission boss Gary Gensler.
Though stock markets use competitive auctions in some settings,over 90% of individual traders are routing their orders to a small group of wholesalers in "the Dark Market," Gensler said.
Those off-exchange market makers don't have the same transparency and competition of an auction system, which direct trades to the highest bidder. That results in hefty losses for retail traders, who may be losing $1.5 billion a year due to the lack of competition in trading, the regulatory chief said in a video tweeted on Tuesday.
"I think the retail public deserves the full benefit of competition for the sweetness of your marketable orders. And I think it's time to breathe more competition into our equity markets. That's what we're trying to accomplish," Gensler added.
He pointed to a recent proposal from the Commission that requires retail orders of a certain size to be handled in open auctions. For a retail trader selling stock, that could open up trade to potentially thousands of competitive buyers, Gensler said, which is expected to improve price executions and profits for retail investors.
The proposal is part of a bigger push from the agency, which introduced four different proposals in late 2022 that were intended to reform trading rules and lower costs for retail investors. The changes would represent the largest regulatory overhaul to stock trading in nearly 20 years, the Financial Times originally reported.