Leveling the stock market playing field: SEC proposals

 The WSJ has the story: 

SEC Proposes Rules That Would Squeeze Stock-Market Middlemen. Agency is formally considering biggest overhaul of stock-market structure since mid-2000s  By Paul Kiernan and Alexander Osipovich

"The Securities and Exchange Commission voted Wednesday to advance the biggest changes to U.S. stock-market rules since the mid-2000s, aiming to give small investors better prices on their trades and reduce some advantages enjoyed by high-speed trading firms.... Voting to advance the rules opens them to public comment until at least March 31 before the agency can decide whether to finalize them.

...

"The broad idea motivating the proposals is to use greater competition for investors’ orders to deliver better prices, while stepping up regulations of the firms that profit from handling retail stock trades.

...

"The centerpiece of the SEC’s plans is a proposal for brokers to send many small-investor stock orders into auctions. This would enable a mix of high-speed traders and institutional investors such as hedge funds or pension funds to compete to fill the orders, with the idea that investors would get better prices as a result—higher prices if they are selling shares, or lower prices if they are buying.

"The auctions would apply to so-called marketable orders—in which investors buy or sell stocks at the currently available price—less than $200,000 in size and placed by investors who average fewer than 40 trades a day. They would be required to last between one-tenth and three-tenths of a second, roughly the duration of a blink of an eye, and would likely be run by exchanges. 

Requiring such auctions would be a big change. The SEC says brokers send more than 90% of marketable orders to wholesalers. Unlike exchanges, which display price quotes publicly and allow a variety of market players to attempt to fill orders, wholesalers trade directly against the incoming retail flow, an arrangement that effectively prevents other market players such as institutional investors from interacting with individual investors’ orders."

HT: Eric Budish