US regulators mull new rules that could threaten Robinhood, Citadel
- SEC’s Gary Gensler shines spotlight on online brokerages and market makers that dominate the business of executing retail investors’ equity orders
- Many SEC regulations were approved long before social media, real-time trading and smartphones transformed the stock market
He said popular apps like Robinhood’s exploit game-like features to keep customers trading – an investing strategy that over time can eat into returns. And Gensler raised concerns that a deluge of equity transactions are being routed through Citadel Securities and a few other massive players, which he said threatens “healthy competition”. In remarks prepared for a Thursday House hearing, the SEC chief made it clear that such issues will be a focus as the regulator examines whether tougher rules are needed.
The task ahead for the SEC is daunting. Many of its regulations were approved more than a decade ago – long before social media, real-time trading and smartphones transformed the stock market. And because of the stakes involved, the agency is sure to face an onslaught of pressure from Capitol Hill and intense lobbying by Wall Street.
“Many of our regulations were largely written before these recent technologies and communication practices became prevalent,” Gensler said in testimony released on Wednesday for his appearance before the House Financial Services Committee. “We need to evaluate our rules, and we may find that we need to freshen up our rule set.”
He also said the agency will step up its scrutiny of payment-for-order flow – the practice in which Citadel Securities, Virtu Financial and other firms pay brokers for the right to execute customers’ orders. In addition, the SEC plans to review whether it should boost investments funds’ disclosures of short sales and swap positions that are linked to stocks, Gensler said.
