Securities and Exchange Commission (SEC) personnel said a recently released report stems from examining efforts to make equity markets fair, orderly, and efficient.
The Staff Report on Equity and Options Market Structure Conditions in Early 2021 particularly focused on a situation that unfolded regarding meme stocks, referred to as a select group of stocks garnering internet popularity, resulting in high prices and increased trading volume.
Per the SEC, the January 2021 trading activity of meme stock GameStop Corp (GME) raised concerns regarding market structure.
“Making markets work for everyday investors gets to the heart of the SEC’s mission,” SEC Chair Gary Gensler said. “I would like to thank the staff for bringing their expertise to this important report and for their ongoing work to address the issues that January’s events raised.”
The report’s introduction outlined the importance of understanding how orders are executed and the incentives of broker-dealers when executing orders.
“The ability of a small number of off-exchange market makers to trade profitably with retail order flow has led these market makers to negotiate agreements with retail broker-dealers to secure rights to this order flow,” the report stated. “In turn, this payment for order flow creates incentives with regard to the end customer whose order flow is being sold. Some individual investors might trade more frequently as commissions have fallen or been eliminated, which raises questions about the effect of novel features of their broker-dealers.
Potential areas for additional consideration for study concerning bolstering market equity, according to the SEC’s analysis, include: forces that may cause a brokerage to restrict trading; digital engagement practices and payment for order flow; trading in dark pools and wholesalers; and