Hitesh Mittal, the CEO and founder of BestEx Research, talked with JLN in a video interview over Zoom, reflecting on the recent comments by SEC Chairman Gary Gensler about promoting more competition in the market.
Mittal talked JLN through how the markets work now and how Gensler wants to change them, including tick size harmonization. Over 50% of retail orders are being filled at prices between a penny, Mittal said.
Gensler also wants order by order competition and wants to look at the market structure of the options market where auctions play a role.
Another idea is for two limit order books, one just for retail trading.
We asked Mittal how many auctions there would be every minute for every single name stock. Because trading is all electronic and automated, this could work, Mittal said.
JLN asked him how the proposal would be received on Wall Street and the answer was, it depends on who you are. Retail traders would benefit from the competition, he said. Wholesalers would be the biggest losers and exchanges would be the biggest winners, he added.
We asked how the wholesalers are going to respond. There are billions of dollars of revenue at risk, so the wholesalers will protest and try to protect their interests vigorously.
Mittal said he expects to see a proposal from the SEC soon, based on the speeches we have seen. Gensler is looking at this holistically, rather than saying let’s ban payment for order flow, Mittal said.
The SEC does not have a best execution rule, only FINRA does. Maybe the SEC needs one, Mittal said Gensler may say.
JLN asked if this potential proposal gives more power to the exchanges. Watch this video and find out the answers to these questions.