Wall Street Threatens to Sue SEC if New Proposals Pass

Wall Street is threatening to sue the SEC if proposals that will change how retail orders are executed gets passed.

Gensler has been critical of payment for order flow (PFOF), whereby some retail brokers (including Schwab, ETrade and Robinhood) route orders to electronic market makers known as wholesalers (including Citadel and Virtu), who pay the brokers for access to that order flow.

These wholesalers may send the orders to exchanges and profit from spreads or even from price direction through the derivatives market, hence the major conflict of interest.

SEC Commissioners Hester Peirce and Mark Uyeda, both Republicans, also filed statements opposing the proposal. 

“This latest effort to order competition threatens to create disorder in the capital markets, the functioning of which is so important to the rest of our economy,” Peirce wrote in a statement. 

The Intercept wrote a piece on Hester Peirce in 2015 titled, “SEC Nominee To Oversee Wall Street Works At Think Tank Dedicated To Blocking Regulation.”

And according to the research, Hester Peirce received 98% of her salary from the Mercatus Center, a “think tank” that provides an academic façade to a radical anti-regulatory agenda.

In other words, Hester is a plant on the SEC meant to cater to Wall Street, not retail investors.

‘We The Investors’ Challenges Wall Street

‘We The Investors’ is taking Wall Street head on.

More than 1,300 letters have been submitted to the SEC supporting rules proposed in December that represent the biggest changes to equities trading in nearly two decades, according to Reuters.

The collective of retail investors have joined ‘We The Investors’ led by Dave Lauer in efforts to combat Wall Street as a legitimate organization that sprouted from the events of the ‘meme stock’ frenzy in 2021.

We The Investors has held two online meetings since December with SEC Chair Gary Gensler, who took questions directly from retail investors on the proposals, which include requiring most retail stock orders to be sent to auctions to boost competition.

Other proposed rules call for a new standard for brokers to demonstrate they’ve gotten the best execution for clients on transactions, as well as lower trading increments and access fees on exchanges, and stronger disclosure around retail order executions.

But Wall Street is pushing back.

The NYSE teamed up with retail broker Charles Schwab Corp and market maker Citadel Securities earlier this month to ask the U.S. Securities and Exchange Commission to withdraw two recently proposed rules aimed at revamping how stocks trade.

The move represents a coordinated industry push back against what are potentially the most impactful proposals in the SEC’s biggest attempt to reform stock market rules in nearly 20 years.

The Securities and Exchange Commission scrapped plans to vote Wednesday on a rule that would have increased regulators’ visibility into financial risks at some hedge funds and private equity funds.

After scheduling the vote last week, the five-member commission “decided to take a little more time” on the rule, an SEC spokeswoman said.

The SEC Faces Potential Lawsuits from Wall Street

Wall Street institutions are already threatening litigation if the proposals go through. 

“Ultimately, it’s going to end up, unfortunately, sadly, probably in litigation [if Gensler] decides to go down this road,” Virtu CEO Doug Cifu said in an interview at the Securities Traders Association of New York conference on March 27th at the NYSE. 

Cifu specifically cited the Administrative Procedures Act (APA), which governs the way government agencies may propose and establish regulations. 

The SEC must follow procedures outlined in the APA.  If not, it can get sued. 

Gensler is proposing a new rule, Regulation Best Execution, that would establish a national best execution standard to ensure broker-dealers send orders to the venue that will get the best price for buyers and sellers.

But FINRA is currently in control of the best execution rule, a rule Gensler believes the SEC should have, not FINRA.

FINRA is under serious scrutiny due to many scandals with the most recent having to do with the U3 halt and delisting of MMTLP stock.

Retail investors have also criticized the SEC for kneeling to Wall Street and failing to protect small investors from predatorial market practices.

Many in the retail community say SEC commissioners should be voted in, not appointed by the U.S. President.

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