SEC chair nominee says he will evaluate payment for order flow practice at the heart of the GameStop saga

WASHINGTON, DC - JULY 30: Commodity Futures Trading Commission Chairman Gary Gensler testifies before the Senate Banking, Housing and Urban Affairs Committee in the Dirksen Senate Office Building on Capitol Hill July 30, 2013 in Washington, DC. Gensler and Securities and Exchange Commission Chairman Mary Jo White testified and took questions from Senators during the hearing titled, "Mitigating Systemic Risk in Financial Markets through Wall Street Reforms." (Photo by Chip Somodevilla/Getty Images)
Gary Gensler.

  • Gary Gensler is being considered to be the next chairman of the Securities and Exchange Commission. 
  • He said the agency under his watch would at look ensuring investors get “best execution” for their trades and whether payment for order flow provides that. 
  • Gensler’s confirmation hearing comes in the backdrop of questions about the “gamification” of trading for retail investors. 
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Gary Gensler, the nominee to be the next head of the Securities and Exchange Commission said the agency under his watch would review issues surrounding protection and fairness for retail investors. 

There’s been a “gamification” in trading for retail investors, and in recent months there has been “unprecedented volatility” in many stocks. This has been seen most notably in video-game retailer GameStop, said Senator Sherrod Brown of Ohio, the ranking member of the Senate Banking Committee during a virtual confirmation hearing on Tuesday.

Gensler, who was nominated by President Joe Biden to be the new head of the SEC, said the agency should review, among others, a practice by some trading firms to pay third-party brokers to execute customer orders.

The SEC should examine questions over “how to ensure that customers still get best execution in the face of payment for order flow,” Gensler said during a Tuesday virtual confirmation hearing held by the Senate Banking Committee.

Payment for order flow refers to a practice of compensating brokerage firms to route trading orders from their customers to certain market makers to execute the trades rather than directly to an exchange. The practice has raised questions over if it creates a potential conflict of interest and if it might lead to sub-par execution for customers.

Payment for order flow was thrust into the spotlight this year after Robinhood in late January placed trading restrictions temporarily on some popular stocks, including GameStop.

After a massive short squeeze on GameStop that sent its share price soaring, trading app Robinhood temporarily restricted trading in a handful of volatile stocks at the center of the Reddit-driven frenzy.

Public interest in market structure and payment for order flow has been “reignited” by the recent trading in GameStop shares, Senator Mark Warner from Virginia said during the hearing.

Last month, the House Financial Services Committee held a hearing on January’s short-squeeze episode. Legislators heard testimonies from Robinhood CEO Vlad Tenev, famed GameStop retail investor Keith “Roaring Kitty” Gill, and Citadel CEO Ken Griffin. 

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