In a recent speech, Mr. Roisman expressed concern over the "vitriol against payment for order flow" as a possible cause of the market volatility of January 2021. He said that public discussion of such causality was an example of "the old Washington adage: never let a crisis go to waste." Mr. Roisman explained that the SEC, through best execution obligations and Rule 606 ("Disclosure of Order Routing Information") of Regulation NMS, already does regulate payment for order flow and provides for the public disclosure of potential conflicts of interest.
Mr. Roisman reiterated the potential for improvements to the monthly execution quality reports under Regulation NMS Rule 605 ("Disclosure of Order Execution Information"), which has not been updated in 20 years. Mr. Roisman suggested:
- refining data elements and adding new elements to the existing monthly report, including more granular execution speed buckets and changes to order size buckets; and
- a separate execution quality report that would disclose "the execution quality [a customer's] broker actually received at each venue identified on its Rule 606 reports" (emphasis in original).
Mr. Roisman pointed out that, while exchanges and alternative trading systems provide operational transparency though rulebooks and Form ATS-N, respectively, off-exchange market makers have no such obligations. Mr. Roisman argued that requiring such operational disclosures from off-exchange market makers would promote competition among the different markets.
Regarding public price discovery, Mr. Roisman described recent SEC rule changes that narrowed quoted spreads and improved the display of odd-lot quotations, but acknowledged further areas for improvement, including (i) reduced tick sizes for some stocks and (ii) identifying non-exchange market centers in trade reports.
Commentary - Steven Lofchie
Commissioner Roisman, as well as Commissioner Peirce in a separate joint statement, make the point that the SEC is going off-track in using the GameStop events as a justification for rethinking market structure or payment for order flow. (Those issues are certainly worthy of consideration, but for reasons having nothing do with the GameStop events.)
What was truly extraordinary about the GameStop events were the decisions made by thousands of retail investors and the communications among the retail investors. The SEC ought to be using those extraordinary events as a reason to obtain some better understanding of how retail investors obtain information, communicate, and trade. Using the event as a justification for an examination of payment for order flow or of the settlement cycle is completely missing the forest for the trees.
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