How stock trading might change

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SEC chair Gary Gensler gave an important speech yesterday about where he sees the future of retail stock-market investing. The whole thing is a pretty easy read, but here’s the tl;dr:

1. A lot of stocks trade at sub-penny increments, so there’s no real point in having a minimum tick size of one penny.

2. The worst price a retail investor is allowed to receive — the NBBO, or National Best Bid and Offer — is not based on bids and offers for actual retail bids, but rather for institutional trades. Maybe that should change.

3. Retail investors can’t easily compare different brokers’ execution quality right now. That should probably change, too.

4. The SEC should have a rule about minimum execution quality.

5. Any given retail order should be fought over by as many potential counterparties as possible, unless the investor is getting a “midpoint or better” price. It shouldn’t just go automatically to whichever high-frequency trader pays the most for order flow.

The bottom line: There’s a lot of suspicion over how brokers like Robinhood can make money by offering “free” trades. Gensler’s proposals would face those worries head-on.