By John McCrank
NEW YORK (Reuters) – Main Street investors are facing off against Wall Street in an attempt to sway the U.S. Securities and Exchange Commission in its proposed revamp of stock trading.
Individuals coordinating online have flooded the SEC with more than 1,300 comment letters, mostly voicing their support, on rules the regulator proposed in December that represent the biggest changes to equities trading in nearly two decades.
The collective voice of individual investors has grown as their numbers surged, a lasting legacy from the so-called “meme stock” saga of early 2021. At the time, retail traders banded together on social media to drive up the prices of heavily shorted stocks, costing billions for the hedge funds that had bet against them, sparking Congressional hearings and new market rules.
The efforts highlight not only how technology has made it easier for millions of people to access the markets, but how it has helped unify this disparate new cohort of investors to press for change.
“A lot of folks are angry,” said Dave Lauer, cofounder of We The Investors, a retail investor-focused advocacy group. Firms that act as middlemen “are the ones who have been writing the rules for many years, and so they want to change that,” he said.
Retail trades often account for more than 20% of market volume, surging from less than 10% for most of 2018 and 2019. Individual investors jumped into stock trading after big retail brokers eliminated commissions in late 2019. They became even more active during the pandemic as vast sums of government stimulus landed in their bank accounts while many worked from home and interest rates stayed low.
As retail traders organized into broad interest groups, they have gained sway in markets.
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.
In a recent petition asking the SEC to ban the practice of retail brokers accepting payments from market making firms for the first dibs to execute clients’ orders, We The Investors collected over 71,000 signatures.
With weeks to go until the March 31 deadline for comment letters on the SEC proposals, Lauer said he was just starting his organization’s comment letter campaign.
CHANGING THE WORLD
Intercontinental Exchange Inc’s New York Stock Exchange, the world’s largest exchange group, along with Citadel Securities, the biggest global market maker, and Charles Schwab Corp, a major retail broker, have pushed back hard against parts of the SEC’s proposed rules.
The three Wall Street heavyweights teamed up to oppose the auction and best execution rule proposals, which they said could threaten market liquidity and rollback market progress.
“We are deeply concerned that the Commission has simultaneously issued multiple far-reaching proposals that would dramatically overhaul current market structure without adequately assessing the cumulative impact on the market or the potential for unintended consequences,” they wrote in a joint comment letter Monday.
The Securities Industry and Financial Markets Association, which represents banks and asset managers, voiced its concerns about the wide scope of the proposed changes. It called for hearings and a longer comment period.
Meanwhile, individual investors, some with pseudonyms like Jeff Lebowski, the ultra laid-back lead of “The Big Lebowski,” and Ralph Kramden, the bus driving patriarch in “The Honeymooners,” continue to flood the SEC with comment letters and meet online to plan their responses to the proposals.
“This was extraordinary,” a user with the handle Where’s Seamus, posted on YouTube following We The Investors’ Feb. 22 livestream with Gensler. “We are changing the world.”
(Reporting by John McCrank in New York; Editing by Lananh Nguyen and Chizu Nomiyama)
