Republicans are backing an investment democratization bill, but the SEC has other plans

Ailan Evans

Republican Party Lawmakers are sponsoring a bill designed to protect financial transactions known as “order-line payments,” in which brokerages route their clients’ trades to brokers. market maker.

The practice of being at the heart of the burgeoning online trading industry has helped open the stock market to retail investors by reducing transaction fees. However, regulators have targeted order-line payments that are ripe for abuse, arguing that brokers may be incentivized to act against the interests of their clients.

Pennsylvania Republican Senator Pat Toomey, senior member of the Senate Banking Committee, introduce Investor Freedom Act 2021 in late October to protect “commission-free trading and user-friendly mobile apps” from Securities and Exchange Commission rules (SEC) prohibits order-line payments. Law is co-sponsors by Sensation of the Republican Party. Tim Scott of South Carolina and Kevin Cramer of North Dakota, who signed the bill earlier in December.

Order Flow Payments allow brokerages to charge lower or often no fees, instead earning revenue by selling clients’ orders to market makers such as funds. speculate, then they will execute the trade themselves.

This method is used by many of the most popular online brokerage and trading applications, consists of Robinhood, Charles Schwab, TD Ameritrade, E*TRADE and many others. Practice advocates argumentative because it allows brokerage firms to operate without charging traders a commission, it lowers the barrier to entry for smaller retail investors, thus democratizing the market.

Criticize To speak this practice creates a fundamental conflict of interest as brokers may not be incentivized to pass trades to the trader’s best market maker, but instead to the highest bidder. SEC Chairman Gary Gensler even floating the idea of ​​completely banning the practice.

“Surname [market makers] get the data, they get the first look, they have to match buyer and seller out of that ordering process,” Gensler told Barron’s in August. “It may not be the most productive market for the 2020s.”

Toomey, who is leading the Investor Freedom Act, rejected the regulators’ argument that order-line payments create a conflict of interest, pointing out that the practice has benefited investors. consumers by opening the stock market to smaller investors.

“Tens of millions of Americans are investors like never before, and so they are participating in the returns of the largest capital market on the planet,” said Toomey. told Yahoo Finance in November, argued that payment for order flow “isn’t the whole reason, but it’s a contributing factor.”

Charles Schwab, runs an online broker and exchange, donate $16,800 for Toomey and $9,400 for Scott during the 2016 election cycle for which both senators were running, according to campaign finance data from OpenSecrets. The company also university lecturerOneted $8,100 to Cramer in 2018 during his campaign.

Morgan Stanley, owner of E*TRADE, donate $27,200 for Toomey and $10,000 for Scott in 2016 and $2,700 for Cramer in 2018. Ally Financial donate $2,500 for Scott and $2,000 for Toomey, TD Ameritrade donate $2,700 for Cramer and The Vanguard Group contribute $7,000 for Scott and $1,400 for Toomey.

“At the end of the day, we want the stock market to be as accessible to the American people as possible. Cramer told the Daily Caller News Foundation. “Opposition to this measure seeks to reward companies that limit market access for everyday Americans and stifle competition by erecting barriers to entry for innovators.”

Cramer added that he received “contributions from farmers and truckers who also appreciated the good policy.”

When reached for comment, Amanda Thompson, a spokeswoman for Toomey, described efforts to ban payment for order flow motivated by leftist ideology.

“Socialists are attacking Republicans for putting in place legislation that protects no-commission trading because they want to make it difficult for average Americans to invest in the stock market,” Thompson told DCNF. more and more expensive.

She also pointed out that Toomey was not running for re-election and did not consult with realtors before introducing the bill to answer questions about campaign contributions.

“When the Radical Left and their allies in the press were unable to win a performance argument, they were malice with Republican motives. The people making these smears clearly have no regard for the cause of Senator Toomey, whom he spent campaigning for free markets and economic freedom,” she said.

Scott’s office did not respond to DCNF’s request for comment.

The order payment flow has attracted attention in early 2021 between GameStop short squeeze after retail investors were temporarily prevented from trading on certain brokerage apps. Events result during an Internal Financial Services hearing in which lawmakers questioned the practice, among other topics.

SEC also issued report about the GameStop situation at the end of November echoes prominent criticisms of the payment for the order process.

The SEC writes: “These payments may create a conflict of interest for the broker-retailer.

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https://www.tampafp.com/republicans-are-backing-a-bill-to-democratize-investing-but-the-sec-has-other-plans/ Republicans are backing an investment democratization bill, but the SEC has other plans


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