Gary Gensler, chairman of the Commodity Futures Trading Commission (CFTC), heard during a meeting of the US Treasury Financial Stability Oversight Council (FSOC) in Washington, DC, USA on Monday, December 9, 2013.
Andrew Harrer | Bloomberg | Getty Images
On Wednesday we are live at the Piper Sandler Global Exchange Conference, where the leaders of the major stock exchanges, trading tables, fintech and crypto-enterprises (both physically and remotely) will meet.
Speakers included Thomas Peterffy, CEO of Interactive Brokers, Vlad Tenev, CEO of Robinhood, Doug Cifu, CEO of Virtu, Walt Bettinger, CEO of Charles Schwab, Terry Duffy, President of CME, Jeffrey Sprecher, president of the Intercontinental Exchange and Adena Friedman, CEO of the Nasdaq.
Cryptography providers like Galaxy Digital Holdings CEO Michael Novogratz are also talking and looking for more and more influence with exchanges.
The chairman of the Stock and Securities and Exchange Commission, Gary Gensler, will give the keynote address and is expected to present new proposals to address the payment of the order flow.
But there is a bigger problem in the minds of stock market leaders: are hard times approaching for the trading business?
Will the titanic trading volumes last?
The exchanges are driven by trading volumes and the business has been excellent. Since Covid, daily capital volumes have roughly doubled, from about 7 billion shares a day to about 14 billion shares.
Because? First of all, the $ 0 commissions have been an advantage for the trade. Second, higher volatility usually results in higher trading volume, which we saw in abundance during 2020 and 2021. Third, much of the increase in trading was initially due to an increase in trading. retail business. This has slowed during the market crash in 2022, however, institutional orders have taken up much of the gap. Stock trading on stocks and futures is also higher.
Will it last? Stock prices on major stock markets have fallen this year due to concerns that the macro environment will deteriorate by the end of the year and that retail trade interest will fall further. A slowdown in the economy, and in particular a recession, would not be good for trading volume.
It doesn’t help that the competition is getting tougher. In 2020, two new stock exchanges were launched, the Member Stock Exchange and the MIAX Pearl Stock Exchange.
This has led to intense price competition. In response, exchanges are turning to other sources of revenue, such as charging data commissions, which are now an important part of the revenue stream for both ICE (NYSE) and the Nasdaq.
Gensler wants change
Gensler will hold the main conference on the first day and take the opportunity to suggest changes to the current payment system for order flow, in which brokers send their orders to market makers in exchange for payments. This allows some brokers to charge zero commissions. Gensler said there could be a conflict of interest for brokers and that too much power is concentrated on a handful of market makers. Gensler is likely to come up with proposals to lessen the influence of manufacturers in wholesale markets such as Virtu and Citadel Securities.
However, the industry is likely to decline in the face of major changes. They will demand data from Gensler indicating that the current system is broken and that retailers are really at a disadvantage.
“Those same wholesalers have a very good argument that paying for order flow has reduced commissions to zero,” Amy Lynch, president of FrontLine Compliance and a former SEC compliance officer, told CNBC.
“The SEC may be successful in restructuring how order flow payment works and how it is revealed, but they will not eliminate it altogether, as it is too integrated as a source of revenue for brokers,” he said. to say.
High volatility breeds more e-commerce
There will probably be a lot of discussion about bond market liquidity.
High volatility is an advantage for electronic platforms such as MarketAxess and Tradeweb, which have seen their bond trading share rise in recent years. However, corporate bond spreads have widened and American companies are paying more to borrow money. The new issue is lower and prices are under pressure.
Resolution of the issue of cryptographic regulation
Cryptography providers have been speaking at this conference for several years, but exchanges have been reluctant to immerse themselves in cryptography significantly due to regulatory uncertainties and territorial wars between the Commodity Futures Trading Commission and the Securities and Exchange Commission.
However, a bill introduced by Senators Kirsten Gillibrand and Cynthia Lummis on Tuesday is a step in resolving that uncertainty. It would classify digital assets as commodities and give primary regulatory control to the CFTC, a move that will likely be welcomed by cryptographic speakers at the conference.
Many in the crypto community have attacked Gensler, who has refused to approve a pure gaming bitcoin ETF. They have come to believe that regulation under the CFTC would be much less onerous than under the SEC.