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Gary Gensler, new chairman of the Securities and Exchange Commission, has expressed concern about the prominent role played by Citadel Securities and other large trading companies in US equity markets, and warned that “healthy competition” could exist. .
In witness released prior to his appearance before the House Financial Services Committee on Thursday, Gensler said he had directed his staff to study whether to make policies to deal with the small number of market makers taking up a growing share of trading volume. retail.
“One company, Citadel Securities, has publicly stated that it executes about 47 percent of all retail volume. In January, two companies executed more volume than all stock exchanges except one, Nasdaq,” Gensler said.
“History and the economy tell us that when markets are concentrated, companies with a larger market share tend to have the ability to take advantage of that concentration,” he said. “Market concentration can also lead to fragility, deter healthy competition and limit innovation.”
Gensler is scheduled to appear in the third hearing to the explosive trade of GameStop and other so-called meme stocks in January.
Trading volumes in the U.S. increased that month as retail investors hit the markets, prompting brokers like Robinhood to introduce trade restrictions that angered investors and caught the attention of lawmakers.
Market activity boosted policymakers in Washington and investors. Lawmakers have focused much of their attention on “pay for order flow,” in which brokers like Robinhood are paid to route orders to market makers like Citadel Securities and Virtu.
This practice has been an advantage for runners. According to Piper Sandler, it generated nearly $ 1 billion for Robinhood, Charles Schwab and ETrade.
Gensler noted that other countries, including the United Kingdom and Canada, do not allow payment for order flow.
“Higher transaction volumes generate more payments for order flow,” he said. “This reminds us of several questions: Do broker brokers have inherent conflicts of interest? If so, do clients run better in the context of this conflict?”
Gensler also said he had directed his staff to consider recommendations for further disclosure on full-return swaps, the derivatives used by the Archegos family office. The vehicle, driven by dealer Bill Hwang, collapsed in March after several concentrated bets against the group, and banks have maintained more than $ 10 billion in losses as a result.
Market watch dogs have expressed concern that regulators had little or no view of the big trades Archegos was doing.
“Whenever there are major market events, it’s a good idea to consider what risks they could pose to the entire financial system, even when the system is maintained,” Gensler said.
“Concentration issues, whether between market makers or clearing center brokers, can increase potential risks across the system, should any holder with a significant size or market share fail.”
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