House subcommittee scrutinizes SEC's equity market structure reforms

Today, the House Financial Services Subcommittee on Capital Markets, led by Chairman Ann Wagner (MO-02), held a hearing entitled “Solutions in Search of a Problem: Chair Gensler’s Equity Market Structure Reforms.”

Chairman Wagner's opening remarks addressed the equity market structure reforms proposed by Securities and Exchange Commission (SEC) Chair Gary Gensler. She expressed concerns about the lack of clear problems identified by the SEC that these reforms aim to address.

“Today’s hearing will examine equity market structure reforms put forward by Securities and Exchange Commission (SEC) Chair Gensler that will reshape American equity markets,” said Wagner. “To the casual observer tuning in today, that might sound like a sensible endeavor for a regulator, especially if the regulator identified clear examples of problems and crises in our markets. And if the regulator clearly demonstrated how the reforms would result in better outcomes for market participants."

Wagner emphasized that critical elements are missing from Gensler’s proposed overhaul. She highlighted America's capital markets as being among the deepest and most liquid globally, with significant trading volumes and competitive environments benefiting everyday investors.

“Almost 12 billion shares trade each day in the U.S. through American exchange markets alone," she noted. "Over the past 20 years, the U.S. equities markets have changed dramatically and for the better, becoming more competitive, efficient, and accessible for everyday American investors.”

She further discussed how zero-commission trading has boosted retail trading since its introduction in 2019.

“Since the introduction of zero-commission trading... retail trading has seen record growth and now accounts for between 10 to 20 percent of trading volume in the U.S. Over 100 million Americans rely on our equities markets for their financial security, stability, and retirement.”

However, Wagner criticized recent SEC proposals introduced by Gensler as potentially harmful to retail investors.

“In December 2022, Chair Gensler and the SEC proposed four interconnected equity market structure proposals that would upend our current market structure and harm millions of retail investors," she said. "Then, in October 2023, the SEC proposed yet another significant equity market structure rule on volume-based pricing."

Wagner pointed out that five major proposals had been introduced within less than a year. She acknowledged one adopted proposal regarding Rule 605 disclosures but questioned advancing other reforms without sufficient data analysis.

“You might be saying to yourself, ‘more useful disclosures and better data on execution quality sounds like a smart place for the SEC to start.’ I would agree with you,” she stated.

She stressed prudence in regulatory actions based on improved data from Rule 605 updates before proceeding with additional reforms.

"Unfortunately, Chair Gensler disagrees," Wagner continued. "You might be saying to yourself... 'surely the SEC has identified clear problems or failures these reforms will address.'"

Wagner highlighted issues with economic analyses provided by SEC staff which admitted uncertainty about economic effects and reliance on outdated data.

"Throughout its economic analyses...the SEC explicitly admits numerous times that the economic effects of proposals are unknowable," she said.

Wagner concluded by urging careful consideration before implementing new regulations impacting millions of Americans relying on equities markets for financial security.

“I would like to thank our witnesses for their testimony," she concluded. "I look forward to our discussion.”