Comments on the SEC’s proposed Order Competition Rule

The goal of the proposed Order Competition Rule is to revamp how retail orders for stocks listed on US securities exchanges get executed in the US. Instead of retail order segmentation and off-exchange execution by market makers, such orders would be submitted first to order-by-order competition in an auction operated by an open competition trading center (i.e. a qualifying national securities exchange or alternative trading system).

The SEC believes that the proposed Order Competition Rule would increase transparency, eliminate conflict of interest and create a level playing field on US equity markets by establishing a more competitive market structure for equity trading, designed to deliver additional price improvement to the investing public.

The SEC was interested to hear from individual investors and see their views on the Proposed Order Competition Rule. We believe that our proprietary database combined with our analytical capabilities puts us in a good position to bring the individual investor’s perspective to the table, while also shedding light on the likely impact of the proposed Order Competition Rule on the wider brokerage market.

Although we certainly see challenges concerning implementation, these could be mitigated by consultations with market participants and affected parties, as well as impact calculations and system testing. We believe that the likely impact of the proposed Order Competition Rule could be net positive, because it addresses existing problems that affect US customers while at the same time preserving important developments and benefits that customers enjoy when investing and trading on US equity markets today.

Data we have collected on customers show that the proposed Order Competition Rule is highly relevant to US customers’ needs and preferences, for the following reasons:

• The proposed rule deals with deficiencies in US equity markets; and equities are the asset class that is preferred by the majority (53.6%) of US customers.

• Within the US equity markets structure, it addresses the infrastructure of retail order execution, the fair and transparent functioning of which matters to US customers to a great extent due to their preference for frequent trading (57.8% of them preferring either day or swing trading);

• Within retail order execution, it aims at price improvement delivered to US customers, whose majority (62.1%) are highly fee sensitive and have a strong preference to eliminate all costs associated with trading or at least keep them to a minimum.

Our analysis of revenue streams, brokerage business models and general brokerage service trends supports our assumption that the proposed Order Competition Rule would not:

• end zero-commission trading, as zero-commission trading is not solely dependent on equity trading-related payment-for-order-flow revenue, but rather subsidized by diversified business models with multiple revenue streams;

• eliminate payment-for-order-flow revenue, as the vast majority of such revenue seems to be generated by trading of assets other than equities (such as options, cryptocurrencies etc.); or

• impair the current trend of brokers offering customers easy access to equity markets via user-friendly, digital and easy-to-use trading solutions; since competition fuelled by strong customer demand has made this a key feature of customer acquisition.