The SEC's proposed Order Competition Rule aims to increase competition in the market for retail investor orders. Currently, wholesalers can buy order flow from retail brokers and provide a fill within the National Best Bid and Offer (NBBO) without exposing the order to open market competition. The proposed rule would allow marketable retail orders to be segmented on exchanges just as wholesalers currently do. Moreover, it “forces” retail brokers/wholesalers to expose these orders to competitive auctions where institutional investors and other market participants will be able to interact with and provide price improvement over the NBBO in return for lower adverse selection costs (or access to liquidity). 

In this paper, we provide a summary of the proposed changes, analysis of the impact on retail and institutional investors, and our interpretative commentary and suggestions in the sections below. Request the paper by submitting the form here