"On exchange, we are artificially constrained from competing for pretty much half of the market," said Stacey Cunningham, president of Intercontinental Exchange Inc's NYSE.
"It's like we're in a bullfight, and sure, you can beat the price on an exchange if you've drugged the bull and starved him for two weeks," she said at an annual conference held by the Securities Traders Association.
U.S. Securities and Exchange Commission Chair Gary Gensler has said his agency is revisiting regulations he says may create an unequal playing field https://www.sec.gov/news/speech/gensler-global-exchange-fintech-2021-06-09 for exchanges versus broker dealer-run trading platforms.
One rule the SEC is reviewing is referred to as the "sub-penny rule." It prevents exchanges from displaying bid and offer quotes in increments smaller than a penny, whereas off-exchange trading platforms can offer fractional, sub-penny price discounts to exchange prices, which is attractive to retail brokers that are required to get their clients the best prices.
The rule was enacted in 2005 over concerns that if smaller pricing increments were allowed, sophisticated traders might use them to jump ahead of retail orders.
In 2021, the vast majority of retail orders have been executed through wholesale brokers.
Retail trading, which has surged in recent years during the work-from-home environment and as online brokers dropped trading commissions, accounts for slightly more than 20% of market volume, versus just over 10% in 2018, according to wholesaler Virtu Financial.
(Reporting by John McCrank; Editing by Dan Grebler)
By John McCrank