Mish's Market Minute

The Battle of Paid and Zero-Commission Trading Continues

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On Tuesday, the chairman of the Securities and Exchange Commission, Gary Gensler, faced pushed back from senators about his recent ideas of adding cryptocurrency regulation, along with other topics such as meme stocks and zero-commission trading.

Specifically diving into zero-commission trading, Gensler believes that zero fees, while nice for the retail investor, also hurt the traders who use them, as their transaction data is being sold to market makers/companies who match buy and sell orders. In theory, these market makers can front-run orders for very small profits. These profits can add up quickly partly from the vast amount of retail traders and high-frequency trading. On the other side, an argument can be made that people have the right to choose between zero commissions and paying a small premium to hide their order flow.

Pat Toomey, Senator of Pennsylvania questioned Gensler on the need to restrict access to order flow, since buy-and-sell orders are closely matched, showing that the market is providing a highly efficient place to execute trades for both retail and institutional investors.

While both sides have valid points, the market can easily exist with both trading fee structures. What continues to lack is a clear upfront policy from companies showing how their customer's data is used or profited from.

With that said, Gensler's approach could add more regulation to what market makers can buy in the form of data. This might not be the right approach as it further complicates the matter and could take away free trading. Furthermore, though retail traders would rather not have their order flow tracked, many traders prefer the zero-fee option compared to paying a small price.


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ETF Summary

  • S&P 500 (SPY): 441 support.
  • Russell 2000 (IWM): Next support area the 200-DMA at 218.07.
  • Dow (DIA): Could not hold over 347.31 support level.
  • Nasdaq (QQQ): 368-370 next support area.
  • KRE (Regional Banks): 62.59 support from 8/19.
  • SMH (Semiconductors): Also holding over the 10-DMA at 271.88.
  • IYT (Transportation): Clean break of the 200-DMA at 248.49.
  • IBB (Biotechnology): 168.25 support from the 50-DMA.
  • XRT (Retail): 91.49 support area to hold.


Forrest Crist-Ruiz

MarketGauge.com

Assistant Director of Trading Research and Education

Mish Schneider
About the author: serves as Director of Trading Education at MarketGauge.com. For nearly 20 years, MarketGauge.com has provided financial information and education to thousands of individuals, as well as to large financial institutions and publications such as Barron’s, Fidelity, ILX Systems, Thomson Reuters and Bank of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of the top 50 financial people to follow on Twitter. In 2018, Mish was the winner of the Top Stock Pick of the year for RealVision. Learn More
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