Heads up, fellow traders! The U.S. Securities and Exchange Commission is proposing that forex brokers disclose client orders details to foster transparency. Is this something you should be worried about?
The rules proposed by the industry watchdog would require broker-dealers to provide customers with information on how orders are executed and routed, including fees and actual execution prices. In disclosing how orders are completed, brokers would be revealing potential conflicts of interest and how efficiently trades are being carried out. These requirements would apply to stock brokers and institutional trades, as trading in the equity market has been scrutinized extra closely in the past few years, but forex firms and retail orders could be covered as well.
According to SEC Chair Mary Jo White, these regulations would provide investors a way to better assess whether or not their broker’s order routing processes are in line with their investment objectives. She added that the next regulatory steps would involve requirements for capital, margin, asset segregation, and record-keeping.
This proposal springs from criticisms of the maker-taker model in which brokers can route orders to avoid fees instead of obtaining the best prices for their clients. With these requirements, a broker would have to indicate the average size of orders sent out, its average commissions, and the percentage of trades that were executed at a price favorable to the institution.
These requirements haven’t been put in place yet, as the public will still be given a period to comment on the proposal before the rules are officially implemented. So far, SEC officials have voted unanimously to push for the proposal, but a second round of voting will still be held after the public comment period.
Do you think these rules should also apply to forex brokers and retail orders? Or are the regulators watching too closely? Share your thoughts in our comments section below!