Vanguard has a history of engaging with the Securities and Exchange Commission (SEC) to promote equity market structure reforms that serve the investors in our funds as well as the clients of our brokerage and advice businesses. In December 2022, the SEC released four rule proposals that, if adopted, would constitute the most sweeping overhaul of U.S. equity market structure since 2005. Specific aspects of the proposals include: (1) enhancing broker-dealer order execution quality disclosure, (2) amending the current one-penny quoting increment for stocks, (3) reducing the transaction fee cap charged by national securities exchanges, (4) accelerating improvements to the transparency of better-priced orders (e.g., market data), and (5) changing the routing requirements for retail orders.
In a comment letter, we suggested that the SEC sequence reforms carefully to ensure that change is enduring and to reduce the potential for unintended consequences that could harm investors. Specifically, we highlighted the value of prioritizing: (1) enhanced disclosure of broker-dealer execution quality, which would enable retail investors to make an apples-to-apples comparison of execution quality across broker-dealers and (2) accelerating the implementation of market data reforms that would make the quotes retail investors see more informative.
In addition, the letter highlights potential downsides associated with a proposal that would reduce the quoting increment for some stocks from one cent to one-tenth of a cent, because such an approach could lead to predatory trading strategies that may harm fund investors. We also urged the commission to carefully consider the costs and risks of this proposal to avoid unintended consequences.