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SEC Pursuing Broad Review of Stock-Market Structure, Chairman Says


The Securities and Exchange Commission is considering changing rules that govern how U.S. stocks are traded, including pricing incentives that exchanges and high-speed traders use to attract orders, Chairman

Gary Gensler

said Wednesday.

Speaking to an industry conference, Mr. Gensler outlined a broader examination of market structure than he had previously described. Mr. Gensler, who took over the SEC in April, has questioned the system that results in many individual investors’ orders being routed to high-speed traders known as wholesalers, such as Citadel Securities and Virtu Financial Inc., instead of going to public exchanges.

Mr. Gensler suggested individual investors might get better prices if more trading were done on public exchanges. Only about 53% of all trading in January was done on exchanges, while the rest involved wholesalers and broker-run trading venues known as dark pools, Mr. Gensler said.

“The question is whether our equity markets are as efficient as they could be, in light of the technological changes and recent developments,” Mr. Gensler told the Piper Sandler Global Exchange and FinTech conference.

SEC Chairman Gary Gensler said he was seeking to revise rules for controversial 10b5-1 plans at WSJ’s CFO Network Event. Corporate insiders use the plans to avoid insider-trading claims when buying or selling their own company’s stock.

While public exchanges disclose their bids and offers and then compile the orders to publish a national best bid and offer for every stock, wholesalers and the so-called dark pools don’t reveal their pre-trade prices. Those off-exchange venues have to execute trades at prices at least as good as the national best price coming from the exchanges.

But the national best bid and offer, known as the NBBO, may be a substandard benchmark, Mr. Gensler said, because so many trades happen away from the exchanges. Even some exchange orders aren’t included in the national best price, such as those in odd-lot sizes, in which fewer than 100 shares change hands.

“I believe there are signs…that the NBBO is not a complete enough representation of the market,” Mr. Gensler said.

The SEC will consider revising how the benchmark is calculated, and will examine other potential rule changes related to how exchanges and brokers price shares, he said.

Mr. Gensler has previously criticized a system of trading incentives known as payment for order flow, in which retail brokers send clients’ orders to firms like Virtu and Citadel Securities for a fee. The wholesaler executes the order, typically at a price slightly better than the national best bid or offer.

Trading apps could see some regulation in the future, SEC Chairman Gary Gensler told WSJ’s Jean Eaglesham at the CFO Network Event.

That price improvement can be a fraction of a cent per share. Exchanges aren’t allowed to price shares at prices of less than a penny. That may give wholesalers an advantage when competing for orders, Mr. Gensler said.

Shares of Virtu dropped about 8% in the minutes after Mr. Gensler’s remarks, though they later pared their losses. Virtu handles between 25% and 30% of individual investors’ order flow in U.S. stocks, and its stock has rallied this year amid heavy trading of meme stocks like

AMC Entertainment Holdings Inc.

and

GameStop Corp.

by small investors. Citadel Securities, the only wholesaler with a larger market share, isn’t publicly traded.

The SEC will consider changes to rules governing the minimum price increments, Mr. Gensler said. Any rule changes would first be issued as proposals, giving the ability to investors and other market participants to comment on them. Mr. Gensler didn’t say when the agency would issue a proposal, but said “it should not be confused with something that is far off.”

Exchanges also use incentives, known as rebates, to attract orders from brokers. The SEC tried to force the exchanges to experiment with limiting rebates, but a federal appeals court ruled last year that regulators didn’t have the authority to mandate the planned pilot program. The regulator will consider changes to that pricing system as well, Mr. Gensler said.

“Both types of payment for order flow raise questions about whether investors are getting best execution,” Mr. Gensler said. He noted that brokers are banned from paying for order flow in the U.K., Canada and Australia.

Write to Dave Michaels at [email protected] and Alexander Osipovich at [email protected]

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8



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Future

Stock Futures Rise, Bitcoin Regains Some Ground After Multi-Month Lows


U.S. stock futures rose and bond yields crept lower as investors grew more comfortable with the inflation outlook and the pace of the economic recovery.

Futures tied to the S&P 500 added 0.5%, pointing to a positive start to the week after the broad-market index fell moderately for two weeks in a row. Nasdaq-100 futures rose 0.7%, suggesting gains for technology stocks after the opening bell.

Investors are keeping a close eye on inflation indicators to determine whether a rise in prices will be temporary or longer-term. Companies that are able to pass along higher costs to consumers such as in energy and materials have been an increasingly popular trade, while technology companies’ shares and bonds have lagged.

“Inflation concerns have lessened, there’s more of a wider recognition that inflation will be transitory,” said Fahad Kamal, chief investment officer at Kleinwort Hambros. “This is reflecting the fact that we hit the fastest part of the recovery. Growth, while continuing, is going to be at a decelerating pace.”

In bond markets, the yield on the benchmark 10-year Treasury note declined to 1.618% Monday from 1.629% Friday. Yields fall when prices rise.

Cryptocurrencies continued a dramatic stretch of trading. Bitcoin regained some ground after touching multi-month lows Sunday and traded around $36,450, a 3.4% rise from Friday at 5 p.m. ET. The cryptocurrency has lost over 40% of its value since its mid-April peak.

“Decentralized finance is facing its first real challenge since inception. We don’t think that this is the end, the bubble has not really popped yet,” said Monica Defend, global head of research at Amundi. “Central banks are ready to play in the digital currency field, I expect with the central banks in play, there will be more regulation to come and more transparency.”

The Chicago Fed National Activity Index, which is seen as a gauge of economic activity and inflationary pressure, will be published at 8:30 a.m. ET.

Federal Reserve Gov. Lael Brainard will be speaking about digital currencies at a virtual event organized by CoinDesk at 9 a.m.

Earnings season is winding down. This week, technology companies including

Nvidia

on Wednesday and

Salesforce.com

and Dell Technologies on Thursday, are set to report.

In premarket trading, Moderna rose 2.2% after striking a deal with

Samsung’s

biotech division to manufacture its Covid-19 vaccines in South Korea.

In commodities, global benchmark Brent crude rose 1.8% to $67.65 a barrel. Analysts at

Goldman Sachs

put out a note on Sunday with a forecast that it will reach $80 by summer.

“It’s still kind of punching in the green light for inflation flows into commodities,” said Gregory Shearer, a commodities analyst at JPMorgan. But the Federal Reserve minutes last week, “where they began to talk about tapering, this makes people somewhat less concerned about [inflation] running away out of hand.”

Overseas, the pan-continental Stoxx Europe 600 was relatively flat, wavering between small gains and losses. Monday is a public holiday in several European countries, including Germany and Denmark.

Among European equities, IT services company Solutions 30 plunged over 70% after auditor EY declined to sign off on its accounts.

In Asia, major benchmarks were mixed. The Shanghai Composite Index advanced 0.3% while Hong Kong’s Hang Seng Index slipped 0.2%.

Investors are growing more comfortable with the inflation outlook.



Photo:

Courtney Crow/Associated Press

Write to Anna Hirtenstein at [email protected]

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8



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Future

Ant Group Explores Future Without Chinese Billionaire Jack Ma


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Future

Alden Clashes With Billionaire Over Future of Tribune—and of Local News


A few weeks ago, New York hedge fund Alden Global Capital LLC was on the verge of acquiring Tribune Publishing Co. —home to the Chicago Tribune, Baltimore Sun and other U.S. metro newspapers—with seemingly no one in its way.

Then it offended one of its partners in the deal, setting off a battle that could help shape the future of local news in America.

Maryland hotel magnate Stewart Bainum Jr. had worked out a side arrangement with Alden Chief Executive Heath Freeman to buy the Sun, a paper Mr. Bainum grew up reading. Then, in Mr. Bainum’s view, Alden tried to raise the cost of a fee agreement that would substantially jack up the price, people close to the situation said.

Mr. Bainum told his advisers late on the afternoon of Friday, March 12, that he was worried he could no longer trust Alden, according to a person familiar with the matter.

That evening, the 74-year-old got on the phone with his bankers and decided to attempt a stunning 11th-hour move: his own bid for the whole company, which he announced by the end of the weekend.



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Stock-market futures slip, bond yields pop near 1% amid razor-thin Georgia races


Wall Street had Georgia squarely on its mind Tuesday night, with equity futures and bonds mostly in the crosshairs as investors eyed dual contests for key Senate seats coming down to razor-thin margins in early returns.

MarketWatch’s Victor Reklaitis reported that analysts are describing the Georgia races as “about as close as you can get,” and there are expectations that the winners won’t be declared until Wednesday morning.

At last check, tallies from populous Democratic-leaning counties, particularly in Dekalb, which could swing the vote tally, were looming.

Democratic challenger Jon Ossoff was trailing incumbent Republican Sen. David Perdue, with over 90% of the vote counted, after enjoying a handy lead earlier, according to data aggregated by the Associated Press.

In the other runoff, Democrat Raphael Warnock was also running slightly behind against incumbent GOP Sen. Kelly Loeffler.

The Senate races are runoffs from the November general election, when none of the candidates hit the 50% threshold required to be declared winner.

At stake for the markets is the prospect of a slim Democratic majority in the Senate if candidates can upend GOP incumbents.

Senate Republicans, if either Loeffler or Perdue wins Tuesday night, can be expected to block further coronavirus relief legislation and crimp any Democratic plans for expansive spending after President-elect Joe Biden takes office, experts said.

A Democratic sweep in Georgia, however, would give that party virtual control of that chamber because Vice President–elect Kamala Harris would cast tiebreaking votes as the chamber’s president.

Futures for the S&P 500 index
ESH21,
-0.64%

ES00,
-0.64%

were off 0.7%, while those for the Dow Jones Industrial Average
YMH21,
-0.24%

YM00,
-0.24%

were 0.3% lower, and Nasdaq-100 futures
NQH21,
-1.34%

NQ00,
-1.34%

were off 1.3% late Tuesday.

In the regular session, the Dow
DJIA,
+0.55%
,
S&P 500 index
SPX,
+0.71%

and the Nasdaq Composite Index
COMP,
+0.95%

finished the session solidly higher ahead of the political face-offs.

However, some of the biggest moves were emanating from the bond market, with the 10-year Treasury yield
TMUBMUSD10Y,
1.000%

knocking on the door of 1%, at around 0.985%, as prices fell, after rates finished at 0.955%, marking its highest 3 p.m. Eastern close since Dec. 4, according to Dow Jones Market Data. The 30-year Treasury bond
TMUBMUSD30Y,
1.762%

also was up nearly 4 basis points yielding 1.744% vs. an afternoon close at 1.705%, also its highest rate in a month.

For the bond market, Democratic wins could add to the bearish pressure on Treasurys as analysts say inflation expectations have risen in response as Congress may be more inclined to pass additional fiscal spending measures with a majority, which would weigh on bond prices, dragging yields up.

“It looks like a couple of the larger democratic counties haven’t been totally counted yet so my belief is this may very well swing to the Democrats,” Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities, told MarketWatch.

“If that does happen rates will continue to rise over the next few days. We could very well see 10yr yields near 1.2% shortly,” he wrote.

It is nearly impossible to surmise what outcome Wall Street deems is best suited to push stocks further higher in 2021. Last year, market participants had been wagering that a Biden presidential victory, coupled with Democrats achieving a majority in the Senate, would provide the best scenario for additional financial relief measures to help sustain the economy’s recovery from the Covid-19 pandemic.

However, a blue wave failed to manifest and markets surged into the final weeks of 2020 regardless.



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