‘Even’ Stock Prices May Not Reflect Demand Properly – NYSE Chairman

NEW YORK, June 16 (Reuters) – The prices of so-called “meme” stocks can be skewed because the majority of trades in these names are executed outside of the public exchanges where stock price formation occurs, said the director of the New York stock exchange. Wednesday.

“Meme stocks,” which often start with low-priced and very short-circuited stocks that users of online forums such as Reddit’s WallStreetBets rally behind, are among the most traded and volatile stocks in a row. given day.

Shares of companies such as video game retailer GameStop Corp (GME.N) and operator of the movie chain AMC Entertainment (AMC.N) have exploded this year, with GameStop rising more than 1,600% in just one year. ‘in January, causing some brokers to stop trading and trigger Congressional and Regulatory Hearings.

“In some of the memes stocks we’ve seen, or stocks that have a high level of retail involvement, the vast majority of order flow can be traded for trades, which is problematic,” said Stacey Cunningham, President of Intercontinental Exchange Inc. (ICE.N) NYSE.

“This price formation doesn’t really reflect what supply and demand is,” she said at a conference hosted by CNBC.

Retail has surged during the coronavirus pandemic, aided by a shift from retail brokers to commission-free trading, with individual traders now responsible for around 35% of market volume, up from 20% before the pandemic.

In stocks even, individual traders contribute up to 70% of the volume, Cunningham said.

The majority of retail orders bypass trade due to an arrangement called payment for order flow, in which retail brokers sell their clients’ tradable orders to wholesale brokers. Wholesalers match orders internally, trying to take advantage of the bid-ask spread, while offering retail traders the best or better market price.

Retail brokers claim that paying for order flow lowers overall costs for individual traders.

But the practice raises conflict of interest questions and will be included in a broader review of stock market rules, Gary Gensler, chairman of the U.S. Securities and Exchange Commission said last week.

The review will also examine whether over-the-counter trades – which make up around 50% of the market when institutional block trades are included – distorts the stock price discovery mechanism, Gensler said.

Reporting by John McCrank in New York Editing by Matthew Lewis

Our standards: Thomson Reuters Trust Principles.

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