December 15, 2015
Brent J. Fields
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090
Re: Investor's Exchange LLC Exchange Application (Release No. 34-75925, File No. 10-222)
Dear Mr. Fields,
Nothing I have witnessed in my 30 year career has more adversely impacted the quality of our markets than High Frequency Trading (HFT). It has driven out and virtually eliminated the small and medium sized participants who would normally be willing and able to absorb inventory risks that retail investors seek to eliminate. The result is the erratic, volatile market behavior we now see on a regular, daily basis. This benefits only those few participants with the speed advantages and technology to profit from the ensuing chaos at the direct expense of the retail investor.
When HFT crowds out natural participants by gaming the system (and thus sidestepping the need to assume price risk) we get events like we just witnessed on August 24, 2015 in the stock market. A true speculator holds inventory; it is a bona fide business with exposure to fluctuating prices and working capital at risk. HFT on the other hand has weaponry, but not capital. They do not buy or sell with capital. They use weaponry to buy, without having any money at risk, and then they sell. In other words, HFT seeks to profit from price change without taking the risk of being exposed to price change. To say this is an unfair advantage, is a gross understatement.
A well functioning market needs a wide diversity of participants, i.e., business people who are willing to take a risk to earn a profit. HFT is the antithesis of this model. The goal of an exchange is for real buyers and real sellers to meet. It is not to promote middlemen who take no risk, such as HFT market makers. NYSE specialists never made the billions in revenues that HFT makes today, because they did not skim a profit on half of all trades. These revenues come directly from the pockets of the retail investor.
Please note that those who have submitted negative comments are all basically saying that IEX will kill Latency Arbitrage and therefore IEX should not be allowed to be an exchange. Ask yourself: why do all retail trades get executed by an internalizer, such as Citadel, who happens to be vehemently opposed to the IEX application?
One way regulators could ensure Fair Competition would be by inserting a random delay of several hundredths of a second in front of each transaction on every exchange, thus making the IEX exchange unnecessary. In the meantime, IEX should be a protected quote because retail investors deserve, and regulators are obligated to provide, the opportunity to have retail orders executed on a fair market that does not provide select participants with speed advantages. I intend to use IEX so that my orders are not internalized and have a chance of executing against other investor orders as guaranteed by the Securities and Exchange Act of 1934.
Chesler Analytics LLC