Subject: File No. 10-222
From: Suzanne Shatto

November 16, 2015

Comments on Investors' Exchange LLC; Notice of Filing of Application, as Amended, for Registration as a National Securities Exchange under Section 6 of the Securities Exchange Act of 1934

[Release No. 34-75925, File No. 10-222]

​first, look at who is opposing IEX's rule proposal.  who do they represent?  why did they submit comments?  i can tell you that they do not represent investors or institutional investors. they do not represent potential customers of IEX.  if they object to IEX's method of doing business, 

then they do not have to place orders with IEX.  what do they want you to do?  if the SEC took one action or another, which would improve the market? has the SEC fined these entities?  do they continue to have conflicts of interest?

the SEC does not have to preserve market advantages for these people.  this situation indicates that brokers and exchanges have grave conflicts of interest and exploit their advantages to the detriment of the rest of the market.  certainly, the exchanges should not have immunity from prosecution for all of their actions, but should only be limited to actions they might take when prosecuting offenders.  if exchanges are a public utility deserving immunity, then perhaps they should be nationalized to reduce the conflicts of interest.

and this is exactly why these sort of people cannot represent retail and institutional customers, why they should not be sitting on the market structure advisory committee.  they represent nobody but themselves, want to preserve unfair market advantage for themselves.

what are the market advantages?  they make a profit between the SIP and the true market price set by the supply/demand.  the exchanges sell this difference through selling direct feeds.  the brokers/internalizers/customers buy it and profit from it.  and who pays for this profit? that would be the retail/institutional customers.  we are paying for an unwanted service that we are forced (by speed) to accept.

if an investor requests that they want their orders executed at IEX, they may be told that the broker owns the order flow and does not want the customer's orders executed at IEX.  they may be told that the broker has sold their order flow to internalizers who do not give the customer the best price but takes the best price for themselves.  while the broker has a responsibility for care and custody of the customer's portfolio, this does not seem to extend to execution of the customer's orders.

citadel filed such an opinion because they want to preserve their advantages in the market. they are an internalizer since they buy order flow from brokers and make a profit by giving SIP prices and knowing order supply/demand.  they pay for this order flow initially, but who pays for the order flow price ultimately?  it is the retail/institutional order flow.  they want to preserve direct feeds because it gives more information about the actual market demand which they can use to their benefit. 

simple physics tells you that locating away from any other SIP broadcaster builds in a time difference.  the opposition says that they do not like time differences and that "immediate" does not have a range of tolerance. however, these same entities want retail/institutional customers to pay higher prices than the market prices.  the HFT often cancel orders before customers in other areas can even see their order information.  oh, no, now we are talking about the cancellation rate and circumstance.  we are also talking about marketmakers advantages and the agreed responsibilities.  

i can tell you that your market structure advisory committee will NEVER get to these topics with the current members.  they only want to preserve advantages.  they are not motivated to improve market efficiency, improve market transparency.  they will say anything to do this.

the SEC should review the idea of direct feeds which advantage one customer over another.  the SEC should review why the SIP is not updated when the direct feeds are updated, why retail/institutional level 2 prices presented are not the true market prices.  the SEC should review why many orders show the buyer the SIP/displayed price at the time the order was placed.  

 the SEC should review whether brokers can/should sell order flow to an internalizer because it is a conflict of interest with their customers.  the SEC should review whether retail/institutional customers want to accept IOUs instead of the stock that they thought they were buying.  the SEC should review why the level 2 displayed prices/quantities are so significantly different than the order flow that the favored entities see.  the SEC should review clearing practices, "locating easy to borrow stock".  all of these things affect the prices that someone might be willing to pay in the marketplace. but if the marketplace is rigged so that these predatory agents get better prices, then the advantages need to be examined.

any SEC fine is a small tax to the company.  the calculation of these fines are not public.  the truth is that all HFT profit is unfair, unwarranted, unwanted by the greater marketplace.  the fine punishes the ownership but not the staff that is committing the violations.  the ownership may not know in advance of the behavior that is committing the violations.

next time the SEC wants to fine someone, look at the code and determine whether the violation is systematic. the code will tell you more than these predatory agents. if someone is fined because of a violation, they will continue to commit that violation if their computer code directs the violation to be committed systematically.  when they advertise for a position, they want people who have experience taking other peoples' $ through programming.  the programmer does not get 
fined or face criminal prosecution.  no, the secrecy relates to the market, the retail/institutional investors, the regulators.

these opposing market entities fail at the ethics of the situation.  unfortunately, the SEC has not succeeded in their mission as defined by their missions statement. some of the staff hope to retire from government service and be employed by these entities.  some of the regulators came from these predatory forces and are continuing to get paid by their former employers. in other words, many of the regulators hope to benefit by preserving the marketplace.  

unfair market advantage kills the marketplace.  this is a situation where the golden goose is being killed.

which economy would you like to live in?
the economy that favors one entity over another? the shortselling economy?  where the predators plant media stories, give false testimony, lobby for advantages in the financial marketplace?
the economy that levels the playing field, displays market prices, does not advantage one participant over another?  this choice is actually capitalistic.

theft and fraud are criminal matters.  the SEC should not license criminal activity as a business strategy.  the SEC needs to be a regulator for the entire marketplace, not the regulator who hands out market advantages to the predators.

suzanne hamlet shatto
seattle, washington