April 20, 2010
As an individual participant in the equity markets, I am very concerned that the NBBO rules that have served investors well for some time have more recently become irrelevant at best. There are many Broker-Dealer and algorithmic trading firms who use dark pools and sub-penny strategies to step ahead of all the other equity market participants who must adhere to NBBO rules. The rationale that sub-penny price improvement offers any substantial benefit to the equity markets appears flawed as it also appears to be driving many other liquidity providers away. One should ask: why now take the risk to publically offer bids or offers when others can take advantage of advertised commitment? Sub-penny/dark-pool trades take advantage of other liquidity providers risk-taking with remarkably little cost to them. It just doesnt make sense in many cases now to offer bids or offers from a risk/reward perspective (I take the risk, and another firm can get the benefit of the trade at very minimal cost to them). Firms who can circumvent the NBBO rules are now frequently forcing everybody else to pay the bid-offer spread if we want to complete a trade.
I encourage the SEC to seriously consider the effects of allowing these practices to continue. Action appears needed to protect the long-term viability of fair and open equity markets in this country.