Jan. 2, 2024
By Email Vanessa A. Countryman Secretary U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 205499–1090 rule-comments@sec.gov Re: 17 CFR Parts 232 and 240 [Release No. 34-98766; File No. S7-18-23] RIN 3235-AN29 Volume-Based Exchange Transaction Pricing for NMS Stocks Dear Ms. Countryman, Dear Secretary Vanessa A. Countryman, I am writing to share my thoughts on the SEC’s Proposed Rule concerning Volume-Based Exchange Transaction Pricing for NMS Stocks. My commentary aligns with the principles advocated by 'We the Investors,' particularly emphasizing Transparency, Simplicity and Fairness, and Best Execution, which I find crucial in this context. I firmly support the elimination of volume-based rebate tiers. These tiers currently create a conflict of interest for brokers, leading them to focus on maximizing rebates rather than ensuring the best execution for their clients. This practice not only undermines the efficiency of the market but also stifles innovation within the sector. The disproportionate benefits that these rebate tiers provide to larger brokers result in a skewed market dynamic. Small brokers end up financially disadvantaged, fostering a complex and non-transparent trading environment that is detrimental to fair competition. The need for change in the rebate system is further emphasized by historical examples, such as Steven Quirk’s testimony in a 2014 Senate hearing, which highlighted the long-standing nature of conflicts of interest in order routing to exchanges. While the proposed elimination of monthly rebate-tier bonus payments by the SEC is a commendable step towards reducing these conflicts, I believe it should be viewed as the beginning of a more extensive process aimed at completely eradicating conflicted order routing. Furthermore, the abolition of rebate tiers would provide a much-needed level playing field for small brokers, allowing them to compete more effectively and fostering a diverse and dynamic market. This change aligns with concerns raised by other market participants, including Citi, and reflects a widely acknowledged issue in the industry regarding the anti-competitive nature of exchange tiers. It is also noteworthy that the bipartisan concerns expressed by members of the House Financial Services Committee in 2020 about the impact of rebate tiers on market concentration and the well-being of small brokers highlight the broad recognition and importance of this issue. In addition to the changes proposed, I urge the SEC to consider the complete elimination of rebates and off-exchange Payment for Order Flow (PFOF). This would represent a significant advancement towards ensuring a fair and transparent market. In conclusion, while the proposed reforms are a positive step towards creating a more equitable trading environment, they should be seen as part of a broader effort to eliminate conflicts of interest and enhance the integrity of the market. Thank you for your attention to this critical matter. Sincerely, Alexander W. Kuchta Retail investor