Jan. 2, 2024
Aron Tästensen. Sales coordinator - Bureau Veritas. To: Vanessa A. Countryman Secretary U.S. Securities and Exchange Commission 100 F Street, N.E., Washington, D.C. 20549-1090 Email: rule-comments@sec.gov Subject: Feedback on SEC Proposed Rule: Volume-Based Exchange Transaction Pricing for NMS Stocks (17 CFR Parts 232 and 240 [Release No. 34-98766; File No. S7-18-23] RIN 3235-AN29) Dear Ms. Countryman, I, as an individual investor, am grateful for the chance to provide feedback on the SEC's proposed rule concerning Volume-Based Exchange Transaction Pricing for NMS Stocks. I believe it is essential to eliminate rebate tiers to promote broker competition and enhance exchange competition. Volume-based rebate tiers often lead brokers to prioritize rebates over their primary duty of best execution for clients, creating conflicts that drive inefficiency and hinder innovation. The current rebate system disproportionately benefits large brokers, as evidenced by the complex rebate tier schedules. An RBC study from 2018 illustrates this complexity well. The system, akin to gerrymandered districts, stabilizes market shares for incumbent brokers, reducing competition. Brokers are incentivized to aim for higher rebate tiers, which are less transparent and more conflicting. Highlighting the longstanding issue with rebates, Steven Quirk's testimony in a 2014 Senate hearing revealed that TD Ameritrade, and now Robinhood, often routed orders to exchanges offering the highest rebates. This practice aligns with Chairman Carl Levin's observations and conflicts with the duty of best execution. By eliminating monthly rebate-tier bonus payments, conflicts of interest will reduce, enhancing competition among exchanges and brokers. However, to fully eradicate conflicted order routing, all rebates and off-exchange PFOF should eventually be eliminated. Reducing these conflicts will make the market more competitive, particularly benefiting smaller brokers. I recognise parallels with Citi's comments on equity market reforms (March 31, 2023), particularly regarding the anti-competitive nature of rebate tiers. Rebate tiers hinder smaller brokers and new entrants due to their scale requirements, discouraging market-making activity and innovation. It's noteworthy that concerns raised by three Republican members of the House Financial Services Committee in 2020 about rebate tiers and broker concentration were later addressed by an SEC Chairman from a different political party. This bipartisan concern underlines the issue's significance. In conclusion, while the proposed reform doesn't aim to eliminate all conflicts of interest, I strongly recommends that the SEC consider this for future reforms. The anticipated benefits from the current reforms should highlight the importance of resolving these conflicts. Sincerely, Aron M. Tästensen