Mar. 8, 2023
March 8, 2023 Dear SEC, I've noticed that the NYSE Group, Charles Schwab, and Citadel Securities have submitted a letter to the SEC regarding the Equity Market Structure changes. They claim to represent individual, household investors (\"retail\"), but as an investor, I believe their concerns are only valid for their own income. It should be noted that Charles Schwab ireceived 1.7 billion US$ from PFOF according to an article from 2022 1, of which Citadel Securities is a significant part. Any sane corporation or natural person would only pay such an amount to Schwab if they made more than that amount from the order flow. This is money paid by household investors, which would otherwise receive that money either through price improvement, or by capturing the spread. Citadel Securities is also the designated market maker for 80% of the IPOs and 65% of all NYSE listings 2. I think it's also safe to conclude that if a letter is sent by the broker that made the most money from PFOF 3 is a big customer of Citadel Securities. With all of the above, I believe it's safe to conclude that their letter is sent mostly in fear of losing income: 1. For Citadel Securities by not having to compete on PFOF, 2. NYSE because Citadel Securities is their biggest market maker. 3. Charles Schwab might be afraid of losing income from PFOF. -- That said, the letter made by Citadel Securities on the proposal has some specific concerns, I would like to give my opinion on those. Retail Auctions: - Having a standardized trading protocol is a good thing. If you want to trade on any exchange, you have to follow their protocols if you want to submit an order. In the same way, if you want to hold a bid on retail orders, the same should apply. This is one step to making PFOF more transparant. Best Execution: - While FINRA and MSRB have best execution rules, it is ultimately within the SEC's mandate to introduce rules regarding best execution. I also think it's important that the rules should be set by SEC not by Self-regulatory organizations. In particular, odd lots should be able to affect NBBO, and cause price discovery. They should also matter for best execution rules. Minimum Pricing Increments, Access Fees, and Round Lots: A lot of talk about minimum tick increments. Retail cannot submit orders that are fractions of a cent, but Citadel Securities letter talks only about that. In many cases, retail will not care about sub-cent prices. Price discovery is generally worth a lot more to retail, than a 1 cen improvement when you submit an order of 10 securities or more. I believe tick sizes should be harmonized across all exchanges, and it is in the SEC's mandate to introduce rules to make them equal. Having some exchanges have a different tick size increment would allow exchanges to be treated unfairly. On top, the definition \"Tick-constrained\" in the Citadel Securities letter is a vague notion. Any definition should be quantified by numbers, especially since on NYSE alone, 18.900 billion US$ is traded daily. I also firmly believe the mininmum trading increment and minimum quoting increment should be the same, to allow a level playing field for all market participants. Lastly, odd lot information should be included in the NBBO, especially since a majority of the trades in the markets are odd lots. It is in the best interest of all market participants if information about odd lots is visible to all participants, and they can influence the NBBO. All in all, I believe the market reforms as poroposed will significantly help to equalize access to the markets, improve price discovery, and make markets more fair for individual investors and all other market participants. Signed, Anonymous 1 https://markets.businessinsider.com/news/stocks/stock-brokers-made-billions-pfof-gamestop-craze-robinhood-charles-schwab-2022-2 2 https://www.citadelsecurities.com/what-we-do/equities/designated-market-maker-dmm/ 3 https://brokerchooser.com/education/news/data-dashboard/payment-for-order-flow