Jan. 8, 2023
January 8, 2023 I'm writing in support of proposal S7-31-22. Financial institutions do not compete for orders thanks to payment for order flow (PFOF), and as such do not provide best price execution. That is because they internalize all buy orders OFF exchange and dump sell orders, borrowed shares and naked shares ON exchange, creating artificial price discovery. In this way, they keep the price suppressed and manipulated. After the price has dropped, they buy back the shorted shares or naked shorts OFF exchange, not affecting the price, to return the borrowed shares to the lender or cancel out naked shares sold. The current system does not allow real price discovery and best price execution. This is especially evident when there is low volume trading. This can be seen with many stocks trade in the OTC as well. The allowance to trade OFF exchange was given to prevent sudden abnormal price fluctuations for abnormal events. Yet it is now abused by day traders to manipulate security prices. Action must be taken to eliminate the abuses of OFF exchange trading. Advancements in trading technologies, such as high frequency and algorithm trading, in addition to the process mentioned above, have caused investors losses when trading in the stock market. Adding more competition to orders would give investors better pricing and remove barriers to investing in the market. Also, PFOF, which is used to front-run trades, should be eliminated. Other markets do not allow this type of activity, and investors deserve better. One final note, none of these rules governing trading will make a difference if they are not enforced, and realistic fines are used as a deterrent. There should also be more cases referred to the Department of Justice for the larger Wall Street firms. Rules that are not enforced contribute to market inefficiencies and harm investors. The proposed legislation to provide better competition where transactions result in proper price discovery is key to transparent and efficient markets.