Subject: S7-31-22: WebForm Comments from Matthew Reddoch
From: Matthew Reddoch
Affiliation:

Jan. 10, 2023

January 10, 2023

 Proposal S7-31-22
I absolutely agree with the spirit of this rule but believe it does not go far enough.

All trades should go through a lit exchange / auction process. However the proposed rule summary states, \"The proposed rule would also include limited exceptions to this general prohibition.\" I believe there should be no exception. ALL trades should go through an auction process on a lit exchange. Further, the proposal also states that after going through the lit exchange auction if the trade does not match it can then be routed internally. I do not believe that any trade should be allowed to be internalized by a Market Maker. My concern is that if bids are generated slightly below the lit exchange threshold they will internalize. This can then be used as a means to artificially lower the price (as the most common trades occurring will be below the lit exchange marks). Multiple trades occurring just below the available ask on lit exchanges will lead to the trades being internalized. The internalizer can then continue to lower the price they offer slightly. By showing the trade as o
 ccurring just below the lit exchange ask price, the displayed / calculated price for the stock would appear to drop because of these \"trades\" occurring off exchange.
In other words, I do not support any internalization of orders and I do not support payment for order flow routing these orders to market makers.

Again I agree with the spirit of this proposal and that trades should occur as an auction on lit exchanges but the proposal does not go far enough. I do not believe that market makers should ever be allowed to internalize orders as I believe that hurts retail investors, price discovery, and true market competition. In essence, the \"infinite liquidity\" that Doug Cifu of Virtu spoke of means that internalizing orders destroys price discovery.

Please amend this proposal to remove internalization of trades and exemptions for any entity. We want a real / transparent market that we can trust