Feb. 24, 2023
February 24, 2023
Dear Chairperson Gensler,
I am writing in response to SECs Equity Market Structure Rule Proposals which were announced at the open meeting held on December 14, 2022 and later filed to the federal register.
As posted on the SEC website the SECs roles are to:
1. inform and protect investors.
2. facilitate capital formation.
3. enforce federal securities laws.
4. regulate securities markets.
5. provide data.
As an investor who has an above average knowledge of the US financial markets, I find the rule proposals to be reckless and a form of investor manipulation. While unintentional, or so I hope, the rule proposals imply that US equity markets are broken. This is untrue and a complete set back to the forward progression made in recent years. Are there areas for improvement? Absolutely. However the markets are not broken and in actuality they are the most efficient I have observed in the last 30 years.
In fact, the US equity markets have become more accessible to the average person. In the 1,500+ pages of rule proposals and calculations provided that imply brokers are taking advantage of investors through payment for order flow practices and the minimal price improvement provided. Does it mention the increase in number of retail investors who now actively participate in the stock market due to commission free trading? Does it mention the rise in STEM or the increase in womens interest in finance?
If the markets are broken or due for a massive reform, how were they able to operate seamlessly through a pandemic? It is understanding that the markets may be due for some additional enhancements given the advancements in technology however, it needs to be done with a strategic approach based upon data driven insights which can be validated and supported. Not simply because the SEC claims their non-public data supports the change.
While I never analyzed disclosures until the recent rule proposal, I do find benefits in enhanced disclosures. However I do not want to be inundated with data. It is my request that data be consistent amongst firms. For instance when comparing the Schwab disclosure to the WeBull disclosure I was rather confused as to why the numbers did not correlate to the material aspects of the disclosure. Either both firms data is wrong or one of the two firms have miscalculated or I cannot understand the data being provided. This leaves me to wonder whether additional enhanced disclosures are necessary or if there has been lack of oversight?
The hardest thing to wrap my head around are the proposed rule changes to tick sizes. The rule proposal and the footnotes seem to conflict with one another. How will I know what price point I can put my order into the system? If I place an order at the wrong pricing increment or tick size, will my order reject or will it be rounded up or down respectively? Can my broker do this on my behalf without being considered a discretionary order? This is too confusing to comprehend, its like trading in fractions all over again. Is the real issue here that there are constraints on certain venues per other aspects of Reg NMS?
When I go to the grocery store or make purchases online everything is in pennies. If a stock is quoting $9.99 to $10.00 and I place an order to buy at the market and execute at $10.00 is it really not the best execution? I do not care about fractions of a cent as I only trade in order sizes ranging between 100 to 1,000 shares. I dont care about saving $1 nor do I care about the marketed price improvement brokers advertise as it doesnt mean anything to me. What I do care about is paying a commission. Lets be fully transparent, will these rule proposals result in my saving a $1 on a trade but cost me a $10 commission?
Please reconsider these rule proposals and the unintended consequences they may have on investors like myself. You have been quoted numerous times saying, level the playing field, I ask how does this level the playing field? It appears to me that the only persons benefiting from these changes are investors or institutions trading large oversized orders and high frequency traders not the average investor like myself.
As previously mentioned when visiting your website there are 5 roles the SEC plays. I would like to take this moment to remind you and the other members of the SEC of the importance of these roles and the questions and concerns I have as an investor.
1. We inform and protect investors. Please explain what is broken in the US equities trading market and how these rules proposals are designed to address and fix these problems.
2. We facilitate capital formation. How do these rule proposals not create barriers of entry and reduce competition thus adversely impacting capital formation?
3. We enforce federal securities laws. Instead of reforming an efficient market such as the equities trading market should the SEC pursue other areas such as digital assets where there is lack of regulation but increased enforcement cases?
4. We regulate securities markets. There has been an observed increase of foreign investors trading in the US markets. Why are foreign investors not regulated in the same capacity as US investors? Is this not concerning to the SEC or the US government?
5. We provide data. There was a lot of data referenced within the rule proposals however, I was unable to locate the data. Why is this data not available to the public?
Thank you for your time and look forward to your response.
Sincerely,
Penny Lane