Feb. 24, 2023
February 24, 2023 Dear SEC Commissioner, As a retail investor, I am writing to express my strong opposition to the proposed rule to enhance competition for the execution of marketable orders of individual investors. While the rule may seem like a step towards promoting competition and transparency, it actually serves as a form of theft from the retail investor to enrich others. The proposal would require certain orders of individual investors to be exposed to competition in fair and open auctions before they could be executed internally by any trading center that restricts order-by-order competition. The rule would apply to segmented orders, which would be orders for stocks listed on U.S. securities exchanges (NMS stocks) made for an account of a natural person or an account held in legal form on behalf of a natural person or group of related family members, in which the average daily number of trades executed in NMS stocks was less than 40 in each of the six preceding calendar months. Exceptions would be provided for certain situations, such as when the market value of the order is at least $200,000 or when the order is executed at prices that are equal to or more favorable for the orders than the midpoint of the national best bid and offer (NBBO). While the proposal claims to benefit individual investors by promoting competition and transparency to enhance the opportunity for their orders to receive more favorable prices, it actually disadvantages us. Currently, retail brokers route more than 90 percent of marketable orders of individual investors to a small group of off-exchange dealers, known as wholesalers. Wholesalers typically execute these orders internally without providing any opportunity for other market participants, including institutional investors, to compete to provide more favorable prices for these orders. The routing of individual investors marketable orders to wholesalers occurs because the orders impose lower costs on liquidity providers than the order flow routed to national securities exchanges. These costs are known as adverse selection costs and reflect the extent to which prices move against the liquidity provider after executing an order. While the lower adverse selection order flow of individual investors allows wholesalers to execute their orders with price improvement, Commission analysis of trading data indicates that the level of price improvement offered by wholesalers does not fully reflect the much lower cost. The amount of this competitive shortfall is estimated to be 1.08 basis points per dollar traded by wholesalers, with an estimated total annual amount of $1.5 billion. The proposal would require restricted competition trading centers to expose individual investors orders to competition in fair and open auctions, which could result in higher execution costs for retail investors. The proposal would establish requirements for qualified auctions, including a minimum pricing increment of no less than $0.001 for segmented orders and auction responses with prices of $1.00 or more per share, and capping any permissible fees and rebates at $0.0005 per share for segmented orders and auction responses with prices of $1.00 or more per share. The proposal would also prohibit giving priority to the fastest auction response or to the auction response submitted by the broker-dealer that routed the segmented order to the auction. This could result in delayed execution times, which could negatively impact the price of the order. Moreover, the proposal fails to consider the impact on individual investors who may not have the resources or knowledge to navigate the complex auction process. Retail investors may also face additional costs associated with participating in the auctions, such as market data fees and commissions. In summary, the proposed rule to enhance competition for the execution of marketable orders of individual investors is a form of theft from the retail investor to enrich others. While the proposal claims to benefit individual investors, it actually disadvantages us and could result in higher execution costs, delayed execution times, and additional costs associated with participating in the auctions. I urge the SEC to reconsider this proposal and instead focus on measures that equalize the trading environment and rules that truly \"protect\" retail investors Thank you, Jacob Gillmore