Mar. 12, 2023
I support the proposal with one exception: The rule allows for orders to go to wholesalers first and then to the auction for fair competition. This still gives them a major information advantage which should be removed. Orders should go to public auction FIRST, and only afterward to wholesalers, if at all. The Commission stated that 90% of marketable orders of individual investors in NMS stocks go to a small group of six off-exchange dealers, and 66% is captured by just two firms. Those figures will be even higher for specific stocks. This statistic points to a monopoly on NMS stock volume given the stock in question is considered a "retail favorite" among the "non-retail" group. There are a number of stocks that have been labelled as such. This is a recipe for manipulation. This rule proposal is a major step in equalizing the markets. Title 15 U.S.C. 78k-1 (“section 11A”) states that "It is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure ... fair competition among brokers and dealers, among exchange markets, and between exchange markets and markets other than exchange markets." This rule has been toothless; unenforced for too long and I appreciate that the rule prosposal is a step in enforcing that. I agree with Dave Lauer when he says: "Wholesalers are lying about the quality of their services to maintain their profits and it makes me sick. For example, Commission analysis of CAT data in infra Table 20 found that, on average, 51% of the shares of individual investor marketable orders internalized by wholesalers are executed at prices less favorable than the NBBO midpoint. Out of these individual investors shares that were executed at prices less favorable than the midpoint, on average, 75% of these shares could have hypothetically executed at a better price against the non-displayed liquidity resting at the NBBO midpoint on exchanges and NMS Stock ATSs." Wholesalers exist solely to profit off intermediation. They provide no real value to the public. They can claim they saved retail investors billions by exploiting their special priviledges and manipulating the markets with them. The entire market would benefit more if we removed the special privledges wholesalers enjoy, as it would spread competition and drive down prices for everyone. The rule forces dark pools (Alternative Trading Systems) to provide quotes and trades to consolidated market data IF they wish to operate as an auction. This rule proposal is just the first step. I firmly believe that we can go further. For instance, a "public only" option that disallows wholesalers from taking the order at all! There is no guarantee that Market Makers are providing real shares in their trades. So-called "Strategic Fails-to-Deliver" are a part of the Market Maker playbook, and so even after a public auction, Market Makers still have the opportunity to manipulate stocks. Another step could be to force buy-ins of fails-to-deliver. Why this is not already a rule is beyond me! It's a basic assumption of the ideal market that when you make a trade, you actually receive what you traded for. The existence of the buy-in windows (t+3, t+35 for MM op's) allows for unacceptable amounts of price manipulation in itself. If these rules were also able to be circumvented, perhaps through resetting the window, then that would be egregious- outright fraud. I think some broker-dealers should lose their licenses instead of receiving fines that amount to nothing more than a cost of doing business - a cost that is often outweighed by the ill-gotten gains obtained through “honest mistakes” like failing to deliver. If businesses that have cash flows on the order of billions to trilllions cannot have 99.9999999% success rate in fulfilling trades then the market is even too complicated and opaque for them to operate. Simplify the rules! Fines are not enforcement, they're a fee for doing business.