Mar. 12, 2023
Re: Order Competition Rule, File No. S7-31-22, Release No.34-96495 As an international household investor I have seen over the last two years the US stock markets turn into a complete joke. I fully support this what this rule proposes. Market makers like Citadel have way to much influence over the market and any rule that shuts down some of the gray areas they use to manipulate the markets and suck more profit out of household investors has my full support. SEC Chair Gary Gensler has said multiple times that +90% of retail orders never reach the lit exchange and are instead internalized by a wholesaler like Citadel or Virtu. https://youtu.be/_0rcW8joA60?t=48 "payment for order flow as you mentioned is a payment between a broker, that a broker receives for your order flow and there are INHERENT CONFLICTS OF INTEREST there we're looking at how we can ensure greater competition when you place a market order in the u.s a market order a retail platform well over 90 percent of those trades go straight to the DARK MARKET to a WHOLESALER that bought that order flow rather than competing trade by trade and that's what we're trying to think through" This gives the wholesalers incredible amounts of information, opportunity and power over the markets that they use to maximize their own profits. Their so called price improvement is just them stepping ahead of retail orders by fractions of a penny, which does absolutely nothing for an average retail investors buying less than a 100 shares. This "price improvement" benefits only wholesalers like Citadel whose profits increase for every order they internalize. They have attached themselves like a parasite to the markets and are now profiting as a middleman for 90% of retail orders for absolutely no good reason. I dislike middlemen that simply exist to get their cut of a transaction that would otherwise occur. I would prefer that money go to pension funds instead of wall st billionaires. The data clearly demonstrate that wholesalers are taking billions from individuals and institutions and calling it "superior performance". They might massage their numbers to protect their profits, but we know better. If they weren't around to take their cut, the savings will go to citizens and pensions instead of into Wall Steet's overstuffed pockets. It is clear to me how removing the profiteering middlemen from the market will improve prices for both individuals and institutions (e.g. pension funds). Recent research by Hittal Mittesh suggests that on top of the Commission's estimate that the auctions would save individuals from billions of dollars taken by wholesalers, it would also save institutions over $1.5 billion each year. Wholesalers are taking from citizens AND people's pensions - that needs to stop. Citation: https://4982966.fs1.hubspotusercontent-na1.net/hubfs/4982966/BestEx%20Research%20Order%20Competition%20Rule%20Analysis%2020230105.pdf Please do not listen to objections coming from these firms as they have said in the past that PFOF and internalization without meaningful price improvement should be BANNED. The only reason they are against it now is because it threatens their profits. Research heavily suggests that internalization is bad for markets https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4070056 https://www.sec.gov/rules/concept/s70704/citadel04132004.pdf "The practice of payment for order flow creates serious conflicts of interest and should be banned. Internalization without meaningful price improvement reduces competition, limits price discovery, leads to market fragmentation, and should be banned." - Citadel Investment Group, L.L.C. (“Citadel Group”) The parties involved have very clear conflicts of interest. Citadel is a large source of funding for many broker-dealers and is, for example, the NYSE's biggest customer. Wholesalers exercise extreme influence on other market participants and I am concerned that influence will infect the ability of some participants to objectively review these rules. Both the SEC Chair Gary Gensler and Citadel agree that PFOF creates serious conflicts of interest and it should not exists, that Internalization without meaningful price improvement reduces competition, limits price discovery, leads to market fragmentation, and should be banned, yet here we are with more orders internalized than ever before. I would gladly pay more per share to avoid being routed through a wholesaler that has been charged over 70 times by the United States government (https://files.brokercheck.finra.org/firm/firm_116797.pdf). I would gladly pay commission to avoid being routed through a wholesaler, especially one with a long record of flouting the law like Citadel Securities who has in the past failed to provide best prices for internalized orders. https://www.sec.gov/news/press-release/2017-11 "But the SEC’s order finds that two algorithms used by Citadel Securities did not internalize retail orders at the best price observed nor sought to obtain the best price in the marketplace. These algorithms were triggered when they identified differences in the best prices on market feeds, comparing the SIP feeds to the direct feeds from exchanges. One strategy, known as FastFill, immediately internalized an order at a price that was not the best price for the order that Citadel Securities observed. The other strategy, known as SmartProvide, routed an order to the market that was not priced to obtain immediately the best price that Citadel Securities observed." Just a small part of their internalization business affected millions of retail orders and apparently they execute 35% of daily volume for retail shares traded in the US markets. There needs to be more competition to reduce the systemic risk a firm like that poses to the markets. "As a “wholesale market maker” or “internalizer” that specializes in handling retail orders from investors who are customers of other broker-dealers, Citadel Securities executes approximately 35 percent of the average daily volume of retail equity shares traded in the U.S. markets, according to the SEC’s order. “These two algorithms represented a small part of Citadel Securities’ internalization business, but they nevertheless affected millions of orders placed by retail investors because of Citadel Securities’ large role in that market,” said Robert Cohen, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit." Monopolies are bad, and there is clear monopolistic behavior here. The Commission notes that 90% of marketable orders of individual investors in NMS stocks 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. The state of American markets is clearly anti-competitive and that needs to change. 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." For too long the Commission has not be enduring fair competition, especially within the off-exchange systems that currently dominate. It's good to see they are beginning to take their mandate more seriously. The current market is obviously not fair and this proposed rule is an important step in that direction. Fair competition is incredibly important and it’s good to see the SEC prioritizing true competition. There are clearly some market participants benefitting from a dominant, anti-competitive position in the marketplace. They pay for order flow or secure it through backroom deals. Why can't orders compete in lit markets? They should - and it's good to see that the Commission finally realizes this. Fragmentation of the markets makes things overcomplicated in a way that only benefits large, dominant players. I prefer a more simple, transparent, and free market structure like the one proposed in this rule. I deeply appreciate and support any efforts to reduce the speed games that damage the integrity, credibility, and functioning of American markets. I deeply appreciate and support any efforts to reduce inducements and to reduce the ‘farming’ of individuals’ orders for rebate money. A broker routing orders first to a wholesaler, who then passes them to the auction, which might route it back to the wholesaler, seems unnecessarily complex and also grants the wholesaler a profound information advantage against other market participants: they get to see orders well before anyone else. The Commission should address this unfair information advantage by having brokers first route to the auction and specify where the order should go if the auction is unsuccessful. That way the entire market has equal knowledge. The current rule forces dark pools (Alternative Trading Systems) to provide quotes and trades to consolidated market data IF they wish to operate as an auction. I fully support and appreciate rule changes like this that bring more transparency to dark markets. The investing public should have easy access to what is happening within the markets. Every rule the SEC passes is only as good as the enforcement that backs it. I want to see higher fines that actually serve as a significant deterrent. 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”. All of the above should be taken into consideration when reading comment letters from these firms coming out against the new sec rules. They don't care about household investors all they care about is the profits they can extract from our orders and the system they spent billions on perfecting in the goal of maximizing THEIR own profits. They DO NOT represent us. SEC should implement all the new proposed rules as fast as possible and should ignore any complaints and delays coming from these firms. Thank you for finally doing something positive for household investors.