Mar. 12, 2023
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. I deeply appreciate and support any efforts to reduce the speed games that damage the integrity, credibility, and functioning of American markets. COMPETITION IS GOOD 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. Furthermore 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. WHOLESALERS ARE BAD 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. Wholesalers are lying about the quality of their services to maintain their profits. Prominent investor advocate David Lauer says, "Commission analysis of CAT data 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." Research heavily suggests that internalization is bad for markets (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=407005) 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. THE LEGAL CODE SUPPORTS ORDER COMPETITION Lastly the SEC has every legal justification to implement this rule without delay, as seen in Title 15 U.S.C. 78k-1 of the U.S. legal code on the objectives of the SEC. Congress finds in para (a)(1)(C) that "It is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure— (i) economically efficient execution of securities transactions; (ii) fair competition among brokers and dealers, among exchange markets, and between exchange markets and markets other than exchange markets; (iii) the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities; (iv) the practicability of brokers executing investors’ orders in the best market; and (v) an opportunity, consistent with the provisions of clauses (i) and (iv) of this subparagraph, for investors’ orders to be executed without the participation of a dealer. Order competition relates to each of these points, but in particular to point (ii). I fully support the rule, please implement it as soon as possible. More importantly, 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. To that end I believe repeatedly offending broker-dealers and other participants should lose their licenses instead of receiving fines that amount to nothing more than a cost of doing business - a cost that is too often outweighed by the ill-gotten gains obtained through their allegedly “honest mistake".