Mar. 12, 2023
New rules passed by the SEC are only as good as the enforcement that legitimizes them. As a retail investor, I want to see more significant penalties and fines for violators; penalties and fines that offer an actual deterrent and are more than just a "cost of doing business." I think broker-dealers that habitually violate the rules should lose their licenses instead of receiving fines that are negligible relative to the profits gained in the commission of the violation. These violating firms are high-tech, experienced, and legally extremely well-represented, so repeat offenses should not be allowed to happen without punishments that scale upwards significantly after a first violation; they know exactly what they are doing. I fully support the rule, please implement it as soon as possible. I deeply appreciate and support any efforts to reduce the speed games that damage the integrity, credibility, and functioning of American markets. The dominance of high-speed trading firms only serves to monopolize aspects of the investing world, and allows for nefarious front-running and manipulation. I deeply appreciate and support any efforts to reduce inducements and to reduce the ‘farming’ of individuals’ orders for rebate money, especially given that price improvements are skimmed (and the investor doesn't benefit fully, with the intermediary pocketing the difference). 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. 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 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. The state of American markets is clearly anti-competitive and that needs to change. The current market is obviously not fair and this proposed rule is an important step in levelling the playing field. 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 is taking action to increase visibility and competition. 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 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 on trades to avoid being routed through a wholesaler, especially one with a long record of flouting the law (like Citadel Securities). 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 interfere with the ability of some participants to objectively review these rules. Research heavily suggests that internalization is bad for markets: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4070056 Wholesalers are simply lying about the quality of their services in order to maintain their profits. 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. 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. I dislike being beholden to middlemen that simply exist to get their cut of a transaction that would have otherwise occurred without their involvement. 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 would go to investors, citizens and pensions instead of into Wall Street's overstuffed pockets. It is clear to me that 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 Respectfully, Scott Green