Mar. 12, 2023
To the Securities and Exchange Commission, I applaud you for making new, tougher rules, and support the commission at every opportunity, but the rules are only as good as the enforcement that backs them. The rule-breakers need much higher fines that actually serve as a significant deterrent, and a true threat of incarceration for the most corrupt. In some instances, in addition to fines, broker-dealers should lose their licenses. I fully support the rule, please implement it as soon as possible. Any efforts to reduce the payment for order flow that damages the integrity, credibility, and functioning of American markets is deeply appreciated. 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 to a wholesaler, who then passes them to the auction, which might send 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. Brokers should route to auction and specify where orders should be placed if the auction is unsuccessful. That way the entire market has equal knowledge. I fully support rule changes that provide more transparency to dark markets. 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. The investing public should have easy access to what is happening within the markets. COMPETITION IS GOOD 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." Fair competition, especially within the off-exchange systems that currently dominate, has not been encouraged. There is clear monopolistic behavior in the market. The Commission notes that 90% of marketable orders of individual investors in NMS stocks are routed to a small group of six off-exchange dealers, and 66% is captured by just two firms. Those figures will be higher for specific stocks. American markets are clearly anti-competition, and that needs to change. Fair competition is imperative, and it is good to see the SEC prioritizing that. The current market is not fair and this proposed rule is an important step in that direction. There are clearly some market participants benefitting from a dominant, anti-competition position in the marketplace. They pay for order flow or secure it through backroom deals. Orders should compete in lit markets, and it's good to see the Commission realizes this. Fragmentation of markets is overcomplicated in a way that benefits large, dominant players. I prefer a simpler, transparent, and free market structure like the one proposed in this rule. WHOLESALERS ARE BAD I would willingly pay more to not be routed through a wholesaler who has been charged over 70 times by the U.S. government: https://files.brokercheck.finra.org/firm/firm_116797.pdf I would gladly pay a commission to avoid being routed through a wholesaler, especially one with a long record of flouting the law. 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 affect 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 lying about the quality of their services 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. Out of these individual investor's 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 middlemen that exist simply to get their cut of a transaction that would otherwise not occur. The data clearly demonstrates that wholesalers are taking billions from individuals and institutions and calling it "superior performance". They may massage their numbers to protect their profits, but we know better. If they aren't around to take their cut, the savings will go to citizens and pensions instead of 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 billions of dollars taken by wholesalers, it would also save institutions over $1.5 billion each year. Respectfully, Gina L. Ayliffe