Mar. 18, 2023
Dear sir/madam, I fully support the rule, please implement it as soon as possible. In a short blog post found here, I tried to summarize my thoughts around the existence of Alternative Trading Systems (so-called 'dark pools') and the many other mechanisms through which our financial system is being rigged distorted. On the topic of dark pools specifically, I write: "A paper world has been created around many traded stocks and other financial products. In this parallel world, mostly occupied by large and professional investors, ‘fake’ assets can be created endlessly with the help of derivatives, without consequences. Made possible though ‘dark pools‘ in which the actual trading takes place, often without any relationship with the actual supply and demand. [...] For example, due to the illegal ‘naked short selling‘ of shares and the lack of consequences for not delivering the borrowed shares (so-called ‘failures to deliver’ or FTDs), trading parties can indefinitely postpone and thus manipulate pricing up or down as they please." 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. Furthermore, the parties involved often 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. Research heavily suggests that this type of internalization is bad for markets https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4070056 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. Also, without the availability of dark pools, many unwanted and often illegal practices, like naked shorting, would be much harder if not impossible to execute. Finally however, 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 also 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”. Thanks for your consideration PJ Verhoef