Mar. 21, 2023
Hello, I am a canadian investor interested in the american market. I contact you today about comments I have about a new rule:
I think some broker-dealers should lose their licenses instead of receiving fines; or at least the fines should be significantly higher than the ill-gotten gains obtained through “honest mistakes”.
Every rule the SEC passes is only as good as the enforcement that backs it. I want to see fines that actually serve as a significant deterrent.
I fully support the rule, please implement it as soon as possible.
I support efforts to reduce the elements that damage the integrity, credibility, and functioning of American markets, for they are linked quite strongly with the canadian ones.
The entire market requires equal knowledge:
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. You could 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 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 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 that direction. Fair competition is incredibly important and it’s good to see the SEC prioritizing true competition.
There are 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. As a small player, 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 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 infect the ability of some participants to objectively review these rules.
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". 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
Thank you for reading my comments.
Have a good day.
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