Mar. 23, 2023
March 23, 2023 In regards to File No. S7-31-22 Release No. 34-96495: Order Competition Rule Overall, I, as a household investor with a family, support this proposal and feel it should be implemented as soon as possible. That being said, every rule the SEC passes is only as good as the enforcement that backs it. Without active enforcement and severe and meaningful punishments for violations it won't matter what rules are implemented 'on paper'. Investors should have access to the best priced quotations available in the national market system and as such prices should generally be determined by competitive market forces. It shouldnt be possible to pay billions of dollars for retail orders for the ability to control everything in that entire market. Citadel recommended withdrawing this proposal for a number of reasons, including the unprecedented nature of requiring certain market participants to utilize a specific trading protocol. Interestingly, Citadel themselves were actually against PFOF in the past as evidenced in their comment submission on April 13th 2004 in regards to Release No. 34-49175 File No. S7-0704 - Competitive Developments in the Options Markets. Source (https://www.sec.gov/rules/concept/s70704/citadel04132004.pdfIn Citadel's own words they stated that... 1. 'The practice of payment for order flow creates serious conflicts of interest and should be banned.' 2. 'Internalization without meaningful price improvement reduces competition, limits price discovery, leads to market fragmentation, and should be banned.' 3. 'The Commission should not yet require the listed options markets to quote in decimals because decimalization would overload systems already pushed to their limits and lead to less transparent and shallow markets.' Sending my orders to a wholesaler to be internalized is a specific trading protocol that Id rather pay commission to be able to avoid. A wholesaler such as Citadel who has been front-running customer orders since 2006 shouldnt have a monopoly on retail order flow. My only concern is that brokers will start charging outrageous commissions or fees in lieu of PFOF, so Id recommend a cap on the amount of commissions or fees that the brokers are allowed to charge. I trust the Economic Analysis done by the commission and I look forward to retail saving from $1.12 billion to $2.35 billion on transaction costs. These estimated gains would be generated primarily through increased competition to supply liquidity to marketable orders of individual investors, which in turn would lower transaction costs for individual investors, potentially enhance order execution quality for institutional investors, and improve price discovery. Competition is GOOD for the market and household investors. 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.\" For too long the Commission has not be enduring fair competition, especially within the off-exchange systems that currently dominate. It's good to see they are beginning to take their mandate more seriously. 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 its good to see the SEC prioritizing true competition. There are clearly some market participants benefiting 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 over complicated 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 for the market and household investors. 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. 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 and it makes me sick. 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 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 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\". 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. Citation: https://4982966.fs1.hubspotusercontent-na1.net/hubfs/4982966/BestEx Research Order Competition Rule Analysis 20230105.pdf While not directly related to this proposal I would also like to state that I heavily wish to see action taken against FTDs (failure-to-delivers) that occur. I also wish to see actual justice in the markets, by which I mean closing of loopholes, as well as strong actions taken against fraud, abuse, and manipulation. By strong actions, I mean more than just insignificant 'cost of doing business' level fines and no need to admit guilt. I mean ACTUAL consequences. The kind of consequences that poor Americans face when they commit crimes There needs to be actual enforcement and punishments that involve fines greater than the amounts profited from the crime. There needs to be severe consequences like prison time for the executives and CEOs that allow this, repayment to any and all affected parties / investors of an amount significantly greater than their losses. Those who commit crimes need to lose their ability to participate in the markets. Firms and institutions that regularly commit crimes need to be REMOVED PERMANENTLY from participation in the markets. Any regulators, politicians, or other cronies that were complicit in allowing these kinds of crimes to occur, such as those who aided in installing loopholes, exemptions, etc, also need to face fines, prison, and permanent removal from their positions and be banned from any other government positions in the future. The above may seem harsh, but I fully feel it to be necessary. Poor Americans are punished in these ways. If I were to speed on the highway regularly I would face heavy fines, increased insurance costs, court hearings, jail time, temporary revoking of my driving privileges, and ultimately the permanent loss of my legal permission to drive a vehicle for personal or business purposes. Our markets are extremely important to the health of our economy and our country as a whole. It would be no lie to say that market fraud is a serious risk to our national security and is immensely detrimental to the citizens whether they are active participants in the markets (such as in the form of household investors) or whether they are passive participants who are unknowingly victims of the crimes committed in our markets simply by working and having a 401k or pension. As a further side note, any regulators or agencies that allow for such crimes to occur in our markets should be ashamed of themselves. Not simply due to their failure to honorably perform their job with the noble goal of protecting the citizens of this country, but for their failure to be worthwhile human beings in general. Sincerely, Derek Lee A household investor and typical American wage slave