Mar. 29, 2023
To Whom it may concern, Healthy and strong markets are beneficial for a country and it's residents. It guarantees strong economy and healthy, safe society. This cannot happen without efficient and fair price discovery and the law of supply and demand is respected. The law of supply and demand combines two fundamental economic principles describing how changes in the price of an equity affect its supply and demand. As the price increases, supply rises while demand declines. Conversely, as the price drops, supply constricts while demand grows. This law of supply and demand can only work if all orders are routed to the same order book (or a combined order book from different exchanges) on a lit exchange and treated equal. If anyone puts in an order, these orders should all be routed to one lit exchange and be visible in one and the same order book (all exchanges should, for example, route the trades to the lit NYSE and that order book should be the only one that can affect the price.) What negatively impacts true and fair price discovery: - Internalization of trades: these do not hit lit exchanges and have no impact on price discovery and should be made impossible and illegal - Off exchange trades: these do not hit lit exchanges and have no impact on price discovery and should be made impossible and illegal - Dark pools: they should only be used for their intended purpose, to make large trades between the big players (mutual funds, pension funds,...). What is the benefit for household investors of small orders ($0 - $99999 for example) being routed to dark pools? Nothing, because their trades have no influence on price discovery. There should be more regulation on these and perhaps a minimal limit introduced (like a minimal dollar amount) for when a trade could be routed to a dark pool. - Infinite liquidity: naked shorting to provide liquidity should not exist, it is not logical and unnatural to a market system. In a true and fair market, liquidity will change via the law of supply and demand. In simple terms, if market makers feel the need for extra liquidity, the price of a security should rise to increase liquidity in a natural way. - Fail to delivering shares: It should be obvious that this does not positively affect price discovery - PFOF (payment for order flow): market makes would only pay for the order flow if they can make money of it, it does not provide the household investor with better prices. What positively impact true price discovery: - A simple system that treat all orders on the same level (no difference between odd and round lots and everyone should be able to trade to the same $ decimal) - Every order should be routed to a lit exchange (with only one exception being large block trades in dark pools, with a proposed minimal $ limit) - One order book per security - Elimination of FTD's (fail to deliver): if someone can't deliver what they sold, it should not be sold in the first place. - Finite liquidity: there should never, in any circumstance, be more shares of an equity in circulation than the amount that was issued by the company. If liquidity is a problem, the law of supply and demand should fix it naturally. - Instant settlement: The change form T+2 to T+1 that will be in effect in 2024 will not have any impact on price discovery or eliminating FTD's. T+0 should become the norm in the very near future. A trade should only be executed if the seller has the share and the buyer has the money, the settlement on the same day should not be a problem. The most important thing in here is that all trades should be routed to a lit exchange and the only exception should be very large block trades between institutional investors. Thank you for taking these arguments into account and please amend the proposed rule to make sure all market participants are on the same playing field and true price discovery can take place. Kind regards, Peter McKornack