Mar. 31, 2023
Fair competition is essential to ensure market efficiency and protect investors' interests. However, the current state of American markets is anti-competitive, with profiteering middlemen and conflicts of interest that compromise the integrity of the market. In light of these issues, I recommend the following to the Securities and Exchange Commission (SEC) to ensure fair competition and improve the quality of the market: Backing the novel regulation that specifies Citadel/Virtu cannot be the primary recipient of orders; instead, orders must undergo a public auction where all parties, including pension funds, have an equal opportunity to fulfill the order. Payment for Order Flow (PFOF) has been effectively prohibited in the UK owing to concerns about conflicts of interest – and this should also be the case in US markets. Brokers who refuse any type of PFOF process orders differently and thus witness superior execution quality. A recent study revealed that Robinhood fails to provide statistically significant price improvement compared to exchanges, despite PFOF being responsible for approximately 70% of its revenue. Retail investors not engaging in PFOF get a superior price compared to those who do, which is a violation of FINRA's Best Execution guidelines. FINRA is examining the consequences of not charging commissions on member firms' order-routing practices and decisions, and the results should be made public. TD Ameritrade's order routing decisions do not seem to be motivated by competition, despite what they claim on their website, and they pay to get the first look at orders, routing them to firms that net billions of dollars in the process. Dark pools (Alternative Trading Systems) should give quotes and trades to consolidated market data to bring more transparency to dark markets. The Commission should address the unjust information advantage of wholesalers by having brokers first route to the auction and specify where the order should go if the auction is unsuccessful. The US markets are anti-competitive, and fair competition is crucial. The Commission must guarantee fair competition, particularly within the off-exchange systems that currently dominate. Wholesalers have immense influence on other market participants, and there are conflicts of interest that may impair the ability of some participants to objectively review the regulations. Wholesalers are taking billions from individuals and institutions and calling it "superior performance" while lying about the quality of their services to maintain their profits. Removing intermediaries from the market will improve prices for both individuals and institutions, such as pension funds. The auctions would save individuals billions of dollars taken by wholesalers. The Commission should ensure fair competition by reducing monopolistic behavior and eliminating profiteering intermediaries from the market. The proposed regulation to increase transparency in dark markets should be put into effect as soon as possible. The SEC should investigate conflicts of interest among market participants to guarantee that participants can objectively review the regulations. Enforcement of SEC rules must be improved with higher fines to act as a significant deterrent for breaking the law. Some broker-dealers should forfeit their licenses rather than receive fines that are merely a cost of doing business. In conclusion, fair competition in the securities industry is critical to protect investors and ensure market efficiency. The SEC should take the above recommendations into account to improve the quality of the market and promote fair competition. Thanks, William Jacob Pennstrom Retail Investor