Mar. 31, 2023
Dear SEC Commissioners, The efficacy of any rule established by the SEC is highly dependent on the enforcement that supports it. It is crucial to impose more substantial fines that serve as a significant deterrent to market participants engaging in illicit activities. In some cases, revoking the licenses of broker-dealers, rather than levying fines that are merely absorbed as a cost of doing business, could be an effective way to discourage dishonest practices that yield illegitimate profits. I strongly advocate for the prompt implementation of the proposed rule and commend your efforts to eliminate speed games that undermine the integrity, credibility, and functionality of American markets. Furthermore, I appreciate your endeavors to curb incentives that promote the exploitation of individual investors' orders for rebate profits. The current system, where brokers route orders first to a wholesaler and then to an auction, appears unnecessarily convoluted and bestows a significant information advantage on the wholesaler. Addressing this imbalance by requiring brokers to route orders directly to the auction would promote fairness by ensuring equal access to market information for all participants. The proposed rule's provision requiring dark pools (Alternative Trading Systems) to supply quotes and trades to consolidated market data, should they choose to operate as auctions, is another commendable step towards increased market transparency. Investors deserve easy access to information about market activity. In accordance with 15 U.S.C. 78k-1 (“section 11A”), it is essential to foster fair competition among brokers, dealers, exchange markets, and other market participants. Recent moves by the Commission to address unfair competition, particularly within off-exchange systems, are highly encouraging. Monopolistic behavior is detrimental to the market, as evidenced by the concentration of 90% of individual investors' marketable orders in NMS stocks within a small group of six off-exchange dealers, with 66% captured by only two firms. Addressing this anti-competitive environment is vital to restoring the integrity of American markets. The proposed rule is a significant stride towards ensuring fair competition. Encouraging orders to compete in lit markets would contribute to greater market fairness and diminish the influence of dominant market participants who engage in backroom deals or pay for order flow. A more streamlined, transparent, and open market structure, as outlined in the proposed rule, is preferable to the existing fragmented system that benefits primarily large players. The role of wholesalers in the market should also be scrutinized. Many investors would be willing to pay higher per-share fees or commissions to avoid having their orders routed through wholesalers with a history of legal violations, such as Citadel Securities. Conflicts of interest between Citadel and other market participants raise concerns about the impartiality of the rule review process. Research indicates that internalization is detrimental to markets (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4070056). Wholesalers may misrepresent the quality of their services to maintain their profits. The elimination of profit-seeking middlemen would result in savings for both individual and institutional investors, such as pension funds. Recent research by Hittal Mittesh reveals that removing profiteering middlemen from the market could save individuals billions of dollars taken by wholesalers and save institutions over $1.5 billion each year (https://4982966.fs1.hubspotusercontent-na1.net/hubfs/4982966/BestEx%20Research%20Order%20Competition%20Rule%20Analysis%2020230105.pdf). It is imperative that these savings are redirected towards citizens and pension funds, rather than Wall Street firms. Thank you for your continued efforts to protect investors and ensure the fairness and stability of American markets. Sincerely, David Carmona Designer at LinkedIn