Subject: Regarding SEC Order Competition Rule, File No. S7-31-22, Release No.34-96495
From: Anonymous
Affiliation:

Mar. 31, 2023

 




Dear Countryman or Countrywoman,
The enforcement behind every rule passed by the SEC is crucial for its effectiveness. Hence, I believe that the fines imposed should serve as a more significant deterrent, instead of being a mere cost of doing business for some broker-dealers. In cases where necessary, revocation of licenses should be enforced. 

I firmly support the SEC Order Competition Rule and urge for its swift implementation. I appreciate and endorse efforts that aim to reduce activities that jeopardize the functioning, integrity, and credibility of American markets.
It is essential to address unfair information advantages that some market participants enjoy, especially in the case of wholesaler brokers. Routing orders first to a wholesaler before routing them to an auction provides the latter with an unfair advantage that the Commission should tackle. Routing orders to the auction first and specifying their subsequent destinations would level the playing field for all market participants.
It is good to note that rule changes such as the current one that mandates dark pools to provide quotes and trades to consolidated market data will bring more transparency to off-exchange markets. This transparency will benefit the investing public by giving them easy access to information on market activity.
The SEC's mandate includes ensuring fair competition among brokers and dealers, exchange markets, and markets outside exchange markets. This mandate has not been adequately enforced, particularly within off-exchange systems, which currently dominate the market. Monopolies are detrimental, and monopolistic behavior is evident, with six off-exchange dealers capturing 90% of marketable orders of individual investors in NMS stocks. Two firms capture 66% of these orders, and these figures are likely higher for specific stocks. This current state of the American market is anti-competitive and needs to be addressed.
The proposed SEC Order Competition Rule is a critical step towards achieving a fair market structure. It is crucial to prioritize true competition in the market, and the SEC's realization of this is commendable.
Wholesaler brokers present clear conflicts of interest, and it is disheartening to know that some brokers ignore this fact. I would prefer to pay more per share (with proper caps to deter any outrageous commissions or fees in lieu of PFOF by brokers) to avoid being routed through wholesalers such as Citadel Securities, which has flouted the law over 70 times. They exercise extreme influence on other market participants and may affect the ability of some participants to objectively review rules.
It is evident that internalization is bad for markets, and wholesalers lie about the quality of their services to maintain their profits. The Commission's analysis of Consolidated Audit Trail (CAT) data showed that wholesalers executed, on average, 51% of individual investor marketable orders at prices less favorable than the NBBO midpoint. This execution was lower than the 75% that could have executed at a better price against non-displayed liquidity resting at the NBBO midpoint on exchanges and NMS Stock ATSs.
Wholesalers exist to get their cut of transactions that would otherwise occur, and I would prefer if the money goes to pension funds rather than Wall Street billionaires. Removing middlemen like wholesalers from the market will improve prices for both individuals and institutions. Recent research by Hittal Mittesh suggests that implementing the SEC Order Competition Rule would save individuals from billions of dollars taken by wholesalers and save institutions over $1.5 billion each.
Sincerely, 
Concerned Investor 




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