December 7, 2015
34-75925
Sep. 15, 2015
Investors’ Exchange LLC (Notice of Filing of Application, as Amended, for Registration as a National Securities Exchange under Section 6 of the Securities Exchange Act of 1934)
File No.: 10-222
you have to understand who these people are and what lengths they are willing to go to accomplish their purposes.
i am attaching what occurred to my profile on **** (please redact the name of the website and do not publish my profile picture publicly) after i commented on IEX's proposal. i do not use it. however, some people who work for congress, some people who work for the negative commenters wanted to look at my profile to discover my "angle". they wanted to see my work history or something, i would imagine, because this may prejudice me. WHY? because they are unable to believe that i am not affiliated with the financial industry, that i am as i represent: a retail investor. and why would this be? because THEY are influenced by their affiliations with the financial industry who profit at the expense of the retail investors.
some notable recent viewers of my profile in the attached picture.
you should be wary of these people, and not taking advice from these people. they are unable to put aside their affiliation with the financial industry. this means that whatever they tell you, you can count that it is self-serving. and they certainly don't represent retail investors. their interest is in my money - they want as much of my $ that they can get.
instead, you should open investigations of these very entities who have negatively commented to find out to what lengths they have gone to protect their interest. you have allowed these financial intermediaries to "tax" the incoming orders (by speed and inaccurate displays to retail) and keep the excess profits.
who should represent retail investors? certainly not financial intermediaries who make $ from the uninformed retail, who try to keep retail investors uninformed by exploiting their advantages and lobbying the regulators/legislators to widen their advantage in the marketplace. now we have a captured retail order flow because retail's brokers have sold the order flow to these financial intermediaries and those orders hardly ever go to the stock exchanges.
let me tell you how that works: the level 2 display that retail investors see is false because of hidden orders, because of displayed orders that may never be executed. however this level 2 display is supposed to give retail information about price and quantity. if a retail investor wishes to trade, their broker passes the best bid or ask price that the retail trader saw on the level 2 screen to the financial intermediary so that the financial intermediary can charge the most advantageous price for the financial intermediary. their broker has signed a contract with the financial intermediary which specifies conditions of payment for the retail order flow which are in direct conflict of interest with the broker's clients. the retail investor cannot choose to execute their orders at any venue because this is one of the choices that the financial intermediary makes. the financial intermediary can manage the retail customer's pre-arranged stops and execute them when the financial intermediary moves the price to those stops or execute them when the price rests at a lower price. you can see recent examples, such as august 24, where the financial intermediaries execute orders in their own best interest and withhold retail order flow. this makes volatility the word of the day.
note particularly (v) from
https://www.sec.gov/about/laws/sea34.pdf:
NATIONAL MARKET SYSTEM FOR SECURITIES; SECURITIES
INFORMATION PROCESSORS
SEC. 11A. (a)(1) The Congress finds that—
(A) The securities markets are an important national asset
which must be preserved and strengthened.
(B) New data processing and communications techniques
create the opportunity for more efficient and effective market
operations.
(C) It is in the public interest and appropriate for the protection
of investors and the maintenance of fair and orderly
markets to assure—
(i) economically efficient execution of securities transactions;
(ii) fair competition among brokers and dealers, among
exchange markets, and between exchange markets and
markets other than exchange markets;
(iii) the availability to brokers, dealers, and investors
of information with respect to quotations for and transactions
in securities;
(iv) the practicability of brokers executing investors’
orders in the best market; and
(v) an opportunity, consistent with the provisions of
clauses (i) and (iv) of this subparagraph, for investors’ orders to be executed without the participation of a dealer.
it would seem that broker-financial intermediary agreements and co-location feeds violate this section of
the code. perhaps the SEC would care to explain just how these arrangements can harm retail orders but get around these provisions of the law anyway.
in other words, once the broker's client creates the trading order, they lose control of the ownership/execution of it. other interests make choices for the client that are not in the client's best interest.
https://twitter.com/nanexllc/status/673927284865282048
a chart by nanex about how retail/institutional orders are actually filled.
the SEC has given permission for citadel to tax the order flow and keep the proceeds and now they want you to protect their "right to tax".
did financial intermediaries make money on august 24? oh, yes, they did. they made money because they correctly predicted what would happen with price. worse, their actions caused a more extreme price.
wait, are these people also marketmakers? they are paid volume rebates but their interest is not to make markets. rather, their interest is to discover inside information through the order flow and act on that in the marketplace. yes, they could shortsell the market, create the conditions for a price drop, and then buy at a lower price.
shortsellers and financial intermediaries are parasitic to the stock market, creating a debt that they owe to the market and owe to a particular buyer. they should never be in control of the stock market, overwhelming that stock market with volume. wait, that is exactly what happened. they got control due to their volume, due to the payoffs in the industry, due to their media contacts who are willing to write any story that is given to them, due to their influence with congress. retail orders don't go to the stock market unless the financial intermediaries send them. the generators of those retail orders cannot choose the exchange, cannot choose not to do business with financial intermediaries or shortsellers.
retail customers may choose the broker but all brokers take title to their orders and sell them to the financial intermediaries. the financial intermediaries choose what to do with those orders. this process does not get the retail order the best price because the financial intermediaries take the best price themselves.
if an order is filled by shortselling, the financial intermediary hopes to buy in at a lower price, whether that price exists in the market at that time or not. with their shortselling volume, they can eat the demand, overwhelming it and drive the price lower. this is also not in the best interest of the retail customers.
all that had to happen on august 24 was to withhold order flow, just stop trading. they took their financial position and caused more extreme prices that worked in their own favor. they do not worry about an investigation, because previous investigations have never found the truth, and their influence at the regulators is strong. who do you think writes those reports, anyway? the financial industry tells the regulators how to interpret the data.
you have to understand, many of the present government employees will retire and get positions within the financial industry. this serves as a future expected benefit of their government service. can you blame
them for writing rules, making rulings that might increases their future worth to such an employer? some
people who are presently serving the public may be receiving payments from their former employer right now. if we complicate the rules and write 580 pages taking into account many complexities, then this future employer will be happy. and if you never enforce the rules or if you assess a very small "tax", then you license the offending behavior.
this means you cannot trust financial intermediaries or brokers to represent retail/institutional interests. retail/institutional interests do not usually trade often. many of those trades are a one-step process, such as buying a stock. there are some retail shortsellers but fewer of them because they have less information than the financial industry and lose money on their positions without the advantages of knowing order flow information and manipulated stock prices/quantities.
oh, the brokers and financial intermediaries own the exchanges. the exchanges put forth proposed rules that their owners want. so now you have a curtain that hides the actual proponents of a proposed rule.
who came up with this two tiered access to information? i seem to remember those rule proposals and commented on them - and now they seek to have the regulators preserve their advantage. the regulators tolerate the public getting delayed and inaccurate information. this is not in the public's best interest, but it is very much in the best interest of the people who have commented negatively on IEX's application.
it appears, from the comment letters, that they wish to deny IEX the opportunity to exist in the market because they control the market, control the order flow, control the regulators. the financial intermediaries want the regulators to preserve the faster order feed. they wish the regulators to affirm that they can trap retail orders to their advantage. and, not surprisingly, the exchanges want to control their competition and continue to choose not to route to IEX by controlling the table of exchanges where they agree to send orders.
this is not capitalism. rather, the financial markets appear to be dominated by a few major players who seek advantages over all other participants. capitalists do not need regulators to allocate/license special advantages. a captured order flow is not capitalism.
if the regulators want to act in the best interest of the public, they would:
open an investigation of the entities who have commented on this proposal and find out whether they understand that SIP is supposed to be the best bid/offer and should not be delayed by exchanges or financial entities. the SIP feed is sold to people but it contains stale information by design. this stale information disadvantages retail/institutional investors. the financial industry should never be allowed to rewrite the definitions.
stop this tiered price/quantity situation where some people get better/faster information than others.
this means that co-location and direct access to faster information should be stopped.
revamp the membership of the market structure advisory committee. certainly, those entities that have been fined in the last 2 years for egregious behavior should not be serving on this committee. recognize that the public interest should be the overriding interest of the regulator. the public would NEVER select these people to serve on such a committee and their influence should not be substituted for the public interest. perseverance when going in the wrong direction should be avoided. first, make sure that you are going in the right direction, then persevere. i admire stubbornness in the defense of a principal, but not when this stubbornness serves to increase/preserve the advantage of financial
intermediaries in conflict with the public interest.
if the exchanges do not want to re-align their interest, then maybe we should have one public exchange, in effect nationalizing them. the order type fines should have told you that the exchanges basically write their own rules without regard to the public interest. the public did not need their proliferation of order types but the financial entities benefited. what the public doesn't know won't hurt them?
the definition of marketmaker should be revisited. regulators should actively pursue the benefits/advantages of marketmaking and the service they provide. if their service comes with a previously unrecognized cost, then perhaps that cost should be recognized. august 24 might give you more information about that. as usual, exchanges have filed to decrease the requirements but continue to enable the advantages. maybe even raise the prices to encourage "more" marketmaking. it is my view
that marketmakers have so damaged the market that perhaps the public can do without their services.
certainly, this should be explored. the public might prefer buying stock from an entity that owns such stock for more than 3 seconds or buying stock instead of an IOU. likewise, the public might prefer to sell stock to an entity that actually wants to own the stock for more than 3 seconds. you see, all this short-term trading has been enabled and advantaged, obscures prices, quantities (supply and demand). the public is not clamoring for the interest of marketmakers. it is the financial intermediaries/financial industry that loudly tells us what "retail" wants. the financial industry does this in order to shift risk from themselves to retail/institutional customers.
the regulators would insist on no secrets from the financial markets. code and audit trail would be available to them at any time without further legal process, from exchanges and from financial market participants. each entity has no interest that overrides the interest of the public having a fair market.
as for the curiousity of the financial industry in my previous experience? it is not who i am that is so extremely important. it is what i say that is extremely important. someone must speak up as a retail investor. retail investors should be cherished, not opposed or disregarded or villified.
thank you for your time.
--
sincerely,
Suzanne Hamlet Shatto
[email address redacted]