Mar. 07, 2023
March 7, 2023 Dear SEC / Other market participants, I am a retail / individual investor and I enthusiastically support this rule proposal (S7-29-22). Prior to discussing any arguments, counterarguments, or suggestions for this proposal I would like to emphasize the following with my unique perspective as a retail investor of which many of these rule proposals are addressing: - I DO NOT feel protected as an investor in the current market system - I DO NOT believe I am fairly represented by retail brokerages / market makers or large exchanges when handling my orders or in the public comments provided for these rule proposals - I DO NOT feel I as an individual am provided with sufficient transparency to allow me to instigate my own informed decisions on where best to place my orders or who provides me the best execution - I DO NOT feel I am receiving economically viable price improvement on my orders - I DO NOT feel I am receiving best execution on my orders and feel I am being scalped at the benefit of retail-orientated organisations for their benefit, not mine For the remainder of this letter I have segmented my response into the following: - Why do I agree with this proposal? - What are some counterarguments to this proposal? - What changes or improvements can be made to this proposal? - Final thoughts Why do I agree with this proposal? To my understanding this rule proposal is intended to increase required disclosures on order executions of stocks including more entities required to disclose (SDPs, large broker-dealers, qualified auctions), more granular disclosure (odd lot, fractional shares, non-exempt short sales now included) and provision of better statistical data. As a retail investor I greatly agree with the SECs approach to improving the transparency on execution quality allowing retail investors to succinctly compare broker-dealers services. I believe this will be highly useful information for retail investors that if provided appropriate visibility by broker-dealers will lead to greater investor confidence, increase meaningful competition between broker-dealers empower retail investors to make informed decisions about their investments. I believe all components of this rule are crucial in the proposed aim of this proposal. In regards to specifics I am happy that SDPs, large broker-dealers proposed qualified auctions will be included in the disclosures as they play a large role in retail order-flow and are essential data to capture to provide meaningful data. The inclusion of fractional shares odd-lots are also essential in the provided data as these are the most commonly used orders by retail. Including odd-lots fractionals also provides retail more information confidence to invest more frequently with smaller order sizes. As an addition, I as a retail investor many other retail investors were wholly unaware that the current rules do not capture odd-lots (most of our orders). Non-exempt short sales are a core component of the current market, more so than odd-lots/fractionals and it is near unbelievable that these are not yet included in the Rule 605. This component is mandatory for fair transparent markets. Similarly after market premarket trades play a greater role today than ever before with much of the price changes occurring during these times rather than during market hours. Adding this to the Rule 605 should also be mandatory. In regards to the additional statistical data, focusing on average, median 99th percentile categorisations are an important step in providing readable information that can be interpreted by both investors regulators. The latter being important in ensuring regulations are enforced in a fair timely manner that in the grand scope will provide a safer fairer market for investors. Lastly the monthly reports are an important feature of this proposal as it is the core deliverer of information to the retail investor. I believe that the monthly requirement rather than quarterly or annual reports is beneficial to the investor as it disincentivises concentrated periods of improved execution to misrepresent the data in the report. This frequency will also ensure that broker-dealers are constantly looking to improve execution quality increasing competition ultimately stimulating future innovations for execution quality. What are some counterarguments to this proposal? - Will retail investors use this information? o Yes, as a retail investor this is highly important information as it is one of the main determinants on how much value I can derive with my orders. I believe it is an important step to empowering investors increasing transparency in the market. - Does it need to be monthly? o Yes, as this ensures the data provided remains reliable thus useful to retail investors. Larger periods may lead to concentrated periods of better execution quality matched with overall poor execution to misrepresent data provided. - SDPs / Large broker-dealers / Qualified auctions do not need to be included, this may disrupt their current practices? o As a retail investor I believe these entities are essential in the execution quality data as they are the main proponents on delivering execution. Disruptions are possible however I believe in principle with best execution, these changes should already be in place for these organisations. I find it hard to believe multi-billion level organisations handling near trillions of AUM are incapable of making these changes. If these changes overall increase cost to the retail investor, personally I am happy to accept the cost if it leads to increased transparency, competition improves my ability to discern between broker-dealers. - Short sales, odd lots, fractional shares etc is too much information o I disagree in fact it is personally more important than round lots to me as these are the most commonly used orders by retail. I do not agree that any of this is too much data. If presented in a clear concise manner I believe most retail investors will be able to discern valuable information. We currently expect investors to assess earning reports etc to further their investments, why would this data be so out of reach? - Can the data provided be correlated with past data? Will we need to delay other proposals to ensure there is accurate data? o On a basic level I do believe it is important that the new data collected can be compared to prior data for academic study statistical analysis. However on deeper introspection I do believe the rules should proceed even in contrast to this. Firstly the lack of data will only be an issue for the initial month after the rules are implemented as after 2 months the new data can be compared against each other. From that point on the data will continue to grow. Secondly the new rules do not remove disclosures previously established thus there is still plenty of information that can be compared on a larger timescale. Thirdly this rule adds disclosures thus actually improving the data that is available for analysis outright countering the core argument that this could limit our ability to analyse/act on the data. Lastly and I believe most importantly, many of these inclusions such as including SDPs, large broker-dealers, more order types i.e. odds lots, short sales etc are such crucial facets of the current markets that the lack of this information is near negligent outright counteractive to the SECs mandates of fair, orderly efficient markets. - The data is too complex to derive valuable insights o This comment is disingenuous. The proposed data points suggested by the proposal are clear have meaningful statistical value i.e. Mean, median etc. In addition to the already available data required by the current Rule 605 that market participants regulators should already be familiar with. Many of the new data points do not stray too far from current requirements in fact many could be derived just from the current data to say that summarising making the available data readable is too difficult in borderline incompetent. If regulators are unable to handle this level of information it implies there is a greater issue than just execution quality the regulatory capacity should be called into question. - There are too many con-current compliance dates for market participants to follow thus the rule should be delayed / withdrawn o The implementation of a rule should be weighed against its value not simply delayed/withdrawn based on inconvenience. This is not mentioning that these entities are the most financially well resourced organisations on the planet. I believe they should be able to handle a few differing compliance dates. - There is no need for this rule, retail investors already receive unparalleled execution o Personally I disagree with this statement if true then this data will only enforce this not detract. Additionally simply because there is good execution does not mean we should not strive to improve it. What changes or improvements can be made to this proposal? - Ensure reports are provided in a timely fashion (i.e. within 24hours) o Timely information will be important to allow retail investors to make the best decisions in regards to which broker-dealer they use what the execution quality is in the specified timeframe. Delayed reports could suggest great execution quality when in reality there has been a significant decline since the last report. - Ensure monthly reports are clearly displayed to investors by broker-dealers o For investors to truly benefit we should be able to easily access this data. This means either clearly documented by the broker-dealer or visible from the SEC. As possible suggestions having this data presented when joining a broker dealer or provided with the terms conditions will ensure visibility enable the desired competition between broker-dealers. Similarly the SEC may perform an ad campaign stating the new monthly reports are now available. Having a broad variety of retail investors notice read the reports will likely provide the most potent force for informed investors stimulus for innovation in execution quality. - Consider including all broker-dealers not just large broker-dealers o As an unintended consequence a lack of execution data from small broker-dealers may incentivise smaller agents to provide poorer execution quality as they are exempt from these rules will financially benefit more with other parameters such as execution speed or increased fee/rebate. I would suggest eventually all brokers are included but do not believe the current rule be delayed to implement this. Final thoughts As a conclusion to this letter I would like to clearly state that I strongly support the SECs rule proposal on Order execution information (S7-29-22) truly appreciate the effort, diligence and time spent on this proposal. I believe this is a great initial step in restoring investor confidence in the current market ensuring retail / individual investors are active participants rather than products utilised by broker-dealers/market-makers/exchanges. I hope you take my full comments into consideration consider some of the suggestions I have proposed. I also hope you have an opportunity to read the comments I have also provided on the other 3 rule proposals (S7-30-22, S7-31-22 S7-32-22). Thank you for looking out for retail / individual investors considering our opinions. Kind regards, Aswin Joy Retail / Individual Investor