Mar. 22, 2023
I am submitting this comment letter on behalf of myself regarding two proposals related to Payment for Order Flow (PFOF) – Payment for Order Flow (“Wholesaler PFOF”) and exchange rebates (“Exchange PFOF”). As both of these topics are directly relevant to each other, I believe that they should be considered in tandem. In my opinion, these inducements should not be allowed and should be banned. Despite the regulatory guidance from FINRA and enhanced Rule 606 disclosures, the problems that these inducements create have not been addressed or solved. The research, as outlined in both The Proposals and the OCR Proposal, is clear that brokers who accept Wholesaler PFOF receive less price improvement, and the practice is incompatible with the duty of best execution. On the other hand, brokers who do not accept any kind of PFOF see superior execution quality. This is not just a theoretical discussion. These issues have a direct, negative impact on individual investors. As Doug Cifu, CEO of wholesaler Virtu Financial, stated in a CNBC appearance in March 2021, “Overall, through the course of a month, we will provide more price improvement for Fidelity than we do to Robinhood.” It's time to make a change. The inducements underlying PFOF distort order routing and violate the principles and duty of best execution. This creates an unfair, complex, and opaque market, where investors are unable to interact directly and their orders are exploited for the benefit of high-speed speculators and rent-seekers. There are few reasons to maintain the current system, and many compelling reasons to put an end to this deeply unequal practice, especially as Best Execution duties mandate us to do so. Sincerely, Beto Santoyo