Mar. 16, 2023
March 16, 2023
In regards to S7-32-22 I general speaking support the proposal and I agree that creating competition in the form of order flow auctions is superior to the current PFOF system in several ways namely in regards to the increased competition among trading venues which would help reduce monopolization and other morally questionable business practices in that particular piece of the market.
Next I also support the increased reporting requirements that brokerages would have to comply with in this proposal, largely for the reasons stated on page 286 which mentioned the riskless principal, to sum it up retail investors/customers at a brokerage are essentially given a cost up front in cash of what they pay to invest with that brokerage this amount is often times free, however the brokerage makes money on the backdoor through essentially betting against its customers or giving its customers a poor price execution as is the case with PFOF this \"cost\" to the brokerages customers is not typically mentioned up front, I believe the increased reporting remedies this to some degree and I would argue that brokerages should be required upfront in simple immediately visible text to explain what the \"backdoor costs\" to their customer would be, just like how cigarette packages must explain their side effects/dangers in most cases.
I would now like to note that on page 352-353 its mentioned that the auctions system may theoretically reduce competition in brokerages as the smaller brokerages would find it harder to pay and report on this kind of thing giving an advantage to larger brokerages, a solution of sorts is mentioned on page 425-(give or take a page) though this risks poorer execution for that brokerages customers who likely are not familiar with that risk it also likely creates loopholes which are never good. I as such would further argue as many others have said that PFOF should simply be banned in our markets and our country, several other countries have banned PFOF such as Canada, and the United Kingdoms, with others in the works of banning it. An outright ban would benefit retail more then simply restricting or altering the rules of PFOF it would also remove the costly and tedious reporting and restructuring requirements that brokerages and trade venues would have to take on from the proposal. Besid
es our markets are supposedly the \"Envy of the world\" and yet they are some of the most manipulated, unfair, and opaque markets in the civilized world, hardly something to be proud of and I believe completely banning PFOF is a valuable step. Thank you for your time I hope your day is good enough.