Citadel, NYSE, Schwab Fire Salvo at SEC On Trading Overhaul

[ETJ]

Updated Mar 6, 2023 at 3:35 pm ET
Citadel, NYSE, Schwab Fire Salvo at SEC On Trading Overhaul
By Alexander Osipovich
Brokerage giant Charles Schwab, electronic trading firm Citadel Securities and the New York Stock Exchange are asking their regulator to back off its plans to overhaul the way the U.S. stock market handles individual investors’ trades.

In a joint letter released Monday, the firms urged the Securities and Exchange Commission to drop two of the four proposals it unveiled in December and to significantly amend a third one. The letter is the latest sign that Wall Street will push back against the proposals, which emerged from a review of the trading frenzy in GameStop in early 2021.

“We are deeply concerned that the commission has simultaneously issued multiple far-reaching proposals that would dramatically overhaul current market structure without adequately assessing the cumulative impact on the market or the potential for unintended consequences,” the firms wrote.

• The three firms urged the SEC to withdraw its proposal to route many retail stock trades into auctions, as well as another proposal that spells out the obligations that brokers face when executing client trades. Both proposals would significantly shake up the current system for processing investors’ orders to buy and sell stocks, in which brokers send many orders to high-speed trading firms known as wholesalers. In return, the wholesalers often pay brokers a slice of their trading profits, a practice called payment for order flow.
• The firms also urged changes to a third SEC proposal, which aims to decrease the price increments for stocks to as little as one-tenth of a penny. They suggested tightening such “tick sizes” to half a penny instead, for a more limited number of stocks.

"The SEC benefits from robust engagement from the public and will review all comments submitted during the open comment period," an SEC spokeswoman said.

SEC Chair Gary Gensler indicated last week that he was skeptical of Wall Street’s opposition to his plans.SEC Chair Gary Gensler indicated last week that he was skeptical of Wall Street’s opposition to his plans.

 

[Maverick2608]

We need an increase in prie increments and first and foremost a level playing field where sub pennying is not allowed.

 

[TheDawn]

“We are deeply concerned that the commission has simultaneously issued multiple far-reaching proposals that would dramatically overhaul current market structure without adequately assessing the cumulative impact on the market or the potential for unintended consequences,” the firms wrote.

"the cumulative impact on the market"? They mean "the cumulative impact on their bottom line"? "Or the potential for unintended consequences"? Meaning better access to the market and better executions in terms of timeliness and price for retail traders? LOL

• The three firms urged the SEC to withdraw its proposal to route many retail stock trades into auctions, as well as another proposal that spells out the obligations that brokers face when executing client trades. Both proposals would significantly shake up the current system for processing investors’ orders to buy and sell stocks, in which brokers send many orders to high-speed trading firms known as wholesalers. In return, the wholesalers often pay brokers a slice of their trading profits, a practice called payment for order flow.
• The firms also urged changes to a third SEC proposal, which aims to decrease the price increments for stocks to as little as one-tenth of a penny. They suggested tightening such “tick sizes” to half a penny instead, for a more limited number of stocks

Imo, every single trade should be routed to the exchanges directly and executed there. They can be market participants on an exchange but they shouldn't be allowed to pay for order flow. They should be happy Gensler is only proposing to route many retail trades and not all retail trades.

 

[TheDawn]

We need an increase in prie increments and first and foremost a level playing field where sub pennying is not allowed.

And they should do the same for options too. Right now in options, it's appalling that we retail traders are facing lot wider price increment than dealers. They can quote prices with lot smaller increments and we can only accept whatever they quote us and then they turn around earn a spread in between the increment that should've been a part of our profit.

 

[zdreg]

"the cumulative impact on the market"? They mean "the cumulative impact on their bottom line"? "Or the potential for unintended consequences"? Meaning better access to the market and better executions in terms of timeliness and price for retail traders? LOL



Imo, every single trade should be routed to the exchanges directly and executed there. They can be market participants on an exchange but they shouldn't be allowed to pay for order flow. They should be happy Gensler is only proposing to route many retail trades and not all retail trades.

You are entitled to your opinion. My opinion is that you know little about market microstructure and order direction. I have previously presented numbers of the superiority a zero commission and PFOF model.. BUT SO WHAT! you ignored it, which is your right. However stop trying to foist upon others through regulation your beliefs.
Let the free market and competition decide. Are people dumping Charles Schwab with a zero commission model to go to Interactive Brokers and the numerous other brokers that charge commission? The answer is no.

 

[TheDawn]

You are entitled to your opinion. My opinion is that you know little about market microstructure and order direction. I have previously presented numbers of the superiority a zero commission and PFOF model.. BUT SO WHAT! you ignored it, which is your right. However stop trying to foist upon others through regulation your beliefs.

Yes I am entitled to my own opinion. I have demonstrated to you again and again why Payment-For-Orderflow is not fair to us retail traders but you ignored them as well. And I didn't foist anything. They brought this upon themselves with their forced restriction crap imposed on the retail traders from buying the meme stocks. It's not my fault that somebody in the SEC sees my rationale and agrees with me. I guess I am not the only one who believes Payment-For-Orderflow is unscrupulous.

Let the free market and competition decide. Are people dumping Charles Schwab with a zero commission model to go to Interactive Brokers and the numerous other brokers that charge commission? The answer is no.

EXACTLY!!! Payment-For-Orderflow is interfering with the free market and rigging the competition by putting us retail traders at a disadvantage and that's why it must be stopped. People are not ditching the zero-commission Payment-For-Orderflow model because people don't know what they are missing because everything is hidden with the Payment-For-Orderflow; it's a "blackbox" system. Citadel and Virtu Financial have both been invited to post their revenue and earning and business model from their PFOF but they both declined. At one point that they actually wanted to show their PFOF to show how much "savings" they were passing to the retail traders but they later on backed down. If they were indeed passing on "savings" on the retail traders, WHY are they so afraid to show their models?

I trade with both IB and TOS and I can tell you I do get better price and faster execution with my trades with IB and IB is not even a pure non-PFOF broker. They proclaim that they do not pay for orderflow but they play their games in the routing of the trades in order to pocket the exchange fee rebates and not share them with us retail traders. The same that you claim that people do not leave zero-commission model brokers to join non-PFOF brokers, people do not leave futures trading to go stock trading either and there is no PFOF in futures trading. And at the same time people are leaving retail forex to trade stocks and options and retail forex is 99% OTC with 100% PFOF.

 

[d08]

SEC is on the right track. Nearly all trading should be auctions, cutting off the PFOF freeloaders entirely. It's not a level playing field either because a retail trader cannot compete in any way with the likes of Citadel.

All this is like a bunch of bank robbers complaining about banks installing extra security cameras.

 

[TheDawn]

And I thought of a third proposal: Allow retail traders to provide two-way quotes in options, i.e. buy and sell the same option simultaneously with limit orders provided they meet certain requirements. Right now retail traders are forbidden to do that with the reason that dealers in options are subject to "regulations" but I don't see why retail traders are not allowed to do that if they meet certain requirements. One of the "unintended consequences" that those MM's state that could happen if PFOF is banned is that the execution quality would suffer and liquidity would dry up with all the orders bottle-necked at being filled only by auction but I don't understand why orders can only be filled via auction. Why can't retail traders' orders be matched against each other like on the Island ECN that we used to have? With retail traders being allowed to provide two-way quotes that meet certain requirements, they can essentially fill the roles of MM's and provide liquidity to the market and that would greatly alleviate or possibly eliminate any potential liquidity problems. More than 25% of the trading volume in options are from retail traders right now and in the future, this trading volume would only increase so it would only make sense to harness this trading volume to turn them into a source of liquidity instead of confining them to just depleters of liquidity.

 

[murray t turtle]

You are entitled to your opinion. My opinion is that you know little about market microstructure and order direction. I have previously presented numbers of the superiority a zero commission and PFOF model.. BUT SO WHAT! you ignored it, which is your right. However stop trying to foist upon others through regulation your beliefs.
Let the free market and competition decide. Are people dumping Charles Schwab with a zero commission model to go to Interactive Brokers and the numerous other brokers that charge commission? The answer is no.

%%
DO8 compared it to extra bank security cameras= that part is fair comparison; but frankly we have enough broker +bank regulation already.
WE sure dont want even a well meaning SEC trying to run this kind of business.
The SEC did do , looks like a fairly good study job, but too much added regulation.
Mr Gensler may know more than many of us from work time @GS;
but my comments on thier website, website never would function right.
IBKR comments would be helpful also, dont know about HOOD LOL

 

[cruisecontrol]

You are entitled to your opinion. My opinion is that you know little about market microstructure and order direction. I have previously presented numbers of the superiority a zero commission and PFOF model.. BUT SO WHAT! you ignored it, which is your right.

You are entitled to your opinion, but your numbers don't prove what you think they do. I have previously explained this to you and you ignored it. link: https://www.elitetrader.com/et/thre...-odd-lot-reporting.371701/page-2#post-5735306

However stop trying to foist upon others through regulation your beliefs.
Let the free market and competition decide.

Free markets require regulation to be free. Without regulation you get anticompetitive monopoly/cartel structures such as PFOF.

Are people dumping Charles Schwab with a zero commission model to go to Interactive Brokers and the numerous other brokers that charge commission? The answer is no.

Looking at zero commission vs commission brokers today under the current structure is irrelevant. The point is that costs ought to be lower under a truly competitive system like the one that the SEC is proposing.