Hello kelly, so chair, gensler has just given a major speech here at the piper sandler exchange conference and doug he's not happy about payment for order flow. Now. This is the process whereby brokers send their orders to market makers. Like you virtue, he says it's riddled with conflicts of interest, he's not happy about the fact that he says: there's only a few market makers that are really doing this uh.

He wants more competition out. There is the average retail trader being disadvantaged. Here i mean fundamentally, the answer is no and i think uh payment for order flow is something that's been around for 20 to 30 years and it really has fostered innovation and competition within the marketplace, and i should say that within the marketplace, we have roughly 250 Broker dealer wealth management, clients that send us retail orders, 95 of them, don't take a rebate or payment for order flow. So again, the the chair, with all due respect, is conflating the issue of payment for order flow with the ecosystem that has evolved in this country.

For retail trading, which has really enabled retail investors to have instantaneous execution at essentially zero commission on 8 000 listed names, you know the cliche that markets have never been better is actually factually correct. Yeah. I have been covering the markets for 32 years. Cnbc and my impression is the retail investor has never had it better, but what's wrong with more competition, i mean this is what gensler is talking about.

So, for example, he's floated this proposal about. Let's do auctions for the retail people that there's too much power concentrated in your hands, vertu's hands citadel securities to to the main market, making a good question. Is there a problem with having auctions? No look we fundamentally advert to, and every market participant says we. We welcome competition, we're not anti-lit exchanges and today, indeed broke a deal as retail broker.

Dealers are free to send their orders to exchanges, to ats's or dark pools or or to wholesalers. There's no obligation for them to send it to virtual civil. We provide a service. We provide guaranteed execution, we provide meaningful price improvement, 12 billion dollars last year in meaningful price improvement.

So we welcome competition from lit exchanges. We've put in proposals to say that lit exchanges should be put on a more fair level playing field with wholesalers. We welcome that because bob we're not internalizing all these orders, it costs us tens and tens of millions and hundreds of millions of dollars to source price, improved liquidity on exchanges and provide that back to our clients. You've said for years, is you do provide price improvement? You you do actually help improve you get a better price for it.

Can you explain briefly how you do that, because chair gensler has been very skeptical about that? Well, i'm not sure he's been so skeptical about. I think some of the data - and he spoke about it today - the need for reform of rule 605, so essentially the rule is antiquated. It doesn't really cover the amount of what we call size, improvement and we've been very upfront and very transparent about providing that level of data. So what that means is in the 8 000 names to the extent there's not liquidity on on a lit exchange.

Fundamentally, the wholesalers are providing infinite liquidity at the nbbo or the inside price. So if we get an order for a thousand shares in regular stock that no one's ever heard of and there's 200 shares on nasdaq and new york, we fill out a thousand shares at that inside price. That's meaningful liquidity, 55 of the orders that we received bob. We provide size improvement in a complete.

You know, as he calls it an auction environment who's going to provide that the the liquidity fairy i mean it just doesn't exist. This is a very complicated proposal. There's not really a rules. That's being proposed here against was floating.

This idea and there's the implications, maybe in a few months we'll make a rule proposal. Do you think think anything is going to happen here? Uh? Do you think there's actually going to be a rule proposed, or are we just going to try to get more transparency? More information my agenda may have to settle for you providing more information on exactly how much it costs for payment for order flow. We're all about that. I mean whatever the rule is in terms of providing transparency around how much payment for order flow price improvement set.

It at the midpoint we're all ears. We've made those proposals. It's a little bit like punching a ghost right now right because they have these high level statements that aren't really back backed by any data right. We've provided real data about what we do.

We welcome the opportunity we would welcome a roundtable. I don't know why the chair is not willing to engage the industry directly on this. I'd be happy to come with him on this program and you're saying he hasn't talked to you you're one of the biggest market makers in the united states. Are you saying he hasn't talked? I have spoken to the chair uh.

I would like some more time with him, and i think you know uh him coming to the industry and coming to virtue and understanding what we do and how ultimately, how competitive the marketplace is. He talks about two or three wholesalers there's about 10 of us now. Ubs is involved. Uh james, jane street jump trading.

Hudson river trading, uh susquehanna, two sigma. Anybody else can enter this marketplace, there's not a barrier to entry, there's not like an admission ticket that you need right. It's a competitive marketplace every day, we're banging heads with citadel securities to provide the best service and the best price to 250 clients, and some days we lose and some days we win, we'll see if this goes anywhere, but doug seafood, ceo virtu, thanks very much for Joining us and kelly, i think the key point here is when i started with cnbc in 1990. It was not unusual for a trade to cost about one percent sure when you engage in the actual trade itself and compared to today, where you're still dealing with zero dollar commissions.

The question is exactly: how much does it really cost for a payment for order flow? Whatever that cost is it's a tiny fraction of what it was more than 30 years ago? So there really is something the idea that the retail investor has never gotten it better, but with that said, maybe we still should have more competition out there. The chairman brought up an interesting point today. Well, the debate is reaching a frenzy and really heating up bob thanks for bringing us that important interview, we appreciate it all right. So a couple things to say about that, and hopefully i can offer not only my opinions, but some clarification, this concept of does the retail trader? Have it the best now relative to any point in history? That's a very difficult thing to disprove.

My reaction would be yes, we do have the best environment. We've ever had to be a retail trader investor. I think that's factual, but that also doesn't mean that we can't improve it more. It's they're almost taking enough like hey, it's really good right now.

So stop complaining like that, doesn't make sense. It's like you, wouldn't invent the first automobile and be like hey it's better than horses and everyone's like yeah. It is better than horses so like let's stop working on cars like that, doesn't make sense. So i do agree.

Retail, has it very good, but we could also make it better, and maybe you could make it better by getting out some of these potential conflicts of interest, so i actually agree with retail. Has it the best right now in real time than we've ever had it before? The other thing i wanted to talk about was i thought it was interesting of doug sifu, who is the ceo of vertu who's? The number two market maker number one being citadel. He was even talking about how still it's been this way for 20 years, so the argument is because it's been a particular way for two decades like that, like that, doesn't make sense to me we're in 2022, and the digitization of the markets happened around 2005.. So we're talking about rules that happened in like multiple market regimes ago, like there's so much been going on with the market, so he's like.

If the rule's been around for 20 years, it should be fine. There have been many things that have in one way or another, set a historic president. That is not a good historic president to set. So i don't really like that.

I think that was like a little bit. I guess misleading. Just it's been here for 20 years. Why is everyone complaining like i? I didn't get that at all it kind of comes down to this, of through market making and payment for order flow.

It did lead to the rise of commission-free brokerages. That is accurate, robinhood kind of kick-started that, but now we have things such as public and ftx that do no payment for order flow and it's still commission free. It is very, very acceptable to continue to iterate and get better and get better and get better um. Doug sifu and citadel will also argue.

This is that they have meaningful price improvement. This is exactly the thing that gary gensler in his speech on wednesday was arguing against. He was saying they're measuring their price improvement off of the nbbo, the spread of the mbbo, but inherently the way our market structure is they're, making the nbbo worse. So it's basically, you lit the fire and then came in and threw a bucket of water on the fire and you said: hey look.

I helped make their like. There's less fire because of me. So inherently the measuring rod that they're using they made worse and then they're saying well, it's a slight improvement off the shitty situation we made. But once again i want to be respectful here and also just a little bit honest of like the shitty situation.

It's still pretty good, it's like way better to be a retail trader now than a decade ago, two decades ago, three decades ago, it is very, very good, but once again that comes back to the argument is there's no reason why we can't keep improving, especially especially When you have a duopoly of market makers, i find this funny, so he said that there's um, like other market makers, now of like anybody's naming um like whatever hudson ubs. All of those understand that citadel is damn near 50 of payment for order flow virtue's. Another 20 to 30., so all those other players like - let's just i don't know how many he said he said like 10, 20 30, whatever there's other market makers, they're all vying for a very small portion of the leftover pie. That's why we say: there's a duopoly! Even though there's many other ones they're all getting like a little sliver of the overall pie, it very much is controlled by citadel, and the number two player is vertu citadel is like it comes right up to 50 and as it gets over right away, it comes A little bit back down and gives a little bit more of the payment for overflow market share to vertu.

So basically, it can't get hit with an antitrust like anti like monopoly type of a thing um. So those two control a lot. So the fact that he was just randomly naming other ones they're, so so small uh and then the final thing that i see some people commenting about is the liquidity thing understand that that's actually a good thing about market makers. You want more liquidity, you don't want something to be illiquid so when he was talking about an open auction, let's say you go to, let's just say for the point of this argument that there's five lit exchanges right.

Let's say you go to all the five lit exchanges and you're trading, a stock that that's not that popular and you want to buy 10 000 shares of this unpopular stock. Well, if no one's selling 10 000 shares you can't buy if no one's selling it there's. No way for you to buy it, so that kind of is one advantage of these internalizers for the overall system is they do provide liquidity, liquidity and volume are two different things. Market makers - and this has been studied - have had a noteworthy pack on and i think the best way to understand liquidity is the easing getting into and out of a position, the ease of finding another player who's going to take the other side of your trade.

If it was purely this open auction thing, you would be relying on someone else in real time. If you're trying to buy, they would sell it to you if you're trying to sell they would buy it off of you. What market makers have done have basically said? Well, hey we'll always buy from you if you're trying to sell and we'll always sell to you if you're trying to buy so that's a little bit more clarity on the infinite liquidity comment which i still don't like. I think that was a little bit verbose like just mathematically.

How much could they have at their own like internalization tools, uh for infinite liquidity? They provide a lot of liquidity, but once again, liquidity is a positive thing. You want liquidity within um the ape community liquidity. Um commonly gets confused with capital and i get it because if you just google liquidity and like you think about it in your own personal finances, you're like oh, like i'm liquid right now, i have five thousand dollars like something like that, but understand in the stock Market liquidity and capital are two distinct things, and it's important to understand that distinction. Liquidity is the ease in which you can get into and out of a sizeable position.

You want high liquidity on everything. That's a good thing. The more people engaging that is a very, very good thing. If it's ill-liquid that's when you can get really wide spreads and you get like funky jumps up and down in the market uh or in the chart.

That's not a good thing, uh and then capital, which a lot of people are thinking that capital is liquidity. Capital is actually just the money of like how much capital do you have? Oh okay, this hedge fund has 100 million dollars. They have like a free capital of a million or something like that, so just a little bit of terminology to get us like kind of all up to date. There - and i didn't know about that - video uh.

So i'm happy. You guys brought my attention. I appreciate that.