Foreign foreign Thank you thank you. What is going on Moon Gang Hello hello hello hello. We are about to listen to Mr Dave Lauer speak with the chairman of the SEC Gary Gensler about Market structure Market Reform and what can the retail Trader and investor do to further our cause. The talk is going to be happening in like two minutes.

So as we're getting ready for that I have everything prepped up I have the documents prepped up. A lot of this is going to be about payment for orderful retail wholesale wholesalers such as Citadel Virtu. A lot of interesting discussion. Uh, if you're trying to avoid market makers payment for order flow and give a little bit of love to what's pinned to the top of chat in the description of the video Public: this is a brokerage.

Unlike Weeble Unlike Robin Hood unlike so many other brokerages that engage in this model, public does the opposite. They love to get your trades onto a lit exchange. So if you want a free stock and more importantly than that, a brokerage that you can actually trust and check out public pinned to the top of chat in the description of the video. And now with all that out of the way, I Don't want to be the person who's talking too much here.

Let's get this all ready to go. 17 years. Since then, we've seen a remarkable transformation: how the stock market operates. What is this technology that allows folks to trade faster? And while some of these developments have unleashing benefits for all investors, there are serious questions about conflicts of interest in whether portions of the stock market are operating well for retail investors with this expertise.

in Market State Lower has been working tirelessly for much of the last decade to educate policy makers on Market structure, including testifying numerous times before the Senate committees. Around the same time, Dave was testified in the Senate Gary Genzer was implementing significant performance economy and the financial system from excesses in derivatives markets that we're joined by two of the smartest Market experts and dedicated reformers in Washington today. Uh, thank you all for joining us and we're looking forward to a meaningful conversation. I'll now turn it over to Dave Lauer to kick off our Q A with chair Chancellor Um, actually, I'll just uh, leave it to Alex who can introduce we the investors and just talk quickly about.

you know what we've done here? Yeah, no thanks Dave and thanks Milana and thank you Chair Gensler It's good to see you again! Um, last time we spoke, there were 70 000 engaged retail voices urging the SEC to listen to the issues that they were trying to bring to bear. Um: issues that had been brought to light over the past year, year and a half of remarkable Market events. Since that time, our ranks have grown to over a hundred thousand. Um, our numbers are just as engaged and we are determined to stand by our principles.

and Foster Transparency encourage retail control over their equities and rebuild a level of trust and certainty in our financial markets that over the past year two years if not longer from many people's perspectives has been lacking. So thank you for engaging with us directly. Not all of these questions will be pleasant, but hopefully they'll all be palatable. Um, and you know it's really something that now we as individuals can give voice to our own interests as opposed to allowing Legacy institutional interests portend to represent us.

So again, thank you for giving us the credibility and the acknowledge acknowledgment that we have worked for some for decades, some for years and and some for shorter. Um. so with that I will hand it over to Dave Um and and we can really get started. Thanks Alex Uh, much appreciated and uh so yeah again, thanks for joining us I will jump right into it.

We we sourced these questions broadly from social media. We put tweets and Reddit posts out there. We had various communities very engaged, very excited and interested and we tried to pick uh the the questions that most people wanted to ask and and we tried our best to work through all that. So you know I thought it would be good to start this out.

Uh, you know where? One of the main things we're here to talk about are the Equity Market structure Reform proposals that came out this week, the most fundamental changes to markets in 17 years since Regulation Nms was passed in 2005.. Um, I Think before we get into the meat of those proposals, Do you think that you can talk quickly about the rule process itself, right? These are rule proposals. A lot of people. They haven't been through this before.

They don't know what the America the administrative procedures Act is. They don't. They don't know what this process looks like. So what kind of timeline do you hope to see to ultimately get to implementation and in action of these rules? Yeah, Dave Alex Milan Can I Just step back.

one more step back and just thank you for engaging you. You were. you were a little bit too kind. Those of us at the Securities and Exchange Commission 4 500 strong.

We work for the American public. It's 330 million Americans we work for and to hear from you directly is really important and and so uh, I Can't say that I've read everything that everyone of those hundred thousand people have written. Uh, but we try to stay abreast of it. Uh, and we try to stay up on it.

And the proposals we put out this week at their core is trying to bring greater competition what economists call efficiency and fairness to our stock markets. Our Equity markets if you wish, and it's really for you, the investing public. And so it's been. It's been informed in in large measure by what we can discern and pick up from the voices that you know, of course, your members and that you represent Um in terms of that process.

If you could just say that uh, you might remember, you might remember a movie Schoolhouse Rock and they you know and there they talk about. you know how you make a law and how how that goes through Congress Well this is actually a little bit more uh, detailed and one might say more specific uh and you'd lose most people in in ninth grade Social Studies class on it. But an agency like ours the Securities and Exchange Commission a regulator Um has to comply with the 1940s law called the Administrative Procedures Act and at its core it's basically we can only do that which Congress has given us Authority for. But then if we write a rule again, it has to be what Congress gives this Authority for.

But if we write a rule, we have to put it out to the public through something called notice and comment and it has to have economic analysis as well. And then in the 1990s Congress said that we had to look at everything in terms of I love these words, Efficiency, competition, and capital formation and that's that's that's wonderful. And by the way for our authorities in the 1970s, Congress put in our statute 20 different places around the National Market System that we have to look at competition so that Congress in the 70s, that Congress in the 90s was keen on competition and that gives us a great deal of of direction from Congress. But to you I would say this day I mean you look at the last 10 years or so at the Securities and Exchange Commission when we put out proposals.

generally it's another 12 to 18 months before the final adopting release and you might say oh my God it's about taking those hundreds and thousands of comments in considering that economic analysis and mind you, and I know we'll get to it. There's going to be a lot of folks out there that are not enthusiastic about these proposals and they'll weigh-in Um, there'll be Market participants that will send in sometimes 50 and 200. Page documents that will read like legal briefs although read like deep economic analysis and we're obliged, as we should be, to consider every one of those comments and thoughtfully consider them. But back to you, Dave How long has this process been going on? So when did these Rules start to get worked on under your purview? Well, In Fairness to my predecessor, some of this work was done before I got here, but I got here in April of 2021 and if you remember and your listeners know it was right in the uh, aftermath of the meme stop GameStop events the team right then when I got here was already working on a report on those events we published I think in September of 21.

and so it's ever since that point in time and in that point there was four. So I call conclusions or recommendations. Uh, and this this is the third of the four, but one one was to take on and have more transparency and to look at Short Selling and we put out a proposal on that I think it was about 10 months ago and still we're working on how to adopt that. Uh, potentially two was if you remember in the middle of all that people were shut out of the market at one point in time, many of them and it was about the the plumbing in the market caught Central Clearing what we put out a proposal about a year ago on shortening the settlement cycle, the plumbing, the back office but important, really important, you know.

I Can tell you that a lot of our community actually now knows what what a settlement cycle is, and they're very frustrated that we're still at T-plus too. Yeah, and and not at T-plus I'm not I'm not legally allowed to prejudge where we'll end up and and all these things, but I'm really encouraged by the support we have just shortening the settlement cycle to one day. I'm encouraged also about a lot of the support we have on bringing greater transparency to one day settlement. That would be awesome, but as I said, this is kind of That's third and this is a you know, four different problems.

We're addressing four different roles that we'll get into, but this is about the equity Market structure itself and we're still working. Oh, and and I'm I'm I'm really hopeful. uh, that in the new Year we'll be out put out some proposals about the inherent conflicts of interest that go into uh, the uh, predictive data analytics and and targeting certain users with one set of prompts versus other props. But um, interesting.

Okay, good, that's good to hear. Um, so I'm gonna. uh, let's see. I'm gonna bring up Jay Brown and you there? Jay I'm there I'm here.

All right. Okay, all right, you can even call me Gary don't worry everybody else All right Gary Well Welcome to our Tower where we usually call each other by the first name anyway. So I'm Jay Brown um I think First of all I want to thank you for coming and starting and building this bridge to where you can really get to know the education level of these retail investors. But my question to you is with this comprehensive load of proposals that you're trying to get accomplished.

if you can surmise to me what exactly is most important that gets accomplished in these what are some critical points that you're focusing on and so that they can better have us understand what we need to be focusing on as well. Because I think they sell a little short. we more than a hundred thousand strong. We we got quite a few in this thing, so we know.

I Thank you Jay There's there's four proposals, each addressing a little bit different problem, but overall, uh, a big chunk of the market is going to what we all kind of call the dark Market 42 percent just this past September a recent number and it's trying to get greater competition there in that market. Let me say something about Retail The Public: When you or I send an order in on a brokerage app, that's a sweet order. That is a very sweet order. and the reason is is it's rare that you have a lot of orders behind it.

No most people they're trading 10 shares or even if they're trading 200 shares. but they're not trading 50 000 shares or a hundred thousand shares. And the reason it's sweet is because it's not likely to move the price of the stock, right? That's just economics sort of. But But so then how do we ensure that that investing public, the retail public, the everyday investor gets a competitive price for that sweet order? And so that's a really important piece.

Um, I know that there's four different pieces to this one. Uh, that? I think there's a. Hopefully a lot of support is greater disclosure that you're introducing broker. And by the way, an introducing broker is the person that you hire.

You know that broker. A better disclosures the execution quality, how well do they do for you, but probably this the parts of it that are going to get a lot of uh shall we say feedback. And we've already heard in the last two days some feedback uh is whether to move forward and have order by order competition. You put that market order in.

We're all busy. We don't want to take the time to put what's called a limit order. We just we hit the button. We want to buy or sell.

You know, 10 shares or 100 shares of something. How do we get greater competition for that order? That sweet. You know individual everyday person's order. Um I hope that helps Jay Yeah it does.

It actually does. I Think you touched upon a few things. but I I hope to engage with you more so you know. further down the road so we can really dig into it because we had a space yesterday, we went tick by tick what it was going to be.

So yeah, I would say this. Jay The the There's parts of the markets who are paying for the order flow from those brokerage apps and when they're paying for that order flow, they're recognizing that these are attractive orders. and uh, because they're attractive orders. Um, they're paying for that order flow.

But it doesn't mean that they're paying you the full competitive price, right? So we have economic analysis and that that's called the order competition rule. You could call it the order auction rule. and we have economic analysis that say that there's probably one and a half billion dollars left on the table by the investing public. Uh, one hit billion dollars a year might not sound like a lot, but that's a big number billion and a half.

or or at least a significant part of it to the investing public. Correct, Yeah, Okay, well I appreciate it because we we can talk paying for order flow for about three hours. But thanks for having me. uh I appreciate you and let's keep it going all right.

Thanks Jay Um, so let me let me ask you. Gary Um, you know. and now that we're talking about payment for order flow off exchange trading, you know I I would say most of our supporters most we, the investor supporters um, you know, found themselves started their path into sort of the Labyrinth of Market structure when they found out 90 of their orders were being executed off exchange. Um, and then in some cases the names that they care about, they would see 60 to 80 of all volume in those names happening off exchange.

Um, so I'm curious. You know first, to what extent do you believe that off exchange trading at that level actually suppresses the impact, the price impact on the market Uh, and and impedes the price Discovery Process Um, both the the level of off exchange trading and the concentration of power in in such few firms off. Exchange The concentration is the is inherent in finance and has been probably since Roman and Greek times, but it just maybe even earlier since the Sumerians wrote the Hammurray code um And so recognizing that Congress gave us a bunch of authorities in the 1970s to address that concentration. In the 1970s, it was concentration on the New York Stock Exchange.

Frankly, it was. you know, highly concentrated. We now have a very fragmented Market where as we say, you know 40 plus percent is being traded in the dark markets and I think it's not a Level Playing Field and I think we go through this in these many hundreds of pages that the dark markets has some particular advantages and there, as you mentioned, particularly concentrated. So there's there's generally about six wholesalers, but amongst those there's two that have a large market share.

Wouldn't it be better to have hundreds or thousands of Pension funds and endowments and insurance companies competing for those sweet retail orders? and uh, so that's that's at the core of of what we're trying to do here. Again, each of the rules are addressing a different problem. One of the roles is also saying uh, that the Securities and Exchange Commission for the first time will have its own best execution role now. I You could have knocked me over with a feather when I Got here 18 months ago.

I Asked for a copy of our best Execution rule because I'd heard of it I I worked on Wall Street uh in my 20s and 30s and I I you know there's a best execution Rule and I was told no, it's actually not Avril It's a self-regulatory organization called Finra and I thought, wait, this is too important should. Shouldn't the the official sector we're representing 330 million people shouldn't we have this role? So that's one of the things we're also doing. now that when you send an order to that broker, and particularly an introducing broker, they retain that responsibility they can't Outsource their best acts To um, somebody else they've gotta, actually, uh, look at the market and execute in your best interest technically best execution. So do you think, um, the way that you've constructed? well, we have a I think a good question on the best X rule a little later.

But but do you think the way you've constructed the best X rule overcomes uh, the way it's been described to me by Finra Personnel in the past is that enforcing best acts is like trying to nail Jello to a wall? haha. Look, it is. It is a challenge because what do the words mean? Best execution And for a small order of 50 shares, generally that means the best price within a market environment. It's a little different when it's a hundred thousand shares, and you don't want to have as you caught a price impact, you don't want to move that price.

Um I Do think just to answer your earlier question: I Do think that on particular names in their Market particular stocks in our Market especially those as you said that might be at sixteen eighty percent off Market in the dark markets Uh, that's not uh, necessarily the best way to do as you caught it Price: Discovery to establish a price in a Marketplace and a lit Marketplace a competitive Marketplace that brings more buyers, more sellers into the marketplace. We separately also said, you know what, there is a number of stocks, maybe hundreds of them that could they could benefit by trading at less than Penny increments and I know one penny sounds like just not that much. but uh, in this stuff, it adds up. Is any fan of office space knows it adds up, right? Yeah, yeah, and so uh, and that that seems to have more support I I You know I would Envision There's going to be lots of comments on the details, but it does feel like there's some real support from the what we call institutional investors, the the hedge funds, the insurance companies, the endowments to also lower that increment, but we're doing something else there.

We're also trying to level the playing field and said you know that in the dark Market they also will have the same increments to trade as on the exchange so that they don't have some unfair advantage and give you a hundredth of a penny more and say that's price Improvement Yeah, most people have never heard of trade size or tick size harmonization or realize how important it is. but it's weird that our current regulatory structure, you know, was really set up to Advantage the wholesalers over the lit market and that that obviously seems backwards I think Dave In fairness and I want to say this to Dan Gray present in one of the rules this week and he was the team lead in 2005. he's still at the SEC he was the team lead in 2000 as well when we first did this uh uh, what's called execution quality disclosure Dan would probably say to you he set it up with good intention. Good reason to promote competition, but I think you're right.

The effect is has been over there 17 years that the wholesalers which increasingly over their 17 years have grown, so the market has gotten darker rather than lighter over those 17 years. Yeah, I think maybe more. People don't realize how significantly it's changed since Reagan Ms was passed and the composition of firms have changed. That's that's quite right.

But look, so much else has changed. I mean uh. I I Kind of kitted the other day about E-Trade baby. Uh, but E-Trade baby could be you know, old enough to be drinking beer now, right? And uh, and you wouldn't want to use a a mobile phone from 2005 either.

I mean right, right? I mean just just. And by the way, if we are successful, do what we think best benefits the everyday investor in this. Somebody should come along in the 2030s and say you know? Well, we've now got to update it more because there'll be a whole new technology in the 2030s. uh, using all sorts of forms of artificial intelligence or whatever.

So let me let me pin you down on just one question. Um, which is what? I part of what I asked You know the price Discovery process is both the the spread but it's also price impact. And do you think that by having such an inordinate amount of our orders retail orders off exchange? Do you think that that impacts the price impact of of retail? Traders Are they not able to impact the Nvbo in the same way as if their orders were routed to the lit Market it's a it's It's a very good question. It's a bit nuanced most individual.

Traders Do their orders don't have much price impact because they're as you know, as we know, they could be fractional shares to a couple hundred. But if your question is retail orders combined right then of course they can have significant price impact. Yeah, and I think that when you have, think about selling apples, think about just selling apples, in In in Antiquity or all the way through early 20th century you'd go into the center square of a village or a community and you're gonna get the best pricing for the apples, right? That's the wholesale market right? And and um, the nature of the stock exchange is similar. The Exchange has been for decades centuries like the Central Square of the village, the wholesale.

Market Um, now that can create problems too. They can get concentrated and any competitive as well. So one of the things we're doing is also lowering the fees that the exchanges can charge something called the access fee uh by from three tenths of a penny to one tenth of a penny. Yeah in a bit too.

So your question I Do think that um, those Central competitive markets uh, economic literature would show you brings greater price Discovery Yes, Okay, good. I Agree. So I'm gonna I'm gonna bring Joel up here uh Joel another member of our community? Uh, go ahead Joel it's also maybe a guitar player? Yes, definitely. Uh, thank you for having me today Gary I Wanted to, uh, introduce myself real quick I Facilitate conversations on a near daily basis with a wide group of retail investors in the ape community and elsewhere.

We all kind of come together and discuss issues of the day and try and teach each other what is going on in the markets. Uh, my question for you today is a lot of our community. A lot of the people that support We, the investor that also support Uh Market transparency uh are highly skeptical of the SEC uh and the more we've learned of Market structure, the more we understand the rules and how the mechanisms have been put into place to favor. Big Industry the big Financial players over the common retail investor, the more disenfranchised we become.

Uh, what would you say to investors like myself about these new rules coming in and how we can expect that these are going to help boost our competence in the Sec's role within the financial markets that we want to participate in and that we have knowledge of how they operate now. So three things One, I Joel I Understand your frustration and and feel that frustration. Um, just on personal note I was on Wall Street for 18 years and of course I always felt I was doing that which was best for the clients, but it was also about the firm. You know the you know that right? Look, it's it's it's revenue and profit motivated at a firm.

So there's conflicts like I Understand those conflicts from 18 years of being on Wall Street and and that's that's our capitalist system. But the in terms of the SEC and what we're trying to do here and these are just proposals is please weigh in. Please tell us go to Sec.gov and and not just weigh in on Twitter or on a Reddit Channel because that's not an official Channel It please come to our website, weigh in. Remember we're going to get 50 200 Page letters that are really detailed on the other side saying no, this isn't going to work or they'll go further, they'll say we're going to be you know, filing this lawsuit against you if you finalize this because of this or that.

so we really need to hear you know the voice of of your community and everyday investors on the details. The third thing on the details, let me just give you a couple examples. Um, this best execution rule Just for instance, right now it's at a self-regulatory organization I Could feel your frustration I Got here I Couldn't believe you mean the the official sector. The SEC doesn't even have one.

Let's make sure we have it. And then I started asking other other questions. Does it apply to your brokerage app and they said well actually it's not your brokerage app, it's it applies. They can send it off to the executing broker, the wholesaler in the dark Market I said right.

Is it actually order by order And and so we've we've leaned into that. it it and you and you all might look at it and say it doesn't go far enough. We need to hear that as well. You know I'm just giving that as an example and then to this proposal separate proposal We say there's this segmented orders.

Anybody who's trading smaller than a two hundred thousand dollar trade who trades fewer than 40 trades a day and as a natural person or I think we put in there if you have a trust for you know, your family. but but a segmented order if that wholesaler isn't giving you mid-market or better, they've got to put it out to competition. Now you'll hear pushback on that. They'll say we hope Sailors are competing with other wholesalers.

Well, there's there's you know, maybe six of paying that Uh, these these firms are often confusing their own competitive preferences for actual competition, right? Yes, definitely. But to Joel's question: if you like what we put in that order competition role and look at it closely, analyze it to the you know to the extent that you uh, wish and feel capable and write in and tell us and and um, that will really help us. Uh, but I I I I understand your concerns. Look I I've been so privileged.

I've served three presidents now I left Wall Street in 1997 it was. It was terrific. But I I Really? I just I get five years in this job. that's my term, goes through 2026 and I just hope that we do right by the American public and do best we can for everyday investors.

So let me drill into one thing you know. and I think what Joel's trying to get, Get at Um You know part of it is that you know the current market structure is skewed towards one set of firms. Um and part of that is because when these rules were being developed. not and this is not to impugn the intentions of anyone at the the agency, but you know the firms that were commenting and pushing and the experts were at those firms right.

And so um do you think that retail's involvement and retail's immersion in this in this process is a differentiator and and does it help to change the narrative that those firms the wholesale? I do I do Dave I do I think it does I think it helps Look, there's five Commissioners where each Senate confirmed and have to you know make choices but I think it helps the five of us I think it helps the broader Community uh to hear that input outside of the five Commissioners it's just the broader Community not only of our whole country but here in political Washington um I think it it does help I mean I've already gotten I think some input from various members of Congress on this or that one way or the other. we've seen a couple but you know the the the the investing public weighs in and says no I think this aspect is good and some aspects you might say are not good I think in 2005 we didn't quite have that the same way. I think you're right Dave I mean social media and we the investors and the Reddit Kim I mean again, there wasn't a a Reddit uh uh in 2005. so I think it is helpful and I think it's already been helpful I I Really do think it's been helpful in terms of what we took up what we looked at over these last 18 months and even after I gave a speech I can't remember the month but it was in this spring I gave a speech I said I've asked staff to consider these six things.

Yeah and then we heard from a lot of people and sometimes they were roughing us up but that's okay, that's that's the that's the Democratic process and that helps us all right? Thanks Joel for that. Well thanks Dave and thank you Gary Happy holidays you as well. All right I'm gonna I'm gonna pivot to something. This is a question I Heard from a lot of people.

Um, not. it's somewhat related to the off exchange trading space. So I I Feel like I can work it in. but um, in a recent interview about FTX about crypto, you said market makers should not also have hedge funds as they would be trading against their own clients.

Um, there are a lot of firms. A few firms who have hedge funds Market making units and operate off exchange execution venues. Don't you think? that looks a lot like what FTX was doing? How do you feel? Hell yeah, Hell yeah. uh.

Let me just say, sort of a time-tested thing for decades and decades. And not just in the United States If you have an exchange where you're matching buyers and sellers and trying to get that best price, that exchange is not also a market maker. It's not trading in front of their customers trading against their customers. So the New York Stock Exchange doesn't also have a market maker.

And there's a lot of improvements in our national market exchange system and we've even proposed some, but that conflict's not allowed. You mentioned Crypto. So I will just say it. The business model of what is called a crypto exchange and I put air quotes is far more than an exchange it has.

You know, something like the New York Stock Exchange or the London Stock Exchange of buyers and sellers meet, but they are also making markets against their customers, right? They are also often trading just speculative, which is, you know, more akin to the hedge fund. They're also doing custody and taking custody and yet not properly segregating out. So the investing public your your members take for granted that if their broker goes bankrupt and some Brokers do from time to time if their broker goes bankrupt, that their Securities are properly segregated and that they'll get their stocks back right? It might take a few weeks, it might take some time. There's even an insurance system behind that put in place in the 1970s.

Securities Insurance Protection Corp You don't have that in crypto. You know. Now back to work that fully integrated model, you know. I I Think a lot of people agree and have seen how problematic it is, right? But there are parts of that that you define in our market.

and Dave I would say that's why it's so important for for those of your Uh members that are thinking about this, that those storefronts I'll call them those casinos that are offering crypto services to the public properly disaggregate, come into compliance, Address the the conflicts, um, and properly register. All right. Moving on from crypto to your question, Do you want to ask it again? Just so? I don't? Yes. I You know this idea that you know off exchange we have several firms who operate hedge funds that market making units and you know they have.

They run these facilities that are that are matching you know, orders that are providing executions that combination aka the wholesalers correct and that that combination looks very similar to a piece of the FTX setup that you were critical of. And do you feel that criticism should apply to the regulated market as well? I think I Think trying to level the rule set uh between and amongst these different it's called Market centers but the wholesalers and the dark Market versus The Exchange that they have the same minimum increments that they can trade at, right that they don't have just an advantage, giving you a hundredth of a penny or a tenth of a penny more when on Exchange it's got a penny increment and the like I think leveling that playing field is really important in a separate role I Think that this order auction it says all right, the wholesaler, if they're going to give you at least half the spread mid Market or better. Okay, all right, but if it's less than that, put it into competition, put it into competition. Uh, and we've put that out too as a proposal.

I Think having greater disclosure about execution quality not only by those wholesalers, but by the what's called Introducing broker The Brokerage app. uh helps as well, and making sure that that brokerage app retains uh that important best execution responsibility. Again, four different proposals, four different pieces. But to your point, Uh, Dave I Think we're trying to address the same thing that you're mentioning: the Rule proposal.

The main overarching goals is to get more volume on Exchange and reduce the concentration and power of some of these firms that are actually yeah. I I Would say it a little differently. Maybe because the lawyers have trained me well. We're focused on what Congress's authorities have given us is competition and burdens or barriers to competition.

So yeah, full and Fair competition. One of the debates that has gone back many decades is the competitions between venues. You know between the New York, Stock, Exchange and NASDAQ You know that type of competition or is it competition at the order level? correct? Yeah, and I Think what you're seeing from this chair is I Think In this highly fragmented venue market, we've got a lot of concentration around market makers, particularly for the retail marketable orders. And there's retail marketable orders, as I earlier said, have have a real sweetness to them.

Yeah, we used to call it the Juicy Flow. Well, there you go. Dave There you go. All right.

I'm going to bring up Platinum Okay, uh from Uh Reddit so Platinum go ahead hi Platinum I like I Like the decorations behind you, you're muted. Here we go. Oh I can't unmute? you got it? Sorry your plan for a space call today so I wasn't exactly ready for a video. Um, but thank you for taking these questions.

Uh, so I'm one of the many retail investors from Reddit who has been learning more about the market after what happened uh to GameStop in 2021. So things like payment for order flow, dark pool trading, and Ftds, they seem to work against retail's best interests, which has caused a lot of people to stop purchasing and holding with Brokers altogether and instead purchase and hold with a transfer agent. So my question from Super Stock is, why do you think we should allow payment for order flow to exist? How are rebates and payment for order flow compatible with best execution and shouldn't the best execution rule address US Specifically, you know I think a Platinum. It's a really good question.

payment for order flow and as you said, rebates on the exchanges both have, uh, they raise inherent conflicts of interest. Um, if somebody's paying for your order, are they actually then competing order by order and uh, and then I've said this publicly. uh, a number of other jurisdictions uh leaned in and said uh, we maybe should ban them We looked at it very closely and said the core. the core of what we're trying to do is create greater competition for your order Platinum that when you send an order in, uh, that it get hundreds or thousands of folks if they want to compete for it.

and and secondly that we we ensure that the broker whomever you pick has to have a lot of transparency about their execution quality. which they don't. That now that's only execution quality of the market centers that but that the broker themselves have to give you execution quality their statistics on a monthly basis and they have to do best execution for you as well. And did I say that the wholesalers have to put it out to competition.

So so in essence to really sort of get at the heart of the issue is that order the Platinum you set in that it gets competition. Um, but I I would I would ask weigh in, Tell us what you think as you look through these. Um, if you have the time and you have the inclination. okay is the report.

You're talking about the 606 report to be able to compare them So it's you know, a lot actually. Uh, it it. There's there are 606 reports, but what's we're doing is changing What's called the 605 Reports. So the 605 reports, which were first put in place 22 years ago uh, say that the wholesalers, the stock exchange, and the dark polls have to do some execution Quality Reporting 606 You're right is about the brokers.

We're now proposed that the Brokers themselves have to do this so-called 605 report execution quality and that they have to do more information in that report not just price Improvement but the price Improvement has to be as a percentage of the spread. So if you have a two cent spread and they give you a tenth of a penny, well, what is that tenth of a penny versus the spread or half the spread? Technically, we've even done something very simple like says it has to be published in a summary form that regular folks can read it because right now at literally the 605 reports are a bunch of dashes and numbers that look like from The Matrix the movie and the 606. Both of them impossible to read. Six is good I I Don't know what my predecessors were thinking and God Bless and Gray is still here who helped write these and he's a wonderful man.

He's really talented, really talented, and wonderful public servant. Um, but we're trying to address that as well. Thank you, thank you! All right I Gotta, we've got a little time and I I do need to ask two questions? Who? It's going to be hard for you? Maybe the first one's an easy quick answer, the second isn't But in the interest of time, I'm going to ask for shorter answers and then we can pull up. Uh, bring up the last person uh Pink to ask a question.

but uh, and these are not related to the current rule proposals. But I want to know? Are you aware of the effort that is being? You know the sort of Grassroots effort from Reddit Uh where people are trying to directly register their shares with the transfer agent. Um I need to learn more about it Dave I've heard about it. Um, what do you suggest? What do you? What are you recommending? Uh yeah.

I mean I can definitely send some things over. You know it's it's uh. and there's a website actually Drsgme.org that you might want to look at which has some information on it. You know it's it's it's something.

I think it's often surprising to retail investors because I wasn't really familiar with direct registration or the transfer agent space. I Don't know, why would you? why would you right when? I And you know, especially being on the front office side most of my career and so you know, it's something that I've learned a lot about as well. And from my perspective, it's a fascinating way to have for investors to have a direct relationship with the companies they're investing in and the issuers. I would also say this: Dave there is a way and it's existed for decades and and uh uh uh, our our folks could get you the details.

There's a way to actually file something with the Securities and Exchange Commission uh if there's a specific uh thing that you you think or or members think we should do outside of the four proposals, but to actually say you know you should think about and consider this rule uh, whether it's about the transfer agents or otherwise yeah, it's a it's a very technical area transfer agent it is. Yeah, and in fact we're working on a second petition right now which is focused both on this idea of direct registration, some extra transparency ideas we have and FTD reform. And and one of the things that I'm curious about in terms of FTD reform is what you think about the European approach which is the settlement discipline regime that would charge interest on fails or enforce mandatory buy-ins. So oh, this is the second question.

The second question. Yeah, we we have put out for proposal I know it's related. It's not directly to your question, but we have put out the proposal. greater transparency around Short Selling and a lot of the the um foreign happen around Short Selling Yeah, we've separately put out shortening this settlement cycle, the back office shortening the settlement cycle.

But not only are we saying that the settlement cycle goes from two days to one day, you know you do a trade on Monday you wouldn't be moving your cash and securities on Wednesday you'd be moving them Tuesday But we also did something in that proposal that said the same day on Monday you had to confirm the trade. You had to actually do something called affirm the trade. There was a bunch of things that have to happen that same day and so though it probably wouldn't go to zero. I think that too would really put a better back office infrastructure and have fewer fails to deliver not only because we go from two days to one day, but also because a lot of things in that role says same day.

It actually says same day comma as soon as technologically practicable. Uh, well, for a lot of these firms, it's technologically practicable to do it pretty quickly, right? Yeah, and and on that it was allocations, confirmations, and allocations. and um, again, we haven't finalized that. but I I I I'm certainly glad to continue the conversations more uh at a later time on that.

Yeah, and that is an area that we do want to focus on next after you know working on these new rule proposals which are substantial, but you know it goes. It also goes into the locate process and the problems with locates and and you know frankly the exemption that some so-called market makers have from the locate requirement under reg show and whether you know they're abusing that exemption or not which it speaks to at least one enforcement case that you your your agency has brought this year. uh, remember it. Um okay so now I'm gonna I'm gonna bring up Pink from the Jungle and uh for our last question.

Hello Mr Chairman Uh, I'm pink I'm a retail investor and direct registration or DRS advocate. So uh I'm glad that you started that conversation and and to hear that you're interested in learning more about what retail knows about DRS because we've been working on it for about over a year so um, just wanted to to stick that in there. I've um I've also been involved in the Reddit investment Community since before the GameStop buy button was uh in my opinion illegally removed. So I just want to say thank you again for giving the individual investors the opportunity to um to come to you and speak for ourselves.

Oh gosh Pink, thank you for doing so So Uh so you kind of I think this question is really just an opportunity to reiterate what you kind of covered already which is, uh, what the most effective way is for retail to make these proposals happen whether it's showing support through our advocacy group like media investors uh, comments on the proposals or something else. you did mention that earlier. So um, resources on how to do that most easily would most definitely be shared far and wide. Look I think pick it's it's There's four separate proposals.

they address different problems so absolutely weigh in at Sec.gov and a real comment is actually on. You know, through our website into the role and but think of them as four separate problems: the transparency that what we were talking about earlier, 605 role, best execution, this order, competition, and then fourthly, a lot of the important things about uh, the trading, uh, and trying to level the playing field. But I would say the best that you can do is weigh in, uh, whether it's one sentence of support or more details because remember, there's going to be a lot of details coming from the Uh large Market participants, the wholesalers, the stock exchanges, the hedge funds, uh, insurance companies Etc well, they'll be and the trade associations. and so uh, I would say that that that is is helpful to hear uh from uh, people that are actually trying to engage in the market and have a better life or just save for the next vacation, right? and what? I Kind of heard earlier was to to go outside of the comfort zone of the social media and and really speak out and come to you to the direct channels and um and really communicate directly on what the changes we want to see.

me I Think so because pink while this this conversation here I'll have to check I think we'll probably need to even take this hour and put this in the record. This this conversation you know we'll We'll go into our administrative record Dave asked me what's the administrative procedures at and you're going on It's really an important law that protects the public. It means an agency like ours, uh, needs to put things out to notice and comment. But then there's there's ways that you go to an agency's website and make the comment if it's just in the Reddit or just in social media that's not technically a comment and for us to really take that in and say no.

we've got 400 people that have said yeah, this is a good idea and and actually to think about different pieces of it because there's a lot of details in here and and it might be the pink. You care about one piece of it and you think, well about it. You've done your research and you tell us what you think or there might be another piece pink that you think is not good. You should tell us that too.

Um, but to to sort of weigh in in ways that uh, we can learn from your experiences and your judgment. So I'm serious along those lines. Um, you know we. We led a comment letter campaign on the the 13 F2 proposal and we had over 2 000 comment letters filed, most of which over 1900 were sort of a form letter um and then another 150 that came in as individual comment letters.

Is there a significant difference or distinction between the two? You know when you see a lot of form letters come in versus when people take the time to write their own comments. Um, it's a great question. Both are taken seriously I wouldn't want to weight them, but what's often very um, helpful is when there's a comment that digs into some part of a role even the the the the economic analysis or the rule text usually pink and Dave the first part is is this: Preamble Then there's an economic analysis and then there's the actual rule text and and and to weigh in specifically on something that you have a judgment on and again it could be a judgment that we did it right. We did it wrong.

We should change it. You know that that we learn from that experience. so I'd say Dave That's often the case. Uh, the things that then the staff in in looking through it says all right, Oh, we didn't get this quite right.

we should change this. Or maybe there's some commenters. you know with their thick 50 or 200 Page you know. Very heavily researched comment letter and then on the other side, if it's just a one sentence, it doesn't engage.

Where they're engaging, they're they're going to engage in the details. Um, so both help, but you can see how they help in different ways. Okay, yeah, people's advice, That's what the administrative procedures Act is that we actually get comments and and thoughts within the law and within the economics. Okay So we've got.

we've got about 5. It's a little time over, so I'm going to ask one question and maybe we can get deeper in the weeds. Um I don't know if I you know I I Still have not yet gotten to the economic analysis part of the order competition rule but I have been reading it. Um, I'm a couple hundred Pages maybe 100 pages in or so.

Um, and so you went with this this idea of a retail auction in order to provide competition and mandatory retail auction. And and I I find it surprising as I stated directly to you, you know you and I sort of both agree on this. uh, keep it simple principle, right? That Simplicity leads to better outcomes and better. The Kiss principle exactly.

And And to me, a trade at rule is is a very simple one. And and it's interesting. The way I know each rule stands up on its own but at least two of them. There is some interplay in terms of tick size harmonization with the order competition rule.

Um is is not quite a trade at but but it it's got the flavors of it. But why go with this approach which this mandatory auction rather than a trade ad and if if exchanges want to build auction facilities and they there are good outcomes and high great execution quality and the best execution rule would then help govern and direct flow into those auction facilities. So uh again you raise a good perspective and and we look forward. If you're writing a comment in that way, let me say why I voted for what I voted for because I'm allowed to do that.

Okay I think that there's a benefit to the retail investing public of segmented order flow. Um, that there's that. there's this. this.

these orders, the the Investing Public's retail orders generally are marketable orders because we're all busy like Am I really going to think about a price right? And and now I'm just going to hit the button. Buy or sell 10 or 200 shares of something And and they're very attractive orders. and so right now 90 plus percent or give or take of those marketable retail orders go to a small handful of wholesalers exchange, dark pool and where we came out I think was it appropriate sort of uh, balance if those dark uh, in the dark Market the wholesalers are able to give you at least half of the spread mid Market or better that that's sort of like what's similar to your trade at. they're giving you half the market or better.

Okay, but it's such an attractive order. if they're not doing that. get get others in in a tenth of a second to three tenths of a second and use time tested sort of sealed auction approach. Um, again, we'll see what the public says.

We'll see what folks come in with uh and uh uh. go from there. Okay, all right well I'm gonna bring up uh back Alex and Milan You know I'm gonna put back up. You know, are we the investors banner? I You know I know we all want to thank you for participating and for your direct interaction with with the you know, the retail investors that make up our you know supporters and and generally speaking on social media who are very passionate and and we hope that we can do this again.

Certainly no no. I want to thank uh Alex Milan uh Dave for being such a good host. a pink Platinum J and Joel Joel almost got them all. Um and I'm not taking notes but I I really want to thank you in in cage? Uh uh, you know I don't know I mean we're We work for you.

That's that's our, that's our constitutional democratic system. You're our, clients 330 million strong and uh, it's it's You know we benefit from getting those comments and we're not going to get everything right, but we're I What we're really trying to do is drive greater as I say competition efficiency. What does that mean? That means better pricing for you and it and and better fairness in this. Marketplace And uh so I can't thank you enough I Hope everybody has a happy holiday and some time with family and friends as well.

likewise. yeah, um. anything you guys wanted to say to end it? Yeah, thanks again for coming and we hope to speak with you in the New Year. No, uh yeah, absolutely.

And and look, because we couldn't do audio, we did video. There you go. it worked out pretty well. Yeah.

I Guess something's going on over there in that Twitter space and but they allowed us to do it this way. It speaks both to the fragility and the strength of the movement, right? So absolutely there's resiliency here. Come on, that's for sure. Um, all right.

Well thank you again. and uh, you know for those on the space I think we'll we'll stick around. We'll jump back on the space and and chat a bit about the sure folks will have a lot to say about what they think and I look forward to hearing that too. All right.

Be well everybody. Thank you. take care Ohana Well folks, couple thoughts. I'm going to leave you with before we end this.

uh overall I Don't think the the biggest things were uncovered in this particular discussion, but it does have the feeling the vibe of the start of many I I think it was more of he's stepping outside of his comfort zone referring to the chair Gary Gensler extending an olive branch to the retail community and I think it went well enough that he's now interested in coming back. This is has the vibe of like kind of a step one type of a thing. So I think that's positive I don't think there's any bombshell announcements or anything like that. but I think this is hopefully the beginning of a much easier way to directly engage with the chair Gensler The one thing I wanted to really like just leave you with is multiple times in that discussion he kept bringing up of no we need to hear from you it can't be Reddit it can't be Twitter it can't be YouTube it can't be these other things you need to go specifically in the comments in Sec.gov Other than that none of it is really usable and at first he just kind of said it and then he brought it up of like no we need to hear comments and if you listen to it back multiple times multiple times he brought up of how quote unquote the other side if we're listening to market makers or Wall Street in general their comments are hundreds of pages of economic analysis breakdowns and that type of a thing.

And the fact that he brought it up multiple times makes me believe like hey folks, this is who you're up against. Granted in magnitude, they're smaller, but in terms of of I guess quality of input, it's more and the more I started thinking about it. It kind of shows you the Stark fight that we are currently in because you have a certain subset of people with a lot of time, power, and resources who are going to comment and obviously they're going to make an argument what's best for them. and then even though the numbers in terms of magnitude is favorable to retail, just simply because there's many, many more of us.

I Don't know if we still have those same resources and time because for example, we have our normal jobs like it's not our job to sit there with a team of lawyers and endless amount of money to fight for our own well-being. We do what we can, so it really shows how beneficial it is to have an organization such as we the investors. a group of people who have somewhat of funding. Obviously they could always use more, but more importantly, they really know what they're talking about.

I Don't think I could articulate it well enough to really explain how beneficial we are that Dave Lauer and Alex Cohen on our are on our side like if they could have easily gone to the quote-unquote dark side and have been another person working at Citadel or Vertu writing and arguing for them. But in fact I in my own opinion, they're taking more of that moral argument of like no, this is what's good for the world and in reality, we just need in my humble opinion to do what we can to support efforts like that because you have to understand the giant that we are currently fighting that is market Makers Wall Street In general, because they're going to endlessly argue for what's beneficial for them I Think that's human nature mainly talking about greed. but I Do did find it noteworthy that Gensler brought it up three specific times of: not only do you have to comment, but we need to know exactly what we're talking about. You have to be semantically accurate.

You have to be technically accurate. You have to have a reasonable argument to kind of outweigh the things that they're hearing on the other side. So I just wanted to leave you with that obviously. I Do believe this is the first of many.

well fingers crossed I Hope this is the first of many meetings, but I'm going to leave you with that. Obviously, if you enjoyed this, make sure you're sharing these types of discussions with other people because wholeheartedly, I Believe this is how Windtail excuse me I Believe This is how Retail wins the overall fight. So I'm going to leave you with that I appreciate you stopping by I appreciate you spending even a second of your day with me. and I'll catch you in the next video.

Have a good one.