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All right, you guys ready give me 10. welcome everyone back to lunch here at the piper sandler's global exchange in fintech conference that a wonderful start on day, one uh and i think it's probably built uh interest rate up to our lunch. So let me introduce our lunch speaker. It's the sec chair gary gensler.

Thank you for participating with us. Chair, genzler was appointed in february and sworn in. As the the chair chair of the sec, i like how they're using zombies 20 april 17th 2021., so uh, chair, gensler, you know, is knowledgeable of market structure, whether it be the fixed income, whether it be crypto or whether it be equities and he's participated in our Conference uh a number of years uh prior when he was a cftc commissioner, so uh chair gensler. Thank you again for participating and i will turn it over to you for your prepared remarks.

Rich. Thank you! So much it's great to see you again, i'm only sorry we're not in person. I know we used to do this during the obama years together and uh with covet it's more remote. But let me just say, as customer i'd like to note, my views are my own and i'm not speaking on behalf of my fellow commissioners or the sec staff, which last year, when i spoke at your conference, you and i spoke about how technology was transforming and Will continue to transform our equity markets, and this has led to some good things.

Of course, i mean, for example, retail investors have greater access to markets than any time in the past and uh many other things in our equity markets. But the technological transformation also has led to challenges and i would know, challenges around market segmentation challenges around market concentration and yes, potential inefficiencies in the marketplace. So right now you see there is not a level playing field amongst the different parts of the markets, the wholesalers, the dark pools, the lit exchanges, what what might call market centers and so further the markets have become increasingly hidden from view just quoting a financial times. Article earlier this week in 2009, off exchange trading accounted for one quarter: 25 percent of u.s equity volume last year during the mean stock events that share swelled to a peak of 47, so from one quarter to nearly half.

What's more thinking about volume, retail public and particularly retail, marketable orders, 90 of retail marketable orders are routed to a small, concentrated group of wholesalers that pay for the retail market order flow and institutions around the globe aren't competing it's that small group of wholesalers. So it's not clear with such market segmentation and concentration and yes with an uneven playing field that our current national market system is as fair and as competitive as possible for investors and in a recent report. Last year the sec uh walked through that meme stock. Events of january of 2021 and the staff described four areas to consider of interest in promoting our three-part mission.

You know investors on the one side issuers in another and then fair, orderly and efficient markets in the middle to date, the commission has released two proposals regarding two of those i'm not going to discuss those today. Shortening the settlement cycle, the plumbing and also enhancing short sale disclosures. A third thing in that report from last year, was about digital engagement practices. We put a request for comment out on that in the fall today.

I'd like to focus on the fourth aspect that was in that report, and that was about trading in dark pools and through wholesalers. We have not updated key aspects of our national market system rules, particularly related to order handling and execution since 2005., 17 years a lifetime. In equity markets, and even for you, a lifetime in piper sandler um, but maybe it was a firm even before that for you. So last year i asked staff to take a holistic cross-market view of how we could update our rules to drive greater efficiency in our equity markets.

Helps investors helps issuers if the middle of the markets are more efficient that which you cover each year. In these conferences, i'd like today to discuss work across six areas, minimum pricing, increment national best bid and offer disclosure of order, execution, quality, best execution order by order competition and payment for order flow and related exchange, rebates and access fees. So let me try to do it quickly, because i know rich you're going to have a bunch of questions minimum pricing increments. Today we lack a level playing field amongst the different trading venues: wholesalers, dark polls, lit exchanges.

There are many disparities between these three, but particularly, let me mention something about tick size in the lit markets. Investors see prices in one penny, increments, we're familiar with it rich you and i grew up when it was wider wholesalers, though, and without open competition. It's not level and more than half of the share volume in the first five months of this year was in stocks constrained by tick size. I'm talking about one on these exchanges and in contrast, sub penny trading, including a tenth of a penny.

So one tenth of a penny accounts for 37 percent of the share volume executed off exchange. Given this activity, i really wonder why this lit exchanges should have that one penny constraint when the off exchange does not. It raises real questions about whether this structure is fair and best promotes competition. Why not allow all venues to have an equal opportunity to execute itself penny increments? Therefore, i've asked staff to make recommendations for the commission's consideration around leveling the playing field with respect to two facets of tick size: first, possibly harmonizing the tick size across different market centers such that all trading occurs in the minimum increment regardless of market center.

Second, given the sheer volume of off exchange sub penny trading, as well as the currently allowed on exchanges, retail liquidity programs go down to a tenth of a penny in these rlps, possibly shrinking the minimum tick size to better align with that which is happening off exchange. So that's first tick size, leveling, the field, national best bid best offer and bbo in case you're curious. The nbbo as it's called, is a quote designed to aggregate information across the different exchanges. It provides investors, important pre-trade transparency and then those shares are subject to.

What's known as the order protection rule, i've asked staff to consider three issues related to the so-called nbo, and the question is really what's including: what's excluded from the nbo? Is it a good measuring rod? Is it not a good measuring rod so first, the mbbo currently includes only what's called round lots, as you know, quotes of 100 shares or more has for decades. That seems to leave out critical gaps. Staff calculations using trade and quote data found that odd lots. You know less than 100 increased from about 15 percent of trades in 2014 to more than 55 of the trades in march of 2022..

This has a lot to do with the transformational times we live in in technology and, what's going on, it also has to do with some average share prices. Moving up retail investors, the very investors who are more likely to buy and sell at odd lot prices are unable to see the prices sophisticated folks can see the prices of the odd lots more readily, but not the retail public and in 2020 the commission, which was Recently upheld in court, i might note - and this rule created a new ground lot definition which, depending upon the round lock, could be between 100 shares and one share had increments. It also added odd lot information to what was called the core market data. So, under the transition schedule under that infrastructure rule, though, the implementation of the new round lot could take several years, maybe even many years, and therefore i've asked staff to consider whether we go out and notice and comment rulemaking again accelerating the implementation of this new yorker.

The infrastructure rule also included quotation information about the remaining odd lots, even those odd lots less than the 40 or 20 or 10 of the new definition of round line. So i've asked df whether we should consider also accelerating that information about odd lots into core data together. I think accelerating both of these timelines would allow retail investors to better understand prices sooner, but there's a third thing i want to say on this. Is i've also asked steph to consider whether there should be an odd lot best bid and offer so that investors would know the best price available in the market, regardless of share quantity? Third, disclosure about border execution quality - you might be familiar with a rule - that's been in place for about 20 years that allows retail investors to understand and compare execution quality across these market centers.

But today, retail investors cannot compare execution quality across brokers, yes for market centers, but not their brokers, and that's because this so-called rule 605 only covers market centers like the dark polls, the wholesalers and the exchanges. Moreover, the rule is 20 years old, so ibs staff to make recommendations on how the commission can consider we might update this 22 years is a long time in these markets and that investors received more years 22 years ago, along with the market centers follow some monthly Reports so in 605 and further that there'd be some consideration given to requiring all reporters market centers and broker dealers provide summary statistics of execution quality, such as price improvement as a percentage of the spread. Fourth, let me talk about best execution. You might be familiar with it right now: the financial industry regulatory authority finra the msrb, the municipal rulemaking board - have rules on best execution, but we at the sec actually do not these fin run.

Msrb rules require that broker dealers exercise reasonable diligence to execute custom orders. In the best market, so that their customers, not them, but their customers receive the most favorable prices under those prevailing conditions. I think investors might benefit if the sec also considered proposing a role about best execution and, in addition, broker. Dealers and investors might benefit from more detail around the procedural standards, see finra msrb 22 years later.

There's been a lot of questions, so why not provide better details on procedural standards? Brokers must meet when handling and executing customer orders. So i've asked staff to consider that as well and not just for equities but for other securities best execution, whether it's in corporate bonds or elsewhere, fifth got a little press. I guess this week order by order competition. I want to talk about competition, promotes efficiency in markets.

We know that, but it also sort of takes away potentially some economic rents or excess profits above market competition that might otherwise accrue, and, yes rick, it might be some some of the people in the audience is it's a trade-off. Investors and issuers benefit, if there's less economic rents in the middle and there's sort of the full benefits of competition transparency in the middle. So, as i've messaged mentioned, the vast majority of retail, marketable orders are flowing to wholesalers plus 90 percent to a small handful of wholesalers that pay for order flow and, what's more, this segmentation means that institutional investors, such as pension funds and others don't get to interact Directly with that order flow, this segmentation, which isolates retail market orders, may not benefit the retail public as much as orders being exposed to order by order competition, and some have suggested. I've heard it that the segmentation with the isolated segmentation allows retail investors to receive slightly better prices compared to the mbbo.

But, as i mentioned, the mbbo is not a great measuring rod and, what's more, what's more, this price improvement doesn't say that that's the price improvement that would be available with full competition. So it's not necessarily the best price. It's just price improvement versus actually a measuring rod. That's got a lot of gaps in it and doesn't necessarily have the full benefit of order by order competition.

So i've previously discussed the mbbo, but in addition to that, i've asked staff to make recommendations for the commission's consideration around. How do we enhance order by order competition? Now this may be through open and transparent auctions or other means. It may be saying that investors get the midpoint or better, and then there might be this auction mechanism. If not, we know that the listed options exchanges have operated auctions for retail orders.

For many years, i've asked the staff in consideration of any recommendations for cash markets, stock auctions, to draw upon the lessons from the options markets and focusing on how do we assure full competition amongst all market participants, provide the best prices for retail investors last. Let me close on a topic. That's probably also gotten a fair amount bit of discussion. Finally, i think the related exchange rebates and, of course, there's access fees related to that payment for order flow can raise real issues around conflicts of interest.

Well, duh exchange rebates can as well as described in the commission's settled enforcement action against robin hood in 2020. Payment for order flow can distort routing decisions. Certain principal trading firms seeking to attract robin hood's order flow told them that there was a trade-off between payment. Voter flow and price improvement for customers - and i would note not all brokers, pay for order flow and many have said well what about zero commissions? There are zero commission brokers that are not paying for order flow, so zero commission doesn't mean zero cost to the retail public and it comes back to how much of the price improvement is being shared with the retail public versus staying with the wholesalers in the door.

Interesting so as a staff reporter in the gamestop report, payment for flow may incentivize broker-dealers to use digital engagement practices, another project of ours, gamification to increase customer trading, the european union's actually actively considering banning payment, ford or flow joining other regulators from the united kingdom, canada And australia exchange rebates, as i said, also present conflicts because exchanges give rebates to traders and, in particular, high volume. Traders benefit more from these arrangements than lower volume traders and we often talk about high volume price discounts. But here we're getting a lot of orders routed through the biggest market players that small brokers are routing through large brokers, trying to get some of that discount and the large brokers are getting to see that flow and getting discounts and the like leading to greater concentration. I would know it as well, so just like payment for order flow presents a conflict routing of marketable retail orders.

Exchange rebates may also present conflicts. So thus i've asked staff to make recommendations around how we can mitigate the conflicts. What are you going to do both payment for flow and rebates, and one thing i've asked them to consider - is whether exchange fees would somebody pays to access the quotations on the exchange and rebates should be more transparent, just making them even more transparent? So investors can understand these amount at the time of the trade execution. Finally, i've asked staff to consider how the access fees might change in light of the potential lowering of minimum tick size, minimum increment, a penny, access fees right now, 30 mils or three tenths of a penny that proportionality uh.

What what? What should happen with that? If we reduce the minimum pricing increment, it may also be appropriate to reduce these access fees. Of course, that would relate to these rebates as well. So let me just say audience in conclusion: i think we at the sec need to look for opportunities to freshen up our rules to ensure that america remains the gold standard of the world's capitalist markets. Nothing stands still.

Technology is rapidly changing, and so we can't take our leadership in capital markets for granted and we really fundamentally haven't updated our rules since 2005, other than the infrastructure role and data that i mentioned earlier and as they continue to change the face of of markets, technology Business models and like we have to look out for the investors on the one side and the issues are on the other, and particularly retail investors, as there is more retail investors in the market than ever before. It's not clear, given the current market segmentation concentration, lack of level playing field that our current national market system is as fair and as competitive as possible for investors. I think we can do better here for retail investors. I thank you and rich.

I turn it over to you first uh, chair gensler. Thank you. Listen to a thing. He said what you just helped mine.

Sorry mom bring your, and i also just want to commend you for your commitment to keeping rules uh up to pace with the technology which we know, there's been a lag so with that i'll get into a few questions here. If you don't mind, absolutely first uh you've outlined sweeping changes which you you know we just heard, and uh in equity market structure you've emphasized this order by order uh competition. So could you give us a better view of what that order by order competition might look like and then also uh? What wasn't expressly clear to me is: is payment for flow prohibited or would payment for the flow still be able to exist in this order by order competitively good questions, baby, look i'll, say this rich. I don't want to get ahead of my fellow commissioners or the staff uh.

I thought it would be helpful uh, seeing that you invited me to this speech to to sort of put out there what we're, considering so, the on the order by order competition. It's really uh what the staff, what i've asked have to focus on is for retail marketable orders. How can we inject greater competition? So the segmentation is not isolated segmentation right now, two three wholesalers are buying that payment buying that order flow not competing order by order. Yes, there's some price improvement, but not as much as you can see in these 605 reports and other reports in terms of you are a hell of a politician, the the the whole lot of the real prices in the market and so injecting greater competition through an Auction mechanism learning, of course, from the options, what works, what doesn't work in the options, markets and and other groups of staff are actually thinking about, possibly what to do there, but i don't want to get ahead of that in terms of payment for order flow and Rebates, as i say, they present guys giving me a headache to them three other jurisdictions and a fourth, a big one.

Europe is considering getting rid of them, so i continue to ask staff what should we do there um, but, as we put this all together, we're going to put it out to notice and comment and obviously hear from the public as well understood. Thank you, chad, gensler. The the next is many and you uh sort of alluded to this many regard the u.s retail markets as highly efficient and even the most efficient in the world uh. What some would say.

So i guess the question is: is there any data uh to suggest that these the auction process will be better or resulted in economic benefit, or do you plan on doing any pilot tests uh and just one last part to the question is: are you concerned that It could have an impact on the the low pricing and nil pricing that the e-brokers need. I just let me just say this. I think it's a it's. It's it's uh, misleading, there's a cost to retail, to this current system, and the cost is that two or three highly concentrated market makers are buying your order flow and though there might be some price improvement against a false measure, a poorly put together measuring rod, nbbo That doesn't mean it's the full price improvement and it doesn't mean that it's best execution.

So i think, if we put in our rule set our rule set not just finra's our rule set and put some procedures around best execution, daddy gunslinger consider put out the public scare, the crap these guys, so it's still segmented retail flow but rich. Think about everybody. On the other side, institutions that currently cannot uh access that that retail flow is that the best capital markets uh, and so that's what we're going to put out and yes, we'll put it out with economic analysis. Yes, we'll look forward to the public weighing in with their economic analysis and we'll have the lively debate understood.

I am actually impressed that he spoke so a little bit about the top two or three market makers in best execution. That's probably the best piece that he's had once we've heard the broad outline by you uh, but i suspect you know you'd have to go to proposal comments. So what is the real timeline behind what you're suggesting and then would you be open to a round table to discuss? You know this is pretty some highly controversial topics. Would you be open to a roundtable discussion which is kind of controversial rich? Let me just do this: there's lots of ways to get public input, they're doing it, joking all, along what the heck's going on anybody, who's listening to this and and and uh watching this.

Let us know what you think this is not a proposal. This is a chair speech, i'm not speaking on behalf of the staff or the fellow commissioners. I've said that up front. I really mean it but weigh in talk to us.

When we put a proposal out, um uh engage with the public. I feel that they can be the chair of this. I just it's a remarkable privilege to be chair, but i give uh speeches i sort of lay out something i try to say what we mean and mean what we say. We had a gamestop report last year and uh.

We got a lot of comments in on that uh, informally and formally and so forth, so continue to engage with the remarkable staff at trading and markets and division of economic risk analysis and, of course, engage with individual commissioners as well in their offices. And if we get to a spot, where we propose something, i can't prejudge that. But if we get to the stop, we propose something we'll we'll hear more and uh whether it's round tables or or meetings uh there's there's it's really important to get the public's input. Thank you chief enzo one last question on equities and if you don't mind uh, i have a question or two on crypto as well as fixed income markets as well, because oh gosh, i figured as much rich just last question on equities.

You mentioned the sip infrastructure proposal, uh that that was upheld by the courts, the uh dc courts, and that you would pick you'd pick. One, i think, was the odd lot uh about uh publication of odd lots. Uh. So are there? What do you expect to implement the sip infrastructure proposal in broader the broader outlines over it over your over the next year or so rich? I don't remember the exact uh dates that are in in that rule, but it's now been upheld.

Of course, the litigants will have to decide what they do, but but there's a very serious uh uh. That was a unanimous vote by the way at the the commission two years ago and and um. Is he so shitty? It's basically similar to what i'm saying here. It's how do how to use the benefits of competition to drive greater efficiency in our capital? Also, that was competition a bit around market data and driving some efficiency in that infrastructure role, but you're right, i did mention two aspects: the the definition of round lot and the inclusion of odd lot data and core data that i've asked staff.

Should we go out to again, it would be notice and comment rulemaking, but notice a comment to accelerate those two aspects earlier, along with the other potential reforms. I'm talking about here. Great, thank you on the equity. Now, if i could follow up on crypto, these are general questions here so uh just recently, a bill, i believe, has been floated by uh senator loomis of wyoming llamas, and i guess the question is you know first, what's your broad impression? Second, just you know if you can't answer that which is doubtful but uh.

What's your overall view on the need for regulation in crypto uh and then how well the bill from what we understand: divvy's up responsibilities of regulation uh to both the cftc and sec? How well do you think you can work together to actually execute on regulation encryption, so there's a lot you packed in there, and i've had good dialogues with senator lumus and and uh i've known senator gillibrand for years and certainly worked with her very closely in the Obama years, but i whatever comments i might have i'm going to share with them, not with you and your audience now and we, i really haven't reviewed their bill. It was released yesterday, um just but let me go to. Let me go to a broader sense. Crypto.

This speculative asset class one and a quarter trillion roughly dollars right now. Um does not have the investor protection that the public needs and i would contend if this field has any future what the field needs as well and there's three sets of big public policy issues. It's investor protection which the commodity, futures trading, commission and the securities and exchange commission is kind of. You know our domain i'll come back to that question.

There's the issues of financial stability and money creation around stable coins and the like that, the banking regulators treasury. We have some role in that as well, because many stable coins look like money market funds, many algorithmic, stable coins. You know really are uh under our howie test very similar to you, know securities or our investment contracts, what it's called and then thirdly, illicit activity and how we guard against the use of these coins to uh circumvent, uh, the public policies, around sanctions and illicit activity And ransomware and the like. So there's a lot going on here to unpack, but i would say most of the tokens.

Thousands of tokens have an entrepreneur in the middle or a group of entrepreneurs in the middle raising money from the public and the public's, anticipating profits based on that, that's the core of a definition of an issuer-based securities regime. That's what the sec was asked to do in the 30s painted with a broad brush, thurgood marshall's words, not mine, to protect the public against sham and fraud. I had the honor to chair this cftc. Another great agency focus on derivatives and particularly derivatives around commodities and so forth.

Ours is an issue or regime protecting the public when a group of entrepreneurs should disclose something, and your research analysts tell the name. You know how important that disclosure is and to get that disclosure make sure somebody's. Not you know lying to you defrauding you not trading on insider information, that's what we do well at the sec, and so most of these tokens are actually right. Now, i'm not any one of them, but right now their investment contracts, their securities and thus the trading platforms, the ones that you cover with great interest, some public, some private, some private that want to be public.

Those trading platforms should come in work with us. I've said this publicly we're willing to think through how to use our exemptive authorities and basically, we've got these projects registered, crypto markets registered crypto intermediaries and yes registered tokens. We are also looking very closely at the stable coins because, frankly, they look a lot like funds and how they're operating and guess what they're offering yields, and sometimes they call them rewards. Sometimes they call themselves games, that's a return on something um.

So we've got all these projects, but uh chair, better and i have talked off and on about how we do something enter into a memorandum of understanding, because some of the tokens are commodities. You know bitcoin being one of them. So there's a lot here to work with work with the bank regulators work with congress. If, if appropriate, moving forward, i know i went on a little bit.

That's fine chair if i had to echo anything from the management teams of the crypto companies that presented here today. Is they just want clarity from a regulatory? Well, it's good! I, if you want clarity, i say this and i can say your first names pretty well, but i won't uh because uh i'm always told not to, but i know most of you, i've met with most of you. These work with us come in because otherwise it's just you've got securities floating on your platforms and you're right now, operating outside of the wall and that's what we we have: a robust examination and enforcement units. It's half of our staff at the sec between exams and enforcement, but work with this and and think this through and - and i will say this - also some of the traditional incumbent exchanges that are not yet there they're working with us.

So the the the the crypto exchanges that are potentially operating outside the law it'd be better to work with this too, and i think you'd want to say that as a shareholder rich, i, i would probably agree chair so uh last sort of category of a last Question i said last question like five uh in regards to fixed income. In a recent speech you outlined, you know how big the fixed income markets were, how important they were. You know in comparison to the equity markets and uh. You know you highlighted post-trade transparency.

The platform, reforms and resiliency i'll keep this at a high level. But what was your you know? You outline reforms in each area. We won't get into detail here, but what's your overall goal in trying to regulate uh, i guess the fixed income markets so um. I put in a nutshell: i've been blessed to serve now three presidents and it's a remarkable privilege.

I'd like to be able to look back and say we made our capital markets even stronger, and i think of it in terms of efficiency, that in the middle efficiency, make the market simple, it might sound geeky, it might sound a little bit finance oriented, but unless We do rich other countries, part of our great success as a nation reformed since 2000 population we've got it, but one of the great attributes is this: this system of what i'll call uh, uh, transparent, regulated markets, and i think it's part of our geopolitical uh success. Um, but i wouldn't take anything for granted and when you see concentration and segmentation and lack of level field as we see in the equity markets or over in the treasury markets that we see so many times. Our central bank has to come in and basically hold kind of what i'll call the the left tail risk the risk that the market has jitters and we had it in 2020, we had it in 2019. We had it in 2014..

If you watch your history, you can find three or four events in the early 80s. You can find event after event. Can we can we make that market the treasury market more resilient and then in the broader, fixed income, more transparent? And so yes, we've been working with finra and trying to uh, revise the trace reports, the market and more timely, but also inject more relevant detail in the corporate bond market and yes working with their colleagues at the treasury and the federal reserve about post-trade transparency. In the treasury market, but the single thing that sort of animates me is is uh in this honor to be in this role is: how do we sort of in a rapidly changing technological world and a lot of global competition? How do we ensure that our capital markets in the middle uh uh has fewer economic rents, greater competition and transparency and efficiency that the buy side can compete with the sell side in those fixed income markets and really compete? We get the principal trading firms the high frequency trading firm, so to speak, registered so that they, but but once they're registered then there's more of a way they can compete in the middle, even with the the prime uh, the what's usually called the primary dealers.

I went on a little bit, but it's all about trying to drive greater efficiency in a geopolitical competitive world. Thank you, uh, one last follow-up on the equity markets. I got one more question last question that promised this: was it in cover or preclude uh, say large banks that have internalization of orders uh that internalize a customer order with their own trading desk? Would that would they be included in this auction again, i'm not trying to prejudge the staff and where we might come out and everything, but i thank whomever asked the question for the question and we'll cons. You know.

Look, i i i don't uh want to prejudge that um. I want to thank you again and all your audience. I want to thank you, because i know that you know you didn't start in a career in finance. You started at west point if i remember and uh um, but we both went to wharton you're you're, very analytic, we're analytic we're going to look at the economics and the reason i'm closing this way.

Is it we we benefit if the members of a conference like this give us feedback, give us input, we, if we actually put something out of the equity markets, give us feedback, but of course, we've already put out a lot of things on the fixed income markets. We've put out things on shortening the settlement cycle. Give us feedback economic ground truths, really help know that we have a little bit different role: we're representing 330 million americans you're representing your your clients, your customers, your shareholders, frankly, your revenues, so we you know we might have a little bit different perspective, but we really Do benefit from the hard analytics that a guy like rich repeta was so good at, but uh and the economics matter gia genzler. I want to thank you for your commitment to transparency.

Thank you for your commitment to keep investors. You know there be plenty of debate, but keep people informed uh. What i would say chair gensler. If i respectfully call you gary call me gary.

Of course, you have for years, you've been a force regulator, no matter what job you had, and i respect that and i think there'll be debate. But we respect you know your effort and the time you put in to try to get the things done, uh to get. You know to execute on your job as the sec commission. I don't know you you're you're you're.

Thank you for the compliment. It was probably sam and jane gensler's work, and you know you might know i'm one of five. Kids and i've got an identical twin brother, and you know you had to it had to be fast around the gensler dinner table and a former mit professor of crypto. As well so yeah anyway, this guy really likes crypto.

Thank you, chair gensler. We appreciate the update and hopefully we'll talk to you soon. I won't ask the question: will you come back next year? We just hope to talk to you again rich. I know what it is.

You always want me back if i'm still in the job, but like six years from now, will you be asking me back, you know, that's not true. I did ask you when you're at mit as well. I i believe that when you're a professor thank you chair, gentlemen, we appreciate your thank you june, 8th and 9th. I guess it continues tomorrow, interesting, wow uh.

I think that there is clapping because uh the there is an audience from that uh that other that other. I don't know what that guy's name was. I think it was pipe daddy or pipe schlong, or something like that. I can't remember exactly but pipe something.

Uh there's an audience there. There's people watching him from uh from the top from the back from the from the left, the right, whatever i don't know, uh, but nonetheless i guess that was uh, the meat and potatoes of our uh, our addressal. So let's, let's talk about it. Let us dig into what uh what was discussed and i was reading uh chat as we were kind of trucking along, and i think that there's there's some frustrations and uh.

I i suppose that i share some of those frustrations with you piped by pipe long down pipe long, dong, silver. It's like a long uh long. Is it long, john silvers, yeah long dong, silvers, that's funny! That's it! That makes me chuckle so from what i'm understanding uh chad feel free to correct me on this. If i'm incorrect, but there should be uh a continuation of this tomorrow.

It did say june, 8th and 9th. Today is the eighth, so i'd. Imagine that he's gon na come back tomorrow to discuss more uh, but there was six main things that he wanted to discuss and uh. It was sort of outlined.

As such, we can go over the details of this. In case you were just popping in or popping out uh whatever uh one of them was minimum pricing uh increments minimum. What the all right! I guess i lost that starting over minimum pricing increments. That was weird.

I sent my my notes straight into uh, the shadow realm dude banished just like. We didn't see today for payment for overflow. Next one was nbbo national best bid and offer after that disclosure about execution quality after that best execution and uh after that order, by order competition, we can't forget, by the way, there's like a 1.5 and it was tick size in case you're, curious tick. They spent a lot of time talking about dick size, so you can see where uh the priorities are for uh the sec and uh all these guys who uh rumored to spend most of their work day watching pornhub.

I don't know, i don't know much about that. Uh but the last one was payment for order flow, and this is what the most people were excited about: uh being discussed, there's a lot of speculation, uh that they're going to ban payment for order flow or at least greatly reform it uh, in which case they Didn't really address whether or not they were going to do it uh p5, let's start here, because this is probably what what the most people are interested in. Why does p5 matter? Well, if you go back in time, and many people know this, some people may not the pioneer of payment for order flow is actually the lord and savior of fraudsters. Uh bernie, madoff bernie madoff, has served jail time, quite frankly, for being the largest ponzi scheme in united states history worth multi billions of dollars and one of the things that he sort of pioneered was payment for order flow, which is essentially a rebate that is offered To brokers from a market maker uh to route order flow to a specific market maker, what a market maker will do from there as was discussed earlier, is most of the time route that, through a wholesaling uh platform, it's considered to be otc uh otc markets right 90 of retail orders marketable orders get routed through these wholesalers, and a lot of this is because of payment for order flow, which is that rebate kickback.

That is offered from a market maker to uh your broker, a retail broker. Well, one of the things that investors put together - and this has been discussed - uh a lot and i actually helped a lot with this. So i was. I was looking forward to uh seeing some comment and hopefully some change because uh we, the investors, the petition that dave lauer put together was focused on pf.

Now i don't think it's fair to say whether or not this is going to get banned or will not get banned yet uh, because that presentation does say there should be another follow-up day. We are supposed to hear more tomorrow and i hope that we hear more about p5 and their plans of p5 coming into tomorrow, uh, but these are the things that were discussed. P5 can distort routing decisions. Obviously, if you want to discuss p5 payment for order flow uh having a conflict of interest, so to speak or distorting routing decision, what he's speaking on is there's sort of like a top three market makers out there that exist.

M's is what we're going to call them m m's, not the good kind, because i, like m m's how many people go to the movies by the way and put m m's in their popcorn that actually swaps. If you don't try that you got ta, give it a shot, trust me, sweet and salty. It's like pineapple uh on pizza, the sweet and saltiest the it's, the the difference in flavor, but nonetheless, the top three market makers citadel which, by the way he never uttered the word once he just said the top market makers in the stock market. And we all know what they actually are, but i'm sure he was a little sweaty, a little nervous to actually mention what the names are, but do not fret uh, where gary gensler has failed.

You, i will tell you citadel virtue wolverine. These are the top three market makers that exist uh in the present stock market and these top three market makers. A very small percentage of market makers handle the priority and the primary amount of uh order flow. That comes and goes through different market makers right uh, the problem here and where he's talking about order, distortion, routing decision distortion, is that these guys can really influence and sort of force, the hands of other market makers and brokers.

If you have uh the top three market makers handling the the the vast majority of volume that is being transacted every single day. You don't have much choice except to go to these guys because they have liquidity for it. So obviously there's a conflict of interest there. They also discussed how robin hood's overflow told them that there's a trade-off and best best execution and transaction.

This to me seems kind of gaslighting, i'm going to tell you why ramadan did expose a lot of things, but they should not be things that the sec did not previously understand and did not previously know why. I say that is because of two things: gary gensler stated two things today that really caught my attention. One of them is that he has served under three presidents right, which means that he's been in office. He's he's helped with the sec, or at least the financial markets uh for at least 12 years, because obviously presidencies go for about four years, so he's got 12 years of experience.

The second reason i know this is gaslighting and it's is because gary gensler himself said there has not been reform or changed to uh off exchange trading, which is dark, pools and wholesalers since 2005.. So if you go back 12 years in time, uh we're currently in 2022, that would mean that he started roughly in uh 2010 uh, which is five years after that. Okay, you can give him a five year break, but what have you been doing for 12 years? What have you been doing for 12 years? He says that there hasn't been changed, the dark pools and wholesalers, and i would imagine that the sec, unless they're just failing us, that poorly uh has the same sort of uh, uh, daily checklist or yearly checklist or monthly checklist. That you would expect out of a lot of different government, facilitated jobs, meaning you should check up on how dark pools and wholesalers are operating.

Uh. Robin hood exposed this to retail right retail, caught on to the fact that there's a trade-off in best execution in transactions. Uh the sec: this should not have tipped off the the sec. If that, if robinhood is what tipped off the sec, i'm glad they don't have coffee because you're wasting your goddamn budget money.

That's just a that's a big piss away of money. If this is what it took for you to understand, what's happening, uh, that's just a comment. Obviously he didn't really give much plan in that statement, but that was a claim and i thought it was important to make that clarification is uh. Robin hood should not have been the catalyst to get these guys moving.

Okay, uh retail got them moving, but this is certainly something that that regulatory bodies and market makers into the financial markets have known about for a long time. I think that's important to to to state. There are zero commission brokers that do not have payment for order flow. I actually found that to be pretty interesting.

So what what gg uh gary gensler spoke on here was that uh that p5, it kind of seems like uh pfop is a redundancy. What he's trying to say here? If i had to guess - and this is speculation - let me state that uh, if i had to take a a gander at it, i think that he is stating if there is a redundancy right, if you can find uh brokers out there, that do not have commissions Uh that also do not have payment for order flow. Then pfoff is a redundancy essentially meaning. There are ways around uh offering a best execution and cheap trading to retail investors without p5 makes sense.

To me, i think that's his his claim. I think, he's trying to state that uh. It is possible to accomplish this without p5 uh, so hopefully that's the direction that they go. Uh small brokers are riding through large brokers to get a discount.

This is this. Is another part that he spoke on for p5 and to me what this is essentially stating is hey when you have non-competitive markets, small fish in a large pond, don't have any choice but to go swim with the big fish and let the big fish carry them. A little bit you know, small fish got to go to the big fish. Either you die, you get you get swallowed up by the big fish you know like if i was to, if i was to sort of map this out and what i think it sort of sounds like uh.

If, if this is the pond over here right, if you're a tiny ass, how do you draw fish it'd be like this yeah? That kind of looks like a fish got a little fin right there. So this is a small fish right. You got small fish over here uh and there's like a little river river connecting these and you got a big fish over here: big big hoss of a boy right, just chilling he's living he's living la vida, loca he's looking over here, and he sees this guy And he says: ah yes, i want your money. Look at this.

Let's, let's go eat this dude up, he's just smiling teeth the teeth ready to chomp down on this guy. Small fish has two choices: right: uh, assimilate essentially, which is go swim at the big fish, and let him tell you what to do or get eaten alive. If you get eaten, you die and that's in business terms. Uh your business can't succeed.

So there's there's sort of like a forcing of the hand to me it seems kind of political when you've got these non-competitive markets, uh forcing the hand of these smaller, guys, small brokers, small market makers, it's just not competitive, you're, adding complexity to a system you're adding. Frankly, politics to what should be a bipartisan market, it really shouldn't be like uh, a republican this with democrat this uh in the financial system. It's it's a it's a hey. Let's not have a conflict of interest, we want demand, we want supply and we want fair price discovery and what you can't.

You can't have that if there's not even fair price discovery taking place within the top uh the market, essentially of the market, because if you think of market makers, you think of brokers, those guys are markets right, they're competing, there's competition there and they run the actual Market, which is competition, so if there's no competition at the top, how can you expect competition at the bottom? It doesn't make any sense or flying corn dogs? No, that's the absolute truth. Gary gensler said some about like uh uh yeah, the the tools that institutions have aren't available to retail investors. It's not really fair and blah blah blah and what i said was uh uh yeah, because they're flying airplanes, while we're flying corn docks and what i mean by that is uh. We just don't have the same tools.

How can you expect us to even remotely uh be able to discover the different things these guys are talking about unless it's exposed, because we don't have access to it? You know, i think that we can agree on that girls in the chat, if, if i'm just gon na pull it check this out, what's the best way to ask this i'll just ask this: do you think we are flying corn dogs compared to an airplane and What i mean by this is quite simple is: do you believe that the the difference in tools and accessibility, that retail has to institutions drastically uh influences our ability to compete within the market uh, but p5 right uh his his sort of addressal to that is that He'd like to see rebates being more transparent and reform of exchange fees, uh, and it didn't speak directly on uh the banning of people. One thing that he did state, though, is uh after the question, by the way of whatever that guy's name was piper long dong. He said uh uh would pete payment for order flow be prohibited and his response was as such, we will put out publication and ability to comment to the public, which is a very political way of saying, uh we're not gon na state, whether we're going to do This or not, yet it is what it is, and that is the one thing that i'm paying the most attention to, because let me let me maximize my screen and pitch this in the most simple way possible without payment for order flow wholesalers, uh are not going To have leverage to get brokers to route orders through them without payment for order flow without kicking back money to a broker. There's gon na be far less incentivization for brokers to send orders to a wholesaler, which is what people often refer to as a dark pool.

There are a difference: there's a difference. Right, dark pools are not the same as wholesaling. Wholesalers are citadel internally, fulfilling orders uh off of a lit market off of uh an on exchange, so to speak market you get rid of payment for order flow. I think you take care of a lot of these issues uh.

So that's really what i want to see - and this is what we the investors is about. This is what dave lauer spent so much time, uh uh sort of putting together this petition for right. It's what you guys signed for how many people in chat signed the petition for dave lower from we. The investors drop a girl in the chat.

If you sign that thing, that's what you're fighting for! That's! That's really how how you're going to accomplish sort of this! This p5 piece of the puzzle uh. So that's what i've got the most attention on there's a lot of different uh logistics and i'm actually going to make a video uh speaking on sort of what was discussed today in a nutshell, sort of way uh. So we can go over all of these things uh, but he also spoke on national best bid and offer minimum pricing increments disclosure about execution quality, best execution order by order competition, uh, ah yada, yada, yada, yada on and on and on, and i'm actually by the Way, i'm so happy to see that you guys uh signed that those gorillas in the chat makes me incredibly incredibly happy uh. There was like 71 or 72 000 signatures at the end of the day uh, and it just shows that retail's pissed we've had enough.

We don't want a market, that's not even competitive, that's so complicated that you can't even have the fair opportunity that everybody's asking for you know it. It's pretty straightforward. I don't think there's anything. Oh! This is the last piece.

This is the piece that really made me mad during this, the guy, the the questioner, the interviewer said, uh. How do you there was a specific way? You were. Let me find this. Oh here we go.

What is the real timeline behind what the sec is suggesting, and are you open to a round table to discuss these controversial topics? The word controversial here. This really got me this cat. This got my my freaking uh, my head, just the buzzing. He says controversial topics as if uh, a competitive market in a simple market and a fair market is controversial.

What did you guys? Think of that? Oh, my freaking, god, the the the the big piece of this and gary gensler's response is uh. We always are open to ways to engage with the public and i think if he really wants to engage with the public, he needs to address the concerns that we have and answer the questions that we're asking him right. A lot of these. These answers to the questions were very political.

They were very dodgy. You know when politicians don't want to answer something they kind of just yeah. Well, uh. Here's an example right.

Somebody asked me trey: do you like kraken and a politician would answer it like, so they would say? Well, you know once upon a time sometimes when i go to party you know, they'll have lots of different drinks: they'll have they'll, have jack daniels, they'll have gin and tonic they'll have uh. Sometimes i drink some milk, the kraken's over there in the corner, uh and they'll - have uh orange juice and they'll. Have this and they'll have that and uh? Sometimes you know i look at the kraken bottle and i think to myself you know that might taste pretty good, but i don't know - maybe not today, maybe tomorrow uh, but you know it depends on you know. Sometimes i i i i can't.

I can't really be open to comment here. You know, sometimes i i think about drinking crack, and sometimes i do sometimes i don't it doesn't events on the day. You know they ramble and ramble and ramble and ramble and ramble and they go on and on and on, and that's really the way that that gary gensler sort of approached a lot of these questions. So we didn't quite get some of the feedback that we wanted.

It is what it is uh i wouldn't quite call it a nothing burger there was. There was like two or three focal points that i found interesting, but a lot of it was a nothing burger uh, quite a bit of it was was a nothing burger. So uh that's sort of uh. That was the pitch man.

What do you got? What did you guys think of it here? I'm actually going to end this poll, i'm going to end this poll and i'm going to start another one and the poll and the question is going to be quite simple. It is going to be. Do you feel satisfied after watching that uh interview, yay or nay? I think i already know the responses here. Uh but be honest right.

Do you feel, like you actually addressed the things that you were concerned about and answer the questions that the interviewer was asking? Can there be a middle ma answer? Ah, i mean i guess i could have added that to me if i had to like rate that, one to ten one being the absolute worst and ten being the absolute best i'd give it like a two and a half, maybe a three. It is a start on the most positive note that i can offer. I think that it was a start. There was one piece that he'd mentioned uh where he came out flat flat out right and said: uh, hey, we've got a problem with best execution right, uh.

There's a problem with best execution, there's a problem with with statements from market makers, saying hey, we're giving you best execution in exchange for payment for order flow uh, and this is a problem for us at the sec. That was probably the most straightforward thing that he said and that, like 10 seconds of him, talking uh bumped up my rating by like a point but outside of that a lot of it was just redundancies that we've already heard in the past. So hopefully, tomorrow will be better. Hopefully, tomorrow we'll get a.

I don't know more information, maybe a plan, maybe some actual uh follow-through. I don't know. I guess it'll depend hey that a boy woody good stuff bunch of words, salad, yeah, i'm consciously optimistic. He is moving in the right direction, not optimistic uh it'll happen anytime soon.

The sec obviously moves very slow uh. They stated that they have not made any reform or change to uh, i'm actually gon na tweet. This out. They have not made any reform or change to off exchange trading since 2005., i'm gon na quote this hold up.

The sec hasn't made any regulatory changes to off exchange trading, dark pools and wholesalers since 2005.. What the heck you guys been doing this whole time.

By Trey

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