90 of all, marketable orders are routed through wholesalers. Now, if you don't know what that means, there's two separate markets that sort of exist within the united states stock market. You can think of a lit exchange, which is you know, true supply and demand and you've got price discovery, and this is where you would expect uh trading to take place. Then you have something known as off: exchange trading off exchange trading encompasses both dark pools and wholesalers.

Dark pools meant to be transactions, filled for large institutions, large black trades, with less transparency and wholesalers. Referring to the internalization aka, the internal uh transacting of retail orders, both buys and sells. This could be thought of as citadel. Well, if off exchange trading is meant to be sort of supplementary a secondary market alongside lit exchanges, it might seem problematic that 90 percent of orders are routed through there and that's because it is guys welcome to trace trades wherever you can talk fast and don't skip Classic we're probably saying that i'm gon na find advisor experts, so they're gon na say they're gon na salt, let's get into it today, the sec spoke on something that retail investors have been working quite hard on for some time and that was uh.

The reform or banning of payment for order flow. Now i watch this live in case. You missed it. You didn't miss out, i'm gon na be honest, uh, i'm gon na share with you what gary gensler had discussed and some of the focal points i find to be important.

They're gon na pick up this conversation tomorrow, in which case i will give you guys an update. I will also be live streaming. The update uh as when the time comes, but there's a couple key things to know. As i mentioned, 90 of all orders are transacted through wholesalers.

This can be thought of as three main market makers citadel virtue wolverine. These top three market makers take the majority of all transactions that take place within the stock market and the majority of internalization or wholesaling that you may see. This is problematic. It's not competitive.

This creates a non-competitive environment for markets and, obviously, if they are to manage the markets, they're not competitive. What does that do for the actual markets? Well, create some problems and to make matters worse, the sec has not made any changes or reform to off exchange trading, which is a key problem here since 2005. They about not having enough money for coffee, not gon na get. Sympathy from me here are the six focus points that gary gensler had mentioned during his uh his speech today that his interview today uh and then they go in this order.

Minimum pricing uh increments and nbbo, which is national best bidder, offer disclosure about execution quality, bex execution order by order competition and payment for order flow, dave, lauer organized a a petition which was meant to grab the attention of uh retail investors and pitch a plan in Order to reform payment for order flows, it's probably the most important thing, and what what many uh have been drawn to and i'd like to dive into what gary gensler addressed for each of these issues, starting with pfoff, as it probably affects the most of you, payment For overflowing gave no concrete plans outside of the fact that there's an obvious conflict of interest between brokers and market makers, and then he would like to reform rebates, exchange, rebates and payment for order flow now. Obviously, this would be a huge thing uh to have done. Why, well, if you take out the the incentive, which is for a market maker, to pay a broker to then send order flow over to that market maker, where they can make money? Well, you have less reason for a broker to go to a non-competitive solution such as citadel virtue wolverine, instead of what they should be focusing on, which is best execution now, what is best best execution? Why does it matter best execution is giving you the best possible. Fill or the best possible price for any buy or sell order.

The bid and the ask on a stock right then be in your best interest get best execution, it makes sense, and this is what payment for order flow argues. Is it will get you best execution, albeit there is uh arguments that it probably does not, and then it actually comes at the expense of you making potentially more money. Now gary gensler didn't give any details, and this is something that i think a lot of people are frustrated with, and hopefully we get some answers to tomorrow. Uh for payment for order flow, no plan and to be truthful with you if he gives a plan - and he does say, hey we're going to ban piff.

I think it's important to note that you likely will not see change for some time. It could take years. It could, i don't think they're just going to overnight snap. Their fingers and bam kill, kill a bunch of different market makers and businesses and uh and xyz blah blah blah blah blah.

Even if it may be the right thing to do. We know that the sec moved slowly, they've proven this historically, and if that statistic i didn't give you the beginning, doesn't convince you, i don't know what would uh since 2005, they have not updated off exchange trading, so i'd. Imagine it's going to take time now. They.

Finally, have the ball rolling order by order competition uh, they want to open up competition for order flow. Why is this important is because, if you look at uh citadel virtue, wolverine top three market makers which handle transactions or wholesaling across the market, uh you're gon na run into the problem that these guys handle the majority of transactions so order by order competition would would Be met in my opinion. If you handle this, this is a really big piece of why i think you have a non-competitive market. Do you want to see uh actual competition order by order open up competition for order flow? You're gon na have to make it possible money talks right.

You can buy your way into basically anything and send it over to wolverine sitting on the top handling the most transactions handling the most order flow having the most money are going to be able to do that. They can essentially run the game when you have that much money, you kind of control, everything uh, so you got ta sort of level the playing fields i think p5 uh and banning p5 for the very least, reforming p5 would open up that order by order competition. No direct plans here he just stated what he'd like to see best execution uh. He thinks that there should be better details and transparency regarding best execution.

Are you actually getting best execution uh, which means the best possible price for your buy or for your sell order? Your ask or your bid on any sort of transaction or order flow. This would obviously be good uh, no, no plans more so just a statement. What he'd like to see. We want to see more disclosure about execution quality.

This falls back into the line of uh best execution right, this sort of go hand in hand uh. We need to actually fight for best execution. We have to have disclosures saying whether or not we're actually receiving that this can actually come at a broker level, which is something that uh gary gensler talked about when he pitched this overall we'd like to see more nbbo the national best bid and offer. Now, in the most difficult way that i can put it, you have two sort of things that exist right.

You've got round lots and you've got odd lots and a statistic and an interesting piece that has arisen over the previous uh couple of years is that you have seen odd lots grow drastically. Odd lots have increased from 15 in 2015 of uh nbbo's to more than 45 percent of trades in 2022, more than 45 percent are online, so there's a an obvious ramp up in the chart here for showing that odd lots are increasing overall. What gary gensler would like to accomplish is to essentially fill these critical gaps that you will find from round lots which are quotes of 100 shares or more and odd lots uh, and by doing this, it's going to give you a better shot at best execution. Giving you the best bang for your buck right uh.

How is this possible right? Well, if you can transact more shares uh, you know at a time more consistently, et cetera. This is kind of what wholesaling is to some extent is uh. You know if we could kind of batch these chairs together. You know we could save a penny or two or a fraction of a penny off of this and that uh he wants the true competition to exist, and this comes from filling gaps between round lots and odd lots.

Lastly, minimum pricing increments uh he wants to harmonize tick size across lit and off exchange, and why this is important is something known as arbitrage could take place uh when there is pricing differences across the lit market, which is sort of like primary market right and the Off exchange market, which you can think of as secondary right now, there's a pricing difference by even just a fraction of a penny point: zero, zero one. Let's say that the ask here on the lin exchange is point. Zero. Zero one higher than it is on off.

Exchange off exchange is point zero, zero one lower. What you can see happen is algorithms, within fractions of a second milliseconds nanoseconds can buy and sell and commit arbitrage by simply going to a different exchange, and what it wants to do is harmonize these tick sizes across lit and off exchanges, so that that arbitrage is Likely less possible and less doable. This is obviously important arbitrage, no matter how much you're scraping adds up. These guys have millions and billions and billions of dollars uh and if you do this every single day for a long time, well you're kind of scraping those who don't have the tools that don't have the algorithms that don't have the resources to make.

Something like that. Even possible uh, so these are the six focus points. The most frustrating thing and i think where a lot of people are frustrated is this: they didn't talk about paying for order floor. Are they gon na ban? Are they gon na reform? What are their plans? What's going to happen, we'll hopefully find out tomorrow, but these are the six focus points that gary gensler would like to accomplish.

Do you want my opinion? You want my take, i think, uh, in order to accomplish this he's going to have to piss a lot of people off. Yes, virtue went on an interview today with cnbc and stated uh that that payment for order flow is good for retail and it actually costs. It was a lot of the same ken griffin when he spoke on it from citadel, stating it costs us money uh to wholesale stuff. It's not great for us we'll do whatever we have to do we'll comply and he almost gaslighted gary gensler as if he was in the wrong for proposing something like this, and you can probably guess why, because it pisses him off, because they don't want to change The way things are because it will kick down that top three citadel virtue, wolverine, who control the market and have triopolized the market uh into what it is today, which is a non-competitive, complex, absolute show, so hopefully follows through.

I think it's gon na take time, uh we'll know more tomorrow, so there's the update. You guys all take it easy appreciate you much lovely taps. Peace.