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It seems that the retail traders are doing better than the institutional types, so the "fix" is to hamstring the retail folks to maintain the status-quo, and ma

It seems that the retail traders are doing better than the institutional types, so the "fix" is to hamstring the retail folks to maintain the status-quo, and make it look like they're doing a favor for retail by acting deeply concerned.

Victerius 4y ago
That's a childish take. Here's what the article says are the SEC's actual concerns: Gary Gensler, the SEC chief, has criticized payment for order flow (PFOF), a practice in which some commission-free brokers generate revenue by sending customer orders to wholesale market makers in return for payments, rather than to exchanges. He has said a ban on the practice is not off the table as it raises potential conflicts of interest, giving brokers incentives to encourage customers to trade more frequently to maximize the payments. The meme stock trading frenzy exposed concerns about the ways in which PFOF increases complexity and potential fragility in the securities markets, the House Financial Services Committee report said. Proponents say PFOF is a major reason brokerages were able to stop charging trading commissions, and retail investors often get a lower, better price than they would on the main exchange. Gensler has criticized the "gamification of trading" in which commission-free brokerages encourage excessive trading using lights, noises, notifications and other gimmicks to generate more PFOF. He has also highlighted the use of artificial intelligence, predictive data analytics and machine learning to push products. In August 2021, the SEC issued a consultation on potential new rules to limit gamification and other "digital engagement prompts." The agency is expected to proceed with a rule change in the coming months. read more The U.S. House Financial Services Committee on Friday urged Congress to adopt legislation mandating the SEC study how its rules need to change to address new technological developments, such as digital engagement practices and social media-driven market activity. The GameStop saga highlighted the small number of market-makers -- brokers that execute trades and publicly post buy and sell quotes for others to trade -- that dominate the retail market, which may pose competition issues, Gensler has said. The House Financial Services Committee said that at the time of the Reddit rally, Robinhood was not connected to any exchanges, and of the six market makers Robinhood routed all its customers' orders to, nearly all were unable to execute trades in certain meme stocks due to the market stress. "Had all these market makers been unable to execute trades, Robinhood would have been unable to execute trades on behalf of its customers," the report said. Nearly all retail trades are executed away from exchanges. That is partly due to rules that allow market makers to offer fractional sub-penny price improvement on bids and offers, whereas exchanges have to quote in pennies. Gensler has said that has created an uneven playing field in the competition for retail orders. _______ As an aside, institutional investors, like pension funds, are not trying to generate +500% returns on options or meme stocks. They're not trying to beat traders. They're more comfortable with stable rates of return over the long term. +2%-3% per year. Not hard to beat for a day trader.
- Animats 4y ago
  The House Financial Services Committee said that at the time of the Reddit rally, Robinhood was not connected to any exchanges, and of the six market makers Robinhood routed all its customers' orders to, nearly all were unable to execute trades in certain meme stocks due to the market stress. Had Robinhood had actual exchange connections, would they have been able to execute the trades? If the exchange can match a buyer and a seller, you don't need a "market maker". Market makers provide liquidity in infrequently traded assets. For frequently traded assets, you don't need market makers, just matching of buyers and sellers.
  - ueieishdijw 4y ago
  - astrange 4y ago
    They wouldn’t be able to without charging fees; retail orders are too small to handle at the exchange, and Robinhood doesn’t AFAIK have their own internalizer.
  - dchftcs 4y ago
    The matching of buyers and sellers is a hard problem. When there's a limit order book, meaning bid and ask resting orders on NYSE, by definition the buyers and sells can't be matched. To "match buyers and sellers", one needs to buy from someone at time T, and hope to sell to someone else at time >T, during which time the market could have gone up or down. It's a risk-taking processes and a problem that's underappreciated by those who never actually tried to look at the basics of how an exchange works. Also the best bid and offers on exchanges are often already market makers. To say you "don't need" market makers because of liquidity is a bit circular.
logifail 4y ago
> the retail traders I have a friend who works in HFT[0][1], over a beer or three in central London a few years ago he told me that in his world a common description of retail trading is "dumb flow". When your intentions to trade are being sold to the HFTs before your trades are even priced, I guess that does indeed rate you "dumb". [0] https://en.wikipedia.org/wiki/High-frequency_trading https://en.wikipedia.org/wiki/High-frequency_trading [1] https://clsbluesky.law.columbia.edu/2015/12/15/is-high-frequency-trading-good-for-capital-markets/ https://clsbluesky.law.columbia.edu/2015/12/15/is-high-frequ...
- astrange 4y ago
  You can’t sell retail traders’ intentions to anyone. They trade in single blocks and effectively trade at random (some people need to sell even if someone else is buying), so there’s no hint of what they’re doing. HFT only trades against institutional multi-block traders. The institutional people wrote Flash Boys to distract you from that.
- kareemsabri 4y ago
  I don't think it does. If I'm buying AAPL on a 10-year time horizon, and some HFT trader front-runs my trade for some fractions of a penny, that doesn't really harm me as far as I can tell.
ctvo 4y ago
> It seems that the retail traders are doing better than the institutional types Who do you think benefits most that this myth continues to propagate? The myth that the common man, with 1,000 USD to his name, can go on a trading app and do better than the financial elites and gain financial independence? Why would anyone in the market want to disabuse you of this when it brings in so much dumb money.

Victerius 4y ago

That's a childish take. Here's what the article says are the SEC's actual concerns: Gary Gensler, the SEC chief, has criticized payment for order flow (PFOF), a practice in which some commission-free brokers generate revenue by sending customer orders to wholesale market makers in return for payments, rather than to exchanges. He has said a ban on the practice is not off the table as it raises potential conflicts of interest, giving brokers incentives to encourage customers to trade more frequently to maximize the payments. The meme stock trading frenzy exposed concerns about the ways in which PFOF increases complexity and potential fragility in the securities markets, the House Financial Services Committee report said. Proponents say PFOF is a major reason brokerages were able to stop charging trading commissions, and retail investors often get a lower, better price than they would on the main exchange. Gensler has criticized the "gamification of trading" in which commission-free brokerages encourage excessive trading using lights, noises, notifications and other gimmicks to generate more PFOF. He has also highlighted the use of artificial intelligence, predictive data analytics and machine learning to push products. In August 2021, the SEC issued a consultation on potential new rules to limit gamification and other "digital engagement prompts." The agency is expected to proceed with a rule change in the coming months. read more The U.S. House Financial Services Committee on Friday urged Congress to adopt legislation mandating the SEC study how its rules need to change to address new technological developments, such as digital engagement practices and social media-driven market activity. The GameStop saga highlighted the small number of market-makers -- brokers that execute trades and publicly post buy and sell quotes for others to trade -- that dominate the retail market, which may pose competition issues, Gensler has said. The House Financial Services Committee said that at the time of the Reddit rally, Robinhood was not connected to any exchanges, and of the six market makers Robinhood routed all its customers' orders to, nearly all were unable to execute trades in certain meme stocks due to the market stress. "Had all these market makers been unable to execute trades, Robinhood would have been unable to execute trades on behalf of its customers," the report said. Nearly all retail trades are executed away from exchanges. That is partly due to rules that allow market makers to offer fractional sub-penny price improvement on bids and offers, whereas exchanges have to quote in pennies. Gensler has said that has created an uneven playing field in the competition for retail orders. _______ As an aside, institutional investors, like pension funds, are not trying to generate +500% returns on options or meme stocks. They're not trying to beat traders. They're more comfortable with stable rates of return over the long term. +2%-3% per year. Not hard to beat for a day trader.

Animats 4y ago
The House Financial Services Committee said that at the time of the Reddit rally, Robinhood was not connected to any exchanges, and of the six market makers Robinhood routed all its customers' orders to, nearly all were unable to execute trades in certain meme stocks due to the market stress. Had Robinhood had actual exchange connections, would they have been able to execute the trades? If the exchange can match a buyer and a seller, you don't need a "market maker". Market makers provide liquidity in infrequently traded assets. For frequently traded assets, you don't need market makers, just matching of buyers and sellers.
- ueieishdijw 4y ago
- astrange 4y ago
  They wouldn’t be able to without charging fees; retail orders are too small to handle at the exchange, and Robinhood doesn’t AFAIK have their own internalizer.
- dchftcs 4y ago
  The matching of buyers and sellers is a hard problem. When there's a limit order book, meaning bid and ask resting orders on NYSE, by definition the buyers and sells can't be matched. To "match buyers and sellers", one needs to buy from someone at time T, and hope to sell to someone else at time >T, during which time the market could have gone up or down. It's a risk-taking processes and a problem that's underappreciated by those who never actually tried to look at the basics of how an exchange works. Also the best bid and offers on exchanges are often already market makers. To say you "don't need" market makers because of liquidity is a bit circular.

logifail 4y ago

> the retail traders I have a friend who works in HFT[0][1], over a beer or three in central London a few years ago he told me that in his world a common description of retail trading is "dumb flow". When your intentions to trade are being sold to the HFTs before your trades are even priced, I guess that does indeed rate you "dumb". [0] https://en.wikipedia.org/wiki/High-frequency_trading https://en.wikipedia.org/wiki/High-frequency_trading [1] https://clsbluesky.law.columbia.edu/2015/12/15/is-high-frequency-trading-good-for-capital-markets/ https://clsbluesky.law.columbia.edu/2015/12/15/is-high-frequ...

astrange 4y ago
You can’t sell retail traders’ intentions to anyone. They trade in single blocks and effectively trade at random (some people need to sell even if someone else is buying), so there’s no hint of what they’re doing. HFT only trades against institutional multi-block traders. The institutional people wrote Flash Boys to distract you from that.
kareemsabri 4y ago
I don't think it does. If I'm buying AAPL on a 10-year time horizon, and some HFT trader front-runs my trade for some fractions of a penny, that doesn't really harm me as far as I can tell.

ctvo 4y ago

> It seems that the retail traders are doing better than the institutional types Who do you think benefits most that this myth continues to propagate? The myth that the common man, with 1,000 USD to his name, can go on a trading app and do better than the financial elites and gain financial independence? Why would anyone in the market want to disabuse you of this when it brings in so much dumb money.