6 ms·

Good points. However, wouldn't it be fair to say that the underlying problem is not PFOF (which does seem to benefit small retail customers), but market micros

by FabHK 4y ago

Good points. However, wouldn't it be fair to say that the underlying problem is not PFOF (which does seem to benefit small retail customers), but market microstructure, and specifically the issue of order routing, and that there is not one market place, but many (many of which are "dark")? If I were to design markets, I'd seriously consider: - obligation to trade on one central exchange - a Tobin tax (ie a minuscule tax on all transactions) - not continuous trading with a LOB, but an auction approximately every 5 minutes or so with stochastic cutoff time

pclmulqdq 4y ago
The central exchange idea might make sense, but exchanges themselves are a business. Creating a central one is tantamount to mandating a monopoly, which doesn't often result in good things. If I were the SEC, I would do the following: * Remove reg NMS as it applies to brokers and broker-dealers, allowing them to trade anywhere they want. Keep the requirement that brokers must give a price to customers at or better than the NBBO (but let them trade how they want on the exchanges). This should make brokerage fees cheaper and reduce spreads. * Require brokers to provide execution quality reports to the public the way that brokerage fees are reported to the public. Brokers would then have to say: "$0 commissions, 0.1% average spreads" or something along those lines. The market for high-fee high-quality brokers would likely develop around that: "$5 commissions, 0.01% spreads" is compelling to people who trade large blocks. Hedge funds and big money traders already test brokers like this. * Allow and/or require crossing auctions for retail market orders that get to an exchange. Privileging retail orders on exchange and having brokerages advertise their slippage should give "high-commission, low-spread" brokerages the incentive to send most customer orders to an exchange, and a mechanism to get the best possible price from the broader market. Also, a tiny Tobin tax does currently exist - it funds the SEC. However, adding higher transaction taxes has been tried in Europe, and turned some exchanges into wastelands.

by FabHK 4y ago

pclmulqdq 4y ago

The central exchange idea might make sense, but exchanges themselves are a business. Creating a central one is tantamount to mandating a monopoly, which doesn't often result in good things. If I were the SEC, I would do the following: * Remove reg NMS as it applies to brokers and broker-dealers, allowing them to trade anywhere they want. Keep the requirement that brokers must give a price to customers at or better than the NBBO (but let them trade how they want on the exchanges). This should make brokerage fees cheaper and reduce spreads. * Require brokers to provide execution quality reports to the public the way that brokerage fees are reported to the public. Brokers would then have to say: "$0 commissions, 0.1% average spreads" or something along those lines. The market for high-fee high-quality brokers would likely develop around that: "$5 commissions, 0.01% spreads" is compelling to people who trade large blocks. Hedge funds and big money traders already test brokers like this. * Allow and/or require crossing auctions for retail market orders that get to an exchange. Privileging retail orders on exchange and having brokerages advertise their slippage should give "high-commission, low-spread" brokerages the incentive to send most customer orders to an exchange, and a mechanism to get the best possible price from the broader market. Also, a tiny Tobin tax does currently exist - it funds the SEC. However, adding higher transaction taxes has been tried in Europe, and turned some exchanges into wastelands.