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Dec 7 • 9 tweets • 4 min read
As expected, the SEC has given notice for an open meeting in a week - Dec 14, with an aggressive agenda that will be the biggest overhaul of US market structure in 17 years.
sec.gov/os/agenda-open…
The first item on the agenda is a long-overdue update to Rule 605, execution quality disclosures. I expect we will get updated, modernized metrics (something I've been pushing for 10 years now) along with the expansion of 605 to include internalization. Image
The second item is focused on leveling the playing field between exchanges and off-exchange execution facilities, and improving the NBBO. This will hopefully mean a 50 mil tick increment (half a penny), reduced access fees, and including more orders in the NBBO. Image
We'll push for a more intelligent tick size approach, and will continue to push for the elimination of the access fee cap along with the elimination of PFOF and exchange rebates. Brokers should route orders based on execution quality, not the biggest kickback they can find.
This will be the most controversial proposal, and the one that will receive the most pushback. As rumored, the SEC is considering mandating exchange auctions to make retail trading more competitive. Again, this seems unnecessary to me - we should just have a trade-at rule. Image
We'll have to see the details before deciding how to respond. This blurb is interesting, as it says wholesalers will still be able to internalize if they first expose the order to an auction. There will be all sorts of problems with this approach. Trade-at is simpler & better.
Finally, the SEC will consider a new best execution rule. Right now best execution is overseen by FINRA for brokers, and under anti-fraud provisions for investment advisors. It's good to have the SEC establish a standard, but the devil's in the details. Image
Overall this is a very exciting time to be involved in market structure, and to play a role in helping to shape these rules. #WeTheInvestors will put together material covering the details, and will be leading a comment letter campaign.
If you're interested in participating, you can join us by signing up on our main page: urvin.finance/advocacy

Or by signing our most recent sign-on letter focused on FTDs, DRS, stock loan and settlement/clearing:
urvin.finance/advocacy/we-th…

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More from @dlauer

Dave Lauer Profile picture
Nov 22
I can confirm I've heard similar things as has been reported publicly - the SEC is moving towards a Dec 14 vote on a proposal that will be the biggest overhaul of markets since Reg NMS in 2005. Here's what I think this will look like. 🧵
The proposal sounds comprehensive, w/ 6 main parts: Best Execution, Retail Auctions, Rule 605 Reform, Tick Increment Changes and Harmonization, NBBO Reform and Market Data changes. This lines up with what @GaryGensler has said publicly for the past 6 months since his June speech.
@GaryGensler The best execution changes should include an order-by-order standard. This strikes at the heart of current PFOF brokers/internalizers, who only focus on aggregate execution quality (& still fail to achieve best ex). That's why you see so many 1 mil PI fills - to juice the stats.
Read 15 tweets
Dave Lauer Profile picture
Nov 10
A quick thread on DRS - holding shares directly w/the company in your name. Most individual investors buy shares with a broker & those shares are nearly always held in "street name." This means they are held under the broker's name. The buyer is not visible to the issuer.
Despite holding shares in "street name" you are still supposed to have all of the rights that come with holding shares, including dividends and the ability to vote. However, that is not always guaranteed.
In 2021, @terminalarc & others led a movement by GME shareholders to vote their shares in the company's AGM. This was primarily done on Reddit, was well organized, with detailed information on how to vote your shares & regular encouragement to do so.
reddit.com/r/Superstonk/c…
Read 16 tweets
Dave Lauer Profile picture
Oct 28
Here’s a disturbing - but not surprising - thing I heard this week. A reliable source told me that a Republican rep recently heard from his constituents - YOU all - about Gamestop. The people had concerns about shorting, PFOF and internalization, and all the craziness in markets.
The rep went to one of the most senior Rs in the House and said "my constituents care about fairness in markets, what can we do about that?" He was told to FORGET about it because of their donors: "you don't want to mess with these people. You don't know what you're wading into.”
Gee, I wonder who that was? This is what we're up against - they will spend huge amounts of money, they will make massive political contributions, all to protect the golden goose and fight the changes that are coming from the SEC.
Read 13 tweets
Dave Lauer Profile picture
Oct 6
Ok, so often when you bring up naked shorting and FTDs with anyone in the industry, they will say that it used to be a problem but Reg SHO fixed it. The claim is always that this is not happening anymore because of robust compliance and enforcement. UBS would like a word...
This week UBS was fined $3M in two actions by FINRA and censured. The actions were straightforward, they did not properly close out FTDs. They sold stock that they did not have, and then they did not deliver that stock. FOR NINE YEARS.
finra.org/sites/default/…
This is an interesting glimpse into a firm that is clearly trying to circumvent the rules. For example, they counted certain shares that they should not have as offsetting shorts and eliminating delivery obligations. They pretended limit orders & non-executed VWAPs satisfied FTDs
Read 10 tweets
Dave Lauer Profile picture
Sep 8
Seems like a good time to revisit the IMC enforcement case. I've seen two main reactions to this:
1) None. The press appears uninterested, industry wants to sweep it under the rug.
2) Why was the fine so small? This is just a cost of doing business.
I want to focus on #1.
The PFOF industry wants this case to be swept under the rug because it's a really big deal. This is essentially the SEC declaring that OTC "market making" is not eligible for the locate exemption under Reg SHO - they are not engaged in "bona fide market making." Image
As a quick reminder, in January I made a point along these lines - Citadel and Virtu are not "market makers." They are high-speed speculators. What they do is not bona fide market making, and should not be treated as such.
Read 9 tweets
Dave Lauer Profile picture
Aug 15
In US markets, market makers are allowed to sell stock short without having located shares before doing so. This exemption to Reg SHO's locate requirements is ripe for abuse, and the @SECGov has just fined IMC $125k for abusing this exemption.
sec.gov/litigation/adm…
@SECGov To qualify for such an exemption, you must be a "bona fide market maker" which in itself is a relatively outdated concept. Market makers don't have affirmative obligations anymore, and it's questionable whether they even need this exemption.
@SECGov What's pretty important about this case is that it specifically identifies IMC's activities in its SDP (Single Dealer Platform), and says that those activities do not qualify for the exemption. IMC executed "millions of short sales" without borrowing or locating shares.
Read 6 tweets

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