SEC has made its intent clear – there needs to be an order level competition for a retail (small investor) order, so that the retail investor can get the best deal.

Retail orders are valuable to wholesalers (like Citadel and Virtu) and that’s why they pay (Payment for Order Flow or PFOF) to retail brokers (like Robinhood) to get exclusive “rights” to interact with an individual retail order. The debate is over if wholesalers say they don’t want to get the first hit at an uninformed retail order.

So, what is the response of some of the wholesalers and retail brokers to SEC’s intent:

• 1) Retail investors never had it better
• 2) They have the data to prove how great their service has been for retail investors

Entrenched producers should not be deciding how much competition is good enough for consumers. Declining commission was a norm sometime back, and commission free trading is a norm now. Free market will produce the next outcomes of the bundle of benefits (including price improvement) for retail investors.

Without getting into the nitty-gritty of US market structure and trading, let us just hypothesize a pure economic problem. Has free and fair competition among producers/service providers ever resulted in a poor outcome for consumers? In my view, never!

Under what circumstances can the entrenched players demonstrate, utilizing data, that competition is bad for consumers:

• 1) Use flawed benchmark to make their argument
• 2) Collect data from the period when order level competition was non-existent

NBBO is an insufficient benchmark to measure best execution if broader aspects of best execution process are ignored.

The data that will be produced to defend status quo will be for the period that has no semblance of real time competition for a retail order, on a per order basis.

In my opinion, such data has no value because of the flaws in the benchmark and the sample.

The current setup for retail investors’ order handling appears anti-competitive to me. It provides optionality to the producers and restricts those of the consumers.

Supporters of status quo can question implementation details of how to foster free and fair competition for a retail investor order. There is nothing more than that they can intellectually argue.