The system almost failed earlier this year due to the systemic risks in the hands of the two biggest market makers.
Citadel and Virtu CEO’s Ken Griffin and Douglas Cifu continue to argue that retail investors have never had it better.
Although the SEC has been observing for quite some time, they are finally looking into both of their business models.
But is that enough?
What can be done in order to avoid the collapse of an entire system?
The SEC has taken a stance against high frequency trading and is currently supporting the D-Limit order from IEX.
It’s time for retail investors to speak up and let our government leaders know our needs in the market.
Welcome to Franknez.com – the blog that fights for retail investors and for a fair market. Today’s topic is extremely important so let’s dive right into it.
Let’s get started!
System of Checks and Balances
In the United States, the system of checks and balances provides each branch of government with individual powers to check the other branches and prevent one branch from becoming too powerful.
However, there seems to be a massive concentration of power between market makers Citadel and Virtu in the finance world.
These two market makers are responsible for processing majority of retail investor orders.
This creates massive systemic risks since there is so much power concentrated just within these two key players.
Should one or both fail, the entire system could collapse.
This almost happened in January during the ‘meme stock’ rallies.
Citadel claims they were the only market maker processing orders from Robinhood and this is a big problem.
There needs to be a separation of power.
It’s extremely important that retail investors voice their needs from government leaders regarding this matter.
PFOF Takes More Than It Gives
Citadel, Virtu, and Robinhood continue to stand by payment for order flow.
The issue with PFOF is that it takes more than it actually gives.
Market makers argue that it saves retail investors billions of dollars annually but fail to mention that they also make money from retail through high frequency trading.
In this documentary you will find Citadel makes their money shorting stock.
Retail investors don’t want their orders processed by a company that is a market maker, hedge fund, and dark pool all at the same time.
Not only is Citadel profiting from retail money through high frequency trading, but they are also shorting the stock retail investors are buying through various means.
Dark pool trading and naked short selling are some other ways we’ve seen hedge funds suppress the rise of a stocks share price.
More so in ‘meme stocks’ such as GameStop and AMC, which are heavily shorted.
But there’s another issue that has yet to be addressed and that is OTC, or what’s also known as off-exchange trading.
The Rise of Off-Exchange Trading
Over-the-counter (OTC), or off-exchange trading is when trading occurs between two parties instead of through an exchange, such as the NYSE (New York Stock Exchange).
Market makers essentially negotiate with one another through dealer quotation services such as FINRA’s OTC Bulletin Board.
Yes, that is the same FINRA that is supposed to be protecting retail investors and safeguarding market integrity.
Off exchange trading is not as regulated as the NYSE nor does it require prices to be publicly disclosed.
Market makers can short a stock in these off exchange trading platforms and also create a ‘perfect hedge’, allowing them to offset or eliminate all risk on their position(s).
Retail investors go long on stocks.
So when market makers such as Citadel and Virtu are using tools to make money from shorting stocks, retail investors are at a massive disadvantage.
Market Makers Are a Threat to Our Economy
Market makers pose a serious risk to our economy and the businesses that provide massive value to our society.
As long as this concentration of power isn’t broken, the United States economy will always face systemic risk.
And when the entire country is economically on its knees, financial institutions who shorted on the way down will be the only ones compensated for it.
This is when integrity is buried by greed.
So what’s going to be done about it?
Our community now has a voice.
We must continue to fight against market corruption, and we must fight for a fair market.
Only then will we be able to mitigate systemic risk and make a positive impact in our economy.
Retail Investors Can Grow Our Economy
With more people now learning about the markets more than ever, this could greatly benefit our economy.
Not only does the average person get to invest in the stock market, but we get to support the ideas and innovations of the companies in our country.
People don’t need to make a lot of money to invest.
But fair investing could improve the quality of life for millions of people.
The average person could provide more for their family, the government would collect capital gain taxes, and our businesses would excel much more rapidly.
Our government must look at solutions for economic prosperity and growth.
Market makers such as Citadel and Virtu suppress economic growth for their selfish gain.
They do not contribute to society.
This is why we’re seeing a power like China catch up to the United States with such an intense and exponential growth.
They’ve eliminated a lot of the issues in their markets that we have in ours today.
Institutional investors play a dominant role in the U.S markets, while Chinese markets are dominated by retail investors.
This, ladies and gentlemen is why there are now more wealthier Chinese than there are Americans.
Our government must look at market structure and identify what is going to spur growth in our nation.
Leave A Comment Below
I’d love to hear your thoughts in the comment section below. What does our government need to do to mitigate systemic risk?
Do you believe retail investors and make a greater and more positive impact than market makers can?
Share your thoughts below.
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