🚨 David Lauer AMA Transcript Summary 🚨 (2/2)
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|  [u/Bye_Triangle](https://www.reddit.com/user/Bye_Triangle/) | [Reddit](https://www.reddit.com/r/Superstonk/comments/n7295i/david_lauer_ama_transcript_summary_22/) | 

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[Education 👨‍🏫 | Data 🔢](https://www.reddit.com/r/Superstonk/search?q=flair_name%3A%22Education%20%F0%9F%91%A8%E2%80%8D%F0%9F%8F%AB%20%7C%20Data%20%F0%9F%94%A2%22&restrict_sr=1)

THIS IS PART 2, SEE PART 1 HERE:

______________________________________________________________________

THE BROKEN PART FALLACY

-   Jack

    -   Okay and correct me if I'm wrong but are those mechanics basically some of the reasons for the flash crashes that we've seen in recent history?

-   Dave

    -   Yeah, I mean I know the reports that come out have talked about some of these manipulative practices being responsible for some of the flash crashes, but that's not something that I sign on to.

-   I'm more of the belief that these are complex systems. It's kind of a fallacy to just assign a broken part. So when a plane crashes, and they say, oh, this part of the wing failed, that's why the plane crashed. Right?

-   So in the flash crash, they said oh this guy was spoofing markets, and that's why the market crashed. But that's not how nonlinear systems work. That's how linear systems work.

-   A causes B causes C, but in nonlinear systems, that's not how it works, there are, it's an emergent property of a self-organized system I mean I you can go down a rabbit hole with, with this kind of systems theory and complexity theory, but I've written a bit about it but I think that assigning that sort of A causes B is not correct because you're gonna have the exact same conditions happen another time and you won't have a flash crash, because that's how nonlinear systems work you can't quite explain it in the same sort of framework that we're used to.

-   There's the reason that the spoofing had that effect was because of years of regulation that have removed diversity from the markets and led to a latency race and that have fragmented markets across multiple exchanges

-   it's sort of environmental and regulatory and legislative and then there's also potentially a precipitating event, which is somewhat spoofing, but that's not necessarily the cause.

TL:DR 🦍 Summary:

-   Non-linear systems are not easily explained. Just because 1+1 = 2 is simple for apes to understand does not mean that this is the case for HFT systems.

-   Complex,Non-linear systems as designed and described by Dave, ultimately are incredibly sensitive, and any number of factors can lead to flash crashes, not just manipulation, but this too isn't out of the question.

-   Boiled down, not even regulators can predict the impact that changes on these systems may have, and history shows that it can be extreme.

______________________________________________________________________

FLASH CRASHES

-   Jack

    -   Yeah, I found that interesting because, on several occasions, within GME, we've seen similar events that could be described as a flash crash, or worse, one that hasn't happened in March happened within 30 minutes, so we had nearly dropped from 345 to 173 with a volume of 72,000, or within a 30-minute gap. We also saw gap downs in price and all these are very, what I perceive as reflective of HFT manipulating the price.

-   Dave

    -   So it doesn't have to be manipulative, when we think illiquidity contagions or flash crashes are like the things you've described sometimes it's just them pulling out.

    -   Right? So, if 90% of the quotes in the market are from HFT firms some sometimes as high as 99%, and suddenly the volatility increases, or they take on too much inventory, and they need to stop trading, which is a lot of what happened during the flash crash proper in 2010, they'll just stop quoting, and as soon as they stop quoting suddenly that liquidity just starts disappearing, and other systems, key on that and then they start pulling out and it's this positive feedback loop.

    -   So, I mean maybe. I'm not dismissing the possibility of manipulation because I see manipulation in markets, but sometimes it's also just sort of this feedback loop that gets away from itself.

TL:DR 🦍 Summary:

-   Jack mentions to Dave that GME has seen many events that could be considered a 'flash crash, *such as the March fall in price from $345 to $173***.**

-   Dave clarifies that crashes such as this may not be *inherently* manipulative, in that algos are just trading as designed. When 90-99% of the liquidity of a stock is provided by HFT systems; in the event of an increase in liquidity occurs or when HFT's determine they hold too much inventory, they may be programmed to 'pull out' which can cause a snowball effect on other systems and crash the price.

-   Notwithstanding the above, Dave does not discount that manipulation is an impossibility at all, but thinks it is important to recognize HFT systems can act on a positive feedback loop as described.

______________________________________________________________________

ORDER TYPES, NOT SO SIMPLE

-   Jack

    -   Interesting.

    -   Let's talk about order types, so personally, I've written a bit about order types before and basic market structure and the Wall Street Code which was a documentary that you're a part of the mentioned earlier, started to peel back some of these layers in regards to order types and HFT traders getting certain advantages over others.

    -   I'm particularly interested in the conflict of interest between exchanges and the non-retail side, and how there isn't any equality there. Why not provide retail with the exact same options as they do non-retail? Can I get your thoughts on that?

-   Dave Lauer:

    -   So if you want to put this slide up I've thrown up an illustration from 2015 of the various order types that were available at NYSE Arca, NASDAQ, and BATS.

[![r/Superstonk - 🚨 David Lauer AMA Transcript Summary 🚨 (2/2)](https://preview.redd.it/3ek9rls33qx61.jpg?width=3832&format=pjpg&auto=webp&s=d9e485a41f7178917cb735de5270fa82960d9c87)](https://preview.redd.it/3ek9rls33qx61.jpg?width=3832&format=pjpg&auto=webp&s=d9e485a41f7178917cb735de5270fa82960d9c87)

-   Dave Lauer

    -   So you can see, kind of how crazy this is right? As I said on Reddit, it's not Limit and Market. I was actually trying to post this picture but I couldn't quite get it to work in the comments.

    -   So, here's an

        -   "Add Liquidity Only Midpoint Passive Liquidity" order

        -   You've got an "Inter-Market Sweep Post No Preference" order

        -   "Display Limited Attributable Non-ISO"

        -   "Inter-Market Sweep Post No Preference, Immediate or Cancel"

    -   I mean, these are very complex order types. Most of them are many of them are often dictated by the biggest customers of the exchanges, which are those HFT firms

    -   And it's not just retail that doesn't make use of them. Often, large broker dealers trading for institutional firms don't make use of them the way they should.

    -   That has started to change.

    -   Do you know what an "Add Liquidity Only Post No Preference, Blind Order" would do? Because, not even NASDAQ knew what it would do, NASDAQ got fined because they had some crazy complex order type that was messing with the priority in a way that they had not even imagined.

    -   That was discovered, and self-reported but it's like... That is complex things have gotten.

    -   So yes, the order types do advantage certain firms. and there's no way around it. Part of that is again because of regulatory conditions like reg NMS, which has forced exchanges to connect to each other, and to provide the functionality to route to each other. Or to bypass that routing with these ISO orders because reg NMS said that if there's a price in the market, on a protected quote, that is better than the one on the exchange your sending the order to, you have to go take that price on the other exchange.

    -   It's led to a huge amount of complexity.

    -   I think things would be a bit better if the market were simplified. I think the market markets would be better with fewer exchanges, non complex order types.

    -   I don't know if much of this complexity is as beneficial as the costs of the complexity.

    -   You'll never get access to that for most retail brokers because most retail brokers are not sending orders to exchanges, sometimes they'll, they will send limit orders to exchanges, but they'll send it generally to whatever exchange will pay them. The highest rebate.

    -   You need to use a broker who would provide access to certain to these types of order types.

    -   So the only one I'm familiar with is Interactive Brokers, versus some of the other retail brokerage platforms. I haven't used a ton of the active trader platforms on the other discount brokers... So, maybe they do, maybe they don't.

    -   Many of them, for example won't even route to IEX,

    -   Which if you're posted on IEX with a delimit order or a delimit midpoint peg, you're getting similar functionality to what HFTs get.

    -   But of course, I am biased, I worked with the guys at IEX. I know them, I have owned equity in it, But I did so because I believed in it. I thought it was a good solution to the problem.

TL:DR 🦍 Summary:

-   The markets are becoming so over complicated with all these different types of orders, that not even the exchanges can keep up.

-   NASDAQ has been fined in the past for not being able to keep up and understand the orders on their exchange.

______________________________________________________________________

PAYMENT FOR ORDER FLOW

-   Jack

    -   That's a good transition into the Payment For Order Flow (PFOF) side of things. So, it's no secret that RobinHood has kind of been popularized in this space, especially given their disclosures to customers last year getting started getting fined 65 million or so, but actually not quite understand

    -   What are some of the negatives that come out of that from the retail side? Also the impact on the market as a whole, due to PFOF?

-   Dave Lauer

    -   Yeah, so let me show you a couple of quotes here.

[![r/Superstonk - 🚨 David Lauer AMA Transcript Summary 🚨 (2/2)](https://preview.redd.it/8a8x4gsa3qx61.jpg?width=3840&format=pjpg&auto=webp&s=14d5f926b11298f01a1b91855c8414746b29d2e2)](https://preview.redd.it/8a8x4gsa3qx61.jpg?width=3840&format=pjpg&auto=webp&s=14d5f926b11298f01a1b91855c8414746b29d2e2)

-   Dave Lauer

    -   *Reading from screenshot*

    -   These are obviously statements made before Citadel engaged in payment for order flow or before Jeff Sprecher, I think opened an IV. That was more recent than he bought it.

    -   I think the payment for order flow and the internalization of retail orders is terrible for markets, and the thing about retail order flow is it's referred to as "uninformed", that doesn't mean that you don't know where GME is gonna go in six months or a year. You might have the best fundamental analysis in a long time-horizon. You are not informed about what is going to happen in the next 50 milliseconds.

    -   When you think of uninformed order flow it means, what is about to happen in the market as far as a high-frequency trading firm is concerned. And at that time-horizon is measured in milliseconds... maybe seconds. because of that retail order flow is what market makers want to trade against, It's very profitable to trade against it.

    -   That's why these market makers pay the retail brokers for it because they want to get that order flow.

    -   An interesting paper just came out that showed that the impact on markets is significant. That when you take that profitable order flow and you don't let it get to exchanges and interact with other orders on the exchange, you can be affecting the spread by as much as 25%, maybe more, but, but at least what they could quantify they saw that spreads would tighten by 25% if that order flow made it to markets, and then, everyone benefits.

    -   So we, we think, and I know, Reddit here thinks retail is active day traders trading through a discount broker, but I usually like to say that in fact, retail is the wealth of the nation or the wealth of the world it is mostly concentrated in mutual funds and pension plans. So you might have a small trading account that you're playing with, but your retirement. Some people, I mean, I know some of you have it locked up in GME**.**

    -   but for some people it's, it's in a mutual fund in an IRA or something, or 401k like that. And, and, to me, those are the refund to the ship, access to trade against retail orders on the exchange, like the rest of the world does.

    -   I think that this is an area that's going to get a lot of attention. Some bills are being unveiled in Congress that could completely change this I very much support. And I think that I am in favor of competition. So like I said, there are many times where I am a capitalist I believe in intelligent capitalism and well-regulated capitalism but capitalism nonetheless. I believe in open competition for order flow Get the orders on the exchange and let every hundred of market makers should be able to compete over that order flow, not just the developer.

TL:DR 🦍 Summary:

-   PFOF is more trouble than it's worth.

-   It has been shown that PFOF can be affecting the spread at much at 25%

-   It is very profitable for a large firm to trade against/ ahead retail orders. I am speculating here, but this is likely why this is such an important fight for Citadel. We, the customer, are actually the product, just like with social media

______________________________________________________________________

DARK POOLS, INTERNALIZERS

-   Dave Lauer:

    -   Along the lines of internalization and dark pools, I know that has been an area of a lot of questions on Reddit.

    -   This morning, actually I put a couple of charts together that I wanted to show.

    -   So, just to divert briefly. I want to talk about dark pools versus internalizers.

-   Dave Lauer:

    -   These are two different things.

    -   And you can see that FINRA has an excellent website, [the OTC transparency website](https://www.finra.org/filing-reporting/otc-transparency) and you can see on the website:

        -   ATS (Alternative Trading Systems): those are dark goals; versus

        -   OTC (Over the Counter): those are internalized.

[![r/Superstonk - 🚨 David Lauer AMA Transcript Summary 🚨 (2/2)](https://preview.redd.it/ju14izye3qx61.jpg?width=3840&format=pjpg&auto=webp&s=445c3811e5207f71c7eb0e86070697caf029c842)](https://preview.redd.it/ju14izye3qx61.jpg?width=3840&format=pjpg&auto=webp&s=445c3811e5207f71c7eb0e86070697caf029c842)

-   Dave Lauer:

    -   So here is GME last November (2020). a certain percentage is getting executed on exchange and a certain percentage is getting executed off-exchange--

    -   Of the off-exchange volume, 89% of it in November was OTC (think Citadel).

    -   Versus March (2021), 87%.

    -   So not much change since 2020.

    -   Most GME volume is getting executed through retail channels and is being executed on the OTC market.

    -   So when you think "dark pools", the thing about, and where one of the confusion might lie, is when a trade executes off-exchange either OTC or in the ATS, it is still printed to the tape to what's called the trade reporting facility.

[![r/Superstonk - 🚨 David Lauer AMA Transcript Summary 🚨 (2/2)](https://preview.redd.it/mqa92bgi3qx61.jpg?width=3825&format=pjpg&auto=webp&s=c9274348062103a0b99947ab261d886dbccfc22c)](https://preview.redd.it/mqa92bgi3qx61.jpg?width=3825&format=pjpg&auto=webp&s=c9274348062103a0b99947ab261d886dbccfc22c)

-   Dave Lauer

    -   And I have up here, the market share.

    -   Generally, in the market of the lit exchanges, all these are lit exchanges versus one of the TRS, one of the trade reporting facilities, this one's NASDAQ

    -   for some reason, NYSE got cut off of this chart

    -   but there is an NYSE TRF that was something like 7%

    -   So what that showed was 40% of volume was executed off-exchange reported to the TRS

    -   So every time Citadel internalizes a trade, it gets printed publicly, every time, Goldman Sachs or Morgan Stanley, or JP Morgan execute a trade in their dark pool, it still gets printed publicly.

    -   You don't know who was the aggressor or anything like that but you know the quantity and the price that is executed at.

[![r/Superstonk - 🚨 David Lauer AMA Transcript Summary 🚨 (2/2)](https://preview.redd.it/ug6m6q6k3qx61.jpg?width=3840&format=pjpg&auto=webp&s=b31478d9ae7209d60729639930fe02d527915631)](https://preview.redd.it/ug6m6q6k3qx61.jpg?width=3840&format=pjpg&auto=webp&s=b31478d9ae7209d60729639930fe02d527915631)

-   Dave Lauer

    -   So now if we go back quickly to ATS versus OTC.

    -   What I wanted to show was even though nothing has changed much in terms of where the trading is taking place, even a little less OTC but that's probably just normal statistical noise.

    -   What *has changed* is who's trading on the OTC market.

[![r/Superstonk - 🚨 David Lauer AMA Transcript Summary 🚨 (2/2)](https://preview.redd.it/pdbv85un3qx61.jpg?width=3835&format=pjpg&auto=webp&s=12775dc7ea1bc7c74c4e5df8d2b83693d5cc4535)](https://preview.redd.it/pdbv85un3qx61.jpg?width=3835&format=pjpg&auto=webp&s=12775dc7ea1bc7c74c4e5df8d2b83693d5cc4535)

-   Dave Lauer

    -   So in November, it was predominantly Citadel with a little Virtu and an even little more G1X

    -   This is market share, you can see that accounts for almost 85% of all OTC trading, and the rest is a bunch of smaller internalizers

    -   And then it peaked for Citadel in January

    -   But what we've seen since then is actually Citadel's market share in GME has dropped significantly and so has G1X, and Virtu has really taken over

    -   At the same time, the average trade size that's being executed OTC has *plummeted*.

    -   This was honestly really astonishing to me.

    -   I guess this is probably the Robin Hood effect or the retail effect.

    -   But you can see in December, the average trade size for Citadel was relatively high, it was around 350 shares and for Virtu it was around 200, and a little over 250 overall.

    -   And since then in January, I mean, these, these *dropped to under like 40 shares average trade size***.** That was really shocking to me. Part of that has been the price increase, absolutely.

    -   But at the same time like an average trade size of 40 shares is extremely small. I don't know what to make of it necessarily but I thought it was an interesting sort of data point to highlight. I just wanted to show that.

-   Jack

    -   So for Citadel, it's been decreasing since January. Does that suggest that they're also increasing in off-exchange?

-   Dave Lauer:

    -   No, so this is: how much are they trading off-exchange, but this is just OTC, not ATF-- not dark pool. But I don't think Citadel is a material part of the ATS trading in GME.

    -   I looked at it briefly and I saw a lot of it was Interactive Brokers so when they internalize they're printing on an ATS, not OTC, and they invite other firms to come into the ATS.

    -   That's one of the differences when you're trading or printing OTC versus plugging ATSs.

    -   Other firms can trade in a dark pool, whereas OTC they're not.

-   Jack

    -   That's interesting. I think a lot of DD that we talk about, talks about dark pools actually suppressing retail buy pressure on a stock's price. What's your view on that?

-   Dave Lauer:

    -   Yeah, I'm not sure of the mechanism for how that would work, because like I said, even if you're trading in a dark pool that trade is printing to the tape.

    -   I think that if you can-- I mean, technically you can't know that there are offers on the dark pool. That's why it's called Dark-- that's the whole thing.

    -   So, if there's this wall of offers at 180, you're getting all these orders coming in on your retail channel and you want to keep it from going over 180 for whatever reason--

    -   I'm not sure of the mechanism that you would use to print that off-exchange.

    -   I think from that perspective, I am sorry to say, I didn't find that analysis to be compelling, and I could be wrong, but I think: you don't need the dark pools in that equation you can:

        -   layer orders in the market;

        -   internalize it,

    -   because when you're internalizing orders you're internalizing them within the NBBO which you don't necessarily control.

    -   But if you want to control it, you have to do that on the lit market, not in the dark pool.

    -   The dark pool, legally, can only execute within the NBBO.

-   Jack:

    -   I think where a lot of us come from, in terms of implying that assumption that it doesn't actually affect or does suppress retail blood pressure through routing through code is that I think a lot of the research suggests that large mutual funds will place their orders on dark pools to avoid say increasing the price or decreasing necessarily.

-   I think that's kind of where that came from, but they have that restriction of executing within the NBBO, it doesn't really have that, is that right?

-   Dave Lauer:

    -   No, it does and it's absolutely true that institutions use dark pools.

    -   If I want to buy a million shares of GME. it would be a big mistake if I just hit the market with a million shares, right?

    -   I'm going to really, I'm going to exhaust all of the standing offers that price is going to go crazy.

    -   That's not getting the best execution.

    -   Instead, if I want to buy a million shares first I'm probably going to send maybe half a million to one broker half million to the other, they're going to take that half a million and sit them in their dark pools, so that nobody knows they're there but if sellers come along, then they're going to hit my bids and I'm going to start buying little by little and then those brokers are also going to algorithmically be routing them all over they might be pinging Citadel and pinging Virtu and others.

[![r/Superstonk - 🚨 David Lauer AMA Transcript Summary 🚨 (2/2)](https://preview.redd.it/hq502vvt3qx61.jpg?width=3840&format=pjpg&auto=webp&s=afd2fd1245a528cd1502c2db664398acb88e1287)](https://preview.redd.it/hq502vvt3qx61.jpg?width=3840&format=pjpg&auto=webp&s=afd2fd1245a528cd1502c2db664398acb88e1287)

-   Dave Lauer

    -   This slide shows you the complexity of the market, right?

    -   This is what I'm doing, I am trying to navigate this complexity, to get the best price that I can while leaking the least amount of information possible.

    -   if I were just to post that giant order on the lit exchange, that's complete information leakage. So that's a very good and reasonable use of dark pools. But again, you cannot trade outside of the NBBO. That is the rule in US markets - Rule 611 I think.

    -   It's the backstop for best execution is what's generally referred to as. You cannot get outside of the protected quote.

-   Jack:

    -   I think that's a good takeaway. Well, I look forward to some of the DD that comes out of that comment, I'm sure.

-   Dave Lauer:

    -   And I'll be happy to read some of the posts and if there are specific questions.

    -   I'm always interested in learning more, I mean if there's a mechanism by which someone thinks they've figured out how they can suppress the price through dark pools, I'd be really interested in that, because it would directly impact some of the analysis that I do.

______________________________________________________________________

IEX

-   Jack:

    -   So, one last question I want to end on is, where does IEX fit into this?

    -   So from our perspective, a lot of the features that were built on IEX were built to benefit more of the mutual fund side of things.

    -   And then I've seen recent talk about retail coming along.

    -   Could you help describe some of the positives at IEX works for retail?

-   Dave Lauer:

    -   Yeah, so for retail, you can get mid-point executions on IEX. It's free for retail trade on IEX. They've really tried to do what they can to incentivize the retail brokers to come to them.

    -   It doesn't mean that they are, because there are really fundamental conflicts of interest at work in markets in terms of payment for order flow and other issues.

    -   you can tell your brokers, and you should tell your brokers, if you want to trade on IEX, and that they should route to IEX

    -   When Flash Boys came out, it created a real uproar, and it helped to a certain extent but then it died away. Maybe now this is the second wave of it.

    -   Look, I wouldn't have gotten involved with IEX if I didn't believe what they're doing.

    -   I'm not involved in any way with them anymore, other than that, I still have some shares leftover. I don't want to *not* disclose my biases, I mean I sit on the board of Equitoss in Canada which also has a speed bump and it also is designed for investors not high-speed trading firms.

    -   So I believe that is a model that can work and can protect investors.

    -   I've seen one of the questions: What was the original design goal of IEX?

    -   And the philosophy was actually relatively simple:

        -   the exchange should always be faster than the fastest participants, the exchange should always know what the price is in the market.

        -   if that price is changing, the exchange should know about it before, the highest speed participants know

    -   And the reason really came down to pegged order types.

    -   If firms are faster than the exchange, they can take advantage of pegged order types, and they can pick off stale orders for a relatively low-risk arbitrage.

    -   Whereas, if the exchange is faster than its fastest participants, that repricing for peg order types will always happen before those high-speed firms can adapt and pick off stale order types.

    -   So that was why the 350-microsecond speed bump was put in place because that seemed like a good time for the exchange to be able to receive market data from all the other exchanges, update its price, and shift before other firms could come in and pick off stale prices.

    -   I think that kind of protection is valuable, I think execution quality in IEX is very high, and we've seen the same thing in Canada with Equitas Neo.

    -   I'm a believer in the model. I'm a believer in the idea that you shouldn't offer rebates to attract liquidity and IEX does not do that.

    -   I believe that if you believe those things, then supporting IEX is worthwhile and that you can go to your brokers and you can give them instructions.

    -   And brokers, according to FINRA rules 5310 (I think), have to abide by those instructions. Not all brokers will, they'll say we're not connected or we don't do that but if they start hearing from a lot of people that can help to change things.

TL:DR 🦍 Summary:

-   IEX has a lot of functionality that can make for a better retail trading experience.

-   If IEX is something that you are interested in trading on, then contact your broker and let them know

______________________________________________________________________

WHAT CAN WE DO?

-   Dave Lauer

    -   There have been questions about what can we do and to me this is one of those things that we can do.

    -   Another thing is you can just continue to make your voice heard, you can file comment letters with the SEC or FINRA, that's an excellent way to get involved, they do read them and they do listen to well thought out comments, or well-researched comments.

    -   You can contact your members of Congress because these bills that are going to come up are going to be controversial and they need to hear that there are people out there that support them, for good reasons.

    -   You can make use of the SEC and Office of the Investor Advocate who is there to advocate on your behalf and is often focused on institutional investors but would probably like to hear more from retail.

    -   And Gary Gensler I think in his testimony before Congress is going to say that they're requesting public input on some of these exact issues.

    -   So I think getting involved like that is just an *excellent thing*.

    -   It's great to have more involvement and more perspectives in this market structure debate, versus most of the people that are involved generally work for the high-frequency firms, the exchanges, the broker-dealers

    -   There are very few of us out there who are not beholden to one of those types of firms and who are making money, actively, off of the current market structure.

TL:DR 🦍 Summary:

-   MAKE YOUR VOICE HEARD

    -   Reach out to the SEC, members of Congress, FINRA

______________________________________________________________________

FINAL QUESTION AND GOODBYE

-   Jack

    -   The last question, I swear, and then we'll wrap up.

    -   So you just mentioned that the rule is to uphold the NBBO. But what happens when they don't, is it actually possible that they don't uphold that rule?

-   Dave Lauer

    -   So, yes, there is a percentage of trading that does take place outside the NBBO.

    -   That can happen if the size at the NBBO is not enough to satisfy the order size.

    -   So yeah, I shouldn't say that it never happens, it does happen under those conditions.

    -   But generally speaking, it does not happen outside of those conditions

    -   So maybe what you're thinking: If you see a dark pool print, and it's like off the NBBO, there is a reporting deadline, I think it was shortened to 10 seconds, which means that I can trade at this price, and now prices have shifted, I have 10 seconds to report to the tape so the problem is sometimes the trading feeds from the dark pools is not always aligned with the quote feed from the exchanges.

    -   It can look sometimes like there are prints that are happening outside of the NBBO but that didn't actually take place.

    -   It is a pretty serious thing.

    -   I know that FINRA gives report cards to firms measuring their Rule 611 performance, and they are always looking to see if you are trading outside the NBBO, and when it's a very small percentage of the time that happens, and when it does, there's usually a reason behind it.

-   Jack

    -   And is it only a fine associated with it, or is it in most cases a slap on the wrist, telling them "make sure this doesn't happen"?

-   Dave Lauer:

    -   Well, I mean, most fines are unfortunately just slaps on the wrist.

    -   That's sort of the corruption inherent in the system, the Revolving Door which we haven't even touched on, and kind of is the source of most of these problems.

    -   But yeah I mean fines on Wall Street are generally nothing compared to the damage that they've caused, and most of the time is just seeing that the cost of doing business.

    -   And I think we just see that over and over again in every way, whether it's the great financial crisis or the mortgage crisis, to test execution violations.

    -   These kinds of issues, and even their best execution is hard to enforce.

    -   I heard the quote from a regulator that trying to enforce the best execution is like trying to nail jello to a wall.

    -   It's something that they really struggle with and it's a shame because you have so much data now that from a data science perspective it should actually be easier but you need a different level of sophistication to analyze that kind of data.

    -   I think regulators have struggled with it

    -   So that's my soapbox of: increase the fines and send people to jail and I think you would see dramatic changes in behavior.

    -   As long as it's just the cost of doing business and not, not speaking specifically to trades outside the NBBO, because again I don't think that happens much.

    -   But generally speaking, when firms are fined it doesn't recognize the damage or it often doesn't disgorge profits to the extent that it should.

-   Jack

    -   We've seen in South Korea where we've seen 100 percent naked shorters come through *[Luri: can someone confirm with Jack what he's saying here? I can't quite catch it]*

-   Dave Lauer:

    -   Year, great idea. I very much love what they're doing there and I think it's a real problem here and I would really like to see those kinds of little changes in the US.

-   Jack:

    -   Well, we'll leave it at that and give it a wrap here. So thank you so much for joining us, Dave.

-   And thanks to all the viewers for coming around and spending time with us.

-   Dave Lauer:

    -   Thanks for having me, I appreciate it. I loved it.

    -   People care about this, it's fun to talk about it.

______________________________________________________________________

*PHEW* That was an action-packed AMA... ending right at 69 minutes (Good Job [u/jsmar18](https://www.reddit.com/u/jsmar18/)). I hope that you guys are finding these AMA transcript/summaries helpful, they are a lot of work to put together but it feels worth it.

[![r/Superstonk - 🚨 David Lauer AMA Transcript Summary 🚨 (2/2)](https://preview.redd.it/xt6vycvw3qx61.jpg?width=332&format=pjpg&auto=webp&s=dea94768bd871ea3b96e1d45014df125540d4c81)](https://preview.redd.it/xt6vycvw3qx61.jpg?width=332&format=pjpg&auto=webp&s=dea94768bd871ea3b96e1d45014df125540d4c81)

'I'M HELPING'

If you have any feedback for what you would like to see in these, let us know! I may not respond to every comment, but I am definitely reading most of them.\
Cheers,\
B_T
