Video summary

Say It Ain't So: Joe Saluzzi on Broken Market Structure

Main summary

Key takeaways

Finance

Finance-focused summary (markets / investing / market structure)

Market structure issues & key disclosures

  • Guest Joseph Saluzzi argues that U.S. equity market regulation and “fair trading” have “gone backwards” since the May 2010 Flash Crash, harming market integrity and investor confidence.
  • He frames his firm/role as emphasizing best execution for institutional clients (not proprietary trading, market making, or dark pools).

Role of brokers, order flow, and “leakage”

  • Saluzzi claims retail orders often don’t reach the open market book; instead, they’re intercepted by market makers (he implies this is intentional via retail broker routing).
  • He argues this can enable front-running / adverse selection by HFT participants, including “cookie crumbs” left in routing/execution.
  • Payment for order flow (PFOF):
    • He cites retail brokers receiving about “~0.21¢ per share” (i.e., 210 of a penny) and argues this undermines the “free trading” narrative.
  • Caution/recommendation (retail):
    • If something “went wrong,” the broker must provide an answer.
    • Investors should complain/escalate rather than accept “that’s just how the market works.”
    • He says switching brokers is relatively easy and references FINRA Rule 5310 (Best Execution).

Consolidated Audit Trail (CAT)

  • Saluzzi calls the Consolidated Audit Trail (CAT) a “disaster” and suggests it has been intentionally slowed down and/or stripped for cost/visibility reasons.
  • He criticizes that:
    • CAT was originally awarded to a vendor tied to an HFT firm (he cites Thesis and $50M “basically”).
    • FINRA later “fixed” parts, but he says it remains cost-inefficient.
  • He argues CAT is important for detecting insider trading and manipulation, and should not be watered down.

Proposed rule changes: Rules 611 & 610 (and why Saluzzi thinks tokenization is the driver)

Rule 611 (“Order protection / trade-through”)

  • Saluzzi describes Rule 611 (the trade-through rule / order protection rule) as preventing trading through the NBBO:
    • Definition given: the NBBO (best bid and best offer) cannot be traded through; you must satisfy the best displayed quotes before going “to the next level.”
    • He distinguishes displayed quotes vs. hidden quotes/off-exchange quotes that aren’t included the same way.
  • He says the SEC is considering removing/changing Rule 611 and views this as dangerous because:
    • It could allow execution on venues that don’t respect protected quotes, worsening leakage and adverse selection.
    • He claims the SEC’s motivation is tied to “tokenization” efforts.

Tokenization thesis (as described by Saluzzi)

  • He argues that removing Rule 611 would benefit tokenized trading venues because order protection interferes with how tokenized instruments/venues operate.
  • He contrasts types of tokenization:
    • Synthetic token version: he likens it to a “bucket shop”—not trading the security itself, lacking voting rights/dividends, potentially high leverage (100x), and possibly enabling manipulation.
    • He says the SEC initially seemed headed toward synthetic tokenization, but “backed off,” while still pushing a broader tokenization approach.
  • He warns tokenization could create more fragmented markets, allowing HFTs to exploit fragmentation by “stitching” liquidity back together (arbitrage), potentially recreating the cycle of HFT rent extraction in new venues.

Exchange / clearing ecosystem

  • He says multiple stakeholders are positioning themselves, including exchanges, market makers, and DTCC (he references DTCC making changes “overnight”).
  • He urges scrutiny of claims that tokenization is more efficient and less risky, saying the SEC proposal does not clearly explain what happens after the change.

Rule 610 (access fees) and linkage to PFOF

  • Saluzzi describes Rule 610 as related to access fees in the make/take model:
    • If you add liquidity, you receive rebates (he cites up to ~0.3 mills per share / “3/10 of a penny”).
    • If you take liquidity, you pay an access fee.
  • He references a rulemaking context involving a cut in access fees:
    • From about ~30 mills (0.3¢) to about ~10 mills (“10 mills”).
  • He argues this access-fee cut would force changes to PFOF:
    • If access fees fall, broker incentives to pay PFOF should drop too (he references PFOF around ~0.21¢ per share).
  • He claims regulators delayed implementation:
    • He says the SEC delayed the fee reduction again, originally expected to start, and again “scheduled for November for another year.”
  • He interprets this as indicating the “fix is in,” and suggests an implicit negotiation:
    • Don’t change 610 while potentially advancing changes to 611.

Trading / HFT landscape & speed/risk arguments

  • Saluzzi argues HFT is increasingly squeezed by:
    • rising costs (connecting to multiple exchanges, latency, collocation fees)
    • compressed margins where only “the big ones” still profit
  • He suggests HFT shifts toward other markets (including crypto dynamics).
  • He argues tokenization would create new fragmented markets, ideal conditions for HFT arbitrage.
  • He argues market structure should prioritize orders interacting with each other to improve price discovery, rather than leakage to specialized routing paths.

Index rebalancing example: SpaceX / NASDAQ 100

  • He discusses SpaceX moving into the NASDAQ 100 (he mentions July 6 at the close).
  • Saluzzi’s view: predictable index rebalancing flows are generally efficient:
    • the market can predict likely share aggregation changes during rebalances
    • he implies trading ahead of inclusion (“buy it ahead of the conclusion”) generally doesn’t work (as his expectation).
  • S&P vs NASDAQ rules conflict (as described):
    • He says S&P kept inclusion standards unchanged (e.g., profitability and time-in-index eligibility).
    • He says NASDAQ changed rules to include the company.
    • He questions whether changing inclusion rules for a company whose index provides benefit creates a conflict of interest.

Investor protections & performance metrics mentioned

  • He suggests investors should:
    • watch executions tick-by-tick
    • ask brokers to explain execution outcomes
    • understand best execution and FINRA obligations
  • He contrasts best execution with Rule 611:
    • he criticizes best execution (“bestex”) as too vague and susceptible to “excuses”
    • he implies eliminating 611 removes a clearer enforcement mechanism
  • He mentions BestX / marketing metrics (e.g., claims that brokers “beat X% of the time”) and suggests removing Rule 611 could reduce reliance on such metrics.

Timeline & explicit calls to action (SEC comment period)

  • He states:
    • it’s August 17
    • the SEC comment window is about 60 days (from the conversation context)
  • He recommends filing a comment letter, even if short (e.g., “a paragraph or a couple of sentences”).
  • He anticipates that if the proposal advances, there could be a lawsuit, implying delays.

“CowI picks of the week” (commodities; not core market structure)

(The host presents these as personal opinions; explicitly not investment advice.)

  • Gold:
    • hopes for a rebound to $4,323.99 by June 30
  • WTI oil (West Texas WTI):
    • currently around $70/bbl
    • about $5 above pre–Iran-war levels
    • traffic through Strait of Hormuz still about 50% below pre-war levels
    • he says oil has “not much more downside from here”
    • conditional wager:
      • “I choose NO at 60 cents” on whether WTI drops below $60 at any point in 2026
      • framed as a “over a 66% return” if “no”
    • profit-taking example:
      • if oil spikes and contract trades to around $80, you can close and take profit
  • Disclosure:
    • “These picks are not financial advice”
    • uses the Koshi app/platform; promo code Moses for $10 when you trade $10.

Tickers / instruments / assets mentioned

  • Stocks / equity instruments (examples): Disney, SpaceX (example for NASDAQ 100 inclusion)
  • Indices: S&P 500, NASDAQ 100
  • Commodities: Gold, WTI oil (West Texas Intermediate)
  • Crypto: referenced generally; “spot bitcoin ETF” mentioned conceptually
  • Market infrastructure / agencies: SEC, FINRA, DTCC, NBBO, CAT

Methodology / framework steps explicitly shared

Best execution / investor action framework

  • Monitor executions tick by tick
  • Check who executed large prints/blocks
  • Confirm whether your broker/client should participate
  • If retail suspects misexecution, demand a broker investigation
  • Use/understand FINRA Rule 5310 (Best Execution); switch brokers if unsatisfied

Regulatory engagement process

  • File an SEC comment letter during the ~60-day window (even short comments)
  • If adoption proceeds, a lawsuit is mentioned as a possible outcome raised by commenters

Key recommendations & cautions (as stated)

  • Saluzzi recommends:
    • Preserve/avoid removal of Rule 611
    • Submit SEC comments
    • Retail investors should hold brokers accountable rather than assume markets function as intended
  • Cautions:
    • Tokenization changes could increase fragmentation and he calls downstream effects “scary”
    • Removing order protection may exacerbate front-running / HFT exploitation
    • Trading ahead of index rebalancing events is unlikely to be reliably profitable due to efficiency

Disclosures / disclaimers noted

  • Explicit non-advice language for “CowI picks of the week.”
  • Saluzzi’s opening quote emphasizes his firm is an agent/best-execution provider, not proprietary trading or market making.

Presenters / sources mentioned

  • Danny Moses (host)
  • Joseph Saluzzi (guest; Themeis Trading / FEMA Trading mentioned)
  • Michael Lewis (credited for featuring Joe in Flash Boys context)
  • House Financial Services Subcommittee on Capital Markets (Joe testified)
  • SEC (regulatory proposals)
  • FINRA (Rule 5310 best execution; CAT/market structure context)
  • DTCC
  • Robinhood (example of retail broker PFOF behavior)
  • Gary Gensler / SEC Chair (Gensler era) referenced in Rule 610/access-fee discussion
  • Thesis (CAT-building firm described by Saluzzi)
  • Vincent Dler and Porter Collins (co-authors mentioned for a Substack)

Original video