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Letter Regarding James Angel

To: The Honorable Congressman Peter Sessions

Re: Concerns Regarding James J. Angel's Recent Briefing

 

Dear Congressman Sessions,

I am writing to express my deep concerns regarding James J. Angel's recent briefing to the House Committee on Financial Services regarding the MMTLP matter. As a finance professor at Georgetown University and a self-proclaimed expert witness before the U.S. Senate and Congress, Mr. Angel's credentials may appear impressive at first glance. However, upon closer examination, there are troubling facts that raise questions about his suitability to advocate for the interests of retail traders (Main Street Investors) as well as potential conflicts of interest.  I urge you to have your staff review the information below and independently research and verify the information being provided to you as a necessary step to determine whether Mr. Angel is a suitable witness for these purposes.

 

Mr. Angel has a well-documented history of serving on the boards of stock exchanges, including EDGX and EDGA, as well as serving as Chair of the Nasdaq Economic Advisory Board. He has also performed consulting work for brokerage firms, stock exchanges, market makers, and law firms, as stated in his comment letter to the Board of Governors of the Federal Reserve System dated June 28, 2021. Speaking of which, this comment letter also seems to demonstrate an alarming and recurring tendency to favor institutions over retail (Main Street) traders that Mr. Angel seemingly consistently exhibits over time. While the letter discusses the potential benefits of fintechs and advocates for their regulation, there are several points where Mr. Angel's intentions are clearly against the best interests of retail traders:

 

  1. Skirting Compliance: Mr. Angel suggests that fintechs should not be burdened with Community Reinvestment Act (CRA) compliance, which leads to an uneven playing field between traditional banks and fintechs. This, in turn, leads to fintechs not being held to the same standards in terms of investments in the community and protection of retail traders.
  2. Calling for Unequal Protections: The comparison between fintechs and traditional financial institutions is not entirely accurate. While Mr.Angel argues that fintechs should be regulated differently due to the distinct services they provide, it is important to ensure that retail traders are protected across all financial services, regardless of the provider.
  3. Overlooking Emerging Technology: Nowhere in this letter does Mr.Angel address potential risks associated with the rapid growth and expansion of fintechs. As new technologies emerge and fintechs gain market share, it is crucial to consider how these changes may impact retail traders and ensure that adequate protections are in place.
  4. Disregarding Financial Stability Interests: Mr. Angel does not discuss the potential for fintechs to disrupt the financial industry and create instability for retail traders. As fintechs gain market share and compete with traditional financial institutions, it is important to consider how these changes impact the overall stability of the financial sector and the potential consequences for retail traders.
  5. Consumer Data Misuse: Mr. Angel does not address the potential for fintechs to misuse consumer data or engage in predatory practices. As fintechs gain access to consumer data and offer new financial services, it is essential to ensure that retail traders are protected from potential data breaches, misuse of information, or predatory lending practices.
  6. Monopoly risks: Promoting interconnectivity in the manner that Mr. Angel lays out leads to a potential monopoly situation where larger networks can dominate the market, disadvantaging smaller players and retail traders who rely on a diverse market for better opportunities and services.
  7. Barriers to entry: While Mr. Angel argues for easier access to Fed services, there is no guarantee that this would lead to more competition, especially if larger networks are still able to stifle smaller competitors. This results in a market with fewer players and reduced opportunities for retail traders.
  8. Lack of regulation: Mr. Angel calls for a broad interpretation of the Fed's authority to provide access and a “scaled sandbox” philosophy. This approach leads to inadequate regulation and oversight, harming retail traders by exposing them to higher risks and unethical business practices.
  9. Overemphasis on innovation: While innovation is important, focusing solely on new entrants and technology leads to overlooking the potential improvements that can be made within the existing financial ecosystem. This disadvantages retail traders who rely on traditional financial services.
  10. Privacy and security concerns: Mr. Angel's push for interconnectivity and ubiquity is a precursor to potential privacy and security risks for retail traders, as data sharing and cross-platform transactions become more common.
  11. Reliance on larger players: Mr. Angel emphasizes the role of larger, innovative companies like Tesla and Skype, which suggests an overreliance on these entities to drive change. This type of reliance upon larger companies acts as a stifle to competition and limits the opportunities and choices available to retail traders.
  12. Lobbying Congress: Mr. Angel suggests that the Fed should lobby Congress for broader authority to offer services to various fintechs. This undoubtedly leads to potential conflicts of interest and undermines the independence of regulatory bodies, which could ultimately harm retail traders.

This comment letter is only one example of Mr. Angel's consistent disregard of the protection of retail investors for the benefit of large institutions. Upon examination of another letter written by Mr. Angel to FINRA regarding his comments on a Proposed Pilot Program to Study Recommended Changes to Corporate Bond Block Trade Dissemination, even more demonstrable and alarming instances of Mr. Angel favoring institutions over retail traders arise. The intentions of Mr. Angel in this letter seem to be focused on protecting intellectual property rights, financial privacy, and advocating for evidence-based regulation. However, there are several areas where his intentions are clearly detrimental to retail traders and against their interests:

 

  1. Mr. Angel suggests that it is premature to conduct the proposed pilot without better examining existing data. While this may seem like a reasonable suggestion on the surface, it delays the implementation of changes aimed at enhancing liquidity in the fixed income markets, negatively impacting retail traders who rely on transparent and efficient markets for fair pricing and execution of their trades.
  2. Mr. Angel argues against the proposed delay in disclosure of potential positions by dealers, stating that it breaches intellectual property and financial privacy rights. While protecting intellectual property and financial privacy is important, delaying the disclosure of potential positions by dealers undoubtedly enables front-running, where certain market participants have the opportunity to take advantage of this lack of transparency to gain an unfair advantage over retail traders.
  3. Mr. Angel has the audacity to recommend suppressing all volume information in the proposed pilot. While this may be intended to protect the anonymity of large block trades, it CLEARLY reduces transparency and hinders the accurate pricing of ETFs and mutual funds, thereby leading to increased search and negotiation costs for retail investors.
  4. Mr. Angel opposes the current practice of reporting price with a "Greater than limit" indicator for block trades. Blocking all volume information and not indicating that it was a block trade enables hidden manipulation or unfair trading practices, harming retail traders who rely on transparent and fair markets for their trades.

Overall, while Mr. Angel's intentions with this letter to FINRA may be focused on protecting intellectual property rights, financial privacy, and advocating for evidence-based regulation, his suggestions and opposition to certain aspects of the proposed pilot program are clearly in favor of institutional entities and detrimental to retail traders by reducing transparency, hindering accurate pricing, and enabling unfair trading practices.

 

Aside from the foregoing, Mr. Angel has authored books and holds patents related to financial products and trading systems. This includes Mr. Angel's pecuniary involvement in the development of Equity Flex Options. Equity Flex Options are complex financial instruments that offer flexibility in contract terms, such as strike price, expiration date, and exercise style. They are typically traded in over-the-counter (OTC) markets, which tend to have limited liquidity and transparency.

 

Mr. Angel's involvement in the development of Equity Flex Options demonstrates a clear disregard for retail traders when considering the simple fact that the flexibility in the contract terms of Equity Flex Options creates opportunities for market manipulation and abuse. Institutional traders and/or market participants with insider information have been known to exploit these options to gain an unfair advantage over retail traders, amplifying the risks associated with trading them. Overall, the creation of equity flex options can easily be perceived as having a clear disregard for retail traders due to the complexities, limited liquidity, higher risks, lack of transparency, and potential for abuse associated with these instruments.

 

Perhaps most alarming of Mr. Angel's innovations, is his patent for Dark Pools, a trading system that directs and executes certified trading interests, alongside co-authors Fred Frederspiel and Henri Waelbroeck. Also of note, Mr. Frederspiel is listed as an executive officer and NASDAQ is listed as a beneficial owner in the patent as well. This information is deeply troubling when viewed through the lens of one with an understanding of how dark pools have been detrimental to the fundamental principles upon which the free markets were founded and built upon. As you are aware, dark pools are private electronic trading venues where large institutional investors can execute trades without disclosing pre-trade price or quantity information to the public. They lack transparency, can contribute to price distortions and manipulation, and reduce liquidity in public markets. As a result, they pose significant risks to the integrity and efficiency of free markets, potentially harming retail investors and other market participants. Much of the issues that dark pools have presented to retail traders in the free markets today can be attributed to Mr. Angel's conceptualization of these practices.

 

It has also come to my attention that Mr. Angel also served as an academic fellow at NASD (the precursor to FINRA) in the late 1990s. As you may be aware, Bernard Madoff, who perpetrated one of the largest financial frauds in history, served as the Chair of NASDAQ in the 1990s and was also a member of the Board of Governors for NASD. While Mr. Angel's past affiliations do not imply any wrongdoing on his part, they do raise concerns about his objectivity and impartiality in advocating for retail traders, given his extensive associations with large institutions in the financial industry.

 

Also of particular concern is Mr. Angel's association with Pipeline Trading Systems LLC, a company that has been the subject of controversy and regulatory action. Pipeline Trading Systems was issued a cease and desist order by the SEC in 2011, and censured by FINRA multiple times, further exacerbating our concerns.

 

In addition, Dr. Angel has had affiliations with other organizations that have faced regulatory censures. ITG Software Solutions, which later became Virtu ITG Software Solutions after its acquisition by Virtu Financial, has been censured 40 times between 2003 and 2019. Virtu Americas, with a separate CRD number, has been censured 53 times from 2013 to 2022.

 

As a member of the House Committee on Financial Services, it is crucial that you thoroughly scrutinize the credibility and integrity of individuals who provide testimony and information to the committee. It is imperative that the interests of retail traders, who often lack the resources and influence of larger market participants, are safeguarded in any regulatory or legislative actions or proceedings related to the MMTLP matter.

 

In conclusion, I respectfully urge you to thoroughly review Mr. Angel's credibility and suitability to brief members of Congress on the MMTLP situation in light of his history of clear and consistent disregard for retail investors, along with his extensive associations with entities in the financial industry and potential conflicts of interest. The interests of retail traders, who rely on fair and transparent financial markets, must be protected, and it is essential to thoroughly vet the credibility and integrity of individuals who provide information and testimony to the House Committee on Financial Services.

 

Thank you very much for your diligent attention to this important matter. The reality of the MMTLP situation is quite clear and can be summarized in one simple proposition: if there has been no wrongdoing, then all parties involved in the MMTLP matter should have no hesitation in providing the Electronic Blue Sheet data to support their assertions. That is the proverbial bottom line. I have full confidence that you will take the necessary steps to ensure that the advocacy for retail traders is carried out with the utmost integrity, free from any possible biases or conflicts of interest on the part of Mr. Angel, or any other person or entity tasked with advising on this situation.



Sincerely,

 

 

 

 

Attachments:

2021 Comment Letter To Board of Governors of the Federal Reserve System: https://www.federalreserve.gov/SECRS/2021/July/20210716/OP-1747/OP-1749_062821_138163_290723830762_1.pdf

2019 Comment Letter To FINRA: https://www.finra.org/sites/default/files/2019-09/19-12_JamesJAngel_Comment.pdf