“If you place a market order, a retail market order, 90-95% do not go to the lit-exchanges. They do not go to NASDAQ, or New York Stock Exchange, they go to wholesalers. And they don't have order-by-order competition. And part of that is because of what you just said, payment-for-order-flow. “
What this essentially means is that retail orders barely make a dent in price discovery. The markets are inefficient on our side, in the favour of large institutions. Retail buying power is supressed, and so healthy competition is squashed. This in turn means that there are distortions in price discovery all over the market. Just as NYSE president said last June in relation to so called “meme stocks”.
The pricing of stocks aren't reflective of retail demand. The law of supply and demand is obviously the fundamental reason why stocks move.
However, Gary Gensler has been considering many new rules to combat this, even considering banning PFOF all together as many other countries have done already, and revamping the 'plumbing' of the system itself in terms of clearing and settlement. Hopefully all of this leads to better transparency, competition, and efficiency in the markets.
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