13 June 2018
On March 14, 2018, the SEC proposed rules that would allow for a transaction fee pilot for National Market System (NMS) stocks to study the effects that transaction-based fees and rebates may have on (and the effects that changes to those fees and rebates may have on) order routing behavior, execution quality, and market quality generally. The SEC expects that data generated by the proposed pilot should help inform the SEC (as well as market participants and the public) about any such effects and thereby facilitate a data-driven evaluation of the need for regulatory action in this area. The pilot would last up to two years, would subject stock exchange transaction fee pricing (including “maker-taker” fee-and-rebate pricing models) to new temporary pricing restrictions across three test groups (including one that eliminates fees), and would apply to SEC-registered national securities exchanges that trade NMS stocks (known as equities exchanges), including taker-maker and maker-taker, but not “non-exchange venues” that trade NMS stocks, including Alternative Trading Systems (ATSs) and broker-dealers that internalize orders by matching them off-exchange with reference to the national best bid and offer. Pilot securities are NMS stocks with a share price equal to or greater than $2 per share that do not close below $1 per share during the proposed pilot and have an unlimited duration (or a duration beyond the end of the post-pilot period). Critics of the existing pricing structure have argued that it gives some brokers and other market participants an incentive to execute trades that may not be in investors' best interests. Certain critics have expressed concerns that the pilot program will lead to investors' having to bear higher commissions, impaired liquidity or reduced choices. Comments are due 60 days after Federal Registrar publication. For more information, see https://www.sec.gov/rules/proposed/2018/34-82873.pdf.