Stock Exchanges Dealt Blow as SEC Moves Forward With Fee Study

(Bloomberg) -- The U.S. Securities and Exchange Commission dealt a blow to stock exchanges Wednesday by moving ahead with a plan to test how stocks trade, despite fierce opposition from the trading venues.

The SEC pilot will examine how the fees and rebates exchanges use to attract volume impact the market, and if they lead to conflicts of interest. While focused on technical issues of market plumbing, the SEC’s study has become a lightening rod because it could portend regulatory changes that impact the exchanges’ bottom lines.

The New York Stock Exchange, Nasdaq and CBOE Global Markets have previously intimated that they might sue if the SEC went forward.

In comments to the agency after the program was proposed in March, the exchanges complained it was too costly, complex and could distort markets by giving less transparent trading venues like dark pools a competitive advantage.

Nasdaq and CBOE declined to comment on Wednesday’s announcement. NYSE said the pilot “will degrade market quality, increase costs for investors, and create winners and losers among issuers.”

The SEC’s plan has generally been backed by a number of asset management firms, brokerages and pro-investor groups. IEX Group, an upstart exchange, was also a supporter.

In a sign of the controversy surrounding the program, the SEC said it would move forward in a statement rather than holding a public vote.

Stock Exchanges Dealt Blow as SEC Moves Forward With Fee Study

"I expect the data provided by the pilot will help us make effective policy assessments that will benefit our markets and our investors," SEC Chairman Jay Clayton said in the statement.

The pilot program, which could last as long as two years, will require exchanges to:

  • Publicly post fee and rebate data each month.
  • Give the commission aggregated data on order routing.
  • Test how various fee incentives and rebates impact trading.
  • Examine how trading functions when no rebates are offered.

After the announcement, Senator Mark Warner, a Virginia Democrat, said on Twitter that the program “could help uncover some big conflicts of interest on Wall Street and discourage brokers from acting against the interests of their clients.”

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