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SEC Requests Comments on Transaction Fee Pilot for NMS Stocks

Steven.Lofchie@friedfrank.com's picture
Commentary by Steven Lofchie

The SEC is seeking comments on a proposed new rule that would establish a pilot program to study the effects that transaction-based fees and rebates in certain National Market System ("NMS") stocks may have on order-routing behavior, execution quality, and market quality generally.

The proposed new rule, Regulation NMS Rule 610T, provides for a pilot program that would establish a control group of NMS stocks subject to the current fee cap in Regulation NMS Rule 610(c) (i.e., the $0.003 fee cap for removing displayed liquidity for stocks priced at or above $1.00) and three test groups:

  • Test Group 1: $0.0015 fee cap for removing and providing displayed liquidity (no cap on rebates);

  • Test Group 2: $0.0005 fee cap for removing and providing displayed liquidity (no cap on rebates); and

  • Test Group 3: Rebates and Linked Pricing Prohibited, for removing and providing displayed and undisplayed liquidity.

The Transaction Fee Pilot would automatically end after one year unless the SEC chose to extend it for an additional year. The SEC intends to use the information gathered through the program to better evaluate the need for regulatory action in this area.

The SEC seeks comments concerning all aspects of the Transaction Fee Pilot. Comments must be received within 60 days of publication of the SEC notice in the Federal Register.

Commentary

This is a good idea. It is also an illustration of how the SEC should be approaching rulemaking in an area as complicated as the trading of equity securities: don't just do something, test out a concept where it is possible to do so.

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