On March 14th, the SEC voted to propose new Rule 610T of Regulation NMS to conduct a Transaction Fee Pilot in National Market System (NMS) stocks. This pilot would subject stock exchange fee pricing (such as “maker-taker” fee-and-rebate pricing models) to new temporary restrictions across three test groups. It would also require the exchanges to prepare and publicly post data pertaining to the pilot study. According to SEC Chairman Jay Clayton, the pilot is “...designed to generate data that will provide the Commission, market participants, and the public with information to facilitate an informed, data-driven discussion about transaction fees and rebates and their impact on order routing behavior, execution quality, and market quality in general.” The information gathered from this pilot study may elucidate the effects of transaction-based fees and rebates while allowing for an evaluation of any potential regulatory action, including possible changes to Rule 610(c) of Regulation NMS.
The new pilot would apply to all NMS stocks of any market capitalization and would include all equities exchanges, including “taker-maker” exchanges. The pilot would last for up to two years with an automatic sunset at one year unless the SEC extends it. Included in the pilot would be a test group that would prohibit rebates and linked pricing and also test groups that would impose caps of $0.0015 and $0.0005 for removing or providing displayed liquidity. This proposal was made in consideration of recommendations from the Equity Market Structure Advisory Committee and comments on said recommendations.
The pilot will require the national securities exchanges to prepare and post public, downloadable data on their websites including: (1) aggregated and anonymized order routing data, which is to be updated monthly, and (2) an XML dataset of standardized information on their transaction fees and rebates. Primary listing exchanges must also post information on changes to the list of pilot securities.
The following summarizes the proposed pilot:
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| Duration | 2 year pilot with an automatic sunset at 1 year unless, not later than thirty days prior to that time, the Commission publishes a notice that the Pilot shall continue for up to another year, plus a 6 month pre- and a 6 month post-Pilot period. |
| Applicable Trading Centers | Equities exchanges (make-taker & taker-maker) |
| Eligible Securities | NMS stocks that have a share price greater than or equal to $2 and that do not close below $1 per share during the proposed Pilot. They must also have an unlimited duration or a duration beyond the end of the post-Pilot period. |
| Pilot Design | 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) |
| | Test Group 3 | Rebates and Linked Pricing Prohibited for removing and providing displayed and undisplayed liquidity (Rule 610(c)’s cap continues to apply to fees for removing displayed liquidity) |
| | Control Group | Rule 610(c)’s cap continues to apply to fees for removing displayed liquidity |
The SEC is interested in public comments on these topics. The complete set of comment solicitations can be read in the full release concerning these proposed pilot study. Comments should be received no later than 60 days following the proposed pilot’s publication in the federal registry. You can submit comments using the form available on the SEC’s website or by e-mailing rule-comments@sec.gov with File Number S7-05-18 in the subject line. You can also use the Federal Rulemaking Portal to submit comments or send your comments by mail to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. Again, be sure to reference File Number S7-05-18.
Sources:
SEC Proposes Transaction Fee Pilot for NMS Stocks (sec.gov)
Transaction Fee Pilot for NMS Stocks (sec.gov)
