SEC Alert & OPEN for Comment Alert! SEC Proposes Rule to Address Volume-Based Exchange Transaction Pricing for NMS Stocks.
Background:
National securities exchanges (“exchanges”) that trade NMS stocks maintain pricing schedules that set forth the transaction pricing they apply to their broker-dealer members that execute orders on their trading platforms. As self-regulatory organizations under the Exchange Act, exchanges are subject to unique principles and processes that do not apply to other businesses. For example, all proposed rules of an exchange, including exchange transaction pricing proposals, must be filed with the Commission. In addition, pricing schedules must be publicly posted on the exchange’s website.
The Exchange Act further requires that exchange pricing proposals, among other things, provide for the “equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities” that “are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers” and “do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of” the Exchange Act. With respect to the requirement that the rules of an exchange not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act, the Senate Banking, Housing and Urban Affairs Committee report that accompanied the 1975 amendments to the Exchange Act stated that “this paragraph is designed to make clear that a balance must be struck between regulatory objectives and competition, and that unless an interference with competition is justified in terms of the achievement of a statutory objective, it cannot stand.”
Section 11A of the Exchange Act directs the Commission to facilitate the establishment of a national market system in accordance with specified Congressional findings. Among the Congressional findings are assuring (i) fair competition among brokers and dealers and among exchange markets, and (ii) the practicability of brokers executing investors’ orders in the best market. Rather than setting forth minimum components of the national market system, the Exchange Act grants the Commission broad authority to oversee the implementation, operation, and regulation of the national market system consistent with Congressionally determined goals and objectives.
Fact Sheet:
Press Release:
The Securities and Exchange Commission today proposed a new rule that would prohibit national securities exchanges from offering volume-based transaction pricing in connection with the execution of agency or riskless principal (“agency-related”) orders in NMS stocks. The proposal also would require national securities exchanges to have certain anti-evasion rules and written policies and procedures and disclose certain information if they offer volume-based transaction pricing for member proprietary volume in NMS stocks.
“Currently, the playing field upon which broker-dealers compete is unlevel,” said SEC Chair Gary Gensler. “Through volume-based transaction pricing, mid-sized and smaller broker-dealers effectively pay higher fees than larger brokers to trade on most exchanges. We have heard from a number of market participants that volume-based transaction pricing along with related market practices raise concerns about competition in the markets. I am pleased to support this proposal because it will elicit important public feedback on how the Commission can best promote competition amongst equity market participants.”
Proposed Rule 6b-1 under the Securities Exchange Act of 1934 would prohibit national securities exchanges from offering volume-based transaction pricing in connection with the execution of agency-related orders in NMS stocks. It also would require exchanges that offer volume-based transaction pricing in connection with the execution of members’ proprietary orders in NMS stocks to disclose certain information, including the number of members that qualify for each transaction pricing tier that the exchange offers. Exchanges would be required to submit this information to the Commission on a monthly basis, and the public would be able to access the information through the Commission’s EDGAR system.
In addition, proposed Rule 6b-1 would require exchanges that have volume-based transaction pricing for member proprietary orders in NMS stocks to have anti-evasion measures, including rules requiring members to engage in practices that facilitate the exchange’s ability to comply with the prohibition on volume-based exchange transaction pricing for agency-related orders in NMS stocks and to have written policies and procedures reasonably designed to detect and deter members from receiving volume-based pricing in connection with the execution of agency-related orders in NMS stocks.
The proposing release will be published in the Federal Register. The public comment period will remain open until 60 days after the date of publication of the proposing release in the Federal Register.
How to comment:
Electronic Comments:
- Use the Commission’s online form at: https://www.sec.gov/rules/2023/10/feetiers
- Alternatively, send an email to [email protected]. Ensure the subject line includes the file number S7-18-23.
Paper Comments:
- Mail your paper comments to: Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
Important Notes:
- Always refer to the file number S7-18-23 in your submission.
- If using email, include the file number in the subject line.
- For efficiency, only use one method of submission.
- All comments will be posted on the Commission’s website at: https://www.sec.gov/rules/proposed.shtml
- Refrain from including personal details in your comments. Only provide information you're comfortable being public.
- Obscene or copyrighted material may be redacted or not published.
TLDRS:
- SEC Proposes Rule to Address Volume-Based Exchange Transaction Pricing for NMS Stocks.
Proposed Rule 6b-1 would:
- Prohibit exchanges from offering volume-based transaction pricing in connection with the execution of agency or riskless principal orders in NMS stocks.
- Require exchanges that offer volume-based transaction pricing in connection with the execution of proprietary orders in NMS stocks for the account of a member to have anti-evasion measures, including rules requiring members to engage in practices that facilitate the exchange’s ability to comply with the prohibition, and written policies and procedures reasonably designed to detect and deter members from receiving volume-based pricing in connection with the execution of agency related orders in NMS stocks.
- Require exchanges that offer volume-based transaction pricing in connection with the execution of proprietary orders in NMS stocks for the account of a member to submit electronic, machine-readable structured data tables of certain information about their volume-based transaction pricing tiers and the number of members that qualify for each tier in an Interactive Data File in accordance with Rule 405 of Regulation S-T, which the public would be able to access through the Commission’s EDGAR system.
- OPEN FOR COMMENT!
