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SEC Proposes Ban on Volume-Based Transaction Pricing

Published 10/19/2023, 01:20 AM
© Reuters.

In a move that could significantly reshape the world's largest equities market, the U.S. Securities and Exchange Commission (SEC) has proposed a ban on volume-based transaction pricing. The proposal, which was passed by a 3-2 SEC vote on Wednesday, targets a system used by the NYSE and Nasdaq to incentivize Wall Street brokerages for routing large trade orders.

The tiered setup, which offers reduced fees or rebates based on monthly trade volumes, has come under criticism for favoring larger trading firms and creating conflicts of interest. According to SEC Chair Gary Gensler, this arrangement could lead to better transaction prices for customers of larger firms, thereby pushing smaller brokers to route orders through them.

Under the proposed regulations, exchanges would still be allowed to offer lower fees and rebates to brokers and banks trading with their funds. However, they would be required to disclose their volume-based pricing tiers on a monthly basis.

The proposal does not prohibit all exchange fees or rebates, which are considered a cornerstone of the stock market. However, it specifically targets those based on transaction volume.

The proposal has been questioned by SEC Republican commissioner Hester Peirce. The largest banks or traders stand to be most affected by this plan. The proposal will undergo public comment before a final vote is taken. These regulations are part of sweeping changes that are still under consideration and could significantly alter how trades are ordered and executed.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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