TheCorporateCounsel.net

In its latest rulemaking focused on the operation of securities markets, last week the SEC proposed new Rule 6b-1 to address concerns with volume-based transaction pricing by the national securities exchanges. The SEC’s fact sheet for the rule proposals notes why the SEC believes that rulemaking action is appropriate now:

As self-regulatory organizations, exchanges are subject to unique principles and processes that do not apply to other businesses. Among other things, exchange rules, including transaction pricing schedules, may not be designed to permit unfair discrimination between brokers and may not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. Through increasingly complex transaction pricing schedules, many exchanges offer their broker-dealer members lower fees or higher rebates as the number of shares the member executes on the exchange reaches successively higher predefined volume-based tiers. The large number of available pricing tiers, and the possible combinations of some tiers, make exchange transaction pricing schedules difficult to understand. Volume-based exchange transaction pricing raises competitive concerns among exchange members and among exchanges. Further, the desire to qualify for volume-based transaction pricing tiers exacerbates a conflict of interest between members and their customers when members route customers’ orders for execution because the member can economically benefit from its routing decision.

The proposed rule includes three main components:

1. A prohibition on volume-based exchange transaction pricing in connection with the execution of agency or riskless principal orders in NMS stocks;
2. A requirement that exchanges adopt rules, policies, and procedures to detect, deter, and facilitate compliance with the proposed agency-related volume prohibition; and
3. A requirement that exchanges disclose (in structured data format) on a monthly basis their volume-based transaction pricing tiers and the number of members that qualify for each.

The deadline for submission of public comments will be sixty days after the date of publication in the Federal Register.

– Dave Lynn