The U.S. Securities and Exchange Commission (SEC) is looking into the multi-tiered pricing models exchanges use, Reuters writes. Currently, exchanges offer massive rebates to Wall Street bankers and large traders, making smaller enterprises pay the bulk of the fees. In fact, if their trade is big enough, some may end up getting paid. According to Reuters, were SEC to decide the current tier system is unfair, exchanges might be forced to simplify the pricing system.
Right now, exchanges favour bigger companies. So much so that the current system makes it more difficult for small companies to compete for customer orders, explained Joe Wald, chief executive of brokerage Clearpool Group. He said the tiered system “discriminates against smaller broker dealers who end up almost perversely subsidizing the cost of the whole exchange relationship for the largest firms.”
This seems to be SEC’s newest venture into improving transparency and ensuring fairness. It has also ordered a pilot program banning s transaction-based rebates in order to research their effect. Last year, it also ruled price spikes for market-data products were not justified. Following SEC’s decisions, Nasdaq and Cboe have filed lawsuits challenging SEC’s decisions.