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Regulation

SEC proposes maker-taker pilot program, relaxing liquidity disclosures for mutual funds

The SEC on Wednesday proposed creating a two-year transaction fee pilot program to study the effect of maker-taker rebates on equity trade execution.

The pilot program, once approved and implemented, would measure the impact of changes to those fees and rebates on order routing, execution quality and general market quality, according to documents on the proposed rule released by the Securities and Exchange Commission.

In a statement on the SEC's website, SEC Chairman Jay Clayton said such data does not currently exists and "the pilot proposal that the staff is presenting today would help us address this data gap."

The pilot would have three test groups for providing or removing liquidity, with one group at a 15-cent trade fee per 100 shares, one with a 5-cent cap and one with a ban on rebates, though the last group would keep the existing 30-cent per 100-share cap on fees for removing liquidity.

A control group would be added with no cap on rebates.

The proposed pilot was first recommended by the SEC's equity market structure committee in April 2016. The committee was disbanded in January.

Also on Wednesday, the SEC proposed allowing open-end mutual funds to reduce how frequently they disclose liquidity risk information, to once a year in the fund's annual reports rather than quarterly reports to shareholders.

The original requirement for liquidity profile disclosure was approved by the SEC in October 2016 over investor concerns about whether they could redeem their assets in the event of a crisis.

The agency has proposed the latest change to give managers "sufficient time … to implement the requirement to classify their holdings in an efficient and effective manner" while still giving accessible information to fund investors about liquidity risk.

Mr. Clayton said in the release that the change "protects investors while minimizing unnecessary costs on funds."

Both proposals requires a 60-day comment period before the commission takes final votes.