An SEC pilot program that would measure the effects of maker-taker rebates on equity trade execution could be in jeopardy because of uncertainty over who will lead the agency — and how he will lead it.
“I would reckon it won't happen now,” said Richard Johnson, vice president, market structure and technology at Greenwich Associates, Stamford, Conn. “The incoming administration will change everything.”
The issue of maker-taker — a process in which brokers are given rebates for providing liquidity to certain trading venues — is a major one for money managers who oppose the practice because, they say, brokers could use exchanges based on rebates as opposed to best execution.
A pilot program to test the impact of reduced access fees to exchanges was recommended last year by the Securities and Exchange Commission's Equity Market Structure Advisory Committee. In statements made after the recommendation, SEC Chairwoman Mary Jo White said the pilot would be voted on by the commission this year.
However, Ms. White is resigning from the agency before President-elect Donald Trump is inaugurated Jan. 20, and based on comments from Mr. Trump's advisers last month, any incoming SEC officials will be looking at broader reforms, not piecemeal ones like maker-taker.
Larry Tabb, founder and CEO of Tabb Group, New York, said Paul Atkins, the former SEC commissioner who now advises Mr. Trump on financial regulation, “is very involved with the administration and his input will be taken seriously. Paul's been a significant advocate of deregulation and regulatory overreach. He's actually an opponent of Regulation NMS (National Market Structure) and very much for a holistic review of market structure. If he continues to play in the corridors of power, you can assume there'll be a holistic overall review of market structure.”
Maker-taker “adds more rules,” Mr. Tabb added. “I'm not sure Paul Atkins would be aligned with that. And Congress is now pressing agencies not to pass anything until the Trump administration takes over. I'm not sure (the SEC) can do anything until then, and not sure they can even get a maker-taker pilot proposal there by then. There might be a pause on some of this stuff.”
Peter Weiler, president, Abel Noser Solutions LLC, New York, called the uncertainty of the new SEC leadership “kind of a wild card, considering the rhetoric coming out of Washington. In general, so many factors will affect what they do. The spirit of the new administration appears to be less government interference with business, and not disrupting commercial models would run center to that view, therefore it's less likely they'll eliminate rebates.”
Specifics on how Jay Clayton, Mr. Trump's nominee for SEC chariman, would run the agency had not yet been disclosed by press time. But over the past few months, Mr. Johnson said, “We've heard the administration say that there's a need for overall, fundamental changes, that the equity market structure needs surgery and not just Band-Aids. Maker-taker would be categorized as a Band-Aid. The SEC has already said they're seeking comments about a review of Regulation NMS. New SEC leadership also will open Reg NMS to a much broader, holistic review.”