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Pension funds come out in support of SEC maker-taker fee pilot program

CalPERS and the Ontario Teachers' Pension Plan, in a letter endorsed by U.S. and Canadian public pension funds and asset owners with a combined $1.31 trillion in assets, supported the SEC's proposed transaction fee pilot program.

The May 25 letter was in response to a call for comment by the Securities and Exchange Commission on its proposed two-year pilot to study the effects of maker-taker rebates on equity trade execution. The comment deadline was May 25; the SEC is expected to vote later this year on whether to institute the pilot program.

Maker-taker rebates "have been generally criticized by a wide spectrum of asset managers, pension funds, endowments, members of Congress, academics and policymakers, including SEC economists, based on the potential conflict of interest it creates between brokers and their investor clients," the letter said.

The letter said the pension plans have "a deep interest in market structure reform that enhances our ability to pay pensions and invest plan assets on behalf of our members and beneficiaries."

The plans support the pilot's structure of 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 along with the existing 30-cent per 100-share cap on fees for removing liquidity. Also included would be a control group with no cap on rebates.

"We are confident the pilot will generate sufficient data to facilitate analysis of the effects that transaction-based fees and rebates may have on broker order-routing behavior, execution quality, and market quality in general," the letter said.

Along with the $352.8 billion California Public Employees' Retirement System, Sacramento, and C$189.5 billion ($145.8 billion) OTPP, Toronto, signatories are: