The battle for a wholesale review of how exchanges charge their customers ramped up as the exchanges moved to legally stop an upcoming SEC transaction fee pilot program before it begins.
The unified opposition from New York Stock Exchange, Nasdaq and Cboe Global Markets Inc. is matched by equally passionate pension fund officials, money managers and other investors who see a lot riding on the pilot program's potential to shed more light on exchange practices and costs.
"We would suggest that the results from the transaction fee pilot can serve to initiate a broader discussion on the appropriate reward model for exchanges," wrote officials from Norges Bank Investment Management, the manager of the 8.6 trillion Norwegian kroner ($1 trillion) Government Pension Fund Global, Oslo, in a May comment letter.
New York City Comptroller Scott M. Stringer, fiduciary for the $193.7 billion New York City Retirement Systems, agrees. "When we put transparency first, everyone benefits. The SEC's transaction fee pilot will show what's behind the curtain to reduce potential conflicts of interest risks in the current 'maker-taker' model and bring down the cost of investing,” he wrote in an email.
The Securities and Exchange Commission approved the two-year transaction fee pilot program Dec. 19 to measure the effects of maker-taker rebates on equity trade execution, with the goal of studying the results on routing behavior, execution quality and market quality.
Maker-taker rebates refer to the practice of exchanges paying rebates to some broker members for order flow.