Three prominent high-speed trading firms are backing an effort by major exchanges to stop the SEC's transaction fee pilot program before it begins.
Citadel Securities, GTS Securities and IMC's U.S. division submitted a joint filing Thursday to the U.S. Court of Appeals for the District of Columbia Circuit in a case brought by the New York Stock Exchange, Nasdaq and Cboe Global Markets Inc. to have the pilot program ruled unlawful and beyond the authority of the Securities and Exchange Commission.
The two-year pilot program was approved by the SEC in December but has been on hold pending the outcome of the court challenge. On May 22, the SEC announced that it is proceeding with a six-month "pre-pilot" beginning July 1 that will require exchanges to compile — but not yet submit or disclose — data on their fee and rebate practices.
The transaction fee pilot program now on hold is aimed at measuring the effects of maker-taker rebates on equity trade execution by studying 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.
High-frequency traders including Citadel Securities and GTS Securities benefit from those rebates. The three firms said in their filing that the pilot was "ill-conceived" and that the outcome will be negative.
Groups like the Council of Institutional Investors are backing the pilot program as a way to get more information about exchange fee and routing practices, and who benefits from the rebates.
The exchanges argue that the pilot has the potential to harm both investors and publicly listed companies. The stay order did not address the merits of the legal challenges and left in place the requirement for data collection, which will be used for a baseline if or when the pilot program launches.
