A transaction fee pilot program designed to provide a wholesale review of how exchanges charge customers does not need judicial review, the SEC said in a recent court filing.
The two-year pilot program was approved by the Securities and Exchange Commission in December but put largely on hold after legal challenges from New York Stock Exchange, Nasdaq and Cboe Global Markets Inc. filed in February in the U.S. Court of Appeals for the District of Columbia Circuit. The exchanges asked to have the pilot program ruled unlawful, and for the court to issue a stay pending review.
The court does not need to grant the exchanges' petition for review, SEC lawyers argued in court documents filed July 25. While the exchanges argued in their petition that the SEC is engaging in "harmful experimentation with the market ... an equally compelling case has been made that it is actually the status quo that is harmful to the market," and gathering data before considering further regulation "is surely reasonable," the SEC brief said.
The stay order now in effect does not address the merits of the legal challenges and leaves in place a requirement that the exchanges continue to collect, but not transmit, "pre-pilot" data to be used for a baseline if the pilot program resumes.
Three prominent high-speed trading firms — Citadel Securities, GTS Securities and IMC's U.S. division — are backing the exchanges' effort to stop the transaction fee pilot program before it begins.