The SEC's effort to study how exchanges set trading fees and whether some brokers get better pricing hit a roadblock Tuesday when a federal appeals court agreed with the exchanges that the regulator exceeded its authority.
The U.S. Court of Appeals for the District of Columbia said the Securities and Exchange Commission "clearly exceeded" its authority in launching the planned transaction fee pilot program because it is a 'one-off' regulation designed to gather information "that might indicate to the SEC whether there is a problem worthy of regulation."
The program was designed to examine the "maker-taker" system, where some brokers are charged fees and others are offered rebates, and was widely supported by market watchdogs and investor groups, including the Council of Institutional Investors.
It was the SEC's second legal defeat with the exchanges in less than a week in the same federal court, which on June 12 overturned an SEC challenge to some of the exchanges' market data fee increases, with the court again saying that the agency acted outside of its authority.
The Equity Markets Association, whose members were resisting the SEC's challenges, said in a statement that the transaction fee pilot "was a mistake that if put into place would have brought many unknown consequences for the investing public and the companies that list on the exchanges. There are better, less harmful and less costly solutions we can enact to improve our markets."