The Securities Industry and Financial Markets Association (SIFMA) expressed its concerns with a recent proposal by the Securities and Exchange Commission (SEC) on transaction pricing.
The SEC’s proposal would prohibit national securities exchanges from offering volume-based transaction pricing in NMS stocks in connection with the execution of agency and riskless principal orders. In a comment letter to the SEC, SIFMA officials outline how the proposal would negatively impact market competition and, ultimately, harm investors.
“In our view, this proposal would negatively impact market efficiency and competition both among exchanges and among broker-dealers, raise costs for smaller and medium-sized broker-dealers and investors, and reduce exchange liquidity by disincentivizing the routing of orders to exchanges,” Ellen Greene, SIFMA managing director, equity and options market structure, said. “The SEC’s own economic analysis indicates that the proposal would reduce market efficiency and could harm lower-volume exchange members and result in wider spreads to the detriment of all market participants.”
Further, SIFMA noted that the SEC has not identified a particular market harm or harm to investors which the proposal is intended to remedy. Instead, the SEC has developed the proposal on the premise of remediating a potential conflict of interest related to routing orders, without explaining why existing rules such as FINRA’s best execution rule or Regulation Best Interest do not already address such concerns.
In addition, SIFMA raised questions about how this proposal is intended to intersect with the four previously issued proposals relating to equity market structure. Back in March 2023, SIFMA pointed out that the SEC failed to identify a market failure that would justify the dramatic structural changes proposed.
SIFMA is urging the SEC to only consider moving forward with the proposal after any implementation of the equity market structure proposals. Also, they should pause until market participants and the SEC have had a chance to evaluate the equity market structure with the benefit of amended Rule 605 reports. SIFMA added that the SEC should re-open the comment period on the proposal to allow market participants the opportunity to evaluate it under the new equity market structure.