Potential new SEC rules to limit broker trading rebates

During this meeting, the SEC will evaluate whether the lower transaction prices and rebates going to larger firms with higher trading volumes create an unfair competitive advantage. Reuters reported that before the start of the meeting, SEC officials indicated that the complexity of pricing levels between different exchanges can result in significant cost differences.

They further said that the system is complex and warrants careful consideration; if new rules come into effect, it would end these pricing perks and conflicts of interest where brokerages execute orders to profit them and not necessarily their customers.

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This type of conflict is non-existent when brokerages partake in so-called proprietary trades – where brokerages execute trades for themselves and not customers. Reuters reported that SEC officials said, in this regard, transaction price discounts and rebates would not apply.

Gary Gensleer Source: SEC.gov

In these instances, stock exchanges must disclose their pricing levels and qualifying exchange members. The SEC would then make this information public. Gary Gensler, the SEC chairperson, said:

Currently, the playing field upon which broker-dealers compete is unlevel. Through volume-based transaction pricing, mid-sized and smaller broker-dealers effectively pay higher fees than larger brokers to trade on most exchanges. I am pleased to support this proposal because it will elicit important public feedback on how the Commission can best promote competition amongst equity market participants.

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