The U.S. Securities and Exchange Commission is investigating whether stock exchange pricing models disproportionately favor large brokers over smaller firms, with regulatory focus extending to practices that emerged during 2018 under Chairman Jay Clayton's leadership.
Under current arrangements, major Wall Street institutions and high-frequency traders receive substantial rebates based on transaction volume, effectively reducing or eliminating their trading costs. Smaller brokers, however, face higher fees that critics argue create an uneven playing field. Internal reports indicate top-tier clients at exchanges like Nasdaq and Cboe sometimes receive payments rather than pay fees.
Exchanges including Intercontinental Exchange, Nasdaq, and Cboe maintain their pricing models are competitive and transparent. Cboe markets co-head Bryan Harkins stated the company has no plans to alter its pricing schedules, emphasizing that tiers cater to diverse client needs. Critics, however, highlight the complexity of pricing structures—described as involving 3,762 variables across exchanges—making it difficult for smaller firms to navigate.
The regulatory scrutiny aligns with broader efforts by the SEC to improve transparency and ensure fairness under the Exchange Act. A 2018 photo of Clayton underscores the timeline of this investigation. Exchanges have defended tiered pricing as a product of market competition, citing revenue growth from such models. For example, Bats Exchange reported a $14.6 million revenue increase after implementing tiered pricing in 2011.
Industry critics argue that tiered pricing disadvantages smaller brokers, with one executive noting that five of the top 10 customers at Nasdaq and Cboe by volume actually receive checks from exchanges at month's end. Exchanges counter that sponsored access allows smaller firms to share in savings with big brokers.
