The U.S. Securities and Exchange Commission is investigating whether complex pricing structures on stock exchanges create advantages for major brokers over smaller firms, according to a report. The probe aligns with regulatory scrutiny initiated in 2018 under Chairman Jay Clayton’s leadership to address potential inequities.
Current systems allow large financial institutions and high-volume traders to receive rebates tied to transaction volume, reducing their costs or even generating payments. This has raised concerns about disparities, as smaller brokers face higher fees. Exchanges like Intercontinental Exchange Inc, Nasdaq Inc, and Cboe Global Markets use tiered pricing models to boost trading volumes and profitability.
The SEC has not launched a formal investigation but is requesting detailed information about these structures. If deemed unfair, exchanges might need to simplify fee schedules, impacting revenue streams. SEC spokesperson Judith Burns and NYSE and Nasdaq representatives declined to comment on the probe.
Cboe emphasized its tiered pricing caters to diverse client needs, citing competitive market pressures. Bryan Harkins, co-head of Cboe’s markets division, stated no immediate plans to alter pricing structures. Industry participants argue competition has narrowed spreads benefiting all investors, while critics highlight systemic disadvantages for smaller firms.
Analysts note over 1,000 pricing configurations across exchanges, complicating transparency. Bats, now owned by Cboe, reported a $14.6 million revenue increase after implementing tiered pricing in 2011. Large brokers often share discounts with smaller firms through sponsored access arrangements, according to Cboe’s Harkins.
The SEC has also requested exchanges to justify data fee increases and is testing a pilot program to restrict rebate payments for liquidity-providing orders. Legal challenges from exchanges question the regulator’s authority over these mandates, reflecting bipartisan concerns about anti-competitive practices and investor protection.
