SEC to Prohibit Volume-Based Transaction Pricing among Stock Brokers

by Jared Kirui
  • The regulator had introduced a new proposal aimed at enhancing transparency.
  • The SEC seeks to level the playing field for broker-dealers of all sizes.
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In a step expected to promote fairness and competition in the stock market, the Securities and Exchange Commission (SEC) has proposed a new rule. This rule prohibits national securities exchanges from offering a lower transaction price and rebates to brokerages with high trading volumes.

In a statement by the commission, the SEC's Chair, Gary Gensler emphasized the need for a level playing field, stating that the current system unfairly burdens mid-sized and smaller broker-dealers with higher fees compared to their larger counterparts when trading on most exchanges.

SEC Proposes Game-Changing Rule to Level Market Playing Field

Gensler 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. We have heard from a number of market participants that volume-based transaction pricing, along with related market practices, raise concerns about competition in the markets."

The SEC's proposal is open to the public for feedback within 60 days. Subsequently, this rule could be revised before it becomes official based on the feedback submitted by members of the public.

Recently, the SEC voted in favor of a rule that requires lenders of securities to report new loans and changes to existing ones by the end of each trading day, the Financial Times reported. This action marked a significant step towards enhancing transparency in securities lending, a practice crucial to short selling.

Navigating Recent SEC's Regulatory Changes

Short selling involves betting that the price of an asset will decline, a strategy commonly used by hedge funds. These funds borrow stocks and bonds, sell them, and later buy them back at a hopefully lower price before returning them to the lenders. Lenders are typically long-term security owners, such as fund managers who earn fees for facilitating these transactions.

Besides that, the SEC is expected to vote on a separate final rule requiring US corporate executives to wait four months before selling shares after establishing a 10b5-1 plan. This mechanism enables insiders to sell shares without violating insider trading rules. This rule change aims to prevent executives from selling shares shortly after creating a plan, potentially with insider information.

In a step expected to promote fairness and competition in the stock market, the Securities and Exchange Commission (SEC) has proposed a new rule. This rule prohibits national securities exchanges from offering a lower transaction price and rebates to brokerages with high trading volumes.

In a statement by the commission, the SEC's Chair, Gary Gensler emphasized the need for a level playing field, stating that the current system unfairly burdens mid-sized and smaller broker-dealers with higher fees compared to their larger counterparts when trading on most exchanges.

SEC Proposes Game-Changing Rule to Level Market Playing Field

Gensler 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. We have heard from a number of market participants that volume-based transaction pricing, along with related market practices, raise concerns about competition in the markets."

The SEC's proposal is open to the public for feedback within 60 days. Subsequently, this rule could be revised before it becomes official based on the feedback submitted by members of the public.

Recently, the SEC voted in favor of a rule that requires lenders of securities to report new loans and changes to existing ones by the end of each trading day, the Financial Times reported. This action marked a significant step towards enhancing transparency in securities lending, a practice crucial to short selling.

Navigating Recent SEC's Regulatory Changes

Short selling involves betting that the price of an asset will decline, a strategy commonly used by hedge funds. These funds borrow stocks and bonds, sell them, and later buy them back at a hopefully lower price before returning them to the lenders. Lenders are typically long-term security owners, such as fund managers who earn fees for facilitating these transactions.

Besides that, the SEC is expected to vote on a separate final rule requiring US corporate executives to wait four months before selling shares after establishing a 10b5-1 plan. This mechanism enables insiders to sell shares without violating insider trading rules. This rule change aims to prevent executives from selling shares shortly after creating a plan, potentially with insider information.

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