On October 18th, the SEC announced that it is proposing new Rule 6b-1 under the Securities Exchange Act of 1934 that would prohibit national securities exchanges from offering volume-based transaction pricing in connection with the execution of agency or riskless principal (agency-related) orders in certain stocks.
Under the proposed rule, when exchanges offer volume-based transaction pricing for their members’ proprietary orders, the exchanges must adopt rules as well as written policies and procedures related to compliance with the prohibition. Additionally, the exchange would be required to disclose certain information monthly, including the total number of members that qualified for each volume tier during the month.
Because exchanges are self-regulatory organizations, they are subject to unique standards and processes not applicable to other businesses. Exchange rules (including transaction pricing schedules) must not be designed to permit unfair discrimination between brokers. Exchange rules also must not impose any burden on competition that is not necessary or appropriate in furthering the objectives of the Exchange Act. Using increasingly complex transaction pricing schedules, a number of exchanges offer their broker-dealer members lower fees or higher rebates as the number of shares the member executes on the exchange reaches successively higher, predefined volume-based tiers. The vast number of available pricing tiers and the many possible combinations of some tiers may make exchange transaction pricing schedules difficult to understand. Volume-based exchange transaction pricing raises competitive concerns among exchange members and among exchanges. The desire to qualify for volume-based transaction pricing tiers worsens a conflict of interest between members and their customers when members route customers’ orders for execution because the member can economically benefit from its routing decision.
Should proposed rule 6b-1 be adopted, it would:
prohibit exchanges from offering volume-based transaction pricing in connection with the execution of agency principal orders in NMS stocks
require exchanges that offer volume-based transaction pricing in connection with the execution of proprietary orders in NMS stocks for the account of a member to submit electronic, machine-readable structured data tables of certain information about their volume-based transaction pricing tiers and the number of members that qualify for each tier in an Interactive Data File under Rule 405 of Regulation S-T, which the public would be able to access through the SEC’s EDGAR system
require exchanges that offer volume-based transaction pricing in connection with the execution of proprietary orders in NMS stocks for the account of a member to have anti-evasion measures, including rules requiring members to engage in practices that facilitate the exchange’s ability to comply with the prohibition, and written policies and procedures reasonably designed to detect and deter members from receiving volume-based pricing in connection with the execution of agency-related orders in NMS stocks