SEC to Prohibit Volume-Based Transaction Pricing

SEC to Prohibit Volume-Based Transaction Pricing

Time Stamp: October 18, 2023 4:37 PM
SEC to Prohibit Volume-Based Transaction Pricing PlatoBlockchain Data Intelligence. Vertical Search. Ai.

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.

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.”

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 the members of the public will submit.

Recently, the SEC voted in favour 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.

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.”

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 the members of the public will submit.

Recently, the SEC voted in favour 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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