WASHINGTON – U.S. Sen. Mark R. Warner (D-VA), Ranking Member of the Senate Banking Subcommittee on Securities, Insurance and Investment, released the following statement after the Securities and Exchange Commission (SEC) adopted a transaction fee pilot for National Market System (NMS) stocks to test the effects of “maker-taker” fee models on order routing and execution quality. The pilot program will create two test groups, one that bans rebates and linked pricing with another that tests a fee cap of $0.0010:
“I’ve long urged the SEC to take the step it has taken today, and I’m heartened to see the SEC adopt this pilot. It’s time we get this data to better understand stock exchange transaction-based fees and rebates so we can make sure our market structure is benefiting Main Street investors.”
Under the maker-taker pricing model, securities exchanges pay rebates to brokers that send bids and offers not intended for immediate execution, in the hopes of incentivizing liquidity in the market. Brokers who immediately execute their orders pay fees, which offset the rebates paid to brokers who create liquidity by not immediately executing their orders. However, this model has come under Congressional scrutiny after a 2013 study found evidence it created a conflict of interest for brokers – who may be incentivized to send orders that generate the largest rebate for the broker, rather than the best trade for the client.
Since 2014, Sen. Warner has been raising concerns about the “maker-taker” model. In April 2016, Sen. Warner and Sen. Mike Crapo (R-ID) wrote to the SEC expressing support for a pilot program to study the effects of rebates on U.S. equity markets. In July 2017, Warner wrote to newly-appointed SEC Chairman Jay Clayton and called for “…pursuing the full elimination of [maker-taker] rebates.”