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By Katanga Johnson
WASHINGTON (Reuters) – The U.S. securities regulator on Tuesday proposed a change to the way exchange operators alter their fees, in a move aimed at improving transparency but which could make it harder for operators to compete on price to propel revenue growth.
The U.S. Securities and Exchange Commission (SEC) proposed that operators submit requests to change fees for such services as market data and connectivity with other exchanges, and then seek industry feedback before any changes can be implemented.
At present, operators – such as New York Stock Exchange-owner Intercontinental Exchange Inc (N:), Nasdaq Inc (O:) and Cboe Global Markets Inc (Z:) – notify the regulator of fee changes, which then take immediate effect. The system effectively allows operators to compete on price in real time.
In May, the SEC said securities exchange operators must do a better job of describing and justifying their fees when they make a filing, or else the filing will be suspended for review.
Tuesday’s proposal, which is subject to public consultation before adoption, comes after a years-long dispute over what many brokers and investors see as soaring costs for services essential for trading, but which are also major revenue drivers for most exchange operators.
Exchanges lodge hundreds of fee-related filings with the SEC each year. Under current rules – known as the National Market System plan, or Regulation NMS – fee changes become effective immediately to ensure retail investors get the best price possible. NMS also prevents trades being executed at prices inferior to bid and offer prices displayed at other trading venues.
Under Tuesday’s proposal, the delay before implementing changes could make it tougher for exchange operators to compete quickly on price, potentially limiting future revenue growth.
“The fees charged by NMS plans affect a wide variety of investors and market participants,” SEC Chairman Jay Clayton said in a statement. “This rulemaking will help ensure that NMS plan fee changes benefit from review and comment by investors and market participants before those fees can be charged.”
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