July 19, 2006
Comments on SR-NYSE-2006-46 Proposed Rule Change to Revise Equity Transaction Fees
The Problem – The new NYSE fee proposal is no simple adjustment in charges. It is, instead, a revolutionary shift from a commission derived schedule to a transaction based model. Its proposed August 1st implementation leaves little if any time for firms (particularly small firms – the source of innovation) to substantially redirect and reconfigure their entire business models in a matter of days.
As the consolidation and de-mutualization of equity exchanges has accelerated, the SEC has, laudably, been wary of unintended and potentially harmful consequences.
A good example was seen when the NYSE converted from a finite number of member seats to issuing trading licenses. The Commission introduced certain safeguards to insure availability and access, recognizing that a viable floor community should not disappear either by fiat or by accident.
We believe the format of the new transaction based schedule could drastically shrink the floor population as radically and quickly as any limitation on trading license availability.
We believe our firm is a good example. We are a small, floor-based institutional execution service. Our impact sheet indicates that our NYSE transaction fees will rise over 210%. In the next twelve months (if we survived) that would be an increase of over $300,000. This is a great sum to a small firm trying to grow through innovation. And, it must be addressed in two weeks.
We believe that the overwhelming majority of floor-based firms will see large, possibly devastating increases. The NYSE (properly) would not give us access to that data since some of these firms are our competitors. The SEC, however has access to this data. We strongly request that you ask for this profile and carefully note the disproportionate impact on small firms.
Summary – In an effort to plug a loophole exploited by its competitors, the NYSE is shifting from commission based fees to transaction based fees. An unintended (we presume) consequence is that many small floor-based firms may disappear as collateral damage. Unlike the NYSE competitors, none of these floor-based operations were riding free. Each was paying the NYSE fees based on the existing schedule. Several larger firms will receive increased fees but none on the percentage scale of the small floor-based firms. That also shifts the competitive/innovative balance.