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Statement on Proposed Rule to Conduct a Transaction Fee Pilot in NMS stocks

March 14, 2018

I am pleased to support this proposed rule, which is designed to tackle one of the most talked about topics in the equity markets: the fees and rebates implemented by exchanges for accessing or providing liquidity.

Of course, the attention that this topic receives in the market structure community should come as no surprise to us.  It was a contentious topic back when Regulation NMS Rule 610 first set a limit on access fees in 2005,[1] and the evolving complexities in our market structure since that time have done nothing to resolve the questions of that day.  Yet the fact remains that fees and rebates are central to our national market system and the way that trading decisions are made.

Every time I consider this issue, I find it useful to remind myself that it was not always this way.  Our equity markets thrived for decades without maker-taker pricing.  These markets continued to function well even after fees and rebates worked their way into trading center pricing models.  And they remain vibrant today while subject to government rate setting on access fees.

Highlighting that point does not tell us whether fees and rebates are wrong, whether they should be abolished or further constrained, or whether they should be unshackled and returned to a natural equilibrium.  What it does do, however, is remind us that we do not have to take the current exchange pricing structures as immutable characteristics of our modern markets.  The time has come for us to ask serious questions about the role of fees, rebates, and related SEC limitations in our markets.  I am glad that we are starting that process at the Commission level with this proposed pilot.

You will notice that I specified action at the Commission level.  This is because the proposed pilot is not an idea generated by the Commission in a vacuum.  Rather, this proposal represents a mid-point in the much longer conversation on fees and rebates among Commission staff, market participants, academics, and others.

As part of that ongoing dialogue, I recall sitting down with the team that drafted this proposal last spring shortly after becoming Acting Chairman of the agency.  We had a wide-ranging conversation aimed at charting a path forward for this proposed rule.  Even at that stage it was clear to me that our staff were committed to this project and had a deep understanding of its nuances.  I thank the staff for their hard work to get this proposed rule before the Commission, which I am certain took much longer than any of them ever anticipated.  These extremely technical releases can take a great deal of time, but I believe the quality of the end product is a testament to the dedication of individuals across the agency.

One of the key topics at that staff meeting was an evaluation of the recommendation for an access fee pilot developed by the Commission’s Equity Market Structure Advisory Committee (“EMSAC”).[2]  We might not be voting on a proposed pilot today if not for the excellent work of our EMSAC members.  I want to thank the EMSAC members for presenting us with such a well thought out recommendation.  They provided a clear roadmap for the Commission to consider, and showed just how impactful advisory committees can be to the Commission and the markets as a whole.  The pilot we propose today may differ from the EMSAC recommendation in certain aspects, but the core of this proposal ties directly back to the work of that committee.

I would also like to thank my fellow Commissioner Kara Stein for her efforts to ensure that the Commission’s transaction fee pilot took the form of a notice and comment rulemaking, rather than an NMS plan.  We joined together to push for a rulemaking soon after the EMSAC provided its recommendation, and I believe we will see the fruits of that decision bear out as the rulemaking process progresses.

Thank you to Chairman Clayton for his dedication to market structure issues, and his decision to prioritize this project among the innumerable ways he could have directed scarce staff resources.  Thanks as well to Commissioners Jackson and Peirce for diving into this complex subject soon after joining the Commission, and for their insightful comments on the proposal.

Our Director of the Division of Trading and Markets, Brett Redfearn, also deserves special thanks for his work on this proposal.  Brett arrived on the job and immediately got to work suggesting changes to the existing draft of the pilot, including the “no rebate” bucket, based on his deep expertise in this area.  

I am not usually the one with a laundry list of thank yous, but this proposal really does reflect great effort both inside and outside this building.

Before I finish, I must give one more thank you, this time in advance to all of the commenters that I know will provide us with constructive feedback on the proposed pilot.  One of the reasons Commissioner Stein and I pushed so hard for this pilot to be structured as a notice and comment rulemaking is because of the high quality responses we get from the public, particularly on market structure issues.

It is probably a safe bet that some commenters will praise the proposed pilot, and others will view it as misguided.  Positive and negative comments alike can be valuable as we consider whether and how to proceed to a final pilot.  Tell us what we got right, what we got wrong, and how we can improve it. 

For example, I am interested in commenter perspectives on whether we appropriately structured the pilot buckets and made the right calls on which trading centers to include.  Are there ways we can adjust the pilot to make the criteria that we will ultimately use to measure the pilot’s effectiveness more clear?  Are we collecting the right data to undertake the analyses necessary to evaluate these criteria?

I look forward to the comments on these issues and others. 

Thank you.  I have no questions.


[1] Regulation NMS, Securities Exchange Act Release No. 51808, 70 FR 37496, 37502 (Jun. 29, 2005) (“Perhaps more than any other single issue, the proposed limitation on access fees splintered the commenters.”), available at

[2] EMSAC, Recommendation for an Access Fee Pilot (July 8, 2016), available at

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