A $1.4 trillion-plus group of North American asset owners is supporting the SEC’s proposed transaction fee study for stock exchanges, which is aimed at incentives that the big investors say lead to higher prices for them.
The group, led by the $189.5 billion Ontario Teachers’ Pension Plan and the $351.8 billion California Public Employees’ Retirement System (CalPERS), submitted a letter to the commission, endorsing its proposed rule changes in regulating the national market.
The commission floated the proposed study in March and now is soliciting public comments. Later this year, it will vote on whether to create a study that will last up to two years and test curbing fees and rebates for brokers. The commission wants to examine “transaction fees and rebates and their impact on order routing behavior, execution quality, and market quality in general,” said SEC Chairman Jay Clayton.
Under the current setup, critics say, there’s a conflict of interest for brokers, who will choose an exchange that offers the best incentives, not the fastest or best trade executions. The study intends to create different collections of stocks and impose fee limits to see how they fare under different fee schedules, such as 15 cents per 100 shares or 5 cents.
In their letter, the CalPERS and Ontario-led group called on the SEC to go beyond its limiting rebate payments to brokers, and simply eliminate them. Otherwise, its letter read, the pilot program “will be of limited use to long-term investors who question the importance of rebates to overall market quality.”
The test, which is under fire by exchanges like the CBOE and Nasdaq, should be allowed to wind on for its full two years, the pension group wrote. Keeping to the SEC timetable would “prevent certain participants from attempting to influence behavior and distort the results,” it contended.
Further, the SEC should ensure that all national market exchanges are in the pilot to avoid skewing the data. In addition, the consortium asked that companies not have the option to opt out of the pilot.
The pension plans “encourage the SEC to take the necessary steps to implement it as soon as possible,” the letter said.
Additional letter signatories include the $224.8 billion California State Teachers’ Retirement System (CalSTRS), the $194 billion New York City Retirement Systems, and the $117 billion State of Wisconsin Investment Board.