SEC Steers Pilot on Equity Trading Fees and Rebates Amid Headwinds | Traders News

The transaction-fee pilot was announced in March to address criticism over the maker-taker system of rebates, which reward brokers that route client orders to the exchanges with the highest rebates. The practice has been controversial as some say it distorts the order routing behavior of brokers.

Buy-side firms and other critics maintain that the rebates cause conflicts of interest by incentivizing brokers to route their orders to the highest rebate exchanges, and not necessarily to the exchange that will provide the best execution.

“Exchange rebates, maker-taker and inverse (i.e., taker-maker) pricing, as well as other incentives have become a growing concern for investors, ” wrote Southeastern Asset Management, with $18 billion in assets under management, in a comment letter sent to the SEC in April. The letter was signed by a group of 21 asset managers, including the likes of Franklin Templeton Investments, Janus Henderson Investors and hedge funds such as Greenlight Capital, Pershing Square, and Oak Tree Capital, showing a groundswell of support for the pilot.

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SEC Steers Pilot on Equity Trading Fees and Rebates Amid Headwinds | Traders News.