US SEC proposes limits on brokerage trading rebates

investing.com:

(Reuters) -Wall Street's top regulator on Wednesday proposed new regulations it said should level the playing field among broker-dealers operating on U.S. stock exchanges by ending pricing schemes that tend to favor bigger players.

   At a public meeting in Washington, a divided five-member U.S. Securities and Exchange Commission voted 3-2 to propose banning stock exchanges from offering lower transaction prices and rebates to brokerages with higher trading volumes, something officials said creates unfair competitive advantages for larger firms.

«Sometimes the large brokers get rebates that are even larger than the fees they pay or actually have a situation where the exchanges are paying the largest brokers for that order flow,» said SEC Chair Gary Gensler.

However, the commission's Republican members objected, saying the proposal was a solution in search of a problem.

The number and complexity of pricing tiers that can exist among exchanges, and which leave different brokerages facing sizeable differences in cost, can make price schemes complex and difficult to understand, officials said in advance of the meeting.

Ending such pricing advantages will also help prevent conflicts of interest in which brokerages may route orders for execution in ways that benefit the brokerage but not the client, according to the SEC.

The ban on transaction price discounts and rebates would not apply when brokerages trade for themselves, SEC officials said in advance of the meeting.

In those cases, stock exchanges will have to disclose pricing tiers and the number of exchange members who qualify to the SEC, which will make this available to the public.

Republican commission member Hester Peirce, a critic of the SEC's regulatory agenda,