A U.S. congressman has introduced a bill that would require securities regulators to study the impact of banning trading-fee rebates that are paid under the “maker-taker” fee model used by most major trading venues.
The proposed legislation, which was introduced by Massachusetts congressman Stephen Lynch, would require the U.S. Securities and Exchange Commission (SEC) to carry out a pilot program to assess the impact of eliminating the maker-taker pricing model that exchanges use to attract liquidity.
The proposed bill would require the SEC to prohibit the payment of rebates in 50 of the most heavily traded U.S. stocks for six months. It would also require all venues where those stocks are traded to implement a rebate-free pricing structure. The data from this study would then be used to help determine whether broader maker-taker reform is warranted.
These kinds of pricing models have been an increasing source of concern for both regulators and market players in recent years. There are concerns that the model distorts order routing decisions, hampers market transparency and benefits high-frequency traders at the expense of retail investors.
Last year, the Canadian Securities Administrators announced that it is planning to undertake a pilot study prohibiting the payment of rebates by marketplaces under the maker-taker fee model.
“Reforming the maker-taker system ought to be a high priority for the SEC,” Lynch said. “Under [the proposed bill], the pilot study would provide crucial insight into the adverse effect of maker-taker pricing on our market structure. I believe that the dynamics introduced by this model are inconsistent with the SEC’s goals of transparency, efficiency, liquidity and fairness, and that maker-taker creates a dangerous conflict of interest for stock brokers.”