April 3, 2014 / 12:44 AM / 6 years ago

SEC commissioner calls for review of exchange rebate model

Securities and Exchange Commission (SEC) Commissioner Luis Aguilar answers a reporter's question during the Reuters Global Financial Regulation Summit in Washington April 29, 2009. REUTERS/Molly Riley

(Reuters) - The U.S. Securities and Exchange Commission should consider a temporary program to test the effects of banning the most common method of pricing used by stock exchanges, as it may cause conflicts of interest, a commissioner at the regulator said on Wednesday.

The “maker-taker” model gives rebates to brokers that provide liquidity to the exchanges by sending them resting orders for others to execute against. Those that take liquidity, by sending an order that can be immediately executed, pay a fee.

The SEC should seriously consider implementing a pilot program that would temporarily ban maker-taker rebates for certain securities, said SEC Commissioner Luis Aguilar.

“Many have observed that the maker-taker model may present a conflict of interest between brokers and their customers because broker-dealers are incentivized to send customer orders to the venue that pays the best maker-taker rebate, and not necessarily the venue that provides best execution,” he said a speech.

The idea is that the pilot program would allow the SEC to study the effects of the maker-taker model on brokers’ order routing practices, transparency, and other metrics, and would help inform the discussion on whether the maker-taker model needs to be changed or eliminated, he said.

Those who have called for the maker-taker system to be outlawed include Jeffrey Sprecher, chief executive IntercontinentalExchange Group Inc, which closed its purchase of the New York Stock Exchange in November.

Reporting by John McCrank in New York; Editing by Bernard Orr

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