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QUICK TAKE: Liquidnet's Sussman Wants Bolder Access Fee Cap Pilot

Traders Magazine Online News, March 26, 2018

John D'Antona Jr.

Serious talk about reviewing of US Exchange transaction fees is finally here. I can almost feel the blue draining from my face. The current access fee cap—$.003 per share—has not changed since originally proposed as part of Reg NMS. It’s about time, right? 

In 2005, there was general support for an access fee cap, the debate was around the details. The primary rationale for the fee cap was to prevent market centers from abusing the protected quote status toextract high fees. The SEC based 30 mils on common pricing.  In the short space allotted in this article, let’s try to tackle two fundamental questions:

  • Accepting the SEC’s initial rationale, is $.003 still the right access fee cap?
  • Would a change to access fee caps solve any of the issues raised in the Access Fee proposal?

On the first question, it’s hard to believe that the $.003 is still the right cap in the face of technology advancements and market structure evolution. It should be lower, right?

Not exactly. The US is one of the few markets whose Exchanges charge in shares instead of notional. Why not test how changing the fee structure to basis points would impact the system?  The value of a venue is measured in ability to efficiently transfer risk, shouldn’t they be compensated that way too?

On the second question, I do not believe that any modest tweaking to the access fee cap will provide adequate data on the integrity and efficiency of the maker-taker model. Conflicts of interest in order routing existed before the maker-taker model and will continue to exist within the Fee Cap Pilot. Abolishing rebates will simply move more of those economic arrangements off-exchange. While eliminating inverse exchanges might help reduce fragmentation a bit, it comes at the cost of allowing cost to trump speed; not a great trade-off in my opinion. 

While the Access Fee Cap Pilot should yield some useful data, I would like the SEC to be a bit bolder in its experiment. We will only learn as much as we are willing to risk.” 

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