NEW YORK (Reuters) - U.S. stock exchange operator IEX Group took issue with a claim by the New York Stock Exchange that a plan by regulators to test lowering exchange fees and rebates would cost investors at least $1 billion, calling it “false and unfounded.”
“NYSE has attempted to garner support from Main Street by purposely misleading companies with a false narrative of investor and issuer harm,” IEX said in a letter to the U.S. Securities and Exchange Commision (SEC) dated June 27.
The SEC in March said it planned to test the effects of lowering stock exchange fees and rebates, which would be banned altogether for some stocks, for one to two years, following widespread criticism of the current pricing system.
Critics of the pricing regime, including dozens of institutional investors that support the SEC’s proposal, say it creates conflicts by giving brokers incentives to send customer orders to exchanges that pay the biggest rebates, even when better results for their clients might be found elsewhere.
The NYSE, in a letter to the SEC on May 31, said the so-called transaction fee pilot would result in wider bid-ask spreads on stocks, driving up costs for investors. The NYSE, which is owned by Intercontinental Exchange Inc (ICE.N), also said the pilot would harm competition by driving more trading to off-exchange venues, undermining the SEC’s legal obligation to promote efficient markets.
IEX, which does not pay rebates, argued that banning the payments was unlikely to lead to uniformly wider spreads, and that lower exchange fees would likely result in more trading on exchanges. Rebates, IEX said, were more about attracting order flow.
“We believe that NYSE’s real concern is not with less exchange volume or price transparency, but the potential impact on its own profitability,” said the letter, signed by IEX’s Chief Market Policy Officer John Ramsay, former head of market regulation at the SEC.
The NYSE is not alone in its criticism of the SEC proposal. Rival exchange operators Nasdaq Inc (NDAQ.O) and Cboe Global Markets CBOE.O have also voiced their opposition.
Reporting by John McCrank; Editing by David Gregorio