Last December, the SEC unanimously approved a two-year pilot program (the “Transaction Fee Pilot”) intended to assess alternatives to the predominant pricing model used by national securities exchanges (the “Maker-Taker System”).[i] Two months later, several national securities exchanges, including the NYSE and Nasdaq, petitioned the Court of Appeals for the D.C. Circuit to review the Transaction Fee Pilot.[ii] They argued in their petitions that the Transaction Fee Pilot is both incompatible with the SEC’s statutory mandates as set forth in the Securities Exchange Act of 1934 and the requirements of the Administrative Procedures Act.[iii]

While the parties await a ruling from the D.C. Circuit, an array of market participants have voiced support for each side. Last week, ICI and CII filed an amicus curiae brief in support of the Transaction Fee Pilot. In that brief, ICI and CII argued that the SEC’s approach was consistent with the law and a reasonable approach to resolving harms caused by the Maker-Taker System.[iv] According to the brief, those harms include: (i) creating conflicts of interest that can undermine the duty of best execution brokers owe their clients; (ii) increasing market complexity to the detriment of investors; and (iii) reducing price transparency, which undermines investor confidence in the markets.[v]

We do not know what weight the D.C. Circuit will give to briefs submitted by market participants or how it will eventually rule on the petition. However, we are certain, regardless of how the court rules, any changes to the predominant pricing model for transactions on national exchanges will send ripples across the markets. We encourage market participants to study the issue carefully and follow developments closely.