Exchange operator BATS Global Markets on Tuesday called for changes to U.S. stock market rules, including slashing exchange fees for the most actively traded stocks, in the latest plea for regulatory reform from within the industry.
The rules that govern exchanges were put in place a decade ago by the Securities and Exchange Commission (SEC) and while the markets function reasonably well, it may be time to make some improvements, BATS' Chief Executive Joseph Ratterman said in an open letter to the industry.
The letter was prompted in part by a proposal floated by rival New York Stock Exchange (NYSE) owner Intercontinental Exchange Inc in recent weeks to a select group of industry participants calling for its own set of rule changes, Ratterman said in an interview.
Under NYSE's proposal, exchange fees for all stocks would be lowered to 5 cents per 100 shares from the current 30 cents, and rebates for brokers that add orders to the exchange would be eliminated, according to an analyst note by broker ITG.
The plan would also mandate that all stock orders be sent to exchanges, rather than private broker-run trading platforms, unless the orders are above a certain size or the broker offers a significantly better price than can be found in the public market.
Forcing orders onto exchanges "didn't sit well with us," said Ratterman. "So we set out to talk to folks and share some of our perspectives and hear their thoughts and put something together that was broader and more inclusive."
BATS called for exchange fees to be lowered to a maximum of 5 cents per 100 shares, but only for the 200 most actively traded U.S. stocks. The exchange said that move could lead to market-wide savings of more than $850 million annually.
The fees for less actively traded stocks would start at above 5 cents per 100 shares, and rise on a sliding scale up to as much as 50 cents for the least actively traded stocks. The rebates for adding shares to an exchange would rise in tandem, giving greater incentives for brokers to create two-sided markets in those thinly-traded names, Ratterman said.
SEC Chair Mary Jo White said in November the regulator was undertaking a comprehensive data-driven review of the rules underpinning the U.S. equity markets, including the pricing and rebate system used by exchanges.
