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WASHINGTON, DC – The American Securities Association (ASA) today, along with the Healthy Markets Association, submitted a comment letter to the U.S. Securities and Exchange Commission on the proposed rule prohibiting national securities exchanges from offering volume-based transaction pricing in connection with the execution of agency-related orders in NMS stocks.
“We strongly support the Commission taking action to stop the anti-competitive practice of exchange volume rebates. When the two largest oligopolies on Wall Street set pricing schedules that benefit their interests to the detriment of other market participants, the market becomes distorted in such a way that it can no longer function fairly or competitively,” said American Securities Association President & CEO, Chris Iacovella.
The two CEOs said in the letter that “aggregate volume-based pricing arrangements are intended to entice the largest, most-connected traders to send orders to the exchange offering the benefits.” The letter also said, “Not surprisingly, the largest, most connected trading firms often custom-negotiate their pricing schedules with the major exchanges (although the details of those often-oral negotiations are nearly never disclosed publicly). The Commission should focus on these agreements to make certain that all aspects of the exchange trading environment remain open, fair, and competitive for all market participants.”
To highlight the market distortions caused by this flawed rebate practice, ASA highlights a section of a comment letter submitted by IEX Exchange on the proposal, which states “Another impact of tiered pricing is to create distorted incentives for broker-dealers to allocate capital to low-priced or marginal stocks to the exclusion of other stocks…In fact, during 2023, stocks trading at a price of less than $1 have regularly accounted for an incredible 15-20% of overall stock volume. Bit Brother Limited (symbol BETS) is a case in point. BETS is a Chinese company involved in bitcoin mining, among other activities, and is currently trading for barely more than one cent per share (a literal “penny stock”), and recently had a market capitalization of about $2.3 million. From December 1 to December 13, BETS alone accounted for more than 5% of all NMS market volume. During the last week of December, BETS’ volume average about 2 billion shares per day, accounting for 19% of overall volume, higher than the volume of any single exchange. And on December 27, BETS traded approximately 3.5 billion shares, accounting for about 30% of all market volume that day.”
Read ASA’s and Healthy Markets Association’s full comment letter here.
In October 2023, ASA President & CEO Chris Iacovella released a statement on the Proposal partly stating, “The ASA has long been concerned about concentration in the equity markets and ending the discriminatory incentives that disadvantage small and mid-size market participants over larger ones, and this issue is particularly acute with volume-based rebates.”
In June of 2021, ASA submitted a comment letter to the SEC Investor Advisory Committee (IAC) regarding the Commission’s equity market structure proposals, including the volume-based pricing tiers that serve broker-dealers.
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About the American Securities Association
American Securities Association, based in Washington, DC, represents the retail and institutional capital markets interests of regional financial services firms who provide Main Street businesses with access to capital and advise hardworking Americans how to create and preserve wealth. ASA’s mission is to promote trust and confidence among investors, facilitate capital formation, and support efficient and competitively balanced capital markets. This mission advances financial independence, stimulates job creation, and increases prosperity. The ASA has a geographically diverse membership of almost one hundred members that spans the Heartland, Southwest, Southeast, Atlantic, and Pacific Northwest regions of the United States.
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