The Securities and Exchange Commission may ask stock markets to impose fees on trading firms that submit a high number of quotations in relation to executed transactions, an executive at the regulator said.
The SEC is considering whether to urge exchanges to impose a fee for exceeding a certain order-to-execution ratio or for sending messages, which include quotes, updates, cancellations and executions, said David Shillman, associate director at the regulator’s division of trading and markets. That’s because they impose a cost on brokerages, said Shillman, who spoke in an interview at a Securities Industry and Financial Markets Association conference in New York.
Computers are replacing humans as market makers in U.S. equities, and one way they try to entice investors is by sending quotes to exchanges and rapidly updating them. Ashok Krishnan, head of execution services for Europe, Middle East and Africa at Bank of America Corp., said at a Bloomberg Link event in London on May 19 that some firms send more than 500 orders for every execution they receive.
“The idea is to make them bear some of the costs of the infrastructure exchanges build” to attract them, Shillman said today, referring to high-frequency traders. The SEC could tap rules that require exchanges to “equitably allocate fees” to address the issue of increasing data and technology costs for market participants, he said.
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