WASHINGTON, D.C.—Stephen Hall, Legal Director and Securities Specialist, issued the following statement on the filing of an amicus brief supporting the Securities and Exchange Commission (SEC) in yet another industry challenge to an important SEC rule, which reduces pricing increments and limits certain fees that stock exchanges can charge:
“This rule improves the way securities are traded at the major stock exchanges. That means savings for investors and more efficient markets for the benefit of companies and the economy. By reducing the ‘tick sizes’ or pricing increments for stock quotes down to half a penny, the SEC has updated a 20-year-old rule that the markets have outgrown. The result will be more trading, more liquidity, and better prices for investors. And by reducing the fees that exchanges can charge for access—which is the real target of the lawsuit—the SEC will also be helping investors save trading costs and receive fairer treatment from the brokers who route their orders for execution.
“The rule may seem especially technical, but think of it this way: When you turn your ignition key, you expect your car to fire up and take you where you want to go. That’s what usually happens, provided you have a good mechanic who maintains the engine. The exchanges and other trading platforms are much the same. They’re the engines for the securities markets, and if the SEC doesn’t maintain them properly, they’ll eventually break down. In addition, keeping up with the constant technology changes in the markets is essential to ensure that investors are treated fairly. And while the rule makes seemingly small adjustments to fees, in fractions of a cent, the money adds up, especially for institutional investors that manage the 401(k)s and pension funds of millions of everyday Americans.
“Predictably, a group of major exchanges filed a court challenge to nullify the core provisions in the rule. They claim the SEC didn’t have the authority under the securities laws to write it and that the result was ‘arbitrary and capricious’—the legal way of saying that the agency didn’t think it through. But like most industry challenges to SEC rules, their legal arguments are hollow, and what’s really in play is an attempt to protect the exchanges’ profitable status quo. As we argued forcefully in our brief, the SEC had abundant and clear authority from Congress to do precisely what the rule provides: reset pricing increments and limit fees to ensure that the markets operate more smoothly and fairly. As to the challengers’ second claim, the SEC conducted an exceptionally thorough analysis to arrive at a strong and sensible update to the rules that keep our markets in good repair. The D.C. Circuit should side with the SEC, reject the exchanges’ arguments, and uphold the rule.”
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Better Markets is a non-profit, non-partisan, and independent organization founded to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.
