Direct Edge calls for “comprehensive” access fee rules

US equities trading venue Direct Edge has said it will argue for a “comprehensive regulatory approach” to exchange access fees in relation to stocks’ minimum price variation when it responds to a request for information from the US Securities and Exchange Commission (SEC).
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US equities trading venue Direct Edge has said it will argue for a “comprehensive regulatory approach” to exchange access fees in relation to stocks’ minimum price variation when it responds to a request for information from the US Securities and Exchange Commission (SEC).

The announcement came as Direct Edge abolished rebates for adding liquidity in stocks trading at less than $1 a share and had reduced the fee for removing liquidity in sub-$1 stocks to 0.1% of the value traded from 0.3%, starting 5 April. The minimum price variation (MPV), or tick size, for stocks trading below $1 is a hundredth of a cent, while the minimum for shares trading $1 or above is a cent.

On 14 January, the SEC issued a ‘concept release’ requesting comments and information from participants on the structure of the US equities market. Participants have until 21 April to make their submissions.

Part of the concern about access fees is that if maker rebates or taker charges are larger than the minimum tick size, they can exert a greater influence over the total price paid for a stock than the tick size itself, thus rendering the quote on the tape, which doesn’t include access fees, potentially misleading.

“With some exchanges offering rebates up to 25 times the current MPV in sub-$1 stocks, Direct Edge has become increasingly concerned about the effect of this market structure anomaly on the trading and investing public,” said Bryan Harkins, head of sales and strategy at Direct Edge, in a statement. “As America’s newest stock exchange, Direct Edge decided to take a leadership position on this issue to improve the quality of our markets.”

Harkins added that access fees and the MPV must be looked at as highly inter-dependent features of the US equities market structure. “While we intend to argue for a comprehensive approach in our response to the concept release, making this change as a business in the interim is an appropriate first step to show we are willing to make our practices consistent with our position on the issue,” he said.

Direct Edge received approval from the SEC in March to convert its two trading platforms EDGX and EDGA, to exchanges from ECN status. The platforms will begin trading their first stocks as exchanges in mid-May, with full launches planned for early June.

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