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US SEC set to propose limits on brokerage trading rebates


© FILE PHOTO: The headquarters of the U.S. Securities and Exchange Commission (SEC) are seen in Washington, July 6, 2009. REUTERS/Jim Bourg/File Photo

() – Wall Street’s top regulator on Wednesday is set to propose new regulations officials say should level the playing field among broker-dealers operating on U.S. stock exchanges by ending pricing schemes that tend to favor bigger players.

At a public meeting in Washington, the five-member U.S. Securities and Exchange Commission is scheduled to vote on a proposal that would ban stock exchanges from offering lower transaction prices and rebates to brokerages with higher trading volumes, something officials said creates unfair competitive advantages for larger firms.

The number and complexity of pricing tiers that can exist among exchanges, and which leave different brokerages facing sizeable differences in cost, can make price schemes complex and difficult to understand, officials said in advance of the meeting.

Ending such pricing advantages will also help prevent conflicts of interest in which brokerages may route orders for execution in ways that benefit the brokerage but not the client, according to the SEC.

However this conflict does not exist in cases where brokerages engage in so-called proprietary trades executed on their on behalf rather than for customers. As a result, the ban on transaction price discounts and rebates would not apply when brokerages trade for themselves, SEC officials said in advance of the meeting.

In those cases, stock exchanges will have to disclose pricing tiers and the number of exchange members who qualify to the SEC, which will make this available to the public.

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