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May 31, 2002

Job One for the Trading Industry in DC

By Gregory Bresiger

What does the trading industry want from Capitol Hill now that it has obtained most of its Section 31(a) changes? The STA's top legislative and regulatory goal this year is changing the rules on ECN access fees.

The group, once again, recently met with officials of the SEC asking for reform, contending that the fees are unfair to market makers.

"Our position was for the elimination of the access fees. And secondly, we were asking them for the reduction of the fees because these costs are really hurting many of our members in this kind of market," said John Giesea, president of the STA.

In a recent letter to the SEC, STA officials charged that access fees result in unfair competition between market makers and ECNs.

"Although ECNs may charge access fees, the Commission has steadfastly refused to allow market makers to charge similar fees. The Commission maintains that the Quote Rule does not permit a market maker to impose a fee on market participants that customarily trade with the market maker at its quote without a mark-up," the STA wrote in the recent letter. "As such, if a market maker were to charge such an access fee, it would have to include this fee in the published quote. (ECNs are required to include such fees in their published quotation)."

Giesea also argues that the SEC should prohibit access fees in the case of an ECN that is alone at the inside market.

But ECN officials have rejected STA's proposed reforms. In a published report, for example, Island Executive Vice President Andrew Goldman said, "There's no way to hide the explicit or implicit costs of trading with Island from market makers. Our fee structure is out there on the Web, we put it on our homepage and we're proud of it."

Giesea said the SEC acknowledged that there is a problem but didn't commit to taking any specific action.