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September 9, 2009

FINRA Revives Access Fee Rule

By Peter Chapman

The Financial Industry Regulatory Authority has updated and repackaged a couple of contentious rule proposals for the over-the-counter market that deal with ECNs, access fees and sub-penny quoting.

The regulator has asked the Securities and Exchange Commission to approve Rule 6434, which restricts sub-penny quoting, and Rule 6450, which deals with access fees. FINRA, previously the NASD, has been trying to win approval for versions of the two rules since 2005. But due to objections from market makers, the proposals never gained traction.

The two rules are part of a package of four rules FINRA is proposing that include Rule 6460, which covers the display of customer limit orders and Rule 6437, which covers locked and crossed markets. All four are based on similar rules in the SEC's Regulation NMS, which applies to listed securities.

FINRA's access fee proposal would eliminate a requirement that ECNs include their access fees in their quotes. In its place, the SEC would require ECNs to cap their fees. Caps would equal three-hundredths of a penny per share for stocks trading over a dollar and no more than 0.3 percent of the stock's price if it is trading for less than $1.

Non-ECN members would also be subject to the fee cap, but, by and large, the rule targets ECNs because market makers generally do not charge for access. Arca Edge is the only ECN operating in the OTC market.

FINRA first proposed that ECNs be permitted to eliminate access fees in 2005 when it proposed restrictions on quoting in sub-pennies. Because access fees are typically quoted in fractions of a cent, it would be impossible for an ECN to include their fees in their quotes if FINRA banned sub-penny quoting. FINRA's access fee proposal has won praise from Arca but drawn heavy criticism from market makers.



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