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TRADERS Q&A: Dickinson Wright’s Frenkel on Access Pilot Lawsuit
Traders Magazine Online News, March 12, 2019
With apologies to game show host Richard Dawson, "Let’s bring on the Feud!"
Reminiscent of the television game show Family Feud, it’s the Exchanges versus the Securities and Exchange Commission on the topic of the Access Fee Pilot.
In a unique show of solidarity, recently exchange operators Nasdaq and Cboe Capital Markets have joined their downtown rival – the New York Stock Exchange – to sue the U.S. Securities and Exchange Commission. In what can be best described as détente between the normally contentious rivals, the exchanges have opted for an “all-in” strategy combining all their collective strength to stop the regulator from implementing its transaction fee pilot program.
The goal of the pilot program is to examine the fees charged by the exchanges for data and see if these charges are either exorbitant or harm investors and unfairly benefit exchanges. Either way, the move looks to keep the regulator from getting an inside look at the world of trading fees and rebates, which it says might be hurtful to the marketplace. The exchanges counter that these fees are reasonable and assist in making the stock markets efficient and keep trading costs low.
Traders Magazine recently spoke with Jacob Frenkel, chair of the Securities Enforcement practice at law firm Dickinson Wright to delve into this lawsuit and some of the outcomes. Frenkel is a former SEC Enforcement senior counsel, and a 30 plus year veteran of SEC enforcement, governance and regulatory practice.
Traders Magazine: What is the likelihood of success by the exchanges?
Jacob Frenkel: If the measure of success is in absolutes, that is win or lose, then the exchanges are not likely to prevail ultimately in this litigation.
The securities laws clearly authorize the SEC to determine the impact of fee models on our capital markets. Prior to adopting the new rule, the purpose of which is to enable the SEC to gather data so that the SEC down the road can determine whether there is a need for the agency to take regulatory action, the Commission received voluminous comments, including from the exchanges.
Only after considering all of the input did the SEC adopt the Transaction Fee Pilot. The exchanges will need to show that the SEC acted ‘arbitrarily and capriciously’ – a statutory legal standard governing rulemaking by all federal agencies and explained by the Supreme Court. The SEC, through its rulemaking process, has made a compelling case in defense of the rule.
TM: Has there ever been such a case or similar one brought by market operators or others against the SEC?
Frenkel: The one case that comes to mind is a 1980s case filed by the Chicago Mercantile Exchange against the SEC and other exchanges, although not necessarily similar.
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