| NEW YORK
NEW YORK May 30 Exchange operator Bats said on
Tuesday it will stop paying rebates on one of its U.S.
exchanges, shifting to a low-cost, flat-fee model ahead of an
expected industry pilot program that will test whether rebates
lead to conflicts of interest among brokers.
Bats, owned by CBOE Holdings, said as of June 1,
its EDGA stock exchange, the smallest of the four it runs in the
United States, will charge buyers and sellers of stocks 3 cents
per 100 orders executed. Buy and sell orders that are not
displayed to the public will be matched for free.
Most U.S. exchanges charge a fee for buy and sell orders
that are immediately executed, and pay a rebate for orders that
remain on the exchange for others to trade against. EDGA uses a
version of this model that pays rebates for immediately executed
The U.S. Securities and Exchange Commission is working on a
pilot program that will test the effects on the industry of
lower exchange fees and rebates.
Exchange rebates create potential conflicts of interest
because they give brokers an incentive to send their customers'
orders to the exchanges with the highest rebates, even if
another exchange might give them better execution results.
The pilot program will provide the SEC with data on how
brokers' order routing practices are affected by exchange
pricing, along with other metrics that will help inform the
regulator on whether the fee and rebate model, known as "maker
taker," needs to be changed or eliminated.
The fee overhaul could also present a challenge to IEX
Group, which was featured in Michael Lewis' book, "Flash Boys: A
Wall Street Revolt," and has operated the Investors Exchange
using a flat fee model since it launched last August. IEX
charges 9 cents per side for orders that are hidden from public
view and executes visible, or "lit" orders, for free.
The operator of the New York Stock Exchange, which is owned
by Intercontinental Exchange Inc, has said it also will
shift one of its exchanges to charge a "competitive flat fee"
and will also copy other aspects of IEX's exchange model. (reut.rs/2jZWuHv)
EDGA a has a market share of 1.9 percent month-to-date,
according to Bats data. Collectively, Bats' exchanges have a
19.2 percent market share. That compares with 22.5 percent for
NYSE, 18.1 percent for Nasdaq Inc, and 2.2 percent for
(Reporting by John McCrank; Editing by Dan Grebler)