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Nasdaq Chief Economist: SEC’s Fee Pilot Could Disrupt Market, Hinder IPOs
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Nasdaq Chief Economist: SEC’s Fee Pilot Could Disrupt Market, Hinder IPOs

Phil Mackintosh, Chief Economist, Nasdaq

By John Jannarone

A plan by the Securities and Exchange Commission to limit the use of fees and rebates at major exchanges may have unexpected results and even discourage companies from going public, according to Nasdaq Chief Economist Phil Mackintosh.

The so-called Transaction Fee Pilot has wording suggesting the SEC “doesn’t really know what it’s going to do but they hope it causes a big enough shock that they can learn from it,’” Mr. Mackintosh said in an interview with CorpGov. “There’s been no effort to assess the market impact.”

His comments come as both Nasdaq and the New York Stock Exchange have filed court petitions to stop the SEC from effecting the fee pilot. The SEC said in December it would implement the fee pilot to test the efficacy of the current system, whereby the exchanges pay brokers that post bids and offers made available to participants while charging others who access the market.

The system in its current form has been in place for two decades, Mr. Mackintosh said, adding that the pilot is set to impact 25% of the value of the domestic stock market. That is a large percentage for a program purported to be a pilot, he said.

“You need an incentive to trade on an exchange,” he said. The bid-ask for any given stock on a major exchange plays a  role even when stocks trade outside of their confines. Regulations require that execution prices for transactions outside of exchanges fall within the spread available on exchanges.

The timing of the pilot may also be problematic. While volatility was extraordinarily low in 2017, there were periods of extreme turbulence multiple times in 2018, when orderly functioning of the markets was critical.

All this has implications for listed companies, whether they are aware of the underlying mechanism behind a functional market or not. “Corporations want there to be a quote,” Mr. Mackintosh said. “They may take for granted the fact that the market is working.”

Any disruption to the market could have an impact on initial public offerings, which can be delayed or pulled when the market becomes unstable. The IPO market froze up late last year amid such volatility, though it has recently thawed, with several new issues pricing in recent weeks.

“It’s hard enough already to get companies to go public,” Mr. Mackintosh said.

The SEC didn’t immediately respond to a request for comment.




John Jannarone, Editor-in-Chief

Twitter: @CorpGovernor

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