TFP Supporting Statement_02.28

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for the
EQUITY TRANSACTION FEE PILOT
This submission is being made pursuant to the Paperwork Reduction Act of 1995, 44
U.S.C. Section 3501 et seq.
A.

JUSTIFICATION
1.

Necessity of Information Collection

In recent years, the fee schedules of U.S. stock exchanges have attracted considerable
attention and generated a public debate about the impact of those fees on the markets and market
participants. The predominant fee model among exchanges is the “maker-taker” fee model, in
which an exchange pays its broker-dealer members a per share rebate to provide (i.e., “make”)
liquidity in securities and assesses them a fee to remove (i.e., “take”) liquidity. The exchange
earns as revenue the difference between the fee and the rebate. In a variation on this theme,
some exchanges have adopted a “taker-maker” pricing model in which they charge a fee to the
provider of liquidity and pay a rebate to the taker of liquidity.
A variety of concerns have been expressed about the maker-taker and taker-maker fee
models, and, in particular, about the rebates that exchanges pay to attract orders. For example,
some have opined that the prevailing fee structures have created conflicts of interest for brokerdealers, have undermined market transparency, and have driven order flow to non-exchange
venues. Others contend that the prevailing fee structures may have positive effects by enabling
exchanges to compete with off-exchange trading venues and by narrowing quote spreads by
subsidizing posted prices.
In the absence of data sufficient to permit statistical analysis of the impact of these fees
and rebates, market participants have urged the Commission to conduct a market-wide pilot
study to gather data to assess the potential impact of transaction fees and rebates on the equities
markets. Most recently, the Equity Market Structure Advisory Committee recommended that the
Commission conduct a pilot to study the impact of transaction fees and rebates on market quality
and order routing behavior. 1 Such a pilot would produce meaningful data to facilitate analysis
that would otherwise be impossible to perform in the absence of a market-wide pilot.
Accordingly, pursuant to the statutory authority provided by the Exchange Act, 2
including Sections 11A(a)(1), 17(a), and 23(a) thereof, 3 the Commission proposed to amend
1

See Recommendation for an Access Fee Pilot (July 8, 2016), available at
https://www.sec.gov/spotlight/emsac/recommendation-access-fee-pilot.pdf.

2

See 15 U.S.C. 78a.

3

See 15 U.S.C. 78k-1, 78q, and 78w(a).

Title 17 of the Code of Federal Regulations by adding Rule 610T to Regulation NMS to conduct
an Equity Transaction Fee Pilot (“Pilot”). 4 The Pilot would establish three new collections of
information to gather the following categories of data: 5
a.

Pilot Securities Exchange Lists and Pilot Securities Change Lists. Each primary
listing exchange for NMS stocks would be required to maintain, update, and
publicly post on its website downloadable files containing a Pilot Securities
Exchange List, in pipe-delimited ASCII format, of all Pilot Securities for which it
serves as the primary listing exchange. In addition, each exchange would be
required to publicly on its website downloadable files containing a Pilot Securities
Change List, in pipe-delimited ASCII format, that cumulatively lists each separate
change to the Pilot Securities for which it serves or has served as the primary
listing exchange. The exchanges would be required to update this information
prior to the beginning of trading on each business day that the U.S. equities
markets are open for trading.

b.

Exchange Transaction Fee Summaries. Each exchange that trades NMS stocks
would be required to publicly post on its website downloadable files containing
certain information concerning its transaction fees and rebates, using an XML
schema to be published on the Commission’s website. The exchanges would be
required to update this information on a monthly basis.

c.

Order Routing Data. Each exchange that trades NMS stocks would be required to
publicly post on its website downloadable files, in pipe-delimited ASCII format,
containing monthly order routing data containing aggregated and anonymized
broker-dealer order routing information, according to the specifications set forth
in proposed Rule 610T.

For all three categories of data, each respondent would be required to keep this information
freely and persistently available and easily accessible on its website for a period of not less than
five years from the conclusion of the post-Pilot period. Each category of data shall be presented
in a manner that facilitates access by machines without encumbrance, and not subject to any
restrictions, including restrictions on access, retrieval, distribution, and reuse.
4

See Securities Exchange Act Release No. _____ (___. __, 2017), __ FR _____ (___. __,
2017) (“Proposing Release”).

5

The Commission anticipates that each respondent would submit one Form 19b-4 fee
filing at the beginning of the proposed Pilot to impose the required pricing restrictions
and one Form 19b-4 fee filing at the conclusion of the proposed Pilot to remove the
required pricing restrictions. Each respondent might also choose to submit additional
Form 19b-4 fee filings during the Pilot. The Commission notes, however, that these
burdens are already accounted for in the Paperwork Reduction Act Information
Collection submission for Form 19b-4. See OMB Control No. 3235-0045 (Aug. 19,
2016), 81 FR 57946 (Aug. 24, 2016) (Request to OMB for Extension of Rule 19b-4 and
Form 19b-4 PRA). The Commission does not expect the baseline number of Form 19b-4
fee filings reflected in that submission to increase as a result of the proposed Pilot.
2

These collections of information are necessary to further the national market system
objectives set forth in Rule 11A(a)(1). These objectives include the economically efficient
execution of orders; fair competition among broker-dealers, among exchange markets, and
between exchange markets and markets other than exchange markets; and the practicability of
brokers executing investors’ orders in the best market. Without the proposed Pilot, the
Commission and the public would lack access to data that is necessary to study the effects of
exchange transaction fees and rebates on order routing behavior, market quality, and execution
quality, which, in turn, can inform the need for further regulatory action in this area.
2.

Purpose and Use of the Information Collection

The purpose of the information collection is to enable the Commission, market
participants, and researchers to study the impact that transaction-based fees and rebates have on
the U.S. equities markets. If the Commission did not gather this data through the proposed Pilot,
it would be more difficult for the Commission to assess what effects, if any, certain proposed
changes to transaction-based fees and rebates might have on order routing behavior, market
quality, and execution quality. The information gathered through the Pilot should facilitate a
data-driven evaluation of the need for regulatory action in this area.
3.

Consideration Given to Improved Information Technology

The proposed Pilot uses information technology to lessen the burden on the respondents.
All data is to be publicly posted on websites either in a pipe-delimited ASCII format 6 or using an
XML schema prescribed by the Commission. 7
In addition, the Commission preliminarily believes that the respondents already have
processes in place to gather at least some of the information to be collected by the proposed
Pilot. With respect to the Pilot Securities Exchange Lists and Pilot Securities Change Lists, for
example, the primary listing exchanges already have rules in place that require listed issuers to
report the relevant information to them. Respondents also may be able to leverage existing
systems in order to collect the order routing data described above.
6

The Commission understands that exchanges and market participants have experience
utilizing this common electronic file format. The Commission further notes that this
format has been used to gather data in connection with another recent pilot program. See
Tick Size Pilot Data Collection Securities Files, available at:
http://www.finra.org/industry/oats/tick-size-pilot-data-collection-securities-files (noting
that “[t]he Pilot Securities files are pipe-delimited .txt files”).

7

The Commission considered using a CSV or JSON electronic file format, but believes
that an XML schema is best suited to this information collection. The CSV format
provides a more compact file size, but it cannot convey the same complexity or directly
incorporate validation rules, which may result in lower data quality. The JSON format
provides a file size similar to XML and can convey complex data structures; however, its
use within the Commission to date has been somewhat limited, which may adversely
impact analysis of the data.
3

The Commission further notes that it does not prohibit respondents from using any kind
of information technology to facilitate the collection and/or preparation of the data to be posted
on their respective websites.
4.

Duplication

The proposed Pilot would not result in, or require the collection of, duplicate information
that otherwise is currently available in a similar form. While several data sources provide
information on transaction fees, order routing, and execution quality, they do not provide the
exact information sought in this information collection. Moreover, these sources have data
limitations that would hamper meaningful research. 8
It is possible that exchanges will begin reporting certain order routing data to the
Consolidated Audit Trail by the time the proposed Pilot commences. However, that confidential
data would not be aggregated and anonymized in the format required by the proposed Pilot and
would not be available to the public or available for use by researchers. The Commission
believes that independent analyses of the data collected by the proposed Pilot could reveal
helpful information about the effects that transaction-based fees and rebates have on order
routing behavior, market quality, and execution quality. For that reason, the Commission
preliminarily believes that it is appropriate to require the collection of order routing data in the
requested format.
Further, the proposed Pilot Securities Exchange Lists and Pilot Securities Change Lists
would contain information unique to the proposed Pilot, notably the grouping of NMS stocks
into the Test Groups of the proposed Pilot and the ability to track updates to the stocks on those
lists. Finally, the Exchange Transaction Fee Summaries also would be unique to the proposed
Pilot and would be designed to allow researchers to correlate changes in order routing behavior,
market quality, and execution quality to changes to each exchange’s fees and rebates. In the
absence of that information, such analysis would be exceptionally difficult.
5.

Effects on Small Entities

The Commission does not believe that the requirements under the proposed Pilot would
affect small entities.
6.

Consequences of Not Conducting Collection

The information gathered through the Pilot should facilitate a data-driven evaluation of
the need for regulatory action in this area, which is in the public interest and will benefit both
retail and institutional investors. If the Commission does not conduct the proposed Pilot, it
would be more difficult for the Commission (or other researchers) to study what effects, if any,
that changes to transaction-based fees and rebates have on order routing behavior, market
quality, and execution quality. Similarly, if the data outlined above was collected less
8

See Proposing Release, supra note 4, at Section V.B.1.b.iii.
4

frequently, it could undermine timely analysis of the data. Transaction-based fees and rebates
can change with no advance notice as exchanges compete for market share; if the Commission
(or other researchers) did not have access to accurate, up-to-date information, it would be more
difficult to track how transaction-based fees and rebates impacted order routing behavior, market
quality, and execution quality, all of which may fluctuate in response to changes to pricing
structures. Moreover, the Commission preliminarily believes that some of the information to be
gathered by the proposed Pilot – specifically, the Pilot Securities Exchange Lists and the Pilot
Securities Change Lists – could be useful to broker-dealers and other market participants when
making daily routing and execution decisions.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

The proposed Pilot would require respondents to report or update certain information on
a daily or monthly basis. As previously noted, if the data outlined above was collected less
frequently, it could undermine any analysis of the data. Transaction-based fees and rebates can
change with no advance notice as exchanges compete for market share; if the Commission (or
other researchers) did not have access to accurate, up-to-date information, it would be difficult to
track how transaction-based fees and rebates impacted order routing behavior, market quality,
and execution quality, all of which may fluctuate in response to changes to pricing structures.
Moreover, the Commission preliminarily believes that some of the information to be gathered by
the proposed Pilot – specifically, the Pilot Securities Exchange Lists and the Pilot Securities
Change Lists – could be useful to broker-dealers and other market participants when making
daily routing and execution decisions.
The proposed Pilot also would require each respondent to retain each category of
collected information on its website for a period of not less than five years from the conclusion
of the post-Pilot period. This extended retention period is necessary in order to provide the
Commission, market participants, academic scholars and other researchers with sufficient time to
conduct a comprehensive and thorough analysis of the data collected by the proposed Pilot.
Finally, the Commission notes that it has taken steps to protect the confidentiality of
order routing data by requiring exchanges to anonymize the data before making it publicly
available. Although the proposed Pilot requires each respondent to publicly post order routing
data on its website, the Commission has required that such data be anonymized according to a
key provided by the Commission and aggregated in such a way as to protect the identities and
trading strategies of broker-dealers.
8.

Consultations Outside the Agency

The Commission has issued a release soliciting comment on the proposed Pilot
requirements and associated paperwork burdens. 9 A copy of the release is attached. Comments
on Commission releases are generally received from registrants, investors, and other market
participants. In addition, the Commission and staff participate in ongoing dialogue with
representatives of various market participants through public conferences, meetings, and
9

See note 4 supra.
5

informal exchanges. Any comments received on this proposed rulemaking will be posted on the
Commission’s public website and made available through
http://www.sec.gov/rules/proposed.shtml. The Commission will consider all comments received
prior to publishing the final rule, and will explain in any adopting release how the final rule
responds to such comments, in accordance with 5 C.F.R. 1320.11(f).
9.

Payment or Gift

No payment or gift is provided to respondents.
10.

Confidentiality

Not applicable.
11.

Sensitive Questions

No information of a sensitive nature will be required under this collection of information.
This information collection does not collect personally identifiable information (“PII”). The
agency has determined that a system of records notice (“SORN”) and privacy impact assessment
(“PIA”) are not required in connection with the collection of information.
12.

Burden of Information Collection

As noted above, the proposed Pilot would require the collection of three categories of data:
(1) Pilot Securities Exchange Lists and Pilot Securities Change Lists; (2) Exchange Transaction Fee
Summaries; and (3) Order Routing Data. The Commission anticipates that the respondents would
incur various third-party disclosure burdens. These burdens are summarized below.
a.

Pilot Securities Exchange Lists and Pilot Securities Change Lists

The respondents to this collection of information would be the five primary listing
exchanges for common stocks and ETPs. Each primary listing exchange would be required to
update the required information prior to the beginning of trading on each business day that the U.S.
equities markets are open for trading.
The Commission preliminarily estimates that each primary listing exchange would incur an
initial burden of 8 hours to compile and publicly post their initial Pilot Securities Exchange List, as
well as an initial burden of 12 hours to develop appropriate systems for tracking, compiling, and
publishing the information necessary to create the Pilot Securities Change List. The Commission
further estimates that each primary listing exchange would incur an ongoing burden of 0.50 hours
per daily response, or 126 hours per year (including the first year), 10 to compile any changes to the
lists, to update the lists, and to publicly post the lists on its website.

10

0.50 hours per daily response * 252 trading days per year = 126 hours per year
6

This would result in an estimated burden of 398 hours per respondent,11 or 132.67 hours per
year per respondent when annualized over three years. 12 The total estimated industry burden would
be 1,990 hours,13 or 663.33 hours per year when annualized over three years. 14
b.

Exchange Transaction Fee Summaries

The respondents to this monthly collection of information would be the thirteen equities
exchanges that are currently registered with the Commission.
The Commission preliminarily estimates that each equities exchange would incur an initial
burden of 80 hours to develop systems to automatically track, format, and post this data on its
website in accordance with the proposed Pilot, as well as an initial burden of 6 hours to complete
and publicly post the first Exchange Transaction Fee Summary. The Commission further estimates
that each equities exchange would incur an ongoing burden of 40 hours per year (including the first
year) to monitor and, if necessary, update its systems, as well as an ongoing burden of 24 hours per
year (including the first year) to update and publicly post all subsequent Exchange Transaction Fee
Summaries. This would result in an ongoing monthly burden of 5.33 hours per monthly response
for each exchange. 15
This would result in an estimated burden of 278 hours per respondent,16 or 92.67 hours per
year per respondent when annualized over three years. 17 The total estimated industry burden would
be 3,614 hours,18 or 1,204.67 hours per year when annualized over three years. 19
c.

Order Routing Data

The respondents to this monthly collection of information would be the thirteen equities
exchanges that are currently registered with the Commission.
The Commission preliminarily estimates that each equities exchange would incur an initial
burden of 80 hours to ensure that its systems and technology are able to aggregate, anonymize, and
11

(126 hours in first year + 8 hours initial burden + 12 hours initial burden) + 126 hours in
second year + 126 hours in third year = 398 hours per respondent

12

398 hours per respondent / 3 years = 132.67 hours per year per respondent

13

398 hours per year * 5 primary listing exchanges = 1,990 industry hours

14

1,990 industry hours / 3 years = 663.33 industry hours per year

15

(40 ongoing hours + 24 ongoing hours) / 12 months per year = 5.33 hours per monthly
response

16

(64 hours in first year + 80 hours initial burden + 6 hours initial burden) + 64 hours in
second year + 64 hours in third year = 278 hours per respondent

17

278 hours / 3 years = 92.67 hours per year per respondent

18

278 hours per year * 13 equities exchanges = 3,614 industry hours

19

3,614 industry hours / 3 years = 1,204.67 industry hours per year
7

publicly post the required order routing data.20 The Commission further estimates that each equities
exchange would incur an ongoing burden of 40 hours per year (including the first year) to monitor
and, if necessary, update its systems, as well as an ongoing burden of 72 burden hours per year
(including the first year) to prepare and publicly post the required order routing data. This would
result in an ongoing monthly burden of 9.33 hours per monthly response for each exchange. 21
This would result in an estimated burden of 416 hours per respondent,22 or 138.67 hours per
year per respondent when annualized over three years. 23 The total estimated industry burden would
be 5,408 hours,24 or 1,802.67 hours per year when annualized over three years. 25
Summary of Hourly Burdens

Initial
Burden per
Entity per
Response

Initial Burden
Annualized per
Entity per
Response

252

0.079
(20 / 252)

0.026

0.50

0.526

132.67

663.33

0.00

13

12

7.17
(86 / 12)

2.39

5.33

7.72

92.67

1,204.67

0.00

13

12

6.67
(80 / 12)

2.22

9.33

11.56

138.67

1,802.67

0.00

TOTAL HOURLY BURDEN FOR ALL RESPONDENTS

3,670.67

Name of Information
Collection

Type of
Burden

Number
of Entities
Impacted

Annual
Responses
per Entity

Pilot Securities
Exchange Lists and
Pilot Securities Change
Lists

3rd-Party Discl.

5

Exchange Transaction
Fee Summaries

Order Routing Data

3rd-Party Discl.

3rd-Party Discl.

13.

Ongoing
Burden per
Entity per
Response

Annual
Burden Per
Entity per
Response

Total Annual
Burden Per
Entity

Total Industry
Burden

Small
Business
Entities
Affected

Costs to Respondents

Not applicable. It is not anticipated that the respondent exchanges will have to incur any
capital and/or start-up costs to comply with the proposed Pilot, nor is it anticipated that the

20

The Commission expects that there will be no burden to the equities exchanges to capture
the required order routing data, as the Commission believes that the equities exchanges
will be able to collect the required data through existing systems and technology already
in place for the collection of data for reporting to the Consolidated Audit Trail, regardless
of whether reporting to the Consolidated Audit Trail has already commenced.

21

(40 ongoing hours + 72 ongoing hours) / 12 months per year = 9.33 hours per monthly
response

22

(112 hours in first year + 80 hours initial burden) + 112 hours in second year + 112 hours
in third year = 416 hours per respondent

23

416 hours / 3 years = 138.67 hours per year per respondent

24

416 hours per year * 13 equities exchanges = 5,408 industry hours

25

5,408 industry hours / 3 years = 1,802.67 industry hours per year
8

respondents will have to incur any external operational or maintenance costs – other than the
internal costs provided for in Item 12 – to comply with the proposed Pilot.
14.

Cost to Federal Government

The federal government will not incur a cost in connection with the collection of this
information.
15.

Changes in Burden

Not applicable.
16.

Information Collection Planned for Statistical Purposes

Not applicable. The information collection is not used for statistical purposes.
17.

OMB Expiration Date Display Approval

The Commission is not seeking approval to not display the OMB approval expiration
date.
18.

Exceptions to Certification for Paperwork Reduction Act Submissions

This collection complies with the requirements in 5 CFR 1320.9.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL
METHODS
This collection does not involve statistical methods.

9