FR 2025-00890

The document in question is a notice from the Securities and Exchange Commission (SEC) concerning a proposed rule change filed by Investors Exchange LLC (IEX). This change pertains to the fee schedule for trading orders, specifically for those transactions involving stocks priced under $1.00. The proposed amendment shifts the fee structure from a per-share cost to a percentage of the total transaction value.

General Summary

IEX has introduced a change to its fee structure for certain sub-dollar transactions. Previously, such trades incurred a fee equivalent to the cost levied by the trading venue plus $0.0001 per share. Under the new proposal, the fee will be based on the cost imposed by the away exchange plus 0.02% of the overall dollar value of the trade. This change is designed to take effect immediately, with stakeholders being invited to comment on the proposal by February 6, 2025.

Significant Issues and Concerns

One primary concern is the lack of clarity and justification behind the new fee structure. The document doesn't offer a clear rationale for choosing a fee of 0.02% of the transaction's dollar value. This lack of explanation can lead to perceptions that the fee is arbitrary.

Moreover, the language used to describe this change is technical and could be challenging for a general audience to understand. Specifically, the mechanism of calculating a fee as a percentage of the total trade value may not be immediately clear to all market participants.

There is also a noticeable absence of discussion regarding the potential financial impact on traders. Without comparative analysis or examples, it is difficult for stakeholders to assess whether the change is fair or beneficial.

Public Impact

For the general public, particularly those engaged in trading sub-dollar stocks, this change might result in higher transaction costs depending on the size of the trades. While this could generate more revenue for the exchange, it is important to ensure that it does not inadvertently disadvantage smaller or less sophisticated market participants.

Impact on Specific Stakeholders

Specific stakeholders, like traders and institutional investors, may be affected differently by this rule change. Larger institutional investors might find the new fee structure negligible relative to their trading volumes. However, smaller individual traders and those who frequently deal in sub-dollar stocks may experience a more significant financial impact, as their overall trading costs could increase.

The document also sets the proposed rule's effective date as January 1, 2025, which is just a day after the notice filing. The very short period before the implementation of the fee change may not give these stakeholders adequate time to adjust their strategies or systems to accommodate the new fee structure.

Conclusion

In summary, while the intent behind the fee structure change is to possibly standardize fees based on the transaction's value, the lack of detailed justification and clarity can lead to confusion and concern among investors. The impact on smaller traders dealing with sub-dollar stocks warrants particular consideration, as this demographic could face increased transaction costs. The document would benefit from additional transparency and illustrative examples to better communicate the implications of these changes to a wider audience.

In the document, the primary financial reference is regarding the proposed amendment to the fee structure for certain transactions on the Investors Exchange LLC (IEX). Specifically, the change involves how fees are calculated for orders that are routed to and remove liquidity from an external exchange when the transaction price is below $1.00. The revised fee structure is set to include the cost charged or rebate paid by the away exchange, plus an additional charge of 0.02% of the total dollar value of the execution. This is a shift from the previous structure where the fee was the cost charged by the away exchange plus $0.0001 per share.

The proposed change in the fee calculation method raises several issues. Firstly, the document does not clearly justify why the specific additional fee of 0.02% of the total dollar value of the execution was chosen over other potential fee structures. This lack of justification might lead to perceptions that the fee adjustment could be biased or arbitrary. Additionally, the language used to describe this fee change is complex, and understanding phrases like "0.02% of the total dollar value of the execution" could be challenging for those without a background in finance or trading.

Another key issue with the document is the absence of details about the potential financial impact of this fee change on traders and market participants. Without this information, interested stakeholders might find it difficult to evaluate whether the proposed fee change is fair or beneficial to the market, particularly for those engaged in trading sub-dollar orders.

Moreover, the document fails to address whether the new fee structure could disproportionately affect smaller market participants. Traders dealing with sub-dollar orders may experience increased costs, which could be burdensome without additional transparency or data to illuminate the change's rationale or impact.

The document could enhance transparency by providing comparative analyses or examples that demonstrate what current fees are vs. what fees would be under the proposed change. This would assist stakeholders in better understanding the practical effects of the changes on their trading activities.

Finally, there is a lack of discussion surrounding the implications of the effective date of January 1, 2025, coming just one day after filing. This rapid implementation may not provide sufficient time for traders and other market participants to adjust their strategies or systems in response to the new fee structure.

In summary, the document introduces a noteworthy change to IEX's fee structure for certain sub-dollar transactions, with potential financial implications that are not fully explored or explained. Clearer justification, simplified explanations, and additional detail about impacts could address several of the concerns identified.