In its place, the Board adopted a new program that will allow the Exchange's Lead Market Makers (LMMs) to establish marketing fees for individual issues, ranging from $0.00 to $1.00 per contract, in 25-cent increments. The Exchange will collect fees from market makers and distribute the proceeds at the direction of the LMMs.
"This approach is more flexible than our original payment for order flow program," said PCX Chairman and CEO Philip D. DeFeo. "A flat, across-the-board tax doesn't reflect the current competitive landscape. For example, some LMMs pay for order flow, while others don't. Some pay higher rates for order flow in certain issues. We want to give LMMs the ability to structure payment arrangements that offer the best possibility of bringing additional business to the Exchange.
"The new program is also more flexible for competing market makers in the crowds," DeFeo continued. "Market makers can trade wherever they like, wherever they think they can make a profit. There may be more profitable opportunities available now, in issues where no marketing fee is levied. We want to take full advantage of their talents and enhance their abilities to make deeper and better markets.
"Lastly, the program is more flexible for the Exchange. We will continue collecting the fees and issuing checks to customers, as a service to our LMMs. Marketing fees will no longer be set by the Exchange, but by individual LMMs. We have strong expectations that this new approach will raise our trading volumes and market share," DeFeo concluded.
The Exchange must submit rule filings to the Securities and Exchange Commission to end the fixed-fee program and implement the new proposal.
