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SEC working 'diligently' on plan to test lower exchange fees

FILE PHOTO - The seal of the U.S. Securities and Exchange Commission hangs on the wall at SEC headquarters in Washington, DC, U.S. on June 24, 2011. REUTERS/Jonathan Ernst/File Photo

By John McCrank

NEW YORK (Reuters) - The U.S. Securities and Exchange Commission is preparing a proposal for a pilot plan to test how lowering stock exchange fees would affect market quality and the behavior of market participants, a senior official at the regulator said on Wednesday.

Acting SEC Chairman Michael Piwowar has asked the staff of the regulator to come up with a proposal, said David Shillman associate director of the SEC's Division of Trading and Markets.

"We are working on it diligently," Shillman said on the sidelines of a Securities Industry and Financial Markets Association conference, adding that there was no firm deadline to present a plan that would be put out for public comment.

An SEC advisory committee recommended the pilot in April last year.

Brokers have long complained that exchange "access fees," which are capped at 30 cents for every 100 shares executed, are too expensive and are one of the main reasons so many orders are executed on private trading platforms that compete with public exchanges.

The pilot, as recommended by the SEC advisory committee, would also cap the rebates that exchanges pay to brokers for resting orders they send to the exchanges, providing liquidity for others to trade against.

Some in the market say exchange rebates create conflicts of interest because they give brokers an incentive to send their customers' orders to the exchanges with the highest rebates, rather than the exchanges with the best prices.

A pilot would give the SEC data on how fees and rebates affect brokers order routing practices, transparency, and other metrics that would help inform the regulator on whether the fee and rebate model, known as "maker taker," needs to be changed or eliminated.

Incoming SEC Chairman Jay Clayton will ultimately decide whether the pilot goes forward, but there seems to be broad support for the plan, Shillman said.

The nomination of Clayton, a Wall Street deal-making attorney, was approved by the Senate Banking Committee earlier this month. He is expected to easily win confirmation from the full Senate.

(Reporting by John McCrank; Editing by Andrea Ricci)