Hopefully the beginning of the end for Maker/Taker MARKETS NYSE Opposition to Trading-Fee Review Puts Companies and Some Shareholders at Odds At issue is a Securities and Exchange proposal to study the costs to investors of a system that charges for some trades and pays rebates on others The New York Stock Exchange’s opposition to a proposed Securities and Exchange Commission pilot review of the ‘maker taker’ system of trading fees and its cost to investors has put some listed companies into conflict with big investors. Traders seen at the New York Stock Exchange on July 6. PHOTO: SPENCER PLATT/GETTY IMAGES By Gretchen Morgenson Updated July 11, 2018 12:13 p.m. ET 4 COMMENTS The New York Stock Exchange is stirring tension between some of its big listed companies and their largest investors over regulators’ efforts to study the controversial practice of assigning fees and rebates to stock trades. At issue is a Securities and Exchange Commission plan to study the system known as “maker taker,” in which exchanges charge fees for some trades and pay rebates on others. Critics say it can distort brokers’ decisions about where to send customer orders, and attracts high-speed traders whose rapid-fire strategies sometimes focus on capturing rebates. The SEC, through a proposal known as the Transaction Fee Pilot, is seeking to assess how much those fees and rebates affect trading costs, and how they influence which exchanges investors choose to trade their shares, and at what prices. Both the NYSE and Nasdaq NDAQ 0.68% Inc. oppose the regulatory proposal, saying it is flawed and doesn’t accurately assess costs. If the SEC pilot program results in the elimination of rebates, it could reduce fees that generate significant revenue to the exchange. In an email last month, the NYSE told its listed companies the proposal “could impact trading in your stock” and urged them to write their own letters arguing against it if they were concerned. By early July, more than two dozen corporations had written letters to the SEC criticizing the pilot or asking to have their stocks excluded from it. But many of these same companies’ largest investors aren’t buying it. More than three-quarters of companies opposing the pilot program have at least one of their five top institutional investors supporting it, regulatory filings show. These include large investors of Apache Corp., Halliburton Co., Home Depot Inc. and Mastercard Inc. Opposing ViewsSome companies and their large investorsdiffer on a Securities and ExchangeCommission proposal to assess trading fees.Some of the companies that oppose the planand the stakes in those firms of largeinvestors who support itSource: SEC filings HalliburtonApacheHome DepotMastercard0%102030 By following the NYSE’s direction, these companies are aligning themselves against some of their biggest investors. Because the NYSE also acts as regulator of its listed companies, it brings considerable leverage when it urges listed companies to oppose a program it is against. “Corporate issuers are being put in a terrible position,” said Tyler Gellasch, executive director of Healthy Markets, an investor-oriented nonprofit organization. “Do I side with my listing exchange or my largest investors?” A spokesman for the NYSE said in a statement: “We believe this pilot proposal will harm investors, listed companies and the quality of public markets. We’ve supported our view with substantive analysis and, as a fierce advocate for our listed companies, have shared our concerns with them. We understand, and largely agree, with investor concerns that have led them to support the transaction fee pilot, but do not agree that the pilot actually addresses their concerns.” Officials at companies that oppose the proposal said it would harm their shareholders. Apache, for example, asked the SEC to withdraw the proposal and “use other tools to study the market in a less-impactful manner that does not harm the very investors and issuers that it seeks to serve.” Apache submitted its letter on June 7, well after four of its five top shareholders had expressed support for the program. Those holders— BlackRock Inc., Davis Selected Advisers, State Street Corp. and Vanguard Group—together hold nearly one-quarter of Apache’s shares. An Apache official declined to say whether the company had spoken with its shareholders about the program. At Halliburton, its five largest investors, holding about 27% of its shares, wrote letters supporting the pilot. A Halliburton spokesman didn’t respond to a request for comment about whether it had talked with shareholders. Home Depot’s top three shareholders holding nearly 19% of its shares, said they favor the pilot. Isabel Janci, Home Depot’s investor-relations chief, wrote the company’s letter criticizing the SEC’s proposal. She is a former senior director of investor relations atIntercontinental Exchange Inc., ICE 0.27% which owns the NYSE. A spokesman for Ms. Janci said her previous role “gives her a unique and well-qualified understanding of how this all works.” In an interview, Ms. Janci said she hadn’t yet spoken with the shareholders about the SEC pilot. “Because of the complexity of the market and solutions that are proposed I wouldn’t say we are diametrically opposed to our investors,” she said. “We all agree that market structure reform is needed.” Janet McGinness, corporate secretary at Mastercard, also wrote in opposition to the transaction pilot. The company’s two top outside shareholders are BlackRock and Vanguard, holding 12.5% of Mastercard’s stock. Ms. McGinness was corporate secretary and general counsel at the NYSE from 2006 to 2014 according to her LinkedIn profile. A spokesman for Ms. McGinness declined to say whether that association shaped her opposition to the SEC pilot. The SEC issued the proposal in March, saying the results of the two-year pilot would “facilitate a data-driven evaluation of the need for regulatory action in this area.” The commission asked market participants for their views. As of early July, the SEC had received more than 100 comment letters. Institutional investors overseeing more than $8 trillion in assets have written in support of the pilot. They include BlackRock, Fidelity Investments Inc., State Street and Vanguard, and public pensions such as the California Public Employees’ Retirement System and the State of Wisconsin Investment Board. Citigroup Inc. also backs it.