Swing Pricing Proposal Should Be Defunded, House Republicans Say

The chairman of the U.S. House Committee on Financial Services, Representative Patrick McHenry, R-North Carolina, wrote to the House Committee on Appropriations on Tuesday seeking to block funding for enactment of specific proposed rules from the Securities and Exchange Commission.

McHenry asked the Appropriations Committee, chaired by Representative Kay Granger, R-Texas, to spell out in spending bills that any money provided to the SEC cannot be used to implement three out of the four market structure proposals the SEC made in December 2022: the order competition proposal, the tick-size proposal and the Regulation Best Execution proposal. McHenry also asked the Appropriations Committee to block SEC proposals on swing pricing and climate disclosure.

The fourth market structure proposal, which McHenry did not mention, would update disclosure requirements under Rule 605 of Reg NMS, the execution disclosure proposal. It would require larger broker/dealers to file monthly quality-of-execution reports and expand the number of trades subject to disclosure. This proposal has consistently been the most popular in the financial industry of the four, and its omission in McHenry’s letter underlines that sentiment.

Curiously, the proposal to reduce tick-size increments for certain tick-constrained stocks, has received a lot of positive feedback, though not as universally as the Rule 605 proposal. Much of the criticism levied against the tick-size proposal has come in the form of recommended modifications, humble ones at that, such as reducing ticks to half-penny increments. All the same, McHenry requested a full defunding of this proposal should it ever become a final rule.

The other two market structure proposals—Reg BE, which would take over enforcement of trade execution standards from FINRA, and the order competition rule, which would require auctions for certain retail orders—have received much more pushback from the industry, and they can now count McHenry as an ally.

McHenry also asked the Appropriations Committee to block the swing pricing proposal. He said the hard market close requirement in the proposal would prevent many investors from getting the best price available on their investment sales and purchases. The proposal would require orders for mutual funds to come in by 4 p.m. Eastern Time in order to get that day’s price, called a “hard close.” Members of the Financial Services Committee previously expressed concerns about the effect a hard close would have for investors on the West Coast.

The other proposal McHenry wants defunded is the climate disclosure proposal, which would require public companies to disclosure their climate-related risks, the direct greenhouse gas emissions generated by their operations and their indirect emissions from electricity consumption. Some securities issuers and funds would also have to disclose emissions from their value chain, known as Scope 3 disclosures, but only if they have a stated, climate-related goal.

Lastly, McHenry requested a freeze on the SEC’s enforcement budget and said it does not need the more than 50 additional personnel that have been requested. The SEC’s budget request provides for 53 net hires for its Enforcement Division alone.

McHenry added that the SEC’s aggressive enforcement actions against cryptocurrency have brought “further uncertainty to this nascent industry.”