The Securities and Exchange Commission has decided not to decide yet whether to approve proposals by Nasdaq and the New York Stock Exchange to pay market makers to make better markets in thinly traded ETFs. The proposals would require an exemption from a current prohibition against such payments.

Rather than approving or rejecting the idea, the SEC decided last Wednesday, July 11, to seek another round of comments on pilot projects put forth by Nasdaq and NYSE Arca (the electronic exchange formerly known as Archipelago). In its 83-page order instituting proceedings to determine whether to approve or disapprove the proposed pilots  — posted on the SEC’s web site last Thursday — the SEC listed 27 questions asking for more input on specific points. “They’re keying up the issues,” said a source who asked not to be named.

Under the law, the SEC has 45 days to respond to these kinds of regulatory filings by the exchanges, with an automatic right to extend the initial deadline by another 45 days.

July 11 was the 90-day mark for the Nasdaq’s proposal, and while the SEC had until August 14 to respond to NYSE Arca, it decided to consider both proposals with a joint order — a suggestion made by Vanguard, the mutual fund and ETF sponsor headquartered in Valley Forge, Pennsylvania, which filed separate comment letters on both proposals.

“Because both proposals raise similar regulatory issues about the appropriate scope for permitting issuer payments to market makers, we believe the Commission should consider the two proposals together and not in isolation,” said Vanguard managing director and chief investment officer, Gus Sauter, in a comment letter. But the two exchanges have structured their proposed pilots very differently, and the SEC said that it would also assess each separately.

The SEC’s order was published in the Federal Register yesterday, July 17, and that starts the clock ticking on the new comment period of 30 days. While that can be extended a bit, the statutory deadline for final, definitive action by the SEC now falls somewhere between early October and early December.

The reason this is controversial is that in 1997, during the dot-com era, the National Association of Securities Dealers (NASD), which morphed into the Financial Industry Regulatory Authority (Finra), adopted what is now known as Finra Rule 5250, prohibiting issuers from making payments to market makers. Vanguard, in one of its comment letters, cited the SEC’s statement when it approved the rule, on the rule’s intent “to prevent fraudulent and manipulative acts, to promote just and equitable principles of trade and to protect investors and the public.”