On January 8, 2020, the SEC proposed an Order to improve the governance of National Market System ("NMS") Plans over public consolidated equity market data and the dissemination of trade and quote data.

Currently, there are three NMS plans governing the dissemination by the exchanges of trading information in NMS stocks: (i) the Consolidated Tape Association Plan, (ii) the Consolidated Quotation Plan and (iii) the Joint SRO Plan for Nasdaq-Listed Securities.

Under the proposed Order, market participants would be required to submit a "single, new equity data plan" (a/k/a the "New Consolidated Data Plan") in which all of the exchanges would participate. A governance committee for the new plan would be formed. One-third of the votes would be held by entities other than the exchanges.

The SEC proposed amendments to the current Equity Data Plans would (i) enforce current disclosure policies in connection with any conflicts of interest, and (ii) create a policy on the confidential treatment of any data or information in connection with the operating committee.

SEC Chair Jay Clayton approved of (i) the proposed terms for the New Consolidated Data Plan and (ii) requested public comment prior to taking final actions. He stated that the New Consolidated Data Plan would substantially change the dissemination of equity market data.

SEC Commissioner Elad L. Roisman supported the proposed Order but noted that it contains, among other things, "only one possible set of solutions" to address concerns regarding equity data plans.

SEC Commissioner Robert J. Jackson Jr. dissented, arguing that "we cannot and should not expect the market to fix the market," but instead should encourage changing the law to address incentives created by allowing exchanges to (i) have control over public feeds and (ii) profit off the selling of private ones.

SEC Commissioner Allison Herren Lee criticized the proposed Order for failing to protect the public interest and safeguard securities information processors.

Commentary

This action by the SEC is another chapter in an almost five-decade scuffle between regulators, exchanges, broker-dealers and investors as to the establishment and development of a national market system, how that system would be funded, and how the data assets generated by that system would be owned and marketed. While the exchanges’ discretion in dealing with market data has been limited over time, the proposed Order is a very small step towards a needed comprehensive reconsideration of data ownership issues. 

The proposed consolidation of the various equity data plans may enhance the efficiency of the consolidated data feeds from the Securities Information Processors (“SIPs”), but the exchanges can continue to disseminate their proprietary trade reports independently. The differentials in substantive data content and pricing between the consolidated data feeds and the exchanges' proprietary data feeds is one of the core issues that the SEC must eventually address. In many ways the proposed Order is another example of the SEC avoiding the issue of market data fees that has arisen repeatedly over the last two decades. Way back in its 1999 Concept Release "Regulation of Market Information Fees and Revenues," the SEC observed that market data fees and revenues constituted a fifth of exchange revenues. More recent estimates show that percentage has increased substantially. 

In recent years the SEC has taken a few notable actions relating to market data. For example, in October 2018 the SEC issued two decisions relating to a multi-year dispute dating back to 2013 concerning certain exchange fee proposals. The SEC found that the exchanges had not met their statutory obligations to demonstrate that their fees were consistent with the Securities Exchange Act — that is, the exchanges had not provided sufficient factual and legal support to continue to charge those fees. 

In October 2018, the SEC hosted a roundtable on market data and market access in order to discuss core market data infrastructure, the distinctions between core and non-core market data, and SIP governance, among other issues. In December 2018, the SEC adopted a transaction fee pilot to study a maker-taker pricing model on the exchanges. In October 2019, the SEC published a proposed rule aiming to amend Regulation NMS to rescind a provision that allows a proposed amendment to a National Market System plan to become effective upon filing, if the proposed amendment establishes or changes a fee or other charge. Rescission of the “effective-upon-filing” procedure for NMS plan fee amendments would subject such amendments to the procedures set forth in Regulation NMS Rule 608(b)(1) and (2), requiring publication of the proposed amendment and a public comment period.

Notwithstanding the above developments, the limited scope of the SEC’s proposed Order should deflate any expectations by broker-dealers and other market participants that the SEC will quickly move to resolve, even for the intermediate future, the two most important and controversial issues in this space: legal ownership of market data and market data fees.