ICI Calls For Reg NMS Governance, Transparency Overhaul


An influential buy-side advocacy group is pressing the U.S. Securities and Exchange Commission to force exchanges to disclose more information and be more inclusive when it comes to governance.

The SEC has undertaken a review of Regulation National Market Structure to improve market transparency and governance of the equities market. And while many agree this a positive development for the marketplace, the Investment Company Institute announced that it was responding to the ongoing review of the rules under the Regulatory Flexibility Act. ICI’s President and Chief Executive Officer, Paul Schott Stevens, made several suggestions on how to improve the regulation and maintain the integrity of the marketplace. ICI’s Stevens shared his letter with Markets Media.

First, ICI urged the SEC to replace the faulty governance model of NMS plans with governance provisions that require NMS plan operating committees to include representatives of registered funds and other non-SRO market participants.  This, they argue, would bring more fairness into the market governance process and be more inclusive of the financial market. 

“Reg NMS needs improvement,” the letter stated. “The Commission should address the outdated and unfair governance practices of Reg NMS plans. The rules that authorize the SROs to prepare and fie NMS plans have allowed SROs to administer key aspects of market structure without consulting – and often to the detriment of – other market participants.”

Secondly, ICI analysts recommended that the SEC amend Regulation NMS to require complete transparency into any revenue generated by NMS plans, particularly those dealing with market data. The argument goes that the sale and distribution of market data, provided solely by the Securities Information Processors (SIPs), can often create conflicts among certain providers. Not to mention that  not all participants have access to equal data or the speediest feeds and that many traders must use the SIPs for their data.

“Securities Information Processors (SIPs) are the exclusive data SEC-approved providers of key market data, including information on national best bids and offers, last sales and regulatory halts. SIPS, however,  do not publicly disclose even rudimentary information concerning the allocation of their revenue among the SROs (who operate them) or the amounts expended for maintenance or improvement.”

ICI added that the SROs should be made to disclose revenue generated by the SIPs, the sources of such revenue and the distribution of SIP-generated revenue among plan participants.

Lastly, the advocacy group suggested that the regulator extend the charter of the SEC Equity Market Structure Advisory Committee (“EMSAC”) for another two-year term and consider making the EMSAC a permanent advisory committee to assist with Regulation NMS improvements. This, ICI stated, would address the longstanding market belief that the SEC is both undermanned and underfunded. Outside additional help, would be free and offer keen insights and more representative of the market constituency.

Currently, the EMSAC two-year service term ends February 2107.

“We urge the Commission to act promptly to extend the EMSAC’s charter for another two-year term and to consider making the EMSAC a permanent advisory committee,” ICI wrote.

ICI serves as the voice of mutual funds, their shareholders, directors and investment advisers.

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