01.10.2020
By Rob Daly

SEC Inches Market-Data Reform Forward

In a three-to-two vote, the Securities and Exchange Commission this week elected to adopt a staff proposal from the Division of Trading & Markets that would begin the long process of modernizing Regulation NMS’ market-data distribution plan.

Under the proposal, the SEC would instruct the SROs to develop the New Consolidate Data Plan, which would address the inefficiencies of having three NMS plans for equity market data as well as concerns regarding the existing Equity Data Plan’s governance structure.

Among the proposed changes floated by the proposal are the inclusion of odd-lot quotes within the New Consolidated Data Plan and greater non-SRO involvement within its governance.

Jay Clayton

Jay Clayton, SEC

“Such a change would result in a substantial change to the regulation and dissemination of equity market data,” said SEC Chairman Jay Clayton before the Wednesday vote.

Chairman Clayton also noted that he agreed with the recommendation and invited the public to comment on the proposed governance provisions as well as the other portions of the proposal.

Commissioners Robert Jackson and Allison Herren Lee voted against the proposal responding that the process of changing the NMS Plan would be ineffective in addressing the identified issues.

“By proposing an order under a National Market System Plan, we are asking the exchanges to tell us how best to address the conflicts-of-interests that currently allow them to profit by controlling the public feed while selling superior private data,” said Commissioner Jackson. “No one should be surprised when the exchanges respond that, rather than give investors votes on the operation of the public feed, that they’d rather continue controlling it themselves.”

Commissioner Lee cited her concerns that the SEC was following the same path that it had regarding the creation of the Consolidated Audit Trail and that the regulator should expect a similarly long and drawn-out process.

“It is the Commission’s role, not that of private market participants, to ensure that the public has timely access to essential trading information, and to address how the SIPs must be improved in terms of latency, content and fee transparency,” she said. “Today’s governance proposal falls short both on substance and form. We should be addressing these difficult issues more directly and holistically.”

The SEC had an option to issue a ruling rather than requesting a change to the NMS Plan, which could have been viewed more antagonistically by the exchanges, according to Sal Arnuk, a co-founder of Themis Trading.

“The SEC already has their hands full with legal challenges from those exchanges on rulemaking,” he told Markets Media. “They are in a tough spot where they can lay down the hammer or move the ball forward incrementally.”

Meanwhile, the Equity Markets Association released a diplomatic response to the Commission’s vote.

“Equity Markets Association members create and steward the delivery of a vast majority of U.S. market data, and we welcome a dialogue to improve the SIP, providing we do not disrupt the unparalleled fairness, depth and robust nature of these markets that provide extraordinary benefits to all investors and our economy,” the organization said in a prepared statement.

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