10.16.2018
By Rob Daly

SEC Rules for SIFMA in Market Data Case

The US Securities and Exchange Commission has set aside NYSE’s and Nasdaq’s depth-of-book fees as of October 16.

The fees falling under the judgment are those fee that Nasdaq and NYSE Arca put in place on September 15, 2010, and November 9, 2010, respectively.

The Commission’s decision rests on the exchange operators failure to meet their burden to demonstrate that the fees “are fair and reasonable and not unreasonably discriminatory,” wrote the authors of the decision. “We do not, by our findings here, conclude that the fees are not fair and reasonable. Rather, the factual record submitted and the theories based on the record part forward by the exchanges are insufficient to support a finding that the fees at issue meet the statutory test.”

The decision marks a change from the 2016 decision by Law Judge Brenda Murray, who rule that there was a competitive environment between Nasdaq and NYSE’s depth-of-book offerings and that SIFMA failure to prove that depth-of-book data is a “need” rather than a “want.”

“Today we also remanded hundreds of similar requests seeking to increase the price of information necessary to participate in America’s stock markets,” noted SEC Commissioner Robert Jackson in a prepared statement. “The exchanges will now have the opportunity to review those requests under the standards articulated in today’s landmark opinion—which requires exchanges to be prepared to show us that any price increases are justified by competition rather than the exchanges’ market power.”

“This pragmatic ruling by the SEC indicates increasing recognition by policymakers that the fee structure for proprietary market data products is broken,” added Melissa MacGregor, managing director and associate general counsel at SIFMA, in a prepared statement. “As noted in the unanimous decision, ‘the exchanges fail to meet their burden to demonstrate that the fees are fair and reasonable and not unreasonably discriminatory’ as required under current law. Today’s decision should prompt further examination of policy reforms to ensure the efficiency of public market data feeds and fairness of fees.”

Nasdaq is disappointed by the SEC decision given the strength of its evidence, convincing record of facts, and its track record with the courts, a Nasdaq spokesperson told Markets Media. “This decision represents the latest in a 20-year long series of attempts to over-regulate the best capital markets in the world, in order to benefit the largest financial institutions. We intend to appeal this decision.”

Despite the unanimous decision by the Commission, Commissioners Hester Pierce and Elad Roisman noted in a separate joint comment that the regulator’s decision should be read “only as dispositive of the record presented— not as a conclusive statement about the market for the products in question or the market for depth-of-book date more broadly.”

The Commissioners also put forward three potential ways the exchange operators could approach to defend future data-fee hikes.

The SROs could segment the market by each product and the type of customer it is intended to serve and assess how each customer uses and values each product or they could determine the platform theory and identify how customers who pay for the particular service exerts competitive pressures on an exchange as a platform, wrote the Commissioners.

“Both analyses are undeniably complex, but such diligence is necessary to ensure that customers are not paying fees so high that they amount to denials of access,” they added.

The final option they cited would have the SROs justify their fees based on the costs it took the exchanges to develop and offer their products or services.

“This approach would involve the most intervention and monitoring on behalf of the Commission, which would essentially be required to step into the role of rate-setter,” the Commissioner wrote. “From our perspective, this is the least appealing outcome.”

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