The SEC directed FINRA and the equity exchanges to submit a new consolidated National Market System ("NMS") plan (a/k/a the "New Consolidated Data Plan") that provides an updated governance structure for both the (i) creation of public consolidated equity market data and (ii) distribution of trading venues' trade and quote data. (See prior coverage of the proposed version of the Order.)
In the adopted Order, the SEC required FINRA and the equity exchanges to submit a New Consolidated Data Plan within 90 days of publication in the Federal Register. Based on comments received on the proposed Order, the SEC requested that the new plan detail specific governance provisions addressing (i) the current Equity Data Plans' governance structure, and (ii) distribution of equity market data to market participants. (The SEC noted that the three existing Equity Data Plans will remain effective pending approval of the new plan.)
In a related matter, the SEC approved amendments to its existing NMS plan that are intended to (i) address conflicts of interest by making disclosure policies mandatory and (ii) increase protection of confidential information by implementing a policy that will direct the operating committee on its treatment of data and information.
SEC Commissioner Statements
Chair Jay Clayton commended the SEC for addressing conflicts of interest concerns by requiring FINRA and the equity exchanges to (i) modernize the governance structure of the NMS plans and (ii) improve the effectiveness of the existing Equity Data Plans by consolidating them into one plan.
Commissioner Hester M. Peirce stated that, due to the contentious nature of issues surrounding reforms to the consolidated market plan, it is appropriate to implement guidelines for FINRA and the equity exchanges when developing a new plan.
Commissioner Elad L. Roisman concluded that the Order "strikes the right balance" in recognizing self-regulatory organizations' duty to implement an NMS plan while also taking into consideration market participants' concerns raised in submitted comment letters.
Commissioner Allison Herren Lee reiterated her concern that changes in the governance structure alone would not provide needed reforms unless they also provide more power to voting members. She commended the SEC for making "significant headway" in improving "public market data streams."
Commentary
While the topic of the Order is largely the governance procedures under which any new data plan will be operated, the real subject of the Order is how much data will cost, who is able to decide that cost, who bears the cost and who receives the revenue. There is probably no more politically complicated issue the SEC faces than how to regulate market data. There is simply no "right" answer to the question of how much data should be free to public investors, nor as to what data the exchanges should have a right to sell at the highest possible price.
As the SEC acknowledges, there is a direct and unavoidable conflict of interest between the exchanges that are primarily charged with establishing the market data plan and the broker-dealers that will be charged fees for buying data from the exchanges, to say nothing of the customers that will pay direct and indirect fees. The SEC has attempted to mitigate this conflict by, among other things, requiring participation in the operation of the new data plan from entities other than exchanges including, among others, representatives of broker-dealers, an issuer representative, and a person who represents the interests of retail investors.
Whether this is the right group of participants is certainly open to debate (for example, wouldn't it be more important, even if less politically correct, to have the view of institutional investors on data charges, rather than the view of retail investors?). An even more important question is whether it matters, given that this somewhat diverse group of participants will be a minority of those charged with the operation of the plan. Many more such questions can be asked, but none of them can be answered with any authority. Perhaps this entire debate is an illustration of the fact that when there is no true market, pricing decisions become arbitrary and political.
Originally published May 07, 2020
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