Notice of Proposed Order Directing the Exchanges and the Financial Industry Regulatory Authority To Submit a New National Market System Plan Regarding Consolidated Equity Market Data, 2164-2187 [2020-00360]

Download as PDF 2164 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices support the Committee’s review. For specific chapters to be discussed please contact Mike Snodderly at 301–415– 2241. [NOTE: A portion of this session may be closed in order to discuss and protect information designated as proprietary, pursuant to 5 U.S.C 552b(c)(4)]. lotter on DSKBCFDHB2PROD with NOTICES Friday, February 7, 2020, Conference Room T2D10 8:30 a.m.–10:30 a.m.: Future ACRS Activities/Report of the Planning and Procedures Subcommittee and Reconciliation of ACRS Comments and Recommendations (Open/Closed)—The Committee will hear discussion of the recommendations of the Planning and Procedures Subcommittee regarding items proposed for consideration by the Full Committee during future ACRS meetings. [NOTE: A portion of this meeting may be closed pursuant to 5 U.S.C. 552b(c)(2) and (6) to discuss organizational and personnel matters that relate solely to internal personnel rules and practices of the ACRS, and information the release of which would constitute a clearly unwarranted invasion of personal privacy.] [NOTE: A portion of this session may be closed in order to discuss and protect information designated as proprietary, pursuant to 5 U.S.C 552b(c)(4)]. 10:45 a.m.–12:00 p.m.: Preparation of ACRS Reports/NuScale Chapters Discussion (Open/Closed)—The Committee will continue its discussion of proposed ACRS reports and NuScale chapters. [NOTE: A portion of this session may be closed in order to discuss and protect information designated as proprietary, pursuant to 5 U.S.C 552b(c)(4)]. 2:00 p.m.–6:00 p.m.: Preparation of ACRS Reports (Open/Closed)—The Committee will continue its discussion of proposed ACRS reports. [NOTE: A portion of this session may be closed in order to discuss and protect information designated as proprietary, pursuant to 5 U.S.C 552b(c)(4)]. Saturday, February 8, 2020, Conference Room T2D10 8:30 a.m.–12:00 p.m.: Preparation of ACRS Reports (Open/Closed)—The Committee will continue its discussion of proposed ACRS reports. [NOTE: A portion of this session may be closed in order to discuss and protect information designated as proprietary, pursuant to 5 U.S.C 552b(c)(4)]. Procedures for the conduct of and participation in ACRS meetings were published in the Federal Register on June 13, 2019 (84 FR 27662). In accordance with those procedures, oral or written views may be presented by VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 members of the public, including representatives of the nuclear industry. Persons desiring to make oral statements should notify Quynh Nguyen, Cognizant ACRS Staff and the Designated Federal Official (Telephone: 301–415–5844, Email: Quynh.Nguyen@nrc.gov), 5 days before the meeting, if possible, so that appropriate arrangements can be made to allow necessary time during the meeting for such statements. In view of the possibility that the schedule for ACRS meetings may be adjusted by the Chairman as necessary to facilitate the conduct of the meeting, persons planning to attend should check with the Cognizant ACRS staff if such rescheduling would result in major inconvenience. The bridgeline number for the meeting is 866–822–3032, passcode 8272423#. Thirty-five hard copies of each presentation or handout should be provided 30 minutes before the meeting. In addition, one electronic copy of each presentation should be emailed to the Cognizant ACRS Staff one day before meeting. If an electronic copy cannot be provided within this timeframe, presenters should provide the Cognizant ACRS Staff with a CD containing each presentation at least 30 minutes before the meeting. In accordance with Subsection 10(d) of Public Law 92–463 and 5 U.S.C. 552b(c), certain portions of this meeting may be closed, as specifically noted above. Use of still, motion picture, and television cameras during the meeting may be limited to selected portions of the meeting as determined by the Chairman. Electronic recordings will be permitted only during the open portions of the meeting. ACRS meeting agendas, meeting transcripts, and letter reports are available through the NRC Public Document Room (PDR) at pdr.resource@ nrc.gov, or by calling the PDR at 1–800– 397–4209, or from the Publicly Available Records System component of NRC’s Agencywide Documents Access and Management System (ADAMS) which is accessible from the NRC website at https://www.nrc.gov/readingrm/adams.html or https://www.nrc.gov/ reading-rm/doc-collections/#ACRS/. Video teleconferencing service is available for observing open sessions of ACRS meetings. Those wishing to use this service should contact Ms. Paula Dorm, ACRS Audio Visual Technician (301–415–7799), between 7:30 a.m. and 3:45 p.m. (Eastern Time), at least 10 days before the meeting to ensure the availability of this service. Individuals or organizations requesting this service will be responsible for telephone line charges and for providing the PO 00000 Frm 00061 Fmt 4703 Sfmt 4703 equipment and facilities that they use to establish the video teleconferencing link. The availability of video teleconferencing services is not guaranteed. Dated: January 9, 2020. Russell E. Chazell, Federal Advisory Committee Management Officer, Office of the Secretary. [FR Doc. 2020–00378 Filed 1–13–20; 8:45 am] BILLING CODE 7590–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87906; File No. 4–757] Notice of Proposed Order Directing the Exchanges and the Financial Industry Regulatory Authority To Submit a New National Market System Plan Regarding Consolidated Equity Market Data January 8, 2020. I. Introduction As discussed in more detail in the attached proposed order (‘‘Proposed Order’’),1 certain market developments have given rise to concerns about whether—as currently structured—the existing national market system plans (the ‘‘Equity Data Plans’’) 2 that govern the public dissemination of real-time, consolidated equity market data for national market system stocks continue 1 See Attachment A. three Equity Data Plans that currently govern the collection, consolidation, processing, and dissemination of SIP data are (1) the Consolidated Tape Association Plan (‘‘CTA Plan’’), (2) the Consolidated Quotation Plan (‘‘CQ Plan’’), and (3) the Joint Self-Regulatory Organization Plan Governing the Collection, Consolidation, and Dissemination of Quotation and Transaction Information for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privileges Basis (‘‘UTP Plan’’). Each of the Equity Data Plans is an NMS plan under Rule 608 of Regulation NMS. 17 CFR 242.608; see also Securities Exchange Act Release Nos. 10787 (May 10, 1974), 39 FR 17799 (order approving CTA Plan); 15009 (July 28, 1978), 43 FR 34851 (Aug. 7, 1978) (order temporarily approving CQ Plan); 16518 (Jan. 22, 1980), 45 FR 6521 (Jan. 28, 1980) (order permanently approving CQ Plan); and 28146 (June 26, 1990), 55 FR 27917 (July 6, 1990) (order approving UTP Plan). The Commission notes that the options exchanges are participants in the Limited Liability Company Agreement of Options Price Reporting Authority, LLC (‘‘OPRA Plan’’), an NMS plan under Rule 608 of Regulation NMS, which governs the collection, consolidation, processing, and dissemination of last sale and quotation information for listed options. See Securities Exchange Act Release Nos. 17638 (Mar. 18, 1981), 22 SEC. Docket 484 (Mar. 31, 1981); 61367 (Jan. 15, 2010), 75 FR 3765 (Jan. 22, 2010). The Commission is proposing to take an incremental approach to addressing governance issues related to NMS plans and is at this time proposing to address only the governance of the Equity Data Plans. The Commission may in the future consider the governance of the OPRA Plan. 2 The E:\FR\FM\14JAN1.SGM 14JAN1 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices to fulfill their statutory purpose under Section 11A of the Securities Exchange Act of 1934 (‘‘Act’’).3 To begin the process of addressing these concerns, and pursuant to Section 11A(a)(3)(B) of the Act,4 the Commission is publishing for comment the attached Proposed Order, which if ultimately issued by the Commission, would require the participants in the Equity Data Plans 5 to propose a single, new equity data plan (‘‘New Consolidated Data Plan’’). Based upon input received from a broad range of market participants (including the SROs), the Commission’s Equity Market Structure Advisory Committee, and its own regulatory oversight of the Equity Data Plans, the Commission has set forth in the Proposed Order its concerns regarding the Equity Data Plan’s provision of equity market data,6 its views regarding issues arising from the current governance structure of the Equity Data Plans,7 and the specific governance provisions that the Commission preliminarily believes would enable the New Consolidated Data Plan to address these concerns and issues.8 The Commission seeks public comment on each of these aspects of the Proposed Order. To the extent that the Participants have additional insights into the concerns and issues discussed in the Proposed Order, or are able to identify and suggest additional or alternative measures to those that the Commission has preliminarily set forth in the Proposed Order, the Commission will consider such information and suggestions, as well as any other comment on the Proposed Order. The Commission requests that any alternatives include a comprehensive explanation as to why the alternative would be effective in addressing the significant issues discussed in the Proposed Order regarding the current 3 15 U.S.C. 78k–1. U.S.C. 78k–1(a)(3)(B). 5 Cboe BYX Exchange, Inc. (‘‘BYX’’), Cboe BZX Exchange, Inc. (‘‘BZX’’), Cboe EDGA Exchange, Inc. (‘‘EDGA’’), Cboe EDGX Exchange, Inc. (‘‘EDGX’’), Cboe Exchange, Inc. (‘‘Cboe’’), Investors Exchange LLC (‘‘IEX’’), Long Term Stock Exchange, Inc. (‘‘LTSE’’), Nasdaq BX, Inc. (‘‘BX’’), Nasdaq ISE, LLC (‘‘ISE’’), Nasdaq PHLX LLC (‘‘PHLX’’), Nasdaq Stock Market LLC (‘‘Nasdaq’’), New York Stock Exchange LLC (‘‘NYSE’’), NYSE American LLC (‘‘NYSE American’’), NYSE Arca, Inc. (‘‘NYSE Arca’’), NYSE Chicago, Inc. (‘‘NYSE Chicago’’), NYSE National, Inc. (‘‘NYSE National’’), and Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) (each a ‘‘Participant’’ or a ‘‘Self-Regulatory Organization’’ (‘‘SRO’’) and, collectively, the ‘‘Participants’’ or ‘‘the SROs’’). 6 See Attachment A, Section II.A. 7 See Attachment A, Section II.B. 8 See Attachment A, Sections II.C & II.D. lotter on DSKBCFDHB2PROD with NOTICES 4 15 VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 governance and operation of the Equity Data Plans. After considering any comments received on the Proposed Order, the Commission will consider what action to take, including whether to issue a final order requiring the Participants to file a New Consolidated Data Plan. If the Commission issues such a final order, the New Consolidated Data Plan then submitted by the Participants would be published for public comment, and, after considering any comments received on the New Consolidated Data Plan filed by the Participants, the Commission would consider whether to approve the New Consolidated Data Plan, with any changes or subject to such conditions as the Commission may deem necessary or appropriate.9 Unless or until a New Consolidated Data Plan has been approved by the Commission, the Equity Data Plans will continue to govern the collection, processing, and dissemination of equity market data. The Participants have submitted proposed amendments to the existing Equity Data Plans to (a) make mandatory their current disclosure policies with respect to conflicts of interest,10 and (b) establish a policy regarding the confidential treatment of any data or information generated, accessed, transmitted to, or discussed by the operating committee.11 Contemporaneously with the publication of this Notice of Proposed Order, the Commission is publishing for notice and comment these proposed amendments to the Equity Data Plans.12 * * * * * Interested persons are invited to submit written presentations of views, 9 See Rule 608 of Regulation NMS, 17 CFR 242.608. 10 See Thirtieth Substantive Amendment to the Second Restatement of the CTA Plan and TwentySecond Substantive Amendment to the Restated CQ Plan, dated July 3, 2019, submitted to Vanessa Countryman, Secretary, Commission; Forty-Fourth Amendment to the UTP Plan, dated July 3, 2019, submitted to Vanessa Countryman, Secretary, Commission. 11 See Thirty-Third Substantive Amendment to the Second Restatement of the CTA Plan and Twenty-Fourth Substantive Amendment to the Restated CQ Plan, dated November 19, 2019, submitted to Vanessa Countryman, Secretary, Commission; Forty-Seventh Amendment to the UTP Plan, dated November 19, 2019, submitted to Vanessa Countryman, Secretary, Commission. 12 See Securities Exchange Act Release Nos. 87907 (Jan. 8, 2020) (Notice of Filing of the ThirtyThird Substantive Amendment to the Second Restatement of the CTA Plan and Twenty-Fourth Substantive Amendment to the Restated CQ Plan); 87908 (Jan. 8, 2020) (Notice of Filing of the FortyFourth Amendment to the UTP Plan); 87909 (Jan. 8, 2020) (Notice of Filing of the Thirty-Third Substantive Amendment to the Second Restatement of the CTA Plan and Twenty-Fourth Substantive Amendment to the Restated CQ Plan); and 87910 (Jan. 8, 2020) (Notice of Filing of the Forty-Seventh Amendment to the UTP Plan). PO 00000 Frm 00062 Fmt 4703 Sfmt 4703 2165 data, and arguments concerning the Proposed Order, including the Proposed Order’s discussion of concerns with the current provision of equity market data by the Equity Data Plans, the Proposed Order’s discussion of issues with the current governance structure of the Equity Data Plans, the specific provisions set forth in the Proposed Order to address those concerns and issues, and the likely economic consequences, including those of any proposed alternative provisions. II. Procedure for Written Comments All comments should be submitted by February 28, 2020. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to: rule-comments@ sec.gov. Please include File Number 4– 757 on the subject line. Paper Comments • Send paper comments to: Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number 4–757. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/rules/ sro.shtml). Copies of the all written statements with respect to the Proposed Order that are filed with the Commission, and all written communications relating to the Proposed Order between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number 4–757 and should be submitted on or before February 28, 2020. E:\FR\FM\14JAN1.SGM 14JAN1 2166 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices By the Commission. Vanessa A. Countryman, Secretary. Attachment A Securities and Exchange Commission (Release No. 34–) [Date] lotter on DSKBCFDHB2PROD with NOTICES Order Directing the Exchanges and the Financial Industry Regulatory Authority To Submit a New National Market System Plan Regarding Consolidated Equity Market Data Notice is hereby given that, pursuant to Section 11A(a)(3)(B) of the Securities Exchange Act of 1934 (‘‘Act’’),1 the Securities and Exchange Commission (‘‘Commission’’) orders the Cboe BYX Exchange, Inc. (‘‘BYX’’), Cboe BZX Exchange, Inc. (‘‘BZX’’), Cboe EDGA Exchange, Inc. (‘‘EDGA’’), Cboe EDGX Exchange, Inc. (‘‘EDGX’’), Cboe Exchange, Inc. (‘‘Cboe’’), Investors Exchange LLC (‘‘IEX’’), Long Term Stock Exchange, Inc. (‘‘LTSE’’), Nasdaq BX, Inc. (‘‘BX’’), Nasdaq ISE, LLC (‘‘ISE’’), Nasdaq PHLX LLC (‘‘PHLX’’), Nasdaq Stock Market LLC (‘‘Nasdaq’’), New York Stock Exchange LLC (‘‘NYSE’’), NYSE American LLC (‘‘NYSE American’’), NYSE Arca, Inc. (‘‘NYSE Arca’’), NYSE Chicago, Inc. (‘‘NYSE Chicago’’), NYSE National, Inc. (‘‘NYSE National’’), and Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) (each a ‘‘Participant’’ or a ‘‘SelfRegulatory Organization’’ (‘‘SRO’’) and, collectively, the ‘‘Participants’’ or ‘‘the SROs’’) to act jointly in developing and filing with the Commission a proposed new single national market system plan (the ‘‘New Consolidated Data Plan’’), which will replace the existing national market system plans (the ‘‘Equity Data Plans’’) 2 that govern the public dissemination of real-time, consolidated equity market data for national market system stocks (‘‘NMS stocks’’).3 The New Consolidated Data Plan shall be filed with the Commission pursuant to Rule 608 of Regulation NMS 4 no later than [90 days after the order is issued]. The public dissemination of consolidated information about quotes and trades in equity securities is a fundamental component of the national market system. In creating the national market system, Congress specifically found that ensuring the availability of U.S.C. 78k–1(a)(3)(B). infra note 31 and accompanying text. 3 Generally, NMS stocks include any security, other than an option, for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan. See 17 CFR 242.600(b)(47). 4 17 CFR 242.608. this information is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets.5 As the Commission has stated, ‘‘one of the Commission’s most important responsibilities is to preserve the integrity and affordability of the consolidated data stream.’’ 6 In the Commission’s view, changes in the market 7 have heightened an inherent conflict of interest between the Participants’ collective responsibilities in overseeing the Equity Data Plans and their individual interests in maximizing the viability of proprietary data products that they sell to market participants. Under the current governance structure of the Equity Data Plans, the Participants have exclusive control of the Equity Data Plans. It is the Commission’s belief that the Participants’ conflicts of interest, combined with the concentration within exchange groups of voting power in the Equity Data Plans, create significant concerns regarding whether the consolidated feeds meet the purposes for them set out by Congress and by the Commission in adopting the national market system.8 Addressing these and other issues with the current governance structure of the Equity Data Plans is a key step in responding to the broader concerns about the consolidated data feeds.9 The Commission further believes that the consolidated data feeds can be improved by consolidating the three existing, separate Equity Data Plans into a single New Consolidated Data Plan. A New Consolidated Data Plan should reduce existing redundancies, inefficiencies, and inconsistencies between and among the Equity Data Plans and should simplify plan governance and maintenance. The Commission is therefore ordering the SROs to develop the New Consolidated Data Plan to address the governance issues described in this Order and to consolidate the Equity Data Plans into the single New Consolidated Data Plan. Based upon input received from a broad range of market participants (including the SROs), the Commission’s Equity Market Structure Advisory Committee (‘‘EMSAC’’), and its own regulatory oversight of the Equity Data Plans, the Commission has set forth below specific governance provisions that the Commission believes would enable the 1 15 2 See VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 5 15 U.S.C. 78k–1(a)(1)(C). NMS, Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37560 (June 29, 2005) (‘‘Regulation NMS Release’’). 7 See infra Section II.A. and Section II.B. 8 15 U.S.C. 78k–1(a)(1)–(2). 9 See infra Section II.A. 6 Regulation PO 00000 Frm 00063 Fmt 4703 Sfmt 4703 New Consolidated Data Plan to address these issues. I. Background In 1975, Congress, through the enactment of Section 11A of the Act,10 directed the Commission to facilitate the establishment of a national market system for the trading of securities in accordance with the Congressional findings and objectives set forth in Section 11A(a)(1) of the Act.11 Among the findings and objectives of Section 11A(a)(1) are that new data processing and communications techniques create the opportunity for more efficient and effective market operations,12 and that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to ensure the availability of information with respect to quotations for and transactions in securities.13 Congress authorized the Commission to prescribe rules to ensure the ‘‘prompt, accurate, reliable, and fair collection, processing, distribution, and publication of information with respect to quotations for and transactions in such securities and the fairness and usefulness of the form and content of such information.’’ 14 In furtherance of these purposes, the Commission has sought through its rules and regulations to help ensure that certain ‘‘core data’’ 15 is widely available for reasonable fees.16 The Commission has recognized that investors must have this core data ‘‘to participate in the U.S. equity markets.’’ 17 Section 11A of the Act also authorizes the Commission, by rule or order, to authorize or require the SROs to act jointly with respect to matters as to which they share authority under the Act in planning, developing, operating, or regulating a facility of the national market system.18 Pursuant to this authority, the Commission adopted 10 15 U.S.C. 78k–1. U.S.C. 78k–1(a)(1). 12 See 15 U.S.C. 78k–1(a)(1)(B). See also H.R. Rep. No. 94–229, 94th Cong., 1st Sess. 93 (1975) (House Report noting that the systems for collecting and distributing consolidated market data would ‘‘form the heart of the national market system.’’). 13 See 15 U.S.C. 78k–1(a)(1)(C). 14 15 U.S.C. 78k–1(c)(1)(B). 15 See infra note 27 and accompanying text (defining ‘‘core data’’). 16 See 17 CFR 242.603; see also e.g., Regulation NMS Release, supra note 6, 70 FR at 37560 (stating that ‘‘[i]n the Proposing Release, the Commission emphasized that one of its primary goals with respect to market data is to assure reasonable fees that promote the wide public availability of consolidated market data.’’). 17 Id. at 37560. 18 See 15 U.S.C. 78k–1(a)(3)(B). 11 15 E:\FR\FM\14JAN1.SGM 14JAN1 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES Regulation NMS.19 Rule 608 of Regulation NMS authorizes two or more SROs, acting jointly, to file with the Commission a national market system plan (‘‘NMS plan’’) or a proposed amendment to an effective NMS plan.20 And Rule 603 of Regulation NMS requires the SROs to act jointly pursuant to NMS plans to ‘‘disseminate consolidated information, including a national best bid and national best offer, on quotations for and transactions in NMS stocks.’’ 21 The purpose of the Equity Data Plans, adopted pursuant to Regulation NMS, is to facilitate the collection and dissemination of core data so that the public has ready access to a ‘‘comprehensive, accurate, and reliable source of information for the prices and volume of any NMS stock at any time during the trading day.’’ 22 Widespread availability of timely market data promotes fair and efficient markets and facilitates the ability of brokers and dealers to provide best execution to their customers.23 Under Regulation NMS and the Equity Data Plans, the SROs are required to provide certain quotation 24 and transaction data 25 for each NMS stock to an exclusive securities information processor (‘‘SIP’’),26 which consolidates this market data and makes it available to market participants on the consolidated tapes, as described below. For each NMS stock, the Equity Data Plans provide for the dissemination of top-of-book (‘‘TOB’’) data, generally 19 17 CFR 242.600–612; see also Regulation NMS Release, supra note 6, 70 FR at 37560. 20 See 17 CFR 242.608. 21 17 CFR 242.603(b). 22 Concept Release on Equity Market Structure, Securities Exchange Act Release No. 61358 (Jan. 14. 2010), 75 FR 3593, 3600 (Jan. 21, 2010) (‘‘Equity Market Structure Concept Release’’). 23 See In the Matter of the Application of Bloomberg L.P., Securities Exchange Act Release No. 83755 at 3 (July 31, 2018), available at https:// www.sec.gov/litigation/opinions/2018/34-83755.pdf (‘‘Bloomberg Order’’); SEC Concept Release: Regulation of Market Information Fees and Revenues, Securities Exchange Act Release No. 44208 (Dec. 9, 1999), 64 FR 70613, 70615 (Dec. 17, 1999) (stating that the distribution of core data ‘‘is the principal tool for enhancing the transparency of the buying and selling interest in a security, for addressing the fragmentation of buying and selling interest among different market centers, and for facilitating the best execution of customers’ orders by their broker-dealers’’). 24 See 17 CFR 242.602. 25 See 17 CFR 242.601. 26 See 15 U.S.C. 78c(22)(A) (defining securities information processor). Rule 603(b) of Regulation NMS requires that every national securities exchange on which an NMS stock is traded and national securities association act jointly pursuant to one or more effective NMS plans to disseminate consolidated information on quotations for and transactions in NMS stocks, and that such plan or plans provide for the dissemination of all consolidated information for an individual NMS stock through a single SIP. See 17 CFR 242.603(b). VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 defining consolidated market information (or ‘‘core data’’) as consisting of: (1) The price, size, and exchange of the last sale; (2) each exchange’s current highest bid and lowest offer, and the shares available at those prices; and (3) the national best bid and offer (‘‘NBBO’’) (i.e., the highest bid and lowest offer currently available on any exchange).27 In addition to disseminating core data, the SIPs collect, calculate, and disseminate certain regulatory data—including information required by the National Market System Plan to Address Extraordinary Market Volatility (‘‘LULD Plan’’),28 information relating to regulatory halts and market-wide circuit breakers, and information regarding the short-sale price test pursuant to Rule 201 of Regulation SHO.29 They also collect and disseminate other NMS stock data and disseminate certain administrative messages. Together with core data, the Commission refers to this broader set of data for purposes of this Order as ‘‘SIP data.’’ 30 The three Equity Data Plans that currently govern the collection, consolidation, processing, and dissemination of SIP data are (1) the Consolidated Tape Association Plan (‘‘CTA Plan’’), (2) the Consolidated Quotation Plan (‘‘CQ Plan’’), and (3) the Joint Self-Regulatory Organization Plan Governing the Collection, Consolidation, and Dissemination of Quotation and Transaction Information for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privileges Basis (‘‘UTP Plan’’).31 Pursuant to the Equity Data Plans, three separate networks disseminate consolidated data for equity securities: (1) Tape A for securities listed on the NYSE; (2) Tape B for securities listed on exchanges other than NYSE and Nasdaq; and (3) Tape C for securities listed on Nasdaq. The CTA Plan governs the collection, consolidation, processing, 27 See Bloomberg Order, supra note 23, at 3; see also Securities Exchange Act Release No. 87193 (Oct. 1, 2019), 84 FR 54794, 54795 (Oct. 11, 2019) (‘‘Effective-Upon-Filing Release’’). 28 The LULD Plan is available at https:// www.luldplan.com. 29 17 CFR 242.201(b)(3). 30 Broker-dealers rely on SIP data disseminated by the Equity Data Plans to comply with a number of regulatory requirements. See infra notes 64–67 and accompanying text. 31 Each of the Equity Data Plans is an NMS plan under Rule 608 of Regulation NMS. 17 CFR 242.608; see also Securities Exchange Act Release Nos. 10787 (May 10, 1974), 39 FR 17799 (order approving CTA Plan); 15009 (July 28, 1978), 43 FR 34851 (Aug. 7, 1978) (order temporarily approving CQ Plan); 16518 (Jan. 22, 1980), 45 FR 6521 (Jan. 28, 1980) (order permanently approving CQ Plan); and 28146 (June 26, 1990), 55 FR 27917 (July 6, 1990) (order approving UTP Plan). PO 00000 Frm 00064 Fmt 4703 Sfmt 4703 2167 and dissemination of last sale information for Tape A and Tape B securities. The CQ Plan governs the collection, consolidation, processing, and dissemination of quotation information for Tape A and Tape B securities. And the UTP Plan governs the collection, consolidation, processing, and dissemination of last sale and quotation information for Tape C securities. As discussed further below, the structure of the equity markets and the corporate structure of exchanges have changed dramatically since the adoption of Regulation NMS in 2005.32 While a substantial amount of trading in 2005 was conducted on relatively slow manual markets,33 and was concentrated for any given stock on its listing exchanges,34 nearly all trading now occurs on fast electronic markets (where even small degrees of latency affect trading strategies) and is dispersed among a wide range of competing market centers.35 Furthermore, most exchanges have converted from entities mutually owned by their members to demutualized entities that are owned by shareholders 32 See infra Sections II.A, II.B.1, and II.B.2. Equity Market Structure Concept Release, supra note 22, 75 FR at 3594 (‘‘NYSE-listed stocks were traded primarily on the floor of the NYSE in a manual fashion until October 2006. At that time, NYSE began to offer fully automated access to its displayed quotations.’’). In contrast to NYSE, stocks listed on Nasdaq traded in a highly automated fashion at many different trading centers following the introduction of SuperMontage in 2002. See Securities Exchange Act Release No. 46429 (Aug. 29, 2002), 67 FR 56862 (Sept. 5, 2002). See also Steven Quirk, Senior Vice President, Trader Group, TD Ameritrade, Testimony before the U.S. Senate Committee on Homeland Security and Governmental Affairs, Permanent Subcommittee on Investigations, Hearing on ‘‘Conflicts of Interest, Investor Loss of Confidence, and High Speed Trading in U.S. Stock Markets’’ (June 17, 2014), available at https://www.hsgac.senate.gov/imo/ media/doc/STMT%20-%20Quirk%20%20TD%20Ameritrade%20(June%2017%202014) .pdf%20 (citing statistics that average execution speed has improved by 90% since 2004—from 7 seconds to 0.7 seconds in 2014). Today, trading speed is measured in microseconds and is moving towards nanoseconds. See, e.g., Wall Street Journal, Trading Tech Accelerates Toward Speed of Light (Aug. 8, 2016), available at https://www.wsj.com/ articles/trading-tech-accelerates-toward-speed-oflight-1470559173; Wall Street Journal, NYSE Aims to Speed Up Trading With Core Tech Upgrade (Aug. 5, 2019), available at https://www.wsj.com/articles/ nyse-aims-to-speed-up-trading-with-core-techupgrade-11565002800. 34 See Securities Exchange Act Release No. 59039 (Dec. 2, 2008), 73 FR 74770, 74782 (Dec. 9, 2008) (File No. SR–NYSEArca–2006–21) (NYSE’s reported market share of trading in NYSE-listed stocks declined from 79.1% in January 2005 to 30.6% in June 2008.). 35 See Equity Market Structure Concept Release, supra note 22, 75 FR at 3598 (‘‘The registered exchanges all have adopted highly automated trading systems that can offer extremely high-speed, or ‘low-latency,’ order responses and executions.’’). 33 See E:\FR\FM\14JAN1.SGM 14JAN1 2168 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices and that also offer proprietary market data products.36 Finally, ‘‘exchange groups’’ (multiple exchanges operating under one corporate umbrella) have emerged, consolidating much of the voting power and control of the Equity Data Plans.37 In the Commission’s view, these market developments have heightened conflicts of interest between the exchanges’ commercial interests and their regulatory obligations under the Act and the Equity Data Plans to produce and provide core data. The Commission believes that the current governance structure of the Equity Data Plans is inadequate to respond to these changes or to the evolving needs of investors and other market participants. The SIPs have significant market power in the market for core and aggregated market data products and are monopolistic providers of certain market information.38 But the operation of the Equity Data Plans has not kept pace with the efforts of the exchanges to expand the content of—and to employ technology to reduce the latency and increase the throughput of—certain proprietary data products. For example, the exchanges have developed depth-ofbook (‘‘DOB’’) products that provide greater content (e.g., information about orders resting on the order book and order imbalance information for opening and closing auctions) at lower latencies, relative to the SIPs, for one segment of the data market.39 The 36 See infra Section II.B.1. infra Section II.B.2. 38 See, e.g., Bloomberg Order, supra note 23, at 4. Although some proprietary market data products are comparable to core data and could be used by some core data subscribers as substitutes for core data in certain situations, these products are not exact substitutes and are not viable substitutes across all use cases. For example, some third-party data aggregators buy direct depth-of-book feeds from the exchanges and aggregate them to produce products similar to core data; these products, however, do not provide market information that is critical to some subscribers and available only through the SIPs. See Transcript of Day One, Roundtable, at 126:20–129:8 (Oct. 25, 2018) (‘‘Day One Transcript’’) (statement of Mark Skalabrin, Redline Trading Solutions), available at https:// www.sec.gov/spotlight/equity-market-structureroundtables/roundtable-market-data-marketaccess-102518-transcript.pdf. Additionally, some exchanges offer TOB data feeds, which may be considered by some to be viable substitutes for core data for certain applications, however, brokerdealers typically obtain core data provided by the SIP to fulfill their obligations under Rule 603 of Regulation NMS, which requires a broker-dealer to show a consolidated display of market data in a context in which a trading or order routing decision can be implemented. 17 CFR 242.603; see also infra note 67 and accompanying text. 39 See, e.g., Nasdaq Global Data Products, available at https://www.nasdaqtrader.com/ Trader.aspx?id=DPSpecs (last accessed Nov. 16, 2019) (describing low-latency DOB data products); Real-Time—NYSE Proprietary Market Data, lotter on DSKBCFDHB2PROD with NOTICES 37 See VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 exchanges have also developed proprietary TOB products that provide data that is generally limited to the highest bid and lowest ask and last sale price information at a lower price for another segment of the data market that is less sensitive to latency.40 By contrast, the Participants of the Equity Data Plans have not taken comparable measures to update the SIPs to reflect new innovations in market data in response to evolving markets and the changing needs of investors (e.g., those that use low-latency DOB products versus those that use TOB products).41 The Commission believes that, under the current governance structure of the Equity Data Plans, improvements to the SIPs to adequately address important product, performance and pricing differentials between the SIPs and proprietary data products have not occurred.42 Also, the Commission does not believe that having multiple Equity Data Plans, which need to be separately maintained and operated, is necessary or efficient. The Commission believes the Equity Data Plans should be consolidated into a New Consolidated Data Plan. In the Commission’s view, this would streamline operation of the SIP feeds, leading to greater efficiency in meeting the purposes of Section 11A of the Act, including ensuring the prompt, accurate, reliable, and fair available at https://www.nyse.com/market-data/ real-time (last accessed Nov. 16, 2019) (describing low-latency DOB data products); Cboe Equities Exchanges Market Data Product Offerings, available at https://markets.cboe.com/us/equities/market_ data_services/ (last accessed Nov. 16, 2019) (describing low-latency DOB data products). Particularly when aggregated, proprietary DOB market data products provide a consolidated view of the market with greater content and lower latency. See infra Section II.A. 40 Examples of such proprietary TOB products include NYSE BBO (https://www.nyse.com/marketdata/real-time/bbo), NASDAQ Basic (https:// business.nasdaq.com/intel/GIS/nasdaq-basic.html), and CBOE One Feed (https://markets.cboe.com/us/ equities/market_data_services/cboe_one). NYSE BBO provides TOB data. Nasdaq Basic and Cboe One’s Summary Feed provide TOB and last sale information. Nasdaq Basic also provides Nasdaq Opening and Closing Prices and other information, including Emergency Market Condition event messages, System Status, and trading halt information. Cboe One, however, also offers a Premium Feed that includes DOB data. Each of these products is sold separately by the relevant exchange group. See Letter from Matthew J. Billings, Managing Director, Market Data Strategy, TD Ameritrade (Oct. 24, 2018), at 5–9, available at https://www.sec.gov/comments/4-729/47294560068-176205.pdf (‘‘TD Ameritrade Letter’’) (stating that the lower cost of exchange TOB products, coupled with costs associated with the process to differentiate between retail professionals and non-professionals imposed by the SIP Plans, and associated audit risk, favors retail broker-dealer use of exchange TOB products). 41 See infra notes 57–62 and accompanying text. 42 See infra notes 84–86, 112 and accompanying text. PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 collection, processing, distribution, and publication of quotation and transaction information, as well as the fairness and usefulness of the form and content of such data.43 As discussed in more detail below, the Commission believes that the Participants should develop a New Consolidated Data Plan that: (i) Operates pursuant to a governance structure that takes into account the evolving nature of business and trading relationships among exchanges, their members, and investors; (ii) is designed to ensure the usefulness of core data to market participants and to ensure that core data is provided on terms that are fair and reasonable, consistent with Section 11A of the Act and the rules thereunder; 44 and (iii) replaces the three Equity Data Plans to eliminate redundancies, inefficiencies, and duplicative costs. As noted above, the Commission believes that consolidating the Equity Data Plans into a single New Consolidated Data Plan should result in a more efficient governance structure for operation of the SIPs.45 II. Discussion In recent years, the Commission has received, and in certain instances, solicited a substantial amount of comment on the current provision of SIP data by the Equity Data Plans and on the governance model of the Equity Data Plans. In 2015, the EMSAC was established and tasked with providing the Commission with diverse perspectives on the structure and operations of the U.S. equities markets, as well as advice and recommendations on matters related to equity market structure.46 In 2018, the Commission’s 43 See 15 U.S.C. 78k–1(c)(1)(B). U.S.C. 78k–1; Rules 601–603 of Regulation NMS, 17 CFR 242.601–603. 45 See, e.g., Nasdaq Total Markets: A Blueprint for a Better Tomorrow (Apr. 2019), at 17 (‘‘Nasdaq Total Markets Paper’’), available at https:// www.nasdaq.com/docs/Nasdaq_TotalMarkets_ 2019_2.pdf (characterizing the three Equity Data Plans as ‘‘three bureaucratic, government-mandated monopolies, each with arcane rules and governance, designed in a drastically different time in the evolution of exchanges’’). 46 See EMSAC Charter (Feb. 9, 2015), available at https://www.sec.gov/spotlight/emsac/equitymarket-structure-advisory-committee-charter.pdf. Under the EMSAC Charter, committee membership was required to include at least one representative of retail investors, institutional investors, exchanges or other self-regulatory organizations, brokerdealers and other market participants, as well as industry consultants and academics. See id. Although not all exchanges were members of the EMSAC, the EMSAC held a number of public meetings at which other parties, including representatives of exchange groups that were not members of the EMSAC, shared their views. See Equity Market Structure Advisory Committee Archives, available at https://www.sec.gov/ spotlight/emsac/emsac-archives.htm (last accessed Nov. 16, 2019). 44 15 E:\FR\FM\14JAN1.SGM 14JAN1 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices Division of Trading and Markets held a Roundtable on Market Data and Market Access (‘‘Roundtable’’) that included panelists representing exchanges, institutional and retail broker-dealers, academics, and other market participants.47 The Commission has also received several petitions for rulemaking from market participants concerning the provision of SIP data and the governance structure of the Equity Data Plans.48 Based on this input from a broad range of market participants and its own regulatory experience,49 the Commission believes that the current governance structure of the Equity Data Plans no longer adequately serves to ensure that the Equity Data Plans provide for the ‘‘prompt, accurate, reliable, and fair collection, processing, distribution, and publication of information with respect to quotations for and transactions in such securities and the fairness and usefulness of the form and content of such information.’’ 50 As will be discussed next, the Commission believes that the SROs should propose a single New Consolidated Data Plan, with a governance structure that incorporates a broad array of market participant perspectives and reduces administrative and operational inefficiencies and redundancies, to more effectively administer the dissemination of SIP data. lotter on DSKBCFDHB2PROD with NOTICES A. The Commission’s Concerns Regarding the Equity Data Plans’ Provision of Equity Market Data Under the Equity Data Plans, the earliest of which dates from the 1970s,51 47 The Roundtable agenda and list of panelists are available on the Commission’s website at https:// www.sec.gov/agendas/agenda-roundtable-marketdata-market-access. 48 See, e.g., Petition for Rulemaking Concerning Market Data Fees (Dec. 6, 2017) (SEC 5–716), available at https://www.sec.gov/rules/petitions/ 2017/petn4-716.pdf (petition undersigned by twenty-four firms, including Bloomberg, Citadel, Fidelity Investments, Morgan Stanley, Charles Schwab, Vanguard, and Virtu) (‘‘Patomak Petition’’); Petition to Address Conflicts of Interests, Complexity, and Costs Related to Market Data (Jan. 17, 2018) (SEC 4–717), available at https:// www.sec.gov/rules/petitions/2018/petn4-717.pdf (‘‘Healthy Markets Petition’’); Petition for Rulemaking Regarding Market Data Fees and Request for Guidance on Market Data Licensing Practices; Investor Access to Market Data (Aug. 22, 2018) (SEC 4–728), available at https:// www.sec.gov/rules/petitions/2018/petn4-728.pdf (‘‘MFA Petition’’). 49 In addition to the Commission’s review of proposed amendments filed by the Equity Data Plans, the Commission staff attends the operating committee and subcommittee meetings, with the exception of discussions protected by attorneyclient privilege, and conducts examinations of the Equity Data Plans. 50 15 U.S.C. 78k–1(c)(1)(B). 51 See supra note 31. VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 market data for each NMS stock is collected, consolidated, and disseminated to investors and market participants through one of two exclusive SIPs. These SIPs, which collect market data for the NMS stock transmitted from the dispersed SRO data centers, then consolidate the data and distribute the data to end-users.52 Several market developments, however, have given rise to proprietary data feeds that are offered—along with connectivity services that enable lowlatency transmission—directly by the various exchanges. The emergence of these proprietary products, along with the core data feeds that are distributed pursuant to the Equity Data Plans, have created a two-tiered market-data environment. Technological advances, as well as the order routing and trading strategies that have followed, have greatly increased the speed and automation of both markets and trading strategies. These changes, along with the provisions adopted in Regulation NMS that allow for the sale of proprietary data products,53 have created incentives for exchanges to develop enhanced proprietary data products that they sell to the same market participants that are subscribers to core data feeds provided by the SIPs. Generally, proprietary data feeds that offer DOB data are designed for automated trading systems and are faster and more content rich, as well as more expensive, than the core data distributed by the SIPs. Other proprietary data feeds that offer TOB data are designed largely for the nonautomated segment of the market (e.g., retail investors and wealth managers who look at market information on a screen) and are less content rich (but also less expensive) than the core data distributed by the SIPs.54 Thus, the exchanges offer proprietary data products in both of these significant segments of the market for data. The exchanges also offer connectivity products and services (e.g., co-location, fiber connectivity, wireless connectivity) that provide low-latency access to these proprietary data products, especially DOB products.55 52 NYSE is the administrator of the SIP for the CTA Plan and CQ Plan, which covers Tape A and Tape B and is located in Mahwah, New Jersey. NYSE’s affiliate, Securities Industry Automation Corporation (‘‘SIAC’’), serves as the processor for Tapes A and B. Nasdaq is both the administrator and the processor for the UTP Plan, which covers Tape C and is located in Carteret, New Jersey. 53 See infra note 71 and accompanying text. 54 See also supra note 40 and accompanying text. 55 See supra notes 39–40. Various forms of connectivity are integral to the latency and throughput benefits associated with proprietary PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 2169 Even though the exchanges’ proprietary data products are not exact substitutes for the core data provided by the SIPs,56 users of the low-latency access provided by the exchanges for their DOB proprietary data products have a speed advantage over users of the core data because of the higher latency of the SIP data feeds. Over the past several years, a number of market participants have raised concerns about how the differences between the SIPs and proprietary DOB data feeds affect their ability to use core data to be competitive in today’s markets and provide best execution to their customers.57 According to certain market participants, the current speed of core data is no longer sufficient for them to trade competitively. One Roundtable panelist stated that broker-dealers do not have the option to forgo buying the proprietary data in meeting their clients’ needs because the SIPs are slower and not as expansive.58 This panelist stated that, ‘‘[i]f our brokers are not aligned in that manner to use the most direct, the fastest, the most robust feeds they can get their hands on, then we will trade with someone else.’’ 59 Another market data products, especially DOB products. For example, co-location is a service that enables exchange customers to place their servers in close proximity to an exchange’s matching engine in order to help minimize network and other types of latencies between the matching engine of the exchange and the servers of market participants. Data connections that use fiber optic cable transmit data more slowly than data connections that use wireless microwave transmissions, though microwave connections are susceptible to interruption by weather conditions and are therefore less reliable than fiber connections. Subscribers of wireless data connections need to establish backup connectivity to account for interference from weather conditions. See also infra note 76 and accompanying text. 56 See supra note 38. 57 See, e.g., Letter from Theodore R. Lazo, Managing Director and Associate General Counsel, SIFMA (Oct. 24, 2014), at 8, available at https:// www.sec.gov/comments/s7-02-10/s70210-422.pdf (‘‘SIFMA Letter I’’); Letter from Theodore R. Lazo, Managing Director and Associate General Counsel, SIFMA (Mar. 29, 2017), at 11, available at https:// www.sec.gov/comments/265-29/26529-1674696149276.pdf (‘‘SIFMA Letter II’’); Letter from Melissa MacGregor, Managing Director and Associate General Counsel, Theodore R. Lazo, Managing Director and Associate General Counsel, SIFMA (Oct. 24, 2018), at 6, available at https:// www.sec.gov/comments/4-729/4729-4559181176197.pdf (‘‘SIFMA Letter III’’). 58 See Day One Transcript, supra note 38, at 65:8– 66:10 (statement of Mehmet Kinak, T. Rowe Price). See also Letter from Mehmet Kinak, Vice President—Global Head of Systematic Trading & Market Structure, Jonathan D. Siegel, Vice President—Senior Legal Counsel, T. Rowe Price Associates, Inc. (Jan. 10, 2019), at 2, available at https://www.sec.gov/comments/4-729/47294844471-177204.pdf. 59 Day One Transcript, supra note 38, at 66:7–10 (statement of Mehmet Kinak, T. Rowe Price); see also id. at 136:5–16 (statement of Simon Emrich, E:\FR\FM\14JAN1.SGM Continued 14JAN1 2170 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES Roundtable panelist stated that, ‘‘brokerdealers are compelled to purchase exchanges’ proprietary data feeds, both to provide competitive execution services . . . and to meet our best execution obligations due to the content of the information contained in the proprietary data fees as well as the latency differences between them. . . .’’ 60 Another commenter stated that ‘‘most broker-dealers require the faster and deeper information to participate effectively in the market and provide customers with the competitive order routing quality.’’ 61 This commenter also stated, ‘‘While business for proprietary market data innovated, the SIP utilities did not keep pace. Investment in the SIPs lagged, causing material latencies to develop between the top of book and last sale data available from the SIP as compared to the data offered privately by the market centers.’’ 62 Norges Bank Investment Management) (stating that, ‘‘the use cases for SIP data over the years [have] . . . decreased substantially’’ and ‘‘brokers can’t really be . . . using the SIP. They need to have the full depth of book.’’). 60 Day One Transcript, supra note 38, at 198:24– 199:6 (statement of Joseph Wald, Clearpool Group); see also Letter from Joe Wald, Chief Executive Officer, Clearpool Group (Oct. 23, 2018), at 3, available at https://www.sec.gov/comments/4-729/ 4729-4555206-176185.pdf. The Commission recognizes that, as a practical matter, market participants may utilize proprietary market data products to execute orders. However, the Commission has determined that broker-dealers are not required to purchase ‘‘non-core’’ data, such as DOB data, to satisfy their duty of best execution. See In the Matter of the Application of Securities Industry and Financial Markets Association, Securities Exchange Act Release No. 84432 at 33, n.174 (Oct. 16, 2018), available at https:// www.sec.gov/litigation/opinions/2018/34-84432.pdf (‘‘SIFMA Order’’). See also Shengwei Ding, John Hanna, and Terrence Hendershott, How Slow Is the NBBO? A Comparison with Direct Exchange Feeds, The Financial Review, Issue 49 (2014) (313–332) (comparing the NBBO from the SIP and the NBBO of exchange proprietary data feeds and finding benefits of the faster proprietary data feeds over the SIP), available at https://utpplan.com/latency_ chartshttps://faculty.haas.berkeley.edu/hender/ NBBO.pdf; Michael Lehr, The Latency Differences Between Depth of Book and BBO Feeds (Aug. 8, 2016) (comparing relative latency of proprietary DOB and TOP data feeds), available at https:// maystreet.com/api/files/mst_drive/public/ TheLatencyDifferenceBetweenDepthAndBBOMayStreet.pdf; CTA Latency Charts (providing statistics measuring latency from the inception of the Participant matching engine event (e.g., order execution, top of book update) to the point of dissemination from the CTA SIP), available at https://www.ctaplan.com/latency-charts (last accessed Dec. 12, 2019); UTP Realized Latency Charting (providing statistics measuring latency from the inception of the Participant matching engine event (e.g., order execution, top of book update) to the point of dissemination from the UTP SIP), available at https://utpplan.com/latency_charts (last accessed Dec. 12, 2019). 61 SIFMA Letter III, supra note 57, at 6. 62 SIFMA Letter I, supra note 57, at 8; see also Day One Transcript, supra note 38, at 64:4–15 (statement of Brad Katsuyama, IEX) (‘‘Anyone who cares cannot use the SIP from a speed standpoint VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 Broker-dealer panelists at the Roundtable stated that they are compelled to purchase SIP data for various reasons, including to receive LULD Plan price bands, to perform checks required by Rule 15c3–5 under the Act (the ‘‘market access rule’’),63 and for redundancy purposes.64 Some broker-dealers use SIP data to comply with the requirements of Rule 611 of Regulation NMS 65 to prevent tradethroughs and to meet their best execution obligations for customer orders. Also, under Rule 603(c) of Regulation NMS,66 known as the ‘‘Vendor Display Rule,’’ if a brokerdealer displays any information with respect to quotations for or transactions in an NMS stock in a context in which a trading or order-routing decision can be implemented, it must also provide a consolidated display for that stock. Broker-dealers typically meet this regulatory requirement by using core data and paying the attendant fees.67 The differences between the SIP data feeds and proprietary data feeds have the effect of increasing the demand for, and marketability of, proprietary data products to the financial benefit of the exchanges. And the Commission believes that this conflict of interest, combined with the Equity Data Plans’ current governance structure, perpetuates disincentives for the Equity Data Plans to invest in certain improvements to enhance the . . . if full information and speed are important, which it is for the majority of large players maintaining their own electronic trading platform, then I would not say the SIP serves much of a purpose for them.’’); at 64:4–15 (statement of Douglas A. Cifu, Virtu) (‘‘Anyone who cares, or is . . . making machine-level decisions cannot use the SIP just from a speed standpoint. But I do think if you improve the information on the SIP, it can certainly be valuable to a host of people now. . . . But if full information and speed become important, which it is for a majority of large players maintaining their own electronic trading platform, then I would not say the SIP serves much of a purpose to them.’’). See also infra notes 80–82 and accompanying text (describing certain improvements made to aggregation latency in the SIP feeds). 63 17 CFR 240.15c3–5. 64 See, e.g., Day One Transcript, supra note 38, at 138:23–139:3, 169:12–24 (statements of Adam Inzirillo, Bank of America Merrill Lynch); at 184:14–185:2 (statement of Michael Friedman, Trillium). 65 17 CFR 242.611. 66 17 CFR 242.603(c). 67 See Patomak Petition, supra note 48, at 1 (‘‘As required by the SEC’s Display Rule, vendors and broker-dealers are required to display consolidated data from all the market centers that trade a stock. In order to comply with the Display Rule, such vendors and broker-dealers must purchase and display consolidated data feeds distributed by securities information processors (‘SIPs’), which are owned by the exchanges and operated pursuant to NMS plans. The fees charged by SIPs are distributed as income to each of the participating exchanges.’’). PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 distribution of core data or the content of the core data itself. In particular, lagging investment in updating and maintaining the operations of the SIPs has resulted in meaningful latency and content differentials between core data and the exchanges’ proprietary market data products that have become consequential to market participants.68 For example, the implementation of decimalization in 2001 69 reduced the minimum price increment from $0.0625 (1/16 of a dollar) to $0.01. Because this significantly increased the number of price points over which trading interest could be expressed, it had the ancillary effect of reducing the TOB liquidity that is displayed and disseminated as part of core data. And commenters on Regulation NMS stated that this reduction of TOB liquidity, in turn, increased the importance of information regarding DOB liquidity to market participants.70 In adopting Regulation NMS in 2005, the Commission nonetheless determined not to require that DOB quotations be included in core data, reasoning that investors who needed DOB data would be able to obtain that data from markets or third-party vendors.71 In making that determination, the Commission stated that this would be ‘‘a competitiondriven outcome [that] would benefit investors and the markets in general.’’ 72 And, after the adoption of Regulation NMS in 2005,73 exchanges began to sell 68 For example, and as described further above, many broker-dealers have represented to the Commission that they are effectively compelled to purchase and rely primarily upon the low-latency proprietary data feeds in order to meet their regulatory obligations and to compete in the equity markets. See supra notes 59–62 and accompanying text. 69 See Commission Notice: Decimals Implementation Plan for the Equities and Options Markets (July 24, 2000), available at https:// www.sec.gov/rules/other/decimalp.htm. 70 See, e.g., Regulation NMS Release, supra note 6, 70 FR at 37529 (noting a comment from the Consumer Federation of America concerning ‘‘complaints that decimal pricing has reduced price transparency because of the relatively thin volume of trading interest displayed at the best bid and offer’’). See also Letter from Craig S. Tyle, General Counsel, Investment Company Institute (Nov. 20, 2001), available at https://www.ici.org/policy/ comments/01_SEC_SUBPENNY_COM (stating in response to the Commission’s Concept Release on the Effects of Decimal Trading in Subpennies in 2001, that ‘‘the reduction in quoted market depth as the minimum quoting increment has narrowed to a penny has adversely affected institutional investors’ ability to execute large orders. . . . Preliminary data has shown that, postdecimalization, it has become more difficult for large institutional orders to be filled entirely at the inside.’’) (internal citations omitted). 71 See Regulation NMS Release, supra note 6, 70 FR at 37567. 72 Id. at 37530. 73 See Regulation NMS Release, supra note 6. E:\FR\FM\14JAN1.SGM 14JAN1 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices their proprietary data products separately from the core data required by Rule 603(b) of Regulation NMS.74 But, as the markets have evolved and DOB data has become more important, the exchanges have continued to improve their proprietary data feeds without similar improvements to the SIPs to reflect this market evolution. Another issue flows from the centralized consolidation model of the Equity Data Plans and the SIPs. The centralized consolidation model has at least three specific sources of latency disadvantage relative to the exchanges’ proprietary data feeds: geographic latency, aggregation latency, and transmission latency. Geographic latency, as used herein, refers to the time it takes for data to travel from one physical location to another, which must also take into account that data does not always travel between two locations in a straight line. Aggregation latency, as used herein, refers to the amount of time a SIP takes to aggregate the multiple sources of SRO market data into core data and includes calculation of the NBBO.75 And transmission latency, as used herein, refers to the time interval between when data is sent (e.g., from an exchange) and when it is received (e.g., at a SIP and/or at the data center of the subscriber).76 The 74 See supra notes 39–40 and accompanying text. SIP must collect data from the dispersed SRO data centers, consolidate the data, and then disseminate the core data from their locations to end-users. See Equity Market Structure Concept Release, supra note 22, 75 FR at 3611 (‘‘Given the extra step required for SROs to transmit market data to plan processors, and for plan processors to consolidate the information and distribute it to the public, the information in the individual data feeds of exchanges and ECNs generally reaches market participants faster than the same information in the consolidated data feeds.’’). As discussed further in the Order, aggregation latency continues to remain at inferior levels at the CTA/CQ SIP as compared to the UTP SIP. See infra notes 81–82 and accompanying text. Furthermore, market participants that use proprietary data feeds for their electronic trading tools and that use certain common order types (e.g., intermarket sweep orders, or ‘‘ISOs’’) must also aggregate proprietary data feeds to create an NBBO to comply with Rule 611 of Regulation NMS. Thus, aggregation latency can also be a factor for users of proprietary data feeds and is not unique to the SIPs. 76 The transmission latency between two fixed points is determined by the transmission communications technology through which the data is conveyed (e.g., fiber optic cables, microwave networks, laser transmission). The modes of transmission for core data are typically slower than the modes of transmission used for proprietary data. In general, the Equity Data Plans rely on fiber optic cables for connectivity. For example, the NYSE, as the operator of the CTA/CQ SIP, requires that access to the CTA/CQ SIP be through the use of the NYSE’s IP local area network. At the same time, NYSE, which owns SIAC, the CTA/CQ SIP, offers non-SIP proprietary data transmission to end-users via faster microwave networks. See, e.g., ICE Global Network: Chicago—New Jersey, available at https:// www.theice.com/market-data/connectivity-and- lotter on DSKBCFDHB2PROD with NOTICES 75 Each VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 Commission understands that geographic latency is typically the most significant component of the additional latency that core data feeds experience compared to proprietary data feeds.77 Because each SIP must collect data from geographically dispersed SRO data centers, consolidate the data, and then disseminate it from its location to endusers, which are often in other locations, this hub-and-spoke form of centralized consolidation creates additional latency. For example, information about quotes and trades on Nasdaq for NYSE-listed securities incurs latency as it travels from Nasdaq’s data center in Carteret approximately 34.5 miles to the CTA/CQ SIP in Mahwah, and then back to Carteret.78 But these disadvantages are not inherent to the SIPs’ role and operation in the markets, nor are they insurmountable. In recent years and in the face of ongoing public criticism,79 feeds/wireless/chicago-to-new-jersey (last accessed Sept. 16, 2019) (describing ICE’s microwave route between the Chicago metro trading hub to Nasdaq’s data center in Carteret, NJ); ICE Global Network: New Jersey Metro, available at https:// www.theice.com/market-data/connectivity-andfeeds/wireless/new-jersey-metro (last accessed Sept. 16, 2019) (describing ICE’s laser and millimeter wave route between ICE’s Mahwah data center and the Carteret and Secaucus data centers). 77 See, e.g., Letter from Michael Blaugrund, Head of Transactions, NYSE (Oct. 24, 2018), at 1, available at https://www.sec.gov/comments/4-729/ 4729-4559383-176200.pdf (stating that, as ‘‘processing time approaches zero, it is clear that the time required for trade and quote data to travel from Participant datacenter -> SIP datacenter -> Recipient datacenter, or ‘geographic latency,’ is a larger portion of the total latency’’). 78 See Day One Transcript, supra note 38, at 127:12–24 (statement of Mark Skalabrin, Redline Trading Solutions) (stating that customers cannot be competitive using SIP data due to geographic latency, explaining ‘‘[i]f you’re sitting at Secaucus and you get a direct feed tick from BATS, it shows up in a few microseconds from when they publish it. That same tick for the SIP for Nasdaq-listed symbols goes to Carteret, for NYSE-listed symbols they go to Mahwah and they come back again. The real numbers are, for one, about 350 microseconds and the other about close to a millisecond in latency for those to show up for someone using the SIP to get the BATS tick. So this is just an architectural—an obsolete architecture for an automated trading system in today’s world. . . . You can’t be competitive with those kind of latencies compared to just getting it directly from the exchange.’’). 79 For example, following the UTP SIP outage on August 22, 2018 that led to a multiple hour, marketwide halt in trading of Nasdaq-listed securities (‘‘UTP SIP Outage’’), market participants raised concerns about the adequacy of the SIP infrastructure. See, e.g., USA TODAY, Outage Slams Nasdaq’s Reputation (Aug. 22, 2013), available at https://www.usatoday.com/story/ money/markets/2013/08/22/nasdaq-trading-freezereputation/2686883/; Wall Street Journal, Panel to Review Nasdaq Data-Feed Outage (Aug. 28, 2013), available at https://www.wsj.com/articles/panel-toreview-nasdaq-datafeed-outage-1377715288; Wall Street Journal, Nasdaq Shutdown Bares Stock Exchange Flaws (Aug. 24, 2013), available at https://www.wsj.com/articles/nasdaq-shutdownbares-stock-exchange-flaws-1377382817?tesla=y. PO 00000 Frm 00068 Fmt 4703 Sfmt 4703 2171 the SIP operating committees have made some improvements to aspects of the SIPs and related infrastructure.80 For example, from the second quarter of 2016 to the second quarter of 2019, Tapes A and B reduced average quote feed aggregation latency from 490 microseconds to 69 microseconds, and average trade feed aggregation latency from 340 microseconds to 139 microseconds.81 As another example, Tape C reduced its average quote feed aggregation latency during the same period from 777.8 microseconds to 16.9 microseconds, and its average trade feed aggregation latency from 604.8 microseconds to 17.5 microseconds.82 As shown by these latency statistics, however, aggregation latency for the CTA/CQ SIP data continues to be meaningfully greater than that of UTP SIP data, despite these improvements.83 80 Following the UTP SIP Outage—and a meeting between the equities and options exchanges, FINRA, DTCC, and the Options Clearing Corporation and the then-Chair of the Commission—the Equity Data Plans’ operating committees discussed with Commission staff the operating committees’ plans for the SIPs ‘‘designed to improve operational resiliency, strengthen interoperability standards and disaster recovery capabilities, enhance governance, accountability, and establish a clear testing framework for the industry.’’ See Self-Regulatory Organizations Response to SEC for Strengthening Critical Market Infrastructure (Nov. 12, 2013), available at https:// ir.theice.com/press/press-releases/all-categories/ 2013/11-12-2013. See also SIP Operating Committee Statement, supra note 75 (‘‘In the last three years, the SIP Operating Committees have invested in the technology that powers them, increasing resiliency and redundancy while reducing latency.’’). See also Letter from NYSE at 3 (Oct. 24, 2018), available at https://www.sec.gov/comments/4-729/47294559414-176201.pdf (‘‘NYSE Group Letter’’) (stating that, ‘‘exchanges have invested significantly in the operation of the [SIPs], resulting in improved resilience and reduced latency, all while managing increased volumes’’). 81 See Key Operating Metrics of Tape A & B U.S. Equities Securities Information Processor (CTA SIP), available at https://www.ctaplan.com/ publicdocs/ctaplan/notifications/trader-update/ Q2%202019%20CTA%20SIPSubscribers%20Metrics%20Report.pdf. 82 See UTP Q3 2019—July Tape C Quote and Trade Metrics, available at https:// www.utpplan.com/DOC/UTP_website_Statistics_ Q3-2019-July.pdf. These latencies are perceived to be at or near competitive market standards. See also Day One Transcript, supra note 38, at 106:14–22 (statement of Oliver Albers, Nasdaq) (‘‘There have been vast improvements in SIP data in recent years, even as SIP revenue to exchanges has fallen. The Nasdaq SIP has an average latency of just 16 millionths of a second. . .. The Nasdaq SIP can also handle 10 billion messages per day, 20 times more than a decade ago, and significant cybersecurity and fraud prevention investments by Nasdaq and other operators have increased the overall market efficiency and resiliency.’’). 83 See Nasdaq Total Markets Paper, supra note 45, at 19, n.19 (stating that the CTA SIP ‘‘currently operates with over 100 microseconds of latency, which is not up to the standard that investors have come to expect in the modern markets’’). The Commission notes that the aggregation latency E:\FR\FM\14JAN1.SGM Continued 14JAN1 2172 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES And as numerous new product offerings have been introduced by individual exchanges to reduce the latency of proprietary data products,84 the Equity Data Plans, which are operated jointly by the SROs (including those offering proprietary data products), have not made—or have been slow to make 85—the investments that are necessary to comprehensively address these concerns.86 For example, proprietary data products offered by the exchanges often rely on low-latency wireless connections,87 whereas the Equity Data Plans rely on fiber optic cable.88 The Commission understands that these fiber networks, which the exchanges use to transmit data from their matching engines to the SIPs, are meaningfully slower than the wireless networks operated by the same exchanges for the transmission of proprietary data over the same routes. As a potential measure to help the SIPs’ data products better respond to the needs of users, some market participants, including exchanges, have suggested that geographic latency issues could be addressed through a ‘‘distributed SIP’’ model.89 Under a incurred by market participants that consolidate the exchanges’ proprietary data feeds for their own or their customers’ use is not publicly available, making it difficult to compare the aggregation latency of the SIP feeds and the aggregated proprietary feeds. 84 See, e.g., Nasdaq Trade Management Services— Wireless Connectivity Suite (last accessed on Nov. 13, 2019), available at https://n.nasdaq.com/ WirelessConnectivitySuite (describing low-latency wireless network technology to deliver market data); ICE Global Network—Wireless (last accessed on Nov. 13, 2019), available at https:// www.theice.com/market-data/connectivity-andfeeds/wireless (describing low-latency wireless connectivity options between trading hubs). 85 See, e.g., supra note 62. 86 See, e.g., SIFMA Letter II, supra note 57, at 8– 9; SIFMA Letter III, supra note 57, at 12; Letter from John Ramsay, Chief Market Policy Officer, IEX, at 3 (Sept. 24, 2019) (‘‘IEX Letter’’), available at https://www.sec.gov/comments/4-729/47296190352-192448.pdf. 87 Some of these services are solely offered by exchanges within the facility of an exchange (e.g., co-location connectivity at NYSE’s data center in Mahwah and NASDAQ’s co-location at its datacenter in Carteret) and some are offered by both exchanges and other third party providers (e.g., fiber and wireless connectivity between data centers). See, e.g., supra note 84. 88 See supra note 76. 89 See Day One Transcript, supra note 38, at 99:2– 4 (statement of Stacey Cunningham, NYSE) (‘‘There is debate the NYSE brought to the SIP Committee a long time ago to talk about the nature of a distributed SIP and that is something we should explore.’’); at 117:7–10 (statement of Michael Blaugrund, NYSE) (recommending that the Commission undertake an analysis of the cost and benefits to the industry of a shift to a distributed SIP model); at 228:3–9 (statement of Chris Isaacson, Cboe) (‘‘we’re open to discussion about distributed SIPs’’); at 231:23 (statement of Vlad Khandros, UBS) (stating that ‘‘having a distributed SIP has a lot of merit to solve for the latency differences that are VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 distributed SIP model, each exclusive SIP could place an additional processor in other major data centers, which would separately aggregate and disseminate consolidated market data for its respective tape. The SROs would submit their quotations and trade information directly to each SIP location in each data center, and each SIP location would consolidate and disseminate its respective consolidated market data feeds to subscribers at those data centers. As a result, consolidated market data would not have to travel from an exchange at one location to a centralized SIP at a second location for consolidation and dissemination prior to traveling yet again to a subscriber that may be at a third location, significantly reducing geographic latency. But, despite consideration by the dedicated subcommittee established by one of the Equity Data Plans,90 none of the Equity Data Plans’ operating committees has yet addressed the SIPs’ geographic latency disadvantages. The Commission recognizes that, as discussed above, the SROs have made certain improvements to the SIPs over the past several years, including upgrades that resulted in meaningful reductions in the time required to calculate and consolidate the NBBO. The Participants have also enhanced the content of the SIP feeds, including reports of odd-lot trades.91 The Participants have also requested comment on a proposal to include oddlot quotation information in response to the rise in odd-lot activity in the U.S. equity markets.92 In addition, Nasdaq inherent in the current structure.’’). See also Nasdaq Total Markets Paper, supra note 45, at 19 (‘‘Distributed SIPs would reduce time spent transmitting quote information between an exchange (and firm) located in one data center and a SIP (and other firms) located in a different center.’’); and SIFMA Letter II, supra note 57, at 3. See also NYSE Group Letter, supra note 84. 90 The Commission’s understanding that the Distributed SIP subcommittee has considered and continues to consider potential improvements to address geographic latency disadvantages is based on information obtained by the Commission or its staff as part of the Commission’s oversight of the Equity Data Plans. 91 See, e.g., Securities Exchange Release Nos. 70793 (Oct. 31, 2013), 78 FR 66788 (Nov. 6, 2013) (order approving Amendment No. 30 to the UTP Plan to require odd-lot transactions to be reported to consolidated tape); 70794 (Oct. 31, 2013), 78 FR 66789 (Nov. 6, 2013) (order approving Eighteenth Substantive Amendment to the Second Restatement of the CTA Plan to require odd-lot transactions to be reported to consolidated tape). 92 See Equity Data Plan Odd Lot Proposal (announced Oct. 2, 2019), available at https:// www.ctaplan.com/publicdocs/CTA_Odd_Lots_ Proposal.pdf and https://www.utpplan.com/DOC/ Odd_Lots_Proposal.pdf. See NYSE Sharing DataDriven Insights—Stock Quotes and Trade Data: One Size Doesn’t Fit All (Aug. 22, 2019), available at https://www.nyse.com/equities-insights#20190822 (last accessed Nov. 16, 2019) (‘‘NYSE Insights’’). PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 migrated its SIP to a new technology platform in 2016 and stated that the update ‘‘significantly improves the efficiency, resiliency, and reliability of the SIP in a meaningful and measurable way.’’ 93 And NYSE has publicly stated that it has undertaken two projects to enhance the SIP: (1) Building a new, dedicated network for SIP data to provide faster subscriber access to SIP data, and (2) migrating its SIP data feed engine to the NYSE’s Pillar technology platform to reduce processing time and enhance resilience.94 Despite these changes, the SIPs have continued to meaningfully lag behind the proprietary data products and their related infrastructure with respect to content and speed. And while the Equity Data Plans’ operating committees have discussed several ideas that could result in significant improvements to the SIPs both in terms of content and speed—ideas that could further reduce performance gaps when compared with proprietary data and its infrastructure 95—these potential upgrades have failed to garner the support by Participants necessary for action.96 Thus, market participants that choose to pay for some or all of the DOB proprietary data feeds can consolidate those feeds and receive more comprehensive market data, and can receive it faster, than those who rely on the SIP feeds.97 As a result, significant information asymmetries persist between users of core data and users of proprietary DOB data, as well as potential disadvantages for market participants who do not access the 93 Securities Information Processor (SIP) Migrates to the Nasdaq Financial Framework and INET Technology (Oct. 24, 2016), available at https:// www.globenewswire.com/news-release/2016/10/24/ 882097/0/en/Securities-Information-Processor-SIPMigrates-to-the-Nasdaq-Financial-Framework-andINET-Technology.html (last accessed on Nov. 18, 2019). 94 See NYSE Insights, supra note 92. 95 See supra note 89 and accompanying text. 96 See, e.g., NYSE Insights, supra note 92 (proposing to replace the SIP feeds with three tiered levels of service, including certain DOB data, based on the needs of specific types of investors); Nasdaq Total Markets Paper, supra note 45, at 22 (discussing a single processor alternative and stating, ‘‘Now that all exchanges trade all listed stocks, there no longer exists a bank, brokerage or rational basis for maintaining separate network processors and administrators based on historical listings decisions.’’); supra note 89 and accompanying text (describing discussions regarding a distributed SIP model.). See also discussion accompanying note 116, infra (discussing proposal to add auction data to the SIP feeds). 97 The fees for data and connectivity can be substantial and the fees for proprietary DOB products and connectivity have increased significantly in recent years. See SIFMA Order, supra note 60, at 46–49 (providing examples of exchange proprietary market data fee increases). E:\FR\FM\14JAN1.SGM 14JAN1 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices additional content included in proprietary data.98 As discussed further below, the Commission believes that, under the current governance structure of the Equity Data Plans, improvements to the SIPs to adequately address important product, performance and pricing differentials between the SIPs and proprietary data products have not occurred.99 This failure contributes to the divergence in the usefulness of core data provided by the SIPs for some market participants compared to the proprietary data feeds. The Commission also believes that addressing these governance issues is an important first step in responding to concerns about the consolidated data feed. lotter on DSKBCFDHB2PROD with NOTICES B. Conflicts of Interest Inherent in the Governance Model and Structure of the Equity Data Plans The Equity Data Plans provide the regulatory framework for the administration of SIP data. When it adopted Regulation NMS in 2005, the Commission contemplated that exchanges would offer proprietary market data feeds with greater content than the SIP feeds and that market participants might elect to purchase those feeds.100 However, since the adoption of Regulation NMS in 2005,101 the structure of the equity markets and the corporate structure of exchanges have changed dramatically. In addition to the technological developments already discussed, changes in the ownership structure of exchanges—in particular the demutualization of the exchanges and the rise of ‘‘exchange groups’’—have created conflicts between the SROs’ business interests and the need to ensure prompt, accurate, reliable, and fair dissemination of core data through the jointly administered Equity Data Plans consistent with their obligations as SROs under the national market system.102 As noted above, the 98 See, e.g., supra notes 80–82 and accompanying text. See, e.g., supra note 89 and accompanying text. A petition for rulemaking submitted to the Commission before the Roundtable emphasized the inherent conflict of interest in the exchanges’ proprietary feeds competing with the SIPs, arguing that the greater the latency between the SIPs and the proprietary data feeds, the greater the market value of the exchange’s proprietary feeds. See Healthy Markets Petition, supra note 48, at 6. 99 See infra notes 110–119 and accompanying text. 100 See Regulation NMS Release, supra note 6, 70 FR at 37569. 101 See Regulation NMS Release, supra note 6. 102 See 15 U.S.C. 78k–1(c)(1)(B) (stating that the Commission shall prescribe ‘‘rules and regulations as necessary and appropriate in the public interest, for the protection of investors, to assure the prompt, accurate, reliable, and fair collection, processing, VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 Commission believes that these changes, combined with the Equity Data Plans’ current governance structure, have exacerbated the exchanges’ lack of incentives to improve the SIPs. And, as described further below, the Commission’s views on the effect of conflicts of interest on the exchanges’ incentives are informed by input received over the course of a number of years from a broad range of market participants—including industry trade associations, broker-dealers (both those with a retail customer base and those with an institutional investor customer base), and the SROs themselves— through their participation in Commission-sponsored forums (i.e., the EMSAC 103 and the Roundtable 104) and through the submission of comment letters 105 and petitions for rulemaking.106 1. The Transformation of the Exchanges Into Publicly Owned Companies When the Equity Data Plans were created, U.S. equity exchanges were member owned, not-for-profit organizations. The members that owned the exchanges were registered brokerdealers, and those members had a voice in exchange decisions through their voting power on the governing bodies of the exchanges, including with respect to Equity Data Plan matters. When the exchanges demutualized, representation on exchange boards of directors broadened to require including non-industry representatives,107 thereby distribution, and publication of information with respect to quotations for and transactions in such securities and the fairness and usefulness of the form and content of such information’’). 103 See supra note 46 and infra notes 121 and 136. 104 See supra note 47. 105 See comments on Roundtable on Market Data and Market Access, available at https:// www.sec.gov/comments/4-729/4-729.htm; comments on EMSAC, available at https:// www.sec.gov/comments/265-29/265-29.shtml. 106 See supra note 48. 107 See, e.g., Securities Exchange Act Release Nos. 49098 (Jan. 16, 2004), 69 FR 3974, 3979 (Jan. 27, 2004) (SR–PHLX–2003–73) (approving demutualization of Philadelphia Stock Exchange under by-laws providing for 11 non-industry governors and ten industry governors, of which five would be on-floor governors); 51149 (Feb. 8, 2005), 70 FR 7531, 7534 (Feb. 14, 2005) (SR–CHX–2004– 26) (approving demutualization of Chicago Stock Exchange under bylaws that provided that half of the board must be public directors, with the remaining directors to be the exchange’s CEO and participant directors); 53963 (June 8, 2006), 71 FR 34661, 34671 (June 15, 2006) (SR–NSX–2006–03) (approving demutualization of the National Stock Exchange under bylaws that provided for at least 50% independent directors and at least 20% directors representing exchange trading permit holders); and Securities Exchange Act Release No. 58375 (Aug. 18, 2008), 73 FR 49498, 49500 (Aug. 21, 2008) (Application of BATS Exchange, Inc. for Registration as a National Securities Exchange; Findings, Opinion, and Order of the Commission) PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 2173 diluting exchange member representation, and the majority of the exchanges became part of publicly held companies seeking to maximize shareholder value. With this transformation, and following the adoption of Regulation NMS, many of the exchanges began to more actively pursue commercial interests that did not necessarily further the regulatory objective to ‘‘preserve the integrity and affordability of the consolidated data stream,’’ 108 which is necessary to ensure that there is a ‘‘comprehensive, accurate, and reliable source of information for the prices and volume of any NMS stock at any time during the trading day.’’ 109 An important example of this divergence of interest has been the development by certain exchanges of proprietary data products with reduced latency and expanded content (i.e., proprietary DOB data products), without the exchanges, in their role as Participants, similarly enhancing the data products offered by the Equity Data Plans. As discussed above, these DOB products have evolved to be considered competitive necessities for many market participants and are offered at significant premiums to SIP products.110 Another example of the divergence between commercial interests and regulatory goals has been the development by certain exchanges of limited TOB data products,111 which are offered at a discount compared to the SIP and marketed to a more pricesensitive segment of the market, without corresponding development by the Equity Data Plans of a less expensive SIP product for the price-sensitive segment of the market.112 The exchanges have continued to develop and enhance their proprietary market data businesses—which generate (stating that the non-industry directors will exceed the number of industry and member directors and that at least 20% of the directors will be member directors). 108 Regulation NMS Release, supra note 6, 70 FR at 37503. 109 Equity Market Structure Concept Release, supra note 22, 75 FR at 3600. 110 See supra notes 57–62 and accompanying text. 111 See supra note 40 and accompanying text (describing examples of exchange TOB products). 112 The use of TOB products has expanded among retail and professional investors, who typically use TOB data via visual displays. However, these feeds do not show the full NBBO and therefore cannot be used to comply with the Vendor Display Rule. The Vendor Display Rule requires vendors and brokerdealers to display consolidated data from all the market centers that trade a stock in a context in which a trading or order routing decision can be implemented. In order to comply with the Vendor Display Rule, vendors and broker-dealers typically purchase and display consolidated data distributed by the SIPs. See 17 CFR 242.603. See supra notes 26, 38. E:\FR\FM\14JAN1.SGM 14JAN1 2174 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES revenues that, unlike Plan data revenues, do not have to be shared with the other SROs—while remaining fully responsible for the governance and operations of the Plans, including content, infrastructure, and pricing, as well as data consolidation and dissemination. Many non-SRO Roundtable panelists, commenters, and petitioners identified these circumstances as constituting an inherent conflict of interest in that the exchanges oversee the Equity Data Plans while selling their own proprietary feeds and connectivity services.113 One commenter stated that the ‘‘exchanges maintain tight control of SIP governance to protect their lucrative market data revenue (plus associated SIP connectivity costs). . . .’’ 114 This commenter also stated that ‘‘[g]iven conflicts of interest when a market competitor is also a regulator, it is 113 See, e.g., Transcript of Day Two, Roundtable (Oct. 26, 2018), available at https://www.sec.gov/ spotlight/equity-market-structure-roundtables/ roundtable-market-data-market-access-102618transcript.pdf (‘‘Day Two Transcript’’), at 117:14–22 (statement of Richard Ketchum, Former CEO of FINRA); at 121:3–17 (statement of Michael Mason, Citigroup); 138:1–4 (statement of Kevin Cronin, Invesco); SIFMA Letter III, supra note 57, at 7 (stating that ‘‘exchanges offer their own proprietary feeds, some of which are designed to compete with the SIPs, while at the same time the exchanges operate the SIPs and control the SIP operating committees’’); Letter from Theodore R. Lazo, Managing Director and Associate General Counsel, SIFMA (Sept. 18, 2019), at 3–4, available at https:// www.sec.gov/comments/4-729/4729-6148210192292.pdf (‘‘SIFMA Letter IV’’) (stating that the current SIP governance structure ‘‘impedes the SIP from competing with the exchanges’ proprietary data feeds.’’); Letter from CTA/UTP Advisory Committee (Oct. 23, 2018), at 2, available at https:// www.sec.gov/comments/4-729/4729-4553088176181.pdf (‘‘CTA/UTP Letter’’) (‘‘A perceived conflict is the lack of separation between CTA/UTP and proprietary data interests. An information barrier between CTA/UTP and exchanges’ proprietary offering does not work in practice as the same individuals may represent both CTA/UTP and exchange proprietary data products.’’); Letter from Tyler Gellasch, Executive Director, Healthy Markets Association (Oct. 23, 2018), at 11, available at https://www.sec.gov/comments/4-729/47294554022-176182.pdf (‘‘Healthy Markets Letter’’) (‘‘One of the most direct conflicts of interest is that the exchanges effectively control the public market data stream while also competing with it.’’); Healthy Markets Petition, supra note 48, at 6 (noting that the greater the latency between the SIPs and the proprietary data feeds, the greater the market value of the exchange’s proprietary feeds); IEX Letter, supra note 86; Patomak Petition, supra note 48, at 1 (‘‘Exchanges exercise complete control over key aspects of NMS plan governance, including setting fees, and this governance structure exacerbates conflicts of interest and allows exchanges to promulgate rules unilaterally to the detriment of broker-dealers and buy-side representatives.’’); MFA Petition, supra note 48, at 13 (‘‘SIP governance model under Regulation NMS does not effectively mitigate conflicts of interest.’’). 114 Letter from Marcy Pike, SVP, Enterprise Infrastructure, Krista Ryan, VP, Associate General Counsel, Fidelity Investments (Oct. 26, 2018), at 4, available at https://www.sec.gov/comments/4-729/ 4729-4566044-176136.pdf (‘‘Fidelity Letter’’). VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 critical that broker-dealers and asset managers have representation on SIP Operating Committees to ensure accountability and to promote initiatives to better develop market data products.’’ 115 One exchange stated that, in addition to an exchange’s proprietary data products, other circumstances in which an exchange’s conflicts of interest may affect the work of the Equity Data Plans’ operating committees include consideration of whether auction data should be added to the SIPs and competition among the SROs for the role of processor.116 In contrast, another exchange maintained that selling exchange proprietary market data was contemplated under Regulation NMS and that doing what Regulation NMS contemplates does not itself create a conflict of interest.117 Moreover, the Equity Data Plans are currently administered by two of the exchanges,118 which gives employees of those exchanges access to confidential data subscriber information of potentially significant commercial value, including subscriber audit information. The Commission notes that concerns have been raised about the exchange administrators’ use of market data and associated customer information obtained through their role as Equity Market Data Plan administrators for their proprietary data feed businesses.119 Consequently, the Commission believes that the exchanges’ commercial interests in their proprietary data businesses, as well as the exchange administrators’ access to confidential subscriber information, have created conflicts of interest that could influence decisions as to the Equity Data Plans’ operation and thereby impede their ability to ensure the ‘‘prompt, accurate, reliable, and fair collection, processing, distribution, and publication of information with respect to quotations for and transactions in such securities 115 Id. 116 See, e.g., Day Two Transcript, supra note 113, at 123:14–127:3 (statement of John Ramsay, IEX) (‘‘For over a year I’ve been pushing to try to get auction data added to the SIP that would make it more useful . . . . [but] there is at least one or more exchanges that will say, well, it requires unanimity, and therefore it’s not going to happen.’’). 117 See NYSE Group Letter, supra note 84, at 19. 118 Currently, NYSE operates as the administrator for the CTA Plan and the CQ Plan, while Nasdaq serves as the administrator for the UTP Plan. 119 See, e.g., Letter from Tyler Gellasch, Executive Director, Healthy Markets Association (Dec. 12, 2018), available at https://www.sec.gov/comments/ 4-729/4729-6413383-198487.pdf. In addition, commenters have expressed concerns with the burdens imposed by the SIPs’ subscriber audits and have stated that these burdens create an incentive to purchase exchange TOB products. See infra notes 164–165 and accompanying text. PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 and the fairness and usefulness of the form and content of such information.’’ 120 2. The Emergence of Exchange Groups In addition to the demutualization of the exchanges and the rise of proprietary data feeds, another significant change in the SRO landscape has been the emergence of exchange groups. As acknowledged by the EMSAC 121 and echoed by Roundtable participants,122 the proliferation of exchange groups has had a significant effect on the allocation and concentration of voting power among certain SROs serving on the Equity Data Plans’ operating committee. Under the Equity Data Plans, each Participant is entitled to cast one vote, but the exchanges within each exchange group vote as a block. Currently, 14 of the 17 total votes are controlled by three exchange groups: (1) CBOE Holdings, Inc. has five votes (BYX, BZX, Cboe, EDGA, and EDGX); (2) Intercontinental Exchange Group, Inc. (‘‘ICE’’) has five votes (NYSE, NYSE American, NYSE Arca, NYSE Chicago, and NYSE National); and (3) Nasdaq, Inc. has four votes (BX, ISE, Nasdaq, and PHLX).123 As a result, the votes of only two exchange groups are sufficient to command a majority of votes and thereby control significant Equity Data Plan actions, including decisions that affect: (a) The capacity of the Equity Data Plans to transmit SIP data,124 (b) investments in infrastructure that could in turn affect performance and latency of Plan processors, (c) the fees charged for SIP data,125 and (d) the selection of individuals that participate in advisory committees.126 The Commission believes that the consolidation of most of the exchange SROs into exchange groups has altered the relative voting power of Equity Data Plan Participants so that exchange groups now have greater voting power with respect to Plan governance matters. Correspondingly, the relative voting power of unaffiliated Equity Data Plans’ 120 15 U.S.C. 78k–1(c)(1)(B). e.g., Transcript of EMSAC Meeting (Apr. 26, 2016), at 0106:8–24 (statement of Richard Ketchum, Former CEO of FINRA), available at https://www.sec.gov/spotlight/emsac/emsac042616-transcript.txt (‘‘EMSAC Transcript’’). 122 See, e.g., Day Two Transcript, supra note 113, at 148:5–18 (statement of Kevin Cronin, Invesco). 123 In addition to these three exchange groups, each of the three unaffiliated SROs (FINRA, IEX, and LTSE) currently has one vote, resulting in a total of 17 Participant votes in Equity Data Plan matters. 124 See, e.g., Section IV.(a) and Exhibit A of the CTA Plan. 125 See, e.g., Section IV.(b)(iii) of the CTA Plan. 126 See, e.g., Section XII.(b)(iii) of the CTA Plan. 121 See, E:\FR\FM\14JAN1.SGM 14JAN1 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices Participants has been diluted over time. Exchanges that historically had only one vote have now been consolidated into exchange groups under common management that can control blocks of four or five votes.127 Consequently, any two exchange groups can now command a majority of votes on the Equity Data Plans’ operating committee, while the relative voting power of unaffiliated Equity Data Plan Participants has been diluted over time. Notably, as the primary producers of exchange proprietary data products, these exchange groups’ voting power on the Equity Data Plans exacerbates the conflicts between their business interests and their regulatory obligations.128 Accordingly, the Commission believes that the current voting structure may not promote the goals of Section 11A of the Act 129 with respect to equity market data. C. The Governance Structure of the New Consolidated Data Plan lotter on DSKBCFDHB2PROD with NOTICES As discussed below, the Commission believes that the existing Equity Data Plans should be replaced by a single 127 For example, for years the NYSE held a single exchange license and therefore had only one vote on the Equity Data Plans’ operating committees, despite having approximately 80% of the trading volume in NYSE-listed securities. Today, the NYSE group of SROs as a whole has approximately 30% market share of trading in NYSE-listed securities, but because the NYSE group holds five exchange licenses, it has five votes and significantly more influence over Equity Data Plans’ decisions than before. See Cboe U.S. Equities Volume Data, available at https://markets.cboe.com/us/equities/ market_share/ (last accessed Aug. 11, 2019) (monthto-date volume summary as of Aug. 9, 2019). 128 Specifically, the three exchange groups, which represent 14 of the 17 votes on the operating committees of the Equity Data Plans, sell proprietary data products that are significant sources of revenues for these exchanges. Consequently, the Commission believes that they may not be incentivized to adequately improve the latency of the SIPs, as making SIP latency comparable to the proprietary feeds could decrease revenues earned from certain proprietary data products. See, e.g., Clearpool Group Viewpoints Rethinking the Current Market Structure (Sept. 2019), at 7 (stating, ‘‘Currently, SIP Plans are governed by SROs that have conflicts of interest in the provision of market data (i.e., the exchanges, excluding FINRA) as they are selling market data products that directly compete with the SIPs. These SROs therefore have a disincentive to either invest in the SIPs or to make SIPs competitive products to their proprietary data products, and it is unlikely that they would vote to make needed changes to the SIP Plans.’’), available at https://cdn2.hubspot.net/ hubfs/1855665/ Clearpool%20Group%20Viewpoints%20%20September%202019%20FINAL.pdf. See also IEX Letter, supra note 86, at 3 (‘‘SIP governance is still under the control of exchanges that have no reason to want the SIPs to be competitive with their own lucrative feeds. Some exchanges even overtly market their own data as a better alternative to the SIPs. The conflicts of interest are obvious and acute.’’). 129 15 U.S.C. 78k–1. VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 New Consolidated Data Plan with a modernized governance structure. 1. Exchange Group Voting Power Several interested parties have suggested various ways to realign Participants’ voting power. In response to the Roundtable,130 several panelists and commenters recommended that SRO voting rights be limited to one vote per exchange group,131 which they believe would increase the voting representation of unaffiliated exchanges.132 Panelists and one commenter also supported having voting provisions that reflect market size, so that the SROs with greater market share would have increased voting power.133 One commenter recommended capping the voting control permissible for any single exchange group.134 One panelist supported maintaining the current voting construct and highlighted the importance of protecting the voting rights of the unaffiliated SROs that have just one vote on the operating committee.135 In addition, the EMSAC recommended that the existing onevote-per-exchange model should be replaced with an allocation of voting rights at the exchange group level— resulting in one vote per exchange group.136 The EMSAC recommended that an exchange group receive two votes, however, when the exchange 130 See https://www.sec.gov/spotlight/equitymarket-structure-roundtables. 131 The recommendation of one vote per exchange group was also included in a pre-Roundtable petition for rulemaking that was submitted to the Commission. See Healthy Markets Petition, supra note 48, at 6 (supporting ‘‘one vote per exchange group’’). 132 See, e.g., Day Two Transcript, supra note 113, at 148:5–12 (statement of Kevin Cronin, Invesco), available at https://www.sec.gov/spotlight/equitymarket-structure-roundtables/roundtable-marketdata-market-access-102618-transcript.pdf; at 150:12–14 (statement of Hubert de Jesus, Blackrock); at 152:23–153:2 (statement of John Ramsay, IEX); Fidelity Letter, supra note 114, at 3 (recommending that NMS plan voting rights be limited to one vote per exchange group); Healthy Markets Letter, supra note 113, at 40. 133 See, e.g., Day Two Transcript, supra note 113, at 150:17–21 (statement of Richard Ketchum, Former CEO of FINRA); at 152:6–10 (statement of Michael Masone, Citigroup); SIFMA Letter IV, supra note 113, at 4. 134 See SIFMA Letter IV, supra note 113, at 4. 135 See, e.g., Day Two Transcript, supra note 113, at 149:1–13 (statement of Emily Kasparov, Chicago Stock Exchange, Inc. (n/k/a NYSE Chicago)). 136 See EMSAC Recommendations Regarding Enhanced Industry Participation in Certain SRO Regulatory Matters (‘‘EMSAC Governance Recommendations’’), July 8, 2016, available at https://www.sec.gov/spotlight/emsac/ recommendations-enhanced-industry-participationsro-reg-matters.pdf; EMSAC Recommendations Relating to Trading Venues Regulation, April 12, 2016, available at https://www.sec.gov/spotlight/ emsac/emsac-trading-venues-subcommitteerecommendations-041916.pdf. PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 2175 group has consolidated market share of at least 10% in the particular market relevant to the Equity Data Plan. NYSE and Nasdaq objected to the EMSAC recommendation to reallocate votes among Equity Data Plan Participants by exchange group.137 In particular, Nasdaq argued that it would be inconsistent for the Commission not to provide each SRO with a vote when, in Nasdaq’s view, the Commission has consistently held that each SRO is individually approved by the Commission and must have its own systems, rules, operations, and members.138 The Commission believes that the New Consolidated Data Plan should modify the current voting allocation structure to address the issues described above.139 Consistent with the EMSAC recommendation, the Commission believes that voting rights in the New Consolidated Data Plan should be allocated so that each unaffiliated SRO 140 and exchange group has one vote on the operating committee—with a second vote provided if the exchange group or unaffiliated SRO has a market center or centers that trade more than a designated percentage of consolidated equity market share.141 However, the Commission believes that the threshold percentage should be 15%, rather than the 10% threshold recommended by the EMSAC. The EMSAC’s recommendation to the Commission concedes that there was no ‘‘magic’’ in selecting 10% as its 137 See Letter from Elizabeth K. King, General Counsel and Corporate Secretary, NYSE (May 13, 2016), available at https://www.sec.gov/comments/ 265-29/26529-66.pdf (‘‘NYSE Letter’’); and Letter from Joan Conley, Senior Vice President and Corporate Secretary, Nasdaq (May 24, 2016), available at https://www.sec.gov/comments/265-29/ 26529-71.pdf (‘‘Nasdaq Letter’’). 138 See Nasdaq Letter, supra note 137, at 7. Nasdaq also argued that the Commission has prevented exchange operating companies from offering ‘‘cross-SRO’’ products that bundle products from multiple exchanges, and Nasdaq believes that consolidating voting rights for purposes of the Equity Data Plans would contradict this past treatment of exchange groups by the Commission. See id. For the Commission’s response to Nasdaq’s argument, see infra notes 148–151 and accompanying text. 139 See supra notes 127–130 and accompanying text. The Commission notes that the one-vote-perexchange governance model for NMS plans is not compelled by statute or regulation. 140 For purposes of this Order, an unaffiliated SRO means an SRO that is not part of the same corporate ownership group as other SROs. The currently unaffiliated SROs are FINRA, IEX, and LTSE. 141 For purposes of this Order, the Commission considers ‘‘consolidated equity market share’’ to mean the average daily dollar equity trading volume of an exchange group or unaffiliated SRO as a percentage of the average daily dollar equity trading volume of all of the SROs, as reported by the Equity Data Plans. E:\FR\FM\14JAN1.SGM 14JAN1 2176 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES suggested threshold amount,142 and, based on the current size of the exchange groups in terms of both exchange licenses and trading volume, the Commission believes that using the 10% threshold recommended by the EMSAC for obtaining a second vote on New Consolidated Data Plan matters would suggest that a third vote would be appropriate at 20% of consolidated equity market share. Given that the existing consolidated market share of the largest exchange groups generally ranges from 17% to 23% 143—as of December 4, 2019, the figures for the CBOE, Nasdaq, and NYSE exchange groups were 17.03%, 19.58%, and 23.05%, respectively 144— setting the threshold for additional votes at 10% intervals would create the reasonable likelihood that exchange groups might receive a third vote, which would lead to a continuing concentration of voting power. Accordingly, the Commission believes that setting the threshold for a second vote at 15%, and limiting the total votes available to an exchange group or unaffiliated exchange to two votes, would provide greater relative voting power for the three exchange groups that currently have the highest trading volumes—the CBOE, Nasdaq, and NYSE exchange groups would each get two votes. The Commission believes that a 15% threshold for a second vote on the operating committee would thus provide an exchange group or unaffiliated exchange with extra voting power in recognition of its responsibility as an SRO for the operations of a trading platform that generates a greater share of equity market data. Under this approach, FINRA would not be eligible for a second vote on the operating committee, because, despite facilitating a significant 142 See, e.g., EMSAC Transcript, supra note 121, at 0106:25–0107:1 (statement of Richard Ketchum, Former CEO of FINRA). 143 See Cboe U.S. Equities Volume Data, available at https://markets.cboe.com/us/equities/market_ share/ (last accessed Dec. 4, 2019). The consolidated market share of these three exchange groups has remained roughly comparable over the past three years, remaining above 15% and below 25%. As of August 16, 2016, the NYSE exchange group had approximately 23% consolidated market share, the Nasdaq exchange group had approximately 16%, and the Cboe exchange group had approximately 21%. As of August 15, 2017, the NYSE exchange group had approximately 23% consolidated market share, the Nasdaq exchange group had approximately 18%, and the Cboe exchange group had approximately 20%. As of August 16, 2018, the NYSE exchange group had approximately 23% consolidated market share, the Nasdaq exchange group had approximately 19%, and the Cboe exchange group had approximately 18%. See Cboe U.S. Equities Volume Data, available at https://markets.cboe.com/us/equities/market_ share/ (last accessed Aug. 16, 2019). 144 Id. VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 proportion of trade reporting, it does not produce quotations or operate a market center.145 The Commission further believes that an exchange group or an unaffiliated exchange should be granted a second vote only if it has maintained consolidated equity market share of at least 15% for at least four of the six calendar months preceding a vote of the operating committee. While exchange group market share has remained relatively steady over the past several years,146 competition for order flow among the exchanges and the registration of new national securities exchanges that trade equities may lead to more significant changes in market share. The Commission believes that using a look-back period of at least four of the six calendar months preceding a vote of the operating committee for determining whether an exchange group or an unaffiliated exchange has met the threshold for a second vote would allow the voting structure of the New Consolidated Data Plan to adapt over time to changing trading volume among exchanges while avoiding frequent changes in vote allocations as a result of short-term changes in activity.147 As noted above, Nasdaq has argued that an approach that limits exchange groups to only one vote would be inconsistent with the Commission’s prior action to prevent exchange operating companies from offering ‘‘‘cross-SRO’ products that bundle products from multiple exchanges.’’ 148 The Commission believes, however, that a meaningful distinction exists between, on one hand, examining whether an 145 The Commission notes, however, that while the voting allocation contemplated herein would not give a second vote to FINRA, it would effectively increase FINRA’s voting power in that FINRA’s vote on all matters would constitute approximately 11.1% of the SRO vote, and 7.4% of all votes on the operating committee, rather than its current 5.9% of all votes on the operating committees of the Equity Data Plans. 146 See supra note 143. 147 The Commission notes that it adopted a similar look-back period in the adoption of Regulation ATS for determining whether an alternative trading system (‘‘ATS’’) has reached trading volume thresholds that trigger certain requirements. See Rule 301 of Regulation ATS, 17 CFR 242.301(b)(3), (providing that, ‘‘[a]n alternative trading system shall comply with the requirements set forth in paragraph (b)(3)(ii) of this section, with respect to any NMS stock in which the alternative trading system . . . [d]uring at least 4 of the preceding 6 calendar months, had an average daily trading volume of 5 percent or more of the aggregate average daily share volume for such NMS stock as reported by an effective transaction reporting plan.’’). See also Securities Exchange Act Release No. 40760 (Dec. 8, 1998), 63 FR 70844 (Dec. 22, 1998) (Regulation of Exchanges and Alternative Trading Systems). 148 Nasdaq Letter, supra note 137. See also supra note 138 and accompanying text. PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 exchange’s proposed rule change unfairly discriminates between market participants and, on the other hand, regulating the actions of multiple SROs in collectively operating critical market systems.149 Under Section 6 of the Act,150 the Commission oversees individual exchanges, not exchange groups, regarding, among other things, their obligations to not engage in disparate treatment of their members. In contrast, Section 11A and Rule 608 address the joint responsibilities of multiple SROs to the national market system as a whole, including operating a central utility for market data that has a broader class of stakeholders. Moreover, as discussed above, the Commission believes that, given the current structure of the market for NMS securities, allocating votes on the operating committees for critical market systems simply on an exchange-byexchange basis—and thereby permitting exchanges under common ownership to collectively vote the interests of their corporate parent and to therefore command a majority of votes on the operating committees—does not facilitate representation of the interests of all stakeholders and no longer supports the integrity and affordability of SIP data.151 Finally, to ensure that only those SROs that are contributing to the generation or collection of the core data disseminated by the New Consolidated Data Plan have a vote on New Consolidated Data Plan decisions, the Commission believes that the New Consolidated Data Plan should provide that if an exchange ceases operation as an equity trading venue, or has yet to commence operation as an equity trading venue, that exchange should not have a vote on Plan matters.152 149 See, e.g., Securities Exchange Act Release No. 73639 (Nov. 19, 2014), 79 FR 72251, 72271–72 (Dec. 5, 2014) (Regulation Systems Compliance and Integrity adopting release) (designating the SIPs as ‘‘critical SCI systems’’ because ‘‘consolidated market data is central to the functioning of the securities markets.’’). 150 15 U.S.C. 78f. 151 See supra notes 130–141 and accompanying text. The Commission notes that the one–vote-perexchange voting model precedes the demutualization of the exchanges and the emergence of exchange groups. See, e.g., Order temporarily approving CQ Plan, supra note 31, 43 FR at 34852. 152 Both ISE and Cboe have been inactive as equities exchanges for several years but continue to retain full voting rights on the Equity Data Plans. ISE ceased trading equities on December 23, 2008. See Securities Exchange Act Release No. 80873 (June 4, 2017), 82 FR 27094 (June 13, 2017). Cboe stopped trading equities on April 30, 2014. See Securities Exchange Act Release No. 71880 (Apr. 4, 2014), 79 FR 19950 (Apr. 10, 2014). E:\FR\FM\14JAN1.SGM 14JAN1 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices 2. Non-SRO Participation In 2005, when the Commission adopted Regulation NMS,153 it amended the Equity Data Plans to establish nonvoting advisory committees to give interested parties an opportunity to express their views on Equity Data Plan business before any decision by the operating committees.154 Those advisory committees are made up of at least one representative from each of the following categories: (1) A broker-dealer with a substantial retail investor customer base, (2) a broker-dealer with a substantial institutional investor customer base, (3) an ATS, (4) a data vendor, and (5) an investor. As the Commission explained, the creation of the advisory committees was ‘‘a useful first step toward improving the responsiveness of Plan participants and the efficiency of Plan operations.’’ And the Commission said that it would ‘‘continue to monitor and evaluate Plan developments to determine whether any further action is warranted.’’ 155 After monitoring the activities of the Equity Data Plans over many years, the Commission believes that non-SROs are important stakeholders in the operation of the Equity Data Plans. The Commission now believes that the governance structure of the New Consolidated Data Plan should provide for non-SROs to participate as full members of the operating committee, rather than in an advisory capacity. Under the current governance structure of the Equity Data Plans, the SROs retain substantial influence over the advisory committees. Members of the advisory committees are selected by the majority vote of the SROs,156 and each SRO has the right to select an additional member of the advisory 153 See Regulation NMS Release, supra note 6. Regulation NMS Release, supra note 6, 70 FR at 37561 (‘‘Expanding the participation of interested parties other than SROs in Plan governance should increase the transparency of Plan business, as well as provide an established mechanism for alternative views to be heard by the Plans and the Commission. Earlier and more broadly based participation could contribute to the ability of the Plans to achieve consensus on disputed issues . . . . The Commission particularly believes that the Plans should give full consideration to the views of industry participants on steps that would streamline the administrative procedures and burdens of the three Plans. Enhanced participation of advisory committee members in Plan affairs should help further this process.’’). 155 See Regulation NMS Release, supra note 6, 70 FR at 37561. 156 See, e.g., Day Two Transcript, supra note 113, at 91:13–19, 136:17–19, 137:8–12 (statements of Hubert de Jesus, Blackrock) (stating that advisors should be selected in an independent fashion to avoid Participants potentially choosing not to renew an advisor, or removing an advisor who does not support SRO interests). lotter on DSKBCFDHB2PROD with NOTICES 154 See VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 committee.157 Members of the Equity Data Plans’ advisory committees are currently permitted to attend Plan meetings, receive certain information distributed to the operating committee relating to Plan matters, and submit their views prior to Plan decisions.158 Members of the Equity Data Plan advisory committees, however, may not vote on Equity Data Plan matters; can be excluded from substantive discussions, including, for example, discussions about potential amendments to the Equity Data Plans (e.g., discussions in ‘‘executive sessions’’); and can be denied access to critical information, such as cost and detailed revenue information.159 Thus, under the Equity Data Plans’ current governance structure, the operating committees, which make decisions regarding Equity Data Plans’ actions, such as expenditures for technology upgrades and programming updates (including those to address latency issues), changes to fees, and amendments, are controlled exclusively by SRO representatives, and no other market constituency has voting rights. Although advisory committee representatives currently have no voting power in the Equity Data Plans and have limited access to non-public information on Equity Data Plan matters,160 they have substantial 157 See Regulation NMS Release, supra note 6, 70 FR at 37610 (Text of amendments to the Equity Data Plans, Governance Amendment (b)(2)). 158 See, e.g., Section III(e)(iii) of the CTA Plan, supra note 31 (‘‘Members of the Advisory Committee shall have the right to submit their views to CTA on Plan matters, prior to a decision by CTA on such matters. Such matters shall include, but not be limited to, any new or modified product, fee, contract, or pilot program that is offered or used pursuant to the Plan.’’); Section III(e)(iv) of the CTA Plan (‘‘Members of the Advisory Committee shall have the right to attend all meetings of CTA and to receive any information concerning Plan matters that is distributed to CTA; provided, however, that CTA may meet in executive session if, by affirmative vote of a majority of the Participants entitled to vote, CTA determines that an item of Plan business requires confidential treatment.’’). 159 See id. 160 Advisory Committee members may have access to non-public drafts of amendments to the Equity Data Plans and public statements; however, they do not have access to plan cost and detailed revenue information. See Patomak Petition, supra note 48, at 4–5 (‘‘Currently, however, exchanges’ disclosures related to their equity market data fees and expenses are inadequate, making it difficult for market participants to make informed comments and the Commission to make reasoned findings. Although exchanges recently have begun to modestly enhance their disclosures related to market data fees, they remain inadequate.’’). The Commission notes that the CTA/CQ Plans and the Nasdaq/UTP Plan currently publicly disclose, on a quarterly basis (with a 60-day lag), the percentage of revenue earned by fee type. See, e.g., Q4 2018 CTA Quarterly Revenue Disclosure, available at https://www.ctaplan.com/publicdocs/ctaplan/ PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 2177 interests at stake in the Equity Data Plans’ decision-making process. Market participants who use SIP data— including investors, broker-dealers, data vendors, and others—are required to pay the fees charged by the Equity Data Plans. Retail investors that access core data through their broker-dealers can also be affected by data fees in that the fees charged to their broker-dealers can impact investors’ ready access through their broker-dealers to full NBBO market information.161 The Commission has previously stated that investors must have core data to participate in the U.S. equity markets.162 And many market participants, including all brokerdealers, must have access to SIP data to meet their regulatory obligations.163 Roundtable panelists also stated that there are substantial burdens associated with the Equity Data Plans’ audits of their firms’ subscriber data usage and fee payment.164 A retail broker-dealer, notifications/trader-update/Q4%202018%20CTA %20Quarterly%20Revenue%20Disclosure.pdf; Q4 2018 UTP Quarterly Revenue Disclosure, available at https://www.utpplan.com/DOC/UTP_Revenue_ Disclosure_Q42018.pdf. The fee types currently identified in the public disclosures are: Professional subscribers, non-professional subscribers, nondisplay, quote query, and ‘‘other.’’ Although the current disclosures break down the revenue earned for certain fee types, the current disclosures are not broken down by each line item in the Equity Data Plans’ fee schedule. For example, both the CTA/CQ Plans and the Nasdaq/UTP Plan group certain fee types under the general ‘‘other’’ category. The ‘‘other’’ category for the CTA/CQ Plans includes data feed access fees, redistribution fees, and TV ticker fees. The ‘‘other’’ category for the Nasdaq/ UTP Plan includes data feed access fees, annual administrative fees, redistributor fees, voice port fees, and cable TV ticker fees. As another example, the CTA/CQ Plans and the Nasdaq/UTP Plan have more than one type of non-display fees and access fees, which are not separately identified in the current revenue disclosures. In addition, the current disclosures by the CTA/CQ Plans and Nasdaq/UTP Plan do not include the revenue recovered from audits or any other methods of recovery. 161 Some broker-dealers provide customers with market information from exchange proprietary TOB data feeds as substitutes for core data in certain applications. This proprietary TOB data may be cheaper than core data, but may contain information from only one exchange or one exchange group. See Effective-Upon-Filing Release, supra note 27, 84 FR at 54798 n.39. 162 See Bloomberg Order, supra note 23, at 4. 163 See Effective-Upon-Filing Release, supra note 27, 84 FR at 54798. 164 See, e.g., Day One Transcript, supra note 38, at 112:21–24 and 114:2–9 (statements of Matt Billings, TD Ameritrade) (‘‘The plans regularly audit brokers for compliance with their overly complex rules, which are not harmonized across the CTA and UTP Plans, and are a cause for misinterpretation. . . . The question ultimately becomes, at what point does a retail broker move away from the NMS plans . . . to avoid . . . the audit risk liability that currently exists under the plans.’’); Day Two Transcript, supra note 113, at 196:20–197:7 (statement of Marcy Pike, Fidelity Investments) (‘‘Most large brokerage firms or asset managers that are consuming this data have significant staffs that are counting and reporting the E:\FR\FM\14JAN1.SGM Continued 14JAN1 2178 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES for example, has stated that compliance with the requirement to differentiate between the professional and nonprofessional status of their customers can be costly for a retail broker in terms of both time and manpower needed to complete the audit, and that these burdens are a factor favoring brokerdealer use of the exchanges’ proprietary TOB products.165 Exchanges have also acknowledged the administrative burden associated with determining the professional and non-professional status of broker-dealers’ customers.166 During the Roundtable, many panelists expressed support for expanding the role of advisory committees in the governance of Equity Data Plans and for providing the advisory committees with the right to a formal vote on the operating usage of this data . . . . There is a whole group of folks that have entered into the industry to help facilitate audits for the exchanges . . . .’’). 165 See TD Ameritrade Letter, supra note 40, at 5– 8 (stating that the lower cost of proprietary TOB products, coupled with costs associated with the process to differentiate between retail professionals and non-professionals imposed by the Equity Data Plans, and associated audit risk, favors retail brokerdealer use of proprietary TOB products). See also Fidelity Letter, supra note 114, at 9 (‘‘Exchanges spend considerable resources auditing brokerdealers to ensure that subscriber status categories are correctly applied. Why? Because it is in their commercial interest to do so—Professional subscriber market data rates are significantly higher than Non-professional subscriber rates. We question whether exchange resources used to audit member firms might be better deployed to reduce SIP costs.’’). Under their respective policies, the Equity Data Plans deem data recipients to be professionals unless demonstrated to be a non-professional (a non-professional being a natural person who receives market data solely for his/her personal, non-business use, and who further does not fall into certain other categories). See, e.g., CTA Plan Nonprofessional Subscriber Policy, available at https://www.ctaplan.com/publicdocs/ctaplan/ notifications/trader-update/Policy%20-%20NonProfessional%20Subscribers%20-%20CTA.pdf (last accessed Nov. 9, 2019); UTP Plan, Exhibit 2 (Fees for UTP Services), Section (b)(2), available at https:// www.utpplan.com/DOC/Nasdaq-UTPPlan_after_ 43rd_Amendment-Excluding_21st_36th_38th_ 42nd_Amendments.pdf (last accessed Nov. 9, 2019). 166 See, e.g., NYSE Insights, supra note 92 (‘‘Subscribers pay different rates for the product based on whether the individual viewing the data is deemed a ‘professional’ or ‘non-professional’ user. This is a policy that has provided steep discounts for Main Street investors, but has created complex administrative burdens for brokers.’’); Nasdaq Total Markets Paper, supra note 45, at 4 (stating that the distinctions between ‘‘professional’’ and ‘‘non-professional’’ users ‘‘have become arbitrary and more complex than is necessary and create undue administrative burden to manage. We should modernize the user definitions to achieve the same general goals while streamlining the administrative burden.’’). See also Day Two Transcript, supra note 113, at 258:19–25 (statement of Kevin Carrai, Cboe) (highlighting a compliance tool developed by the CTA Plan to determine whether an individual should be charged professional or non-professional rates for the receipt and use of the plan’s market data). VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 committees.167 One panelist stated that current members of the advisory committees could initially serve as the pool of candidates from which to draw non-SRO representatives with voting power and that once the non-SRO representatives are appropriately constituted, they may be able to select among themselves their successors.168 Exchange panelists were not unified in their views during the Roundtable, however. One exchange panelist expressed support for full voting representation by brokers, traders, and investors on the operating committees of the Equity Data Plans.169 Several exchange panelists suggested a willingness to add an additional nonSRO vote, but only after consideration of the obligations attached to the voting right.170 Another exchange, NYSE, argued in its comment letter that, before providing advisory committee members with a vote, the Commission would need to take into consideration their conflicts of interest and to place obligations on the advisory committee members similar to those placed on the exchanges.171 Many Roundtable commenters expressed support for permitting the Equity Data Plans’ advisory committee 167 See, e.g., Day Two Transcript, supra note 113, at 91:13–19, 136:17–19, 137:8–12 (statements of Hubert de Jesus, Blackrock) (advocating for advisory committee members to have equitable voting representation—a 50:50 balanced voting representation—and that advisors should be selected in an independent fashion to avoid Participants potentially choosing not to renew an advisor, or removing an advisor who does not support SRO interests); at 87:17–20, 118:14–20, 133:2–14 (statements of Richard Ketchum, Former CEO of FINRA) (supported advisory committee votes, but stressed that having a fiduciary responsibility tied to enforceable accountability for both Participants and advisors is important and could benefit from Commission action); at 122:17– 20, 129:16–19 (statements of Michael Masone, Citigroup) (recommended a minimum of two additional advisory committee votes—specifically an asset manager and a broker-dealer—to be represented on the NMS plans); at 127:23–128:6 (statement of John Ramsay, IEX). 168 See, e.g., Day Two Transcript, supra note 113, at 128:7–16 (statement of John Ramsay, IEX). 169 See, e.g., Day Two Transcript, supra note 113, at 128:17–23 (statement of John Ramsay, IEX). 170 See, e.g., Day Two Transcript, supra note 113, at 134:21–135:8 (statement of Emily Kasparov, Chicago Stock Exchange, Inc. (n/k/a NYSE Chicago)); at 136:4–16 (statement of Bryan Harkins, Cboe); at 251:16–25 (statement of Jeff Davis, Nasdaq). 171 See NYSE Group Letter, supra note 116, at 19 (stating that ‘‘absent the same regulatory obligations as the exchanges, Advisory Committee members would not have an incentive to cast votes consistent with the terms of the [Equity Data Plans]’’). See also NYSE Letter, supra note 137, at 9 (stating that ‘‘broker-dealers and other industry participants are free to and do act entirely in their own commercial interests unfettered by statutory or public interest concerns’’). PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 members to have votes.172 In particular, one commenter suggested that the governance structure should call for a board and operating committees with equal non-SRO voting membership, including user, vendor, and public investor participation.173 One commenter asserted that giving voting representation on the operating committee to broker-dealers and asset managers would mitigate potential conflicts of interest.174 One commenter supported equal voting power between the SROs and industry representatives on the Equity Data Plans and replacing those representatives every two to four years.175 Another commenter stated that meaningful governance of the Equity Data Plans cannot be accomplished unless user and vendor representatives have a voice in their operations.176 In one of its comment letters on the Roundtable, Nasdaq recommended expanding the authority and responsibilities of the advisory committees, particularly on fees and policy-related matters, and supported providing the general investing public a voice on the advisory committees.177 Nasdaq further stated that increased authority for the advisory committees should be coupled with ‘‘a fair and transparent mechanism’’ to address conflicts of interest among advisory committee members.178 In addition, 172 See, e.g., SIFMA Letter III, supra note 57, at 7 (‘‘SIP governance (and that of all other NMS Plans) should include voting representation by both broker-dealers and asset managers.’’); SIFMA Letter IV, supra note 113, at 4 (stating that the SIP operating committees should provide equal voting rights to industry representatives from: (1) Institutional broker-dealers; (2) retail brokerdealers; (3) buy-side firms; (4) data vendors; (5) ATSs; and (6) an individual with significant and reputable regulatory expertise); Fidelity Letter, supra note 114, at 3 (recommending that the Commission improve SIP governance by providing broker-dealers and asset managers a vote on all matters before the operating committees to provide alternative views, and to promote initiatives to better develop core data). 173 See CTA/UTP Letter, supra note 113, at 2. 174 See SIFMA Letter III, supra note 57, at 7. 175 See SIFMA Letter IV, supra note 113, at 4–5. 176 See TD Ameritrade Letter, supra note 40, at 9 (‘‘TD Ameritrade also believes that meaningful governance of the Equity Data Plans cannot be accomplished unless user and vendor representatives have a true voice in their operation. The governance structure should allow for fair and equitable voting rights for exchanges and for members of the CTA/UTP Advisory Committee.’’). Similarly, another commenter supported equitable voting representation from investment advisers, broker-dealers, and data vendors. See Healthy Markets Letter, supra note 113, at 40. 177 See Letter from Thomas Wittman, Executive Vice President, Head of Global Trading and Market Services, and CEO, Nasdaq (Oct. 25, 2018), at 12, available at https://www.sec.gov/comments/4-729/ 4729-4562784-176135.pdf (‘‘Nasdaq 2018 Letter’’). 178 Id. See also Nasdaq Letter, supra note 137, at 7 (stating that, ‘‘other than ensuring their own compliance with the securities laws and rules of E:\FR\FM\14JAN1.SGM 14JAN1 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES Nasdaq has expressed support for establishing a partnership between the exchanges and industry participants for Equity Data Plans’ governance, specifically suggesting that industry participants have two votes on the plans’ operating committees, to be split among the six members of the Equity Data Plans’ advisory committee members.179 Nasdaq further supported requiring non-SRO voting members to ‘‘adhere to existing conflicts of interest and confidentiality policies, such as those that require exchanges and their affiliates to recuse themselves when they might receive a unique benefit not shared with other exchanges.’’ 180 The Commission also received petitions for rulemaking that requested that the Commission improve the Equity Data Plans’ governance by including voting representation from investment advisers and broker-dealers,181 and that the Commission conduct a review of the equity market data fee structure 182 and study the governance of the U.S. equity market data regulatory framework with respect to proprietary market data and the consolidated data processor model.183 The EMSAC also recommended that the advisory committee have the right to a formal vote to express its views before consideration of any matter on which the operating committee votes.184 NYSE and Nasdaq, however, expressed concern with enhancing advisory committee involvement in Equity Data Plan governance.185 NYSE argued in its comment letter that the current non-voting advisory committee structure is ‘‘working as intended’’ and that Section 11A of the Act and Rule 608 of Regulation NMS enable only SROs, broker-dealers must be expected to act in their own commercial interests.’’). 179 See Nasdaq Total Markets Paper, supra note 45, at 22–23. 180 See id. at 23. 181 See Healthy Markets Petition, supra note 48, at 6. 182 See Patomak Petition, supra note 48, at 8–9 (‘‘Based on this review, the SEC should consider whether any additional regulatory changes related to market data are warranted, potentially including . . . reforming NMS plan governance to allow voting representation from stakeholders such as broker-dealers and buy-side representatives.’’). 183 See MFA Petition, supra 48, at 13. 184 See EMSAC Governance Recommendations, supra note 136, at 2. The EMSAC also recommended that, if the operating committee approves any action that was opposed by a majority of the advisory committee, the operating committee should explain and document its reasons for proceeding contrary to advisory committee input and that, in the event that the matter is the subject of a rule filing, the operating committee should also summarize and explain the results of the operating committee and advisory committee votes in the filing submitted to the Commission. See id. 185 See supra note 137 and accompanying text. VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 SROs to become official voting members or participants of the Equity Data Plans, consistent with the SROs’ regulatory obligations.186 In particular, NYSE stated that, ‘‘[i]f the advisors of the NMS Plans were allowed effectively to interfere with the actions of the operating committees of the Plans, the advisors might be able to block or slow down changes the SROs felt were necessary to discharge their statutory obligations.’’ 187 Nasdaq similarly asserted that non-SROs have a ‘‘strong voice in the operation of NMS Plans through the significant participation of advisory committees’’ and expressed concern that enhanced industry participation in the Equity Data Plans could frustrate the regulatory obligations that attach to the SROs as Participants.188 Nasdaq also stated that expanding the role of advisory committees to include voting rights ‘‘would need to be accomplished through an amendment to Rule 608 of Regulation NMS and to the NMS plans to ensure proper and consistent application.’’ 189 Since the Commission took the step of establishing non-voting advisory committees in Regulation NMS, the equity markets have seen a number of important changes, which as discussed above include the demutualization of exchanges—and the resulting divergence of the interests of the exchanges and their members—and the conflicts of interests that have emerged as exchanges have developed a variety of proprietary data products and marketed them to the subscribers of core data disseminated by the SIPs. Moreover, while non-SROs bear significant burdens from subscriber audits, those market participants have no role in selecting or overseeing the plan administrator that is responsible for the audit process. Thus, in light of the critical importance of disseminating SIP data to a broad range of market participants, the important role that the Equity Data Plans play in the national market system, and the financial 190 and operational burdens 191 that the Equity 186 NYSE Letter, supra note 137, at 9. at 9. 188 Nasdaq Letter, supra note 137, at 7. 189 Id. at 22. 190 The total revenues derived from Equity Data Plans’ fees are substantial. For example, total revenue for the three Equity Data Plans totaled more than $430 million in 2017, based on their audited financial statements. Moreover, while non-SROs bear significant burdens from subscriber audits, see supra notes 164–165 and accompanying text, those market participants have no role in selecting or overseeing the plan administrator that is responsible for the audit process. 191 Any changes in the data feeds, connectivity options, and policies and procedures of the Equity 187 Id. PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 2179 Data Plans’ decisions frequently place on non-SRO market participants—as well as the comments the Commission has received supporting voting rights for non-SROs on the Equity Data Plans’ operating committees.192 The Commission believes that, to help ensure that the New Consolidated Data Plan addresses the needs of all market participants, broader participation in the governance of the New Consolidated Data Plan would be beneficial.193 Consequently, the Commission believes that the New Consolidated Data Plan should include provisions that permit non-SRO representatives reflecting a diverse range of affected market participants to participate as voting members of the New Consolidated Data Plan operating committee.194 Broader participation in the governance of the New Consolidated Data Plan should be beneficial in providing more meaningful inclusion of key stakeholders’ views in New Consolidated Data Plan decision making, and the Commission believes that the New Consolidated Data Plan should provide for separate voting member representatives of an institutional investor (e.g., an asset management firm), a broker-dealer with a predominantly retail investor customer base, a broker-dealer with a predominantly institutional investor customer base, a securities market data vendor, an issuer of NMS stock, and a retail investor. The representatives on the New Consolidated Data Plan would, therefore, closely mirror the categories of representatives on the advisory committees of the Equity Data Plans. However, because the Commission believes that ATSs and institutional broker-dealers serve similar roles in the markets, as they both operate as overData Plans often require responsive technology changes by each subscriber. 192 See supra notes 172–176 and accompanying text. 193 See supra note 159 and accompanying text. 194 The Commission understands that previous efforts to amend the Equity Data Plans to provide votes on the operating committees to non-SROs have not been successful due, in part, to the significant hurdle of satisfying the plans’ unanimity requirements before an amendment to any of the plans may be proposed. See Letter from Eric Swanson, General Counsel, Bats Global Markets, Inc. (Aug. 17, 2016), available at https:// www.sec.gov/comments/265-29/26529-83.pdf (‘‘In early 2015, Bats submitted proposals to the UTP and CTA/CQ Plans’ Operating Committees to allow one broker-dealer and one investment advisor representative as full voting members. These proposals were not designed to be a final recommendation; but to rather act as a strawman to facilitate further discussions on how to increase participation by industry participants in the governance of the UTP and CTA/CQ Plans. Bats was unable to obtain sufficient support from the Operating Committee to move that initiative forward . . . .’’). E:\FR\FM\14JAN1.SGM 14JAN1 2180 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES the-counter trading venues, the Commission believes that the New Consolidated Data Plan operating committee should not include a designated ATS representative.195 To further ensure that non-SRO members reflect a diversity of perspectives, the Commission believes that the New Consolidated Data Plan should not permit a person affiliated with an SRO or a broker-dealer to serve as the representative of an ‘‘issuer,’’ a ‘‘retail investor,’’ or a ‘‘market data vendor.’’ The Commission also believes that the extent of the SROs’ current involvement in the Equity Data Plans’ advisory committees—from selection of the members to selection of their own representatives on the advisory committees—limits the ability of the advisory committee members to be fully independent and to provide alternative views to be heard by the Equity Data Plans and the Commission, as contemplated when the advisory committees were created.196 Therefore, the Commission believes that the SROs should not be permitted to select the non-SRO members of the New Consolidated Data Plan operating committee. The Commission believes that the operating committee should provide for a process to publicly solicit, and make available for public comment, nominations for non-SRO members. Further, the Commission believes that the initial non-SRO operating committee members should be selected by the current members of the Equity Data Plans’ advisory committees, excluding advisory committee members who were selected by a Participant to be its representative, and subsequent non-SRO members should be selected solely by the then-serving non-SRO members of the New Consolidated Data Plan operating committee.197 Additionally, the Commission believes that, to enhance the ability of non-SRO 195 As noted above, the advisory committees of the Equity Data Plans currently have representatives from the following categories: (1) A broker-dealer with a substantial retail investor customer base; (2) a broker-dealer with a substantial institutional investor customer base; (3) an ATS; (4) a data vendor; and (5) an investor. The Commission notes that the individual representing an ATS on the Equity Data Plans advisory committee has, for several years, been from a large institutional broker. 196 See Regulation NMS Release, supra note 6, 70 FR at 37561 (‘‘Expanding the participation of interested parties other than SROs in Plan governance should increase the transparency of Plan business, as well as provide an established mechanism for alternative views to be heard by the Plans and the Commission.’’). 197 A list of current members of the CTA Plan advisory committee is available at https:// www.ctaplan.com/advisory-committee (last accessed on Nov. 13, 2019). The Equity Data Plans all share the same advisory committee members. See also supra notes 156 and 168. VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 members to obtain sufficient experience with the operation of the New Consolidated Data Plan, and to make informed contributions as members of the operating committee, the New Consolidated Data Plan should provide that non-SRO members serve for a term of two years, which is the current term of advisory committee members of the Equity Data Plans.198 The Commission further believes that to ensure that a diversity of viewpoints are reflected among the non-SRO members of the operating committee, the New Consolidated Data Plan should provide for reasonable term limits for non-SRO members.199 The Commission further believes that the current membership of the Equity Data Plans’ advisory committees, excluding exchange representatives, should, to the extent possible, be maintained through the transition to the New Consolidated Data Plan to facilitate continuity. The Commission believes that the current advisory committee members’ experience with, and expertise in, the operation of the Equity Data Plans will be valuable in selecting the initial non-SRO operating members (as discussed in more detail below) and will thus support the stable transition of operations from the Equity Data Plans to the New Consolidated Data Plan. Therefore, until the initial non-SRO members have been selected, the Commission believes that the Participants should renew the expiring terms of all members of the Equity Data Plans’ advisory committees (other than those selected to represent a Participant) who remain willing to serve in that role. As noted above, certain exchanges have expressed concerns regarding extending voting rights on the Equity Data Plans to non-SROs.200 The Commission recognizes that the SROs have special legal obligations and responsibilities under the Act, including with regard to operating the Equity Data Plans.201 However, neither the Act nor the applicable rules thereunder, including Rule 608 of Regulation NMS, prohibit non-SROs from participating in the governance of any NMS plan or from having voting rights in the administration of NMS plans. Therefore, the Commission believes that it is not necessary to amend Rule 608 of 198 Section III.(e)(2) of the CTA Plan; Section IV.E.(b) of the UTP Plan. 199 For example, one commenter recommended that non-SRO members should nominate individuals to replace then-serving non-SRO members every two to four years. See supra note 175. 200 See supra notes 170–171, 185–189 and accompanying text. 201 15 U.S.C. 78k–1(a)(3)(B). PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 Regulation NMS in order for the New Consolidated Data Plan to include voting rights for non-SROs. The Commission believes that providing non-SROs with voting rights in the New Consolidated Data Plan should help to further ensure that SIP data is available for the benefit of the public interest, by incorporating input from a range of stakeholders, consistent with the findings and goals of Section 11A of the Act.202 Moreover, the Commission believes that votes can be provided to non-SROs in a manner that results in the SROs retaining the voting power necessary to act jointly on behalf of the plan pursuant to the requirements of Section 11A of the Act 203 and Rule 608 of Regulation NMS.204 Specifically, the Commission believes that the New Consolidated Data Plan should provide the SROs in aggregate with two-thirds of the voting power on the operating committee—and non-SRO members of the operating committee in aggregate with one-third of the voting power—with proportionate fractional votes allocated to non-SRO members of the operating committee as necessary to preserve this ratio. To ensure that the SROs retain primary control of the New Consolidated Data Plan, the Commission believes that this ratio should be maintained at all times, including when a member of the operating committee is not present or unable to vote for any reason. In addition, the relative value of non-SRO votes should be adjusted as necessary to account for new exchange registrations and consolidations to continually ensure that the ratio between aggregate SRO voting power and aggregate nonSRO voting power remains the same. Thus, under the provisions that the Commission believes should be part of the New Consolidated Data Plan regarding the allocation of votes among the SROs and non-SROs, as applied to the current number and ownership structure of the SROs, there would be nine aggregate SRO votes 205 (twothirds) and four and one-half aggregate non-SRO votes (one-third) on the New Consolidated Data Plan operating committee. Because there would be six non-SRO operating committee members eligible to vote in the New Consolidated Data Plan, but only four and one-half non-SRO votes in the aggregate, each 202 15 U.S.C. 78k–1(a)(1). U.S.C. 78k–1 204 17 CFR 242.608. 205 The NYSE exchange group would have two votes; the Nasdaq exchange group would have two votes; the Cboe exchange group would have two votes; and IEX, FINRA, and LTSE would each have one vote—totaling nine votes. 203 15 E:\FR\FM\14JAN1.SGM 14JAN1 lotter on DSKBCFDHB2PROD with NOTICES Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices non-SRO member’s vote would be worth three-quarters of one vote (4.5 ÷ 6 = 3⁄4). Further, the Commission believes that action by the operating committee of the New Consolidated Data Plan should require an ‘‘augmented majority vote,’’ meaning a two-thirds majority of all votes on the operating committee, provided that this vote also includes a majority of the SRO votes, which will ensure that the SROs have sufficient voting power to act jointly on behalf of the plan pursuant to the requirements of Section 11A of the Act 206 and Rule 608 of Regulation NMS.207 For example, under the current number and ownership structure of the SROs, there would be nine SRO votes and four and one-half non-SROs votes. For an ‘‘augmented majority vote,’’ nine votes of the operating committee would be required for a two-thirds majority, and five SRO votes would be required for an SRO majority vote. Five SRO votes would be necessary to obtain a majority of SRO votes as well as a two-thirds majority vote of the operating committee. There would not be a situation in which a two-thirds majority would not also include a majority of the SRO votes. However, the number of the SROs may not remain static. If in the future another SRO joined the New Consolidated Data Plan, there would then be ten SRO votes, and the non-SRO operating committee members would then have five votes. Under those circumstances, a two-thirds majority could be obtained without a majority of the SRO votes—in other words, if five SROs and five non-SROs vote in favor of a motion, and five SROs vote against the motion, two-thirds of the operating committee voted in favor, but a majority of SROs did not. Therefore, this would not constitute an augmented majority vote and the motion would fail. Finally, the Commission believes that the New Consolidated Data Plan should include provisions to address circumstances in which a member is unable to attend an operating committee meeting or to cast a vote. example, to propose amendments to the provisions of the Plans,209 to amend contracts between the Equity Data Plans’ processor and vendors,210 and to terminate a Plan processor.211 The EMSAC, however, recommended that unanimity not be required for NMS plan votes, stating that limiting the use of unanimity requirements would ‘‘prevent undue friction or delay in Plan voting matters.’’ 212 The Commission believes that, because unanimous voting provides each exchange, despite the conflicts of interest it may face, with an effective veto over certain significant Equity Data Plans’ matters, the requirement for unanimous voting can enable a single exchange to obstruct improvements to the collection (e.g., connectivity), processing (e.g., aggregation or consolidation), and distribution (e.g., transmission) of SIP data that the other SROs support. To address the concerns that arise from the Equity Data Plans’ requirement for unanimous voting, the Commission believes that the submission of amendments to the New Consolidated Data Plan to the Commission, like other actions by the operating committee as described above,213 should be approved by an augmented majority vote, defined above, rather than a unanimous vote. As noted above, the Commission believes that requiring an augmented majority vote for changes to the New Consolidated Data Plan would provide non-SRO members with a voice in New Consolidated Data Plan governance, while also ensuring that the SROs have sufficient voting power to act jointly on behalf of the New Consolidated Data Plan. One Roundtable panelist and one commenter raised the concern that eliminating the current Equity Data Plans’ requirements regarding unanimous voting would reduce the influence of FINRA and the unaffiliated exchanges.214 The Commission, however, believes that the voting allocation described above for the New 3. Voting Requirements for Changes to the New Consolidated Data Plan 209 See Section IV.(b)(i) of the CTA Plan; Section IV.(c)(i) of the CQ Plan; Sections IV.C.1.a. and XVI of the UTP Plan. 210 See, e.g., Section IV.C.1(b) of the UTP Plan. 211 See, e.g., Section IV.C.1(c) of the UTP Plan. 212 See EMSAC Governance Recommendations, supra note 136. 213 See supra Section II.C.2. 214 See, e.g., Day Two Transcript, supra note 113, at 113:24–114:9, 149:1–13, 24 (statements of Emily Kasparov, Chicago Stock Exchange, Inc. (n/k/a NYSE Chicago)); Healthy Markets Letter, supra note 113, at 10 (‘‘In recent years, the CTA Plan has modified its procedures to permit votes by less than unanimity. This severely limits the ability of FINRA or an independent exchange to block CTA Plan actions, arguably granting much greater power to the dominant exchange operators.’’). Under the current governance model, certain actions by the Equity Data Plans’ operating committees require the unanimous vote of all Participants.208 While the majority of actions under the Equity Data Plans require only a majority vote, unanimity is required, for 206 15 U.S.C. 78k–1. CFR 242.608. 208 See Section IV.(b) of the CTA Plan; Section IV.(c) of the CQ Plan; Section IV.C.1 of the UTP Plan. 207 17 VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 2181 Consolidated Data Plan—coupled with the existing requirement that NMS plan amendments (except those put into effect upon filing) 215 must be published for comment and subject to approval by the Commission to become effective— should help to address this concern.216 Actions by the Equity Data Plans would no longer be subject to veto by a single SRO or exchange group, and substantive New Consolidated Data Plan amendments would continue to be subject to review by the Commission and public notice and comment, and would not become effective unless the Commission finds them to be consistent with the Act. In addition, unanimous voting is not a requirement for NMS plans. In fact, the most-recently approved NMS plan, which governs the facility for a consolidated audit trail (‘‘CAT’’), requires the affirmative vote of a twothirds supermajority of all members of the operating committee for plan amendments.217 In the adopting release for Rule 613 under the Act,218 which required the creation of the CAT Plan, the Commission stated that ‘‘an alternate approach’’ to voting involving ‘‘the possibility of a governance requirement other than unanimity, or even super-majority approval, for all but the most important decisions’’ should be considered, as it ‘‘may be appropriate to avoid a situation where a significant majority of plan sponsors—or even all but one plan sponsor—supports an initiative but, due to a unanimous voting requirement, action cannot be undertaken.’’ 219 The Commission believes that the proposed reallocation of voting rights among the SROs—combined with the provision of formal voting power to non-SROs, the provision of a two-thirds majority of votes allocated to the SROs, and the provision of an augmented majority vote rather than unanimous vote for amendments to the New Consolidated Data Plan—would further the objectives of Section 11A of the 215 See 17 CFR 242.608(b)(3). also supra note 145 (noting FINRA’s proportional voting power would increase under the provisions of the New Consolidated Data Plan as contemplated by this Order). 217 See Limited Liability Company Agreement of CAT NMS, LLC (effective Jan. 10, 2018), available at https://www.catnmsplan.com/wp-content/ uploads/2018/01/CAT-NMS-Plan-Current-as-of1.10.18.pdf; Securities Exchange Act Release No. 79318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016) (Order Approving the National Market System Plan Governing the CAT or ‘‘CAT Plan’’). See also Section 12.3 of the CAT Plan. 218 17 CFR 242.613. 219 See Securities Exchange Act Release No. 67457 (July 18, 2012), 77 FR 45722, 45787 (Aug. 1, 2012). 216 See E:\FR\FM\14JAN1.SGM 14JAN1 2182 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES Act.220 Together, these provisions would promote the prompt, accurate, reliable, and fair dissemination of core data 221 by providing for meaningful input from a broad range of stakeholders while also ensuring that the SROs retain sufficient voting power to act jointly on behalf of the plan pursuant to the requirements of Section 11A of the Act and Rule 608 of Regulation NMS.222 The Commission also believes that broader representation on the New Consolidated Data Plan operating committee would help to ensure that decisions relating to New Consolidated Data Plan operations support the prompt, accurate, reliable, and fair dissemination of core data.223 4. Consolidating the Three Equity Data Plans Into a Single New Consolidated Data Plan Although the Equity Data Plans are structured as three separate NMS plans—which reflects the less integrated equity markets at the time the Equity Data Plans were organized and approved—the three Equity Data Plans now have identical operating committees that hold joint meetings to oversee the collection, processing, and distribution of SIP data in today’s tightly integrated equity markets. Additionally, the three Equity Data Plans have the same advisory committee members, who function as one advisory committee for all three Equity Data Plans. The three Equity Data Plans also have overlapping administrative and regulatory functions and share the same revenue distribution formula, legal representation, and other professional services. The Commission believes that maintaining three separate Equity Data Plans is inefficient and creates redundant efforts on the part of the operating and advisory committee members that unnecessarily burden ongoing improvements to the SIPs and that contribute to certain duplicative costs. These redundant efforts include, among other things, maintaining accounting for three sets of legal and auditor fees, maintaining books and records for the Equity Data Plans’ businesses, filing separate amendments regarding some aspects of the Equity Data Plans with the Commission, and devoting personnel resources to coordinate and facilitate three separate Equity Data Plans. The Commission therefore believes that there should be one New Consolidated Data Plan to promote the application of consistent policies, 220 15 U.S.C. 78k–1. 221 See supra note 102. 222 15 U.S.C. 78k–1 and 17 CFR 242.608. 223 See 15 U.S.C. 78k–1(c)(1)(B). VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 procedures, terms, fees, and conditions that would be more transparent and easily understood across all data products offered and that reflect the provisions that are the subject of this Order. The Commission also believes that replacing the three existing Equity Data Plans with a single New Consolidated Data Plan with the governance structure discussed above would simplify the process of making future enhancements to the Equity Data Plans’ operations so that core data meets on a continuing basis the needs of market participants and furthers the objectives of Section 11A of the Act.224 Finally, the Commission believes that the terms of the New Consolidated Data Plan should provide for the orderly transition of functions and responsibilities from the three Equity Data Plans to the New Consolidated Data Plan. The Commission believes that the Participants, because of their significant experience in the operations of NMS plans, are well positioned to propose an efficient and orderly transition as part of the New Consolidated Data Plan they file with the Commission. D. The Operation of the New Consolidated Data Plan Given the importance of core data to the national market system, as recognized by both Congress and the Commission, and consistent with Rule 608 of Regulation NMS,225 the Commission believes that the terms, policies, and procedures of the New Consolidated Data Plan should promote the joint work of the SRO members (i.e., members that represent an exchange group or an unaffiliated SRO) and nonSRO members of the operating committee to ensure the prompt, accurate, reliable, and fair dissemination of core data.226 The Commission has set forth below certain governance provisions that the Commission believes would enable the New Consolidated Data Plan to address these issues. 1. The Role and Responsibilities of the Operating Committee The Commission believes that the New Consolidated Data Plan should set forth the role and responsibilities of the operating committee. The Commission 224 15 U.S.C. 78k-1. The Commission notes that, recently, as part of a comprehensive recommendation on reforming the U.S. equity markets, Nasdaq recommended consideration of consolidating the NMS plans for disseminating equity market data. See Nasdaq Total Markets Paper, supra note 45, at 21. 225 17 CFR 242.608. 226 See supra note 102. PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 believes that the duties of the operating committee should include, at a minimum, the provisions described below. The New Consolidated Data Plan should state that the operating committee should be responsible for proposing amendments to the New Consolidated Data Plan or implementing other policies and procedures, as necessary, to ensure the prompt, accurate, reliable, and fair collection, processing, distribution, and publication of information with respect to quotations for and transactions in NMS stocks and the fairness and usefulness of the form and content of that information, consistent with the goals of Section 11A of the Act.227 While each of the Equity Data Plans includes a general provision stating that the operating committees will propose changes to the Equity Data Plans through amendments, the Commission believes that the New Consolidated Data Plan should specifically provide that the responsibilities of the operating committee include proposing amendments to ensure that SIP data is distributed consistent with these statutory goals. The Commission believes that such a provision would encourage the operating committee to actively examine New Consolidated Data Plan operations and propose to change provisions of the New Consolidated Data Plan (or policies and procedures thereunder) that are no longer effective in carrying out the objectives of the Act. The Commission believes that the New Consolidated Data Plan operating committee’s role should also include selecting, overseeing, specifying the role and responsibilities of, and evaluating the performance of, an independent plan administrator,228 plan processors, a firm to examine and assess data usage reports and fee payments by subscribers (‘‘auditor’’),229 and other professional service providers. While the Equity Data Plans provide that the performance of the processor must be reviewed,230 the Commission believes that this obligation should be expanded to cover other professional service providers that have a significant role in the operations of the New Consolidated Data Plan to ensure that the non-SRO members of the New Consolidated Data Plan operating committee have a voice in these matters. With respect to reviewing the performance of the New Consolidated 227 15 U.S.C. 78k–1; see supra note 102. infra note 234 and accompanying text. 229 See supra note 164 and accompanying text. 230 See Section V.(d) of the CTA Plan; Section V.(d) of the CQ Plan; Section V.A. of the UTP Plan. 228 See E:\FR\FM\14JAN1.SGM 14JAN1 lotter on DSKBCFDHB2PROD with NOTICES Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices Data Plan’s processor(s), the Commission believes that the operating committee’s role should include ensuring the public reporting of the performance of the processor(s) and other metrics and information about the processor(s). The CTA Plan requires the operating committee to periodically review whether ‘‘the Processor has failed to perform its functions in a reasonably acceptable manner in accordance with the provisions of [the] CQ Plan,’’ whether ‘‘its reimbursable expenses have become excessive and are not justified on a cost basis,’’ and whether ‘‘the Processor should continue in such capacity or should be replaced.’’ 231 The CTA Plan also states that, in reviewing the performance of the processor, the operating committee shall consider factors such as ‘‘experience, technological capability, quality and reliability of service, relative costs, back-up facilities, and regulatory considerations.’’ 232 The Commission believes that the provisions in the New Consolidated Data Plan regarding the review of the processor(s) should also include a requirement that the results of the performance evaluation be made public, along with the metrics used to evaluate the processor(s) and other pertinent information about the processor(s). The Commission believes that making this information public would provide all market participants with a view of how well or poorly a processor is performing across various metrics, which would allow market participants to provide meaningful input to the operating committee and to the Commission. Further, the Commission believes that, if performance metrics are made public, the operating committee of the New Consolidated Data Plan would have enhanced incentives to ensure that the processor is functioning well and that the New Consolidated Data Plan is providing prompt, accurate, and reliable publication of information with respect to quotations for and transactions in NMS stocks.233 The Commission further believes that the administrator of the New Consolidated Data Plan should be independent, meaning that the administrator should not be owned or controlled by a corporate entity that separately offers for sale a market data product, either directly or via another subsidiary. As discussed above, the Commission believes that an entity that acts as the administrator while also offering its own proprietary data 231 Section V.(d) of the CTA Plan. 232 Id. 233 See 15 U.S.C. 78k–1(c)(1)(B). VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 products faces a substantial, inherent conflict of interest, because it would have access to sensitive customer information.234 While conflict-ofinterest and confidentiality provisions of the New Consolidated Data Plan, or of the administrator, may serve to mitigate conflicts to some extent, the Commission believes the conflicts of interest faced by a non-independent administrator are so great that these conflicts cannot be sufficiently alleviated through policies and procedures. The Commission also believes that a requirement that the New Consolidated Data Plan administrator be independent would address concerns that have been raised about the burdens imposed by the current audit process for the Equity Data Plans.235 Specifically, the Commission believes that the oversight of an independent plan administrator would help to ensure that the burdens imposed by the audit process are fair, that they are reasonably related to ensuring that data subscribers pay the amounts properly due for their data usage, and that they are not designed in a manner that affects the decision making of subscribers when determining whether to purchase proprietary TOB data feeds. Additionally, the Commission believes that the New Consolidated Data Plan should provide that any expenditures for professional services— including for example, legal counsel, public relations, and accounting services—that are paid for using New Consolidated Data Plan revenues must be for activities consistent with the terms of the New Consolidated Data Plan and must be authorized by an augmented majority of the operating committee. Because the New Consolidated Data Plan’s governance 234 As noted above, NYSE and Nasdaq currently act as administrators of the Equity Data Plans, which provides certain employees of these exchanges, through the subscriber audit process, with access to confidential data subscriber information. See supra note 52. Under the independence provision discussed above, NYSE and Nasdaq would be excluded from operating as plan administrators, although they would not be excluded from continuing to act as SIPs. There is precedent in other NMS plans for the roles of administrator and processor to be performed by different entities. As an example, for the NMS plan that governs the collection, consolidation, processing, and dissemination of last sale and quotation information for listed options—the Limited Liability Company Agreement of Options Price Reporting Authority, LLC Plan—Cboe Exchange, Inc. serves as the plan administrator and SIAC serves as the processor. The Commission notes that there would be some loss of revenue to the exchange groups currently acting as administrators to the Equity Data Plans if they are excluded from acting as plan administrator for the New Consolidated Data Plan. 235 See supra notes 164–165 and accompanying text. PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 2183 structure would be designed to represent the interests of a broad range of market participants—who may at times hold diverging views about how the New Consolidated Data Plan should operate—the Commission believes that requiring that professional services engaged by the New Consolidated Data Plan be consistent with the terms of the New Consolidated Data Plan and be authorized by an augmented majority vote would help ensure that New Consolidated Data Plan resources are expended in furtherance of the purposes of the New Consolidated Data Plan and that both SRO and non-SRO members of the operating committee have input into this important aspect of New Consolidated Data Plan operations. Further, the Commission believes that the New Consolidated Data Plan should include provisions to ensure that the operating committee is responsible for assessing the marketplace for equity market data products and ensuring that SIP data offerings are priced in a manner that is fair and reasonable and are designed to ensure the widespread availability of SIP data 236 that is useful to a broad range of investors and other market participants.237 Imposing a direct responsibility on the operating committee of the New Consolidated Data Plan to keep abreast of changes in the marketplace regarding demands for and pricing of equity market data, and to ensure that SIP data meets those demands and are widely distributed at fair and reasonable prices, should help ensure that the SIPs’ data feeds support the findings and goals of Section 11A of the Act.238 Finally, the Commission believes that the New Consolidated Data Plan operating committee’s role should include designing and maintaining a fair and reasonable revenue allocation formula for distributing plan revenues to be applied by the independent plan administrator, and overseeing, reviewing and revising that formula as needed. Over the past several years, market participants have suggested updating the market data revenue allocation.239 For example, during the 236 See supra note 16. 15 U.S.C. 78k–1(c)(1)(C) (providing that the Commission shall assure the usefulness of the form and content of information with respect to quotations for and transactions in securities). 238 15 U.S.C. 78k–1. 239 See, e.g., Transcript of EMSAC Meeting (Apr. 5, 2017), at 0037:5–11 (statement of Adam Nunes, Hudson River Trading), available at https:// www.sec.gov/spotlight/equity-market-structure/ emsac-transcript-040517.txt (‘‘We had people splitting all their trades up into hundred-share lots to maximize their revenue share. And now, we look today with . . . quote-sharing where . . . you see 237 See E:\FR\FM\14JAN1.SGM Continued 14JAN1 2184 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices Roundtable, one panelist recommended that the Commission undertake rulemaking to simplify the revenue allocation formula.240 Another panelist highlighted work done to increase transparency on the revenue allocation formula, including publishing a ‘‘plainlanguage version of the revenue allocation formula’’ on the Equity Data Plans’ websites.241 In addition, Nasdaq has stated that the revenue allocation formula needs improvement as certain exchanges have ‘‘skewed the expected allocation of revenue by attracting displayed quotations without executing a commensurate number of trades.’’ 242 Nasdaq has expressed support for modifying the revenue allocation formula to reward displayed quotes where investors receive an execution.243 The Commission believes that the operating committee of the New Consolidated Data Plan, with the broader representation of market participants contemplated by this Order, would be well situated to address issues such as these regarding Equity Data Plans’ revenue allocation. lotter on DSKBCFDHB2PROD with NOTICES 2. Executive Session Policy In response to requests for improving the transparency of the use of executive session (i.e., meetings from which members of the advisory committee are excluded),244 the Equity Data Plans have implemented an executive session policy under which the following topics are appropriate for consideration or action in executive session: Fees that require discussion of non-public financial information; subscriber audit findings; discussions requiring the a massive disparity between exchanges’ quote share and their market share. So, I do think that that’s something that should be addressed.’’); Letter from David M. Weisberger, President, Exquam LLC (Mar. 24, 2017), at 4–5, available at https://www.sec.gov/ comments/265-29/26529-1666811-148978.pdf (stating that the ‘‘quote based calculation in the rule is . . . flawed’’ and recommending that the allocation formula be based ‘‘on the value of trades in each stock resulting from interaction with a displayed quote.’’). 240 See Day One Transcript, supra note 38, at 117:1–2 (statement of Michael Blaugrund, NYSE) (recommending that the Commission undertake rulemaking to simplify the revenue allocation formula). 241 Day Two Transcript, supra note 113, at 90:13– 16 and 97:16–22 (statements of Emily Kasparov, Chicago Stock Exchange, Inc. (n/k/a NYSE Chicago)). 242 See Nasdaq Total Markets Paper, supra note 45, at 22. See also Day Two Transcript, supra note 113, at 174:25–175:10 (statement of John Yetter, Nasdaq); Nasdaq 2018 Letter, supra note 177, at 5. 243 See id. (‘‘If the goal of consolidated data is to improve market quality, the revenue allocation formula should aim to improve the quality of quotes on public exchanges, where available liquidity is always on display and an execution can be accomplished.’’). 244 See, e.g., EMSAC Governance Recommendations, supra note 136, at 2. VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 disclosure of material non-public information; financial reports containing non-public financial information; the portion of a discussion or evaluation of administrator and processor performance that includes confidential information; contract negotiations, awards, and revocations that contain confidential information; advisory committee member selection; litigation matters; and confidential, nonpublic discussions with the Commission and its staff.245 While the Commission believes that the New Consolidated Data Plan would have no need to provide for an advisory committee,246 the Commission expects that the SROs will continue to hold executive sessions that will exclude non-SRO members of the operating committee. Thus, the Commission believes the New Consolidated Data Plan should include an executive session policy. During the Roundtable, exchanges pointed to progress on limiting the use of executive sessions by the SROs.247 One exchange commenter highlighted recent improvements in transparency that have resulted from shifting more discussions about SIP operations from executive sessions to the general sessions.248 Another exchange commenter expressed a willingness to increase public transparency of SIP operations and limit time spent in executive sessions.249 Other panelists, however, raised continuing concerns.250 245 The Commission’s understanding of the executive session policies of the Equity Data Plans is based on information obtained by the Commission or its staff as part of the Commission’s oversight of the Equity Data Plans. 246 See infra note 253. 247 Day Two Transcript, supra note 113, at 141:3– 18 (statement of Emily Kasparov, Chicago Stock Exchange, Inc. (n/k/a NYSE Chicago)). One exchange commenter highlighted meeting minutes that showed SIP Participants spending little time in executive sessions. See Nasdaq 2018 Letter, supra note 177, at 21 (‘‘The executive session minutes reveal that the SIP Participants spend very little time in executive session, as little as 12 minutes in the last meeting.’’). This commenter also stated that ‘‘[g]overnance of the SIPs is substantially more transparent than it once was’’ and that advisory committee members ‘‘enjoy access to information that is nearly coextensive with that of the SIP Participants.’’ 248 See NYSE Letter, supra note 137, at 19 (‘‘Among other things, the Operating Committees have shifted most discussions about SIP operations from its Executive Sessions, which are not attended by the Advisory Committee, to the General Sessions, which are. The Operating Committee also provides transparency into why an agenda item is confidential and should be included in the Executive Session and requires a vote by the Plan participants before an agenda item is moved to the Executive Session.’’). 249 See Letter from Oliver Albers, SVP, Head of Global Partnerships, Nasdaq (Oct. 24, 2018), at 9, available at https://www.sec.gov/comments/4-729/ 4729-4560081-176209.pdf. 250 Day Two Transcript, supra note 113, at 143:16–21 (statement of John Ramsay, IEX) (‘‘I have PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 For example, one industry panelist stated there should be a ‘‘litmus test’’ for determining if a matter deserved executive session consideration.251 The Commission believes that, by permitting the SROs to hold discussions and make decisions in executive session without the advisory committee members present, the Equity Data Plans have limited the ability of advisory committee members to influence the operation of the Equity Data Plans.252 While the Commission recognizes there may be circumstances in which deliberation by the SROs alone may be appropriate, any overuse of executive session limits transparency on Equity Data Plans’ governance and has the potential to impede the advisory committee’s ability to exercise its voice in key decisions. The Commission acknowledges that the current Equity Data Plans’ executive session policies provide some specificity regarding the subject matters eligible for executive session. The Commission believes, however, that the list of eligible items for executive session under the New Consolidated Data Plan should be more limited, particularly given that, as contemplated by this Order, the membership of the New Consolidated Data Plan operating committee would include non-SRO members.253 Therefore, the Commission believes that the New Consolidated Data Plan should include an executive session policy that permits the SROs to hold executive sessions only in circumstances when it is appropriate to witnessed cases where matters end up in executive session because they’re sensitive, in the sense that the committee members might come under criticism from folks in the industry, rather than it’s really so much a direct conflict of the type that really should require executive session.’’); id. at 144:8–19 (statement of Hubert de Jesus, Blackrock) (expressing concern for the carve-outs permitting use of executive session). 251 See Day Two Transcript, supra note 113, at 145:11–15 (statement of Kevin Cronin, Invesco). 252 See Fidelity Letter, supra note 114, at 4 (‘‘SIP Operating Committees typically meet in an executive session for formal votes. SIP Advisory Committee members act in a consultative role on select issues that the Operating Committees choose to bring to them, and Advisory Committee members are not invited to, nor do they have a vote on, matters discussed in the Operating Committees.’’); SIFMA, Proposal for the Creation of Competing Market Data Aggregators, at 13 (attached to SIFMA Letter III, supra note 57) (‘‘Advisory committee members are given no substantive voice in the operation of the SIPs, and the SROs conduct all of the meaningful business of the SIPs in executive session, from which advisory committee members are excluded.’’). 253 As noted above, the Commission believes that non-SRO members should have voting rights on the New Consolidated Data Plan operating committee, and therefore the New Consolidated Data Plan would not need to provide for an advisory committee. See supra note 155 and accompanying text. E:\FR\FM\14JAN1.SGM 14JAN1 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices exclude non-SRO members of the operating committee, such as, for example, discussions regarding matters that exclusively affect the SROs with respect to the Commission’s oversight of the New Consolidated Data Plan (including attorney-client communications relating to such matters). The Commission also believes that, in furtherance of greater transparency, the New Consolidated Data Plan should require that a request to enter into an executive session be included on the written agenda along with a clearly stated rationale for each matter to be discussed and be approved by a majority vote of the SRO members of the operating committee. lotter on DSKBCFDHB2PROD with NOTICES 3. Conflicts of Interest Policy Several Roundtable panelists discussed imposing a disclosure-based policy to address conflicts of interest concerns,254 including one exchange that supported greater disclosure—for both the SROs and advisory committee members.255 Another exchange stated that the operating committees of the Equity Data Plans should not have exchange representatives who have a ‘‘direct-line responsibility for proprietary data.’’ 256 Other commenters and one panelist observed that the advisory committee members are not immune to conflicts of interest 257 and recommended that the Equity Data Plans establish a conflict-of-interest identification and management provision, as well as enforcement mechanisms, for both the SROs and advisory committee members.258 254 See, e.g., Day Two Transcript, supra note 113, at 117:24–118:7 (statement of Richard Ketchum, Former CEO of FINRA). 255 See Day Two Transcript, supra note 113, at 108:3–20 (statement of Bryan Harkins, Cboe). 256 Day Two Transcript, supra note 113, at 125:15–18 (statement of John Ramsay, IEX). 257 See, e.g., Day Two Transcript, supra note 113, at 117:22–23 (statement of Richard Ketchum, Former CEO of FINRA) (‘‘Industry members obviously have conflicts in a variety of ways.’’). 258 See Healthy Markets Letter, supra note 113, at 16 (‘‘These ‘appointed’ members may dominate the committee’s membership and may also have loyalties and business interests that may conflict with sound governance practices. This concern may be exacerbated if Advisory Committee members remain on the committee for extended periods of time, or if the leadership of the committee does not rotate.’’); id. at 40 (recommending that the Commission ‘‘[e]stablish clear conflicts of interest identification and management provisions and enforcement mechanisms for both Operating Committee and Advisory Committee members’’); Nasdaq 2018 Letter, supra note 177, at 20 (‘‘Expanding the authority of the advisory committees magnifies potential conflicts of interest that must be acknowledged, controlled, and coupled with increased obligations to promote public transparency. For example, market participants that operate their own ‘dark pools’ are simultaneously SIP customers, SIP revenue recipients, and SRO competitors.’’); NYSE Group VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 The Commission believes that the New Consolidated Data Plan should include a comprehensive conflicts of interest policy. As discussed above, in the Commission’s view, conflicts of interest are inherent to the Equity Data Plans’ current governance structure because some exchange Participants have a dual role as both an SRO jointly responsible for the operation of the Equity Data Plans and part of a publicly held company that offers proprietary data products.259 Moreover, an SRO representative on the operating committee may have direct responsibility for some or all of an exchange’s proprietary data business. Recognizing that non-SRO representatives in the New Consolidated Data Plan may also have dual roles as voting members of the operating committee and employees of businesses that utilize core data or proprietary data feeds, the Commission believes that the New Consolidated Data Plan should include comprehensive conflict-ofinterest provisions for both SRO and non-SRO representatives of the operating committee.260 4. Confidentiality Policy In the operation of the Equity Data Plans, Participants and Participant representatives have been privy to confidential and proprietary information of substantial commercial or competitive value, including, among other things, information about core data usage, the SIPs’ customer lists, financial information, and subscriber audit results.261 However, the terms of the Equity Data Plans do not address commercial use of confidential or proprietary information by the Participants. The Commission therefore believes that the New Consolidated Data Plan should include provisions regarding the treatment of confidential information. Letter, supra note 116, at 19 (‘‘[A]bsent the same regulatory obligations of exchanges, Advisory Committee members would not have an incentive to cast their votes consistent with the terms of the Plan.’’). 259 As discussed above, the Commission has observed that advisory committee members currently have limited ability to participate in the decision making of the Equity Data Plans, and the interests of many shareholders of the exchanges may not be aligned with members’ interests or the interests of other interested parties. See supra Section II.B.1. 260 See Day Two Transcript, supra note 113, at 92:16–20 (statement of Hubert de Jesus, Blackrock) (stating that the conflicts of interest policy should address the core conflict between SIP and proprietary data feed interests and establish procedures to manage these conflicts among representatives). 261 See supra note 118–119 and accompanying text. PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 2185 5. Other Provisions of the New Consolidated Data Plan Because SIP data plays a critical role in the operation of the national market system, the Commission believes that the prompt, accurate, reliable, and fair collection, processing, distribution, and publication of SIP data must be maintained through the transition from the existing Equity Data Plans to the New Consolidated Data Plan. Therefore, the Commission believes that the New Consolidated Data Plan’s terms should provide for the orderly and predictable transition of functions and responsibilities from the three existing Equity Data Plans to the New Consolidated Data Plan. The Commission believes that this transition should contemplate a period of time during which the Equity Data Plans continue to have responsibility for the collection, processing, and dissemination of SIP data, and for determining, collecting, and allocating data fees, while the New Consolidated Data Plan commences operations and prepares to assume responsibility for SIP data. The Commission believes that this transition period should provide that, before the New Consolidated Data Plan assumes responsibility for the dissemination of SIP data, the members of the New Consolidated Data Plan operating committee will be selected and the New Consolidated Data Plan operating committee will have a reasonable period of time to launch its formal operations. For example, before commencing operations, the operating committee of the New Consolidated Data Plan would need to, among other things, select plan processors 262 and an independent plan administrator, and adopt a fee schedule. In particular, as part of this transition, the Commission believes that until the New Consolidated Data Plan has become operational, fees for data products disseminated by the SIPs should continue to be governed by the provisions of the existing Equity Data Plans. As discussed above,263 the Commission believes that the SROs face inherent conflicts of interest with respect to the operation of the Equity Data Plans, and the Commission therefore believes that a schedule of fees for data products offered by the New Consolidated Data Plan should be filed by the New Consolidated Data Plan operating committee, which would reflect broader representation of market 262 The role of the operating committee of the New Consolidated Data Plan would include selecting plan processors. 263 See supra Section II.A. E:\FR\FM\14JAN1.SGM 14JAN1 lotter on DSKBCFDHB2PROD with NOTICES 2186 Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices participants. The Commission believes that this should help to mitigate the conflicts of interest faced by the exchanges and should help to ensure that decisions relating to New Consolidated Data Plan operations support the prompt, accurate, reliable, and fair dissemination of core data.264 Finally, the Commission recognizes that the Equity Data Plans govern the operations of separate and distinct SIPs, each of which contains unique features, and that the Equity Data Plans therefore contain distinct operational and technical provisions relating to these SIPs. In addition, the Equity Data Plans contain a number of provisions relating to other areas, including provisions specifically addressing governance, administrative, financial, and other miscellaneous matters. Under the New Consolidated Data Plan, there would be one NMS plan, along with one independent plan administrator, responsible for the governance and operation of multiple SIPs. The Commission believes, therefore, that the New Consolidated Data Plan submitted by the SROs under this Order should propose to adopt and include all other provisions of the Equity Data Plans necessary for the operation and oversight of the SIPs under the New Consolidated Data Plan, provided that these additional provisions are in furtherance of the purposes of the New Consolidated Data Plan as expressed in this Order and are not inconsistent with any regulatory requirements. Further, the New Consolidated Data Plan should, where possible, attempt to harmonize inconsistencies among, and combine duplicate provisions in, the Equity Data Plans that do not unavoidably arise from the existence of separate and distinct SIPs. Finally, as discussed above, existing fee schedules should continue to remain in effect under the Equity Data Plans until a fee schedule for the New Consolidated Data Plan, authorized by the new operating committee of the New Consolidated Data Plan after it is constituted, becomes effective. * * * * * As noted above, Section 11A(a)(2) of the Act 265 directs the Commission, having due regard for the public interest, the protection of investors, and the maintenance of fair and orderly markets, to facilitate the establishment of a national market system for securities. Section 11A(a)(3)(B) provides the Commission the authority to require the SROs, by order, ‘‘to act jointly . . . in planning, developing, operating, or 264 See 265 15 15 U.S.C. 78k–1(c)(1)(B). U.S.C. 78k–1(a)(2). VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 regulating a national market system (or a subsystem thereof).’’ 266 For the reasons discussed above, the Commission believes that it is in the public interest to require the Participants in the Equity Data Plans to jointly develop and file with the Commission a New Consolidated Data Plan as an NMS plan pursuant to Rule 608(a) of Regulation NMS.267 III. The New Consolidated Data Plan The Commission hereby orders the Participants in the Equity Data Plans to jointly develop and file with the Commission, as an NMS plan pursuant to Rule 608(a) of Regulation NMS,268 a single New Consolidated Data Plan that consolidates the three current Equity Data Plans and that includes, at a minimum, the following terms and conditions: • The New Consolidated Data Plan shall provide for the orderly transition of functions and responsibilities from the three existing Equity Data Plans and shall provide that dissemination of, and fees for, SIP data will continue to be governed by the provisions of the Equity Data Plans until the New Consolidated Data Plan is ready to assume responsibility for the dissemination of SIP data and fees of the New Consolidated Data Plan have been approved. • The New Consolidated Data Plan shall provide that each exchange group and unaffiliated SRO will be entitled to name a member of the operating committee (SRO member), who will be authorized to cast one vote on all operating committee matters pertaining to the operation and administration of the New Consolidated Data Plan, provided that an SRO member representing an exchange group or an unaffiliated SRO whose market center(s) have consolidated equity market share of more than 15% during four of the six calendar months preceding a vote of the operating committee will be authorized to cast two votes, and provided that an SRO member representing an exchange that has ceased operations as an equity trading venue, or has yet to commence operation as an equity trading venue, will not be permitted to cast a vote on New Consolidated Data Plan matters. • The New Consolidated Data Plan shall provide that the operating committee will include, for a term of 266 15 U.S.C. 78k–1(a)(3)(B). CFR 242.608(a). 268 17 CFR 242.608(a). The New Consolidated Data Plan, or any amendment thereto, must comply with the requirements of Rule 608 of Regulation NMS, including the requirement in Rule 608(a) to include an analysis of the impact on competition. 17 CFR 242.608(a). 267 17 PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 two years, and for a maximum term to be set forth in the New Consolidated Data Plan, individuals representing each of the following categories: An institutional investor (e.g., an asset management firm), a broker-dealer with a predominantly retail investor customer base, a broker-dealer with a predominantly institutional investor customer base, a securities market data vendor, an issuer of NMS stock, and a retail investor (i.e., Non-SRO Members), provided that the representatives of the securities market data vendor, the issuer, and the retail investor, respectively, may not be affiliated with an SRO, a broker-dealer, or an institutional investor. • The New Consolidated Data Plan shall provide that the initial Non-SRO Members will be selected by a majority vote of those current members of the Equity Data Plans’ advisory committees, excluding advisory committee members who were selected by a Participant to be its representative, and, further, that until the initial Non-SRO Members have been selected, the Participants shall renew the expiring terms of all members of the Equity Data Plans’ advisory committee (other than those selected to represent a Participant) who remain willing to serve in that role. • The New Consolidated Data Plan shall provide for a fair and transparent nomination process for Non-SRO Members. • The New Consolidated Data Plan shall provide that the aggregate number of votes provided to Non-SRO Members will, at all times, be one half of the aggregate number of SRO member votes and the number of Non-SRO Member votes will increase or decrease as necessary to ensure that the ratio between the number of SRO member votes and the number of Non-SRO Member votes is maintained, with NonSRO Member votes equally allocated, by fractional shares of a vote as necessary, among the Non-SRO Members authorized and eligible to vote. • The New Consolidated Data Plan shall include provisions to address circumstances in which a member is unable to attend an operating committee meeting or to cast a vote on a matter. • The New Consolidated Data Plan shall provide that all actions under the terms of the New Consolidated Data Plan, except for the selection of NonSRO Members and decisions to enter into an SRO-only executive session, will be required to be authorized by an augmented majority vote. • The New Consolidated Data Plan shall provide that the responsibilities of the operating committee will include: E:\FR\FM\14JAN1.SGM 14JAN1 lotter on DSKBCFDHB2PROD with NOTICES Federal Register / Vol. 85, No. 9 / Tuesday, January 14, 2020 / Notices Æ Proposing amendments to the New Consolidated Data Plan or implementing other policies and procedures as necessary to ensure prompt, accurate, reliable, and fair collection, processing, distribution, and publication of information with respect to quotations for and transactions in NMS stocks and the fairness and usefulness of the form and content of that information; Æ selecting, overseeing, specifying the role and responsibilities of, and evaluating the performance of, an independent plan administrator, plan processors, an auditor, and other professional service providers, provided that any expenditures for professional services that are paid for from New Consolidated Data Plan revenues must be for activities consistent with the terms of the New Consolidated Data Plan and must be authorized by an augmented majority of the operating committee; Æ developing and maintaining fair, reasonable, and consistent terms and fees for the distribution, transmission, and aggregation of core data; Æ reviewing the performance of the plan processors; and ensuring the public reporting of plan processors’ performance and other metrics and information about the plan processors; Æ assessing the marketplace for equity market data products and ensuring that SIP data offerings are priced in a manner that is fair and reasonable, and designed to ensure the widespread availability of SIP data to investors and market participants; and Æ designing a fair and reasonable revenue allocation formula for allocating plan revenues to be applied by the independent plan administrator, and overseeing, reviewing and revising that formula as needed. • The New Consolidated Data Plan shall provide that the independent plan administrator will not be owned or controlled by a corporate entity that offers for sale its own proprietary market data product, either directly or via another subsidiary. • The New Consolidated Data Plan shall include provisions designed to address the conflicts of interest of SRO Members and Non-SRO Members. • The New Consolidated Data Plan shall include provisions designed to protect confidential and proprietary information from misuse. • The New Consolidated Data Plan shall provide that the use of executive session of SRO members will be confined to circumstances in which it is appropriate to exclude Non-SRO Members, such as, for example, discussions regarding matters that exclusively affect the SROs with respect VerDate Sep<11>2014 18:41 Jan 13, 2020 Jkt 250001 to the Commission’s oversight of the New Consolidated Data Plan (including attorney-client communications relating to such matters). • The New Consolidated Data Plan shall provide that requests to enter into an executive session of SRO members will be required to be included on a written agenda, along with a clearly stated rationale for each matter to be discussed and must be approved by a majority vote of the SRO members of the operating committee. • To the extent that those provisions are in furtherance of the purposes of the New Consolidated Data Plan as expressed in this Order and not inconsistent with any other regulatory requirements, the New Consolidated Data Plan shall adopt and include all other provisions of the Equity Data Plans necessary for the operation and oversight of the SIPs under the New Consolidated Data Plan, and the New Consolidated Data Plan should, to the extent possible, attempt to harmonize and combine existing provisions in the Equity Data Plans that relate to the Equity Data Plans’ separate processors. * * * * * It is hereby ordered, pursuant to Section 11A(a)(3)(B) of the Act,269 that the Participants act jointly in developing and filing with the Commission, as an NMS plan pursuant to Rule 608(a) of Regulation NMS,270 a New Consolidated Data Plan, as described above. The Participants are ordered to file the New Consolidated Data Plan with the Commission no later than [90 days after the order is issued]. By the Commission. Vanessa Countryman, Secretary. [FR Doc. 2020–00360 Filed 1–13–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87912; File No. SR–NSCC– 2019–802] Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Advance Notice To Issue Term Debt as Part of Its Liquidity Risk Management January 8, 2020. Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act entitled the Payment, Clearing, and Settlement Supervision Act of 2010 269 15 270 17 PO 00000 U.S.C. 78k–1(a)(3)(B). CFR 242.608(a). Frm 00084 Fmt 4703 Sfmt 4703 2187 (‘‘Clearing Supervision Act’’) 1 and Rule 19b–4(n)(1)(i) under the Securities Exchange Act of 1934 (‘‘Act’’),2 notice is hereby given that on December 13, 2019, National Securities Clearing Corporation (‘‘NSCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the advance notice SR–NSCC–2019–802 (‘‘Advance Notice’’) as described in Items I, II and III below, which Items have been prepared by the clearing agency. The Commission is publishing this notice to solicit comments on the Advance Notice from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Advance Notice This Advance Notice is filed by NSCC in connection with a proposal to raise additional prefunded liquidity resources through the periodic issuance and private placement of term debt (‘‘Debt Issuance’’). The proceeds from the Debt Issuance would supplement NSCC’s existing default liquidity risk management resources. The proposed changes are described in greater detail below. II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Advance Notice In its filing with the Commission, NSCC included statements concerning the purpose of and basis for the Advance Notice and discussed any comments it received on the Advance Notice. The text of these statements may be examined at the places specified in Item IV below. NSCC has prepared summaries, set forth in sections A and B below, of the most significant aspects of such statements. (A) Clearing Agency’s Statement on Comments on the Advance Notice Received From Members, Participants, or Others Written comments on the Advance Notice have not been solicited or received. NSCC will notify the Commission of any written comments received by NSCC. (B) Advance Notice Filed Pursuant to Section 806(e) of the Clearing Supervision Act Description of Proposed Change NSCC is proposing to raise additional prefunded liquidity through the periodic issuance and private placement of term debt to qualified institutional investors in an aggregate amount not to exceed $10 billion, as described in 1 12 2 17 E:\FR\FM\14JAN1.SGM U.S.C. 5465(e)(1). CFR 240.19b–4(n)(1)(i). 14JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 9 (Tuesday, January 14, 2020)]
[Notices]
[Pages 2164-2187]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00360]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87906; File No. 4-757]


Notice of Proposed Order Directing the Exchanges and the 
Financial Industry Regulatory Authority To Submit a New National Market 
System Plan Regarding Consolidated Equity Market Data

January 8, 2020.

I. Introduction

    As discussed in more detail in the attached proposed order 
(``Proposed Order''),\1\ certain market developments have given rise to 
concerns about whether--as currently structured--the existing national 
market system plans (the ``Equity Data Plans'') \2\ that govern the 
public dissemination of real-time, consolidated equity market data for 
national market system stocks continue

[[Page 2165]]

to fulfill their statutory purpose under Section 11A of the Securities 
Exchange Act of 1934 (``Act'').\3\ To begin the process of addressing 
these concerns, and pursuant to Section 11A(a)(3)(B) of the Act,\4\ the 
Commission is publishing for comment the attached Proposed Order, which 
if ultimately issued by the Commission, would require the participants 
in the Equity Data Plans \5\ to propose a single, new equity data plan 
(``New Consolidated Data Plan'').
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    \1\ See Attachment A.
    \2\ The three Equity Data Plans that currently govern the 
collection, consolidation, processing, and dissemination of SIP data 
are (1) the Consolidated Tape Association Plan (``CTA Plan''), (2) 
the Consolidated Quotation Plan (``CQ Plan''), and (3) the Joint 
Self-Regulatory Organization Plan Governing the Collection, 
Consolidation, and Dissemination of Quotation and Transaction 
Information for Nasdaq-Listed Securities Traded on Exchanges on an 
Unlisted Trading Privileges Basis (``UTP Plan''). Each of the Equity 
Data Plans is an NMS plan under Rule 608 of Regulation NMS. 17 CFR 
242.608; see also Securities Exchange Act Release Nos. 10787 (May 
10, 1974), 39 FR 17799 (order approving CTA Plan); 15009 (July 28, 
1978), 43 FR 34851 (Aug. 7, 1978) (order temporarily approving CQ 
Plan); 16518 (Jan. 22, 1980), 45 FR 6521 (Jan. 28, 1980) (order 
permanently approving CQ Plan); and 28146 (June 26, 1990), 55 FR 
27917 (July 6, 1990) (order approving UTP Plan). The Commission 
notes that the options exchanges are participants in the Limited 
Liability Company Agreement of Options Price Reporting Authority, 
LLC (``OPRA Plan''), an NMS plan under Rule 608 of Regulation NMS, 
which governs the collection, consolidation, processing, and 
dissemination of last sale and quotation information for listed 
options. See Securities Exchange Act Release Nos. 17638 (Mar. 18, 
1981), 22 SEC. Docket 484 (Mar. 31, 1981); 61367 (Jan. 15, 2010), 75 
FR 3765 (Jan. 22, 2010). The Commission is proposing to take an 
incremental approach to addressing governance issues related to NMS 
plans and is at this time proposing to address only the governance 
of the Equity Data Plans. The Commission may in the future consider 
the governance of the OPRA Plan.
    \3\ 15 U.S.C. 78k-1.
    \4\ 15 U.S.C. 78k-1(a)(3)(B).
    \5\ Cboe BYX Exchange, Inc. (``BYX''), Cboe BZX Exchange, Inc. 
(``BZX''), Cboe EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, 
Inc. (``EDGX''), Cboe Exchange, Inc. (``Cboe''), Investors Exchange 
LLC (``IEX''), Long Term Stock Exchange, Inc. (``LTSE''), Nasdaq BX, 
Inc. (``BX''), Nasdaq ISE, LLC (``ISE''), Nasdaq PHLX LLC 
(``PHLX''), Nasdaq Stock Market LLC (``Nasdaq''), New York Stock 
Exchange LLC (``NYSE''), NYSE American LLC (``NYSE American''), NYSE 
Arca, Inc. (``NYSE Arca''), NYSE Chicago, Inc. (``NYSE Chicago''), 
NYSE National, Inc. (``NYSE National''), and Financial Industry 
Regulatory Authority, Inc. (``FINRA'') (each a ``Participant'' or a 
``Self-Regulatory Organization'' (``SRO'') and, collectively, the 
``Participants'' or ``the SROs'').
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    Based upon input received from a broad range of market participants 
(including the SROs), the Commission's Equity Market Structure Advisory 
Committee, and its own regulatory oversight of the Equity Data Plans, 
the Commission has set forth in the Proposed Order its concerns 
regarding the Equity Data Plan's provision of equity market data,\6\ 
its views regarding issues arising from the current governance 
structure of the Equity Data Plans,\7\ and the specific governance 
provisions that the Commission preliminarily believes would enable the 
New Consolidated Data Plan to address these concerns and issues.\8\ The 
Commission seeks public comment on each of these aspects of the 
Proposed Order.
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    \6\ See Attachment A, Section II.A.
    \7\ See Attachment A, Section II.B.
    \8\ See Attachment A, Sections II.C & II.D.
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    To the extent that the Participants have additional insights into 
the concerns and issues discussed in the Proposed Order, or are able to 
identify and suggest additional or alternative measures to those that 
the Commission has preliminarily set forth in the Proposed Order, the 
Commission will consider such information and suggestions, as well as 
any other comment on the Proposed Order. The Commission requests that 
any alternatives include a comprehensive explanation as to why the 
alternative would be effective in addressing the significant issues 
discussed in the Proposed Order regarding the current governance and 
operation of the Equity Data Plans.
    After considering any comments received on the Proposed Order, the 
Commission will consider what action to take, including whether to 
issue a final order requiring the Participants to file a New 
Consolidated Data Plan. If the Commission issues such a final order, 
the New Consolidated Data Plan then submitted by the Participants would 
be published for public comment, and, after considering any comments 
received on the New Consolidated Data Plan filed by the Participants, 
the Commission would consider whether to approve the New Consolidated 
Data Plan, with any changes or subject to such conditions as the 
Commission may deem necessary or appropriate.\9\ Unless or until a New 
Consolidated Data Plan has been approved by the Commission, the Equity 
Data Plans will continue to govern the collection, processing, and 
dissemination of equity market data.
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    \9\ See Rule 608 of Regulation NMS, 17 CFR 242.608.
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    The Participants have submitted proposed amendments to the existing 
Equity Data Plans to (a) make mandatory their current disclosure 
policies with respect to conflicts of interest,\10\ and (b) establish a 
policy regarding the confidential treatment of any data or information 
generated, accessed, transmitted to, or discussed by the operating 
committee.\11\ Contemporaneously with the publication of this Notice of 
Proposed Order, the Commission is publishing for notice and comment 
these proposed amendments to the Equity Data Plans.\12\
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    \10\ See Thirtieth Substantive Amendment to the Second 
Restatement of the CTA Plan and Twenty-Second Substantive Amendment 
to the Restated CQ Plan, dated July 3, 2019, submitted to Vanessa 
Countryman, Secretary, Commission; Forty-Fourth Amendment to the UTP 
Plan, dated July 3, 2019, submitted to Vanessa Countryman, 
Secretary, Commission.
    \11\ See Thirty-Third Substantive Amendment to the Second 
Restatement of the CTA Plan and Twenty-Fourth Substantive Amendment 
to the Restated CQ Plan, dated November 19, 2019, submitted to 
Vanessa Countryman, Secretary, Commission; Forty-Seventh Amendment 
to the UTP Plan, dated November 19, 2019, submitted to Vanessa 
Countryman, Secretary, Commission.
    \12\ See Securities Exchange Act Release Nos. 87907 (Jan. 8, 
2020) (Notice of Filing of the Thirty-Third Substantive Amendment to 
the Second Restatement of the CTA Plan and Twenty-Fourth Substantive 
Amendment to the Restated CQ Plan); 87908 (Jan. 8, 2020) (Notice of 
Filing of the Forty-Fourth Amendment to the UTP Plan); 87909 (Jan. 
8, 2020) (Notice of Filing of the Thirty-Third Substantive Amendment 
to the Second Restatement of the CTA Plan and Twenty-Fourth 
Substantive Amendment to the Restated CQ Plan); and 87910 (Jan. 8, 
2020) (Notice of Filing of the Forty-Seventh Amendment to the UTP 
Plan).
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* * * * *
    Interested persons are invited to submit written presentations of 
views, data, and arguments concerning the Proposed Order, including the 
Proposed Order's discussion of concerns with the current provision of 
equity market data by the Equity Data Plans, the Proposed Order's 
discussion of issues with the current governance structure of the 
Equity Data Plans, the specific provisions set forth in the Proposed 
Order to address those concerns and issues, and the likely economic 
consequences, including those of any proposed alternative provisions.

II. Procedure for Written Comments

    All comments should be submitted by February 28, 2020. Comments may 
be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to: [email protected]. Please include 
File Number 4-757 on the subject line.

Paper Comments

     Send paper comments to: Secretary, Securities and Exchange 
Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number 4-757. This file number 
should be included on the subject line if email is used. To help the 
Commission process and review your comments more efficiently, please 
use only one method. The Commission will post all comments on the 
Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the all written statements with respect to the Proposed Order 
that are filed with the Commission, and all written communications 
relating to the Proposed Order between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for website 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street NE, Washington, DC 20549 on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted 
without change. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number 4-757 
and should be submitted on or before February 28, 2020.


[[Page 2166]]


    By the Commission.
Vanessa A. Countryman,
Secretary.

Attachment A

Securities and Exchange Commission

(Release No. 34-)
[Date]

Order Directing the Exchanges and the Financial Industry Regulatory 
Authority To Submit a New National Market System Plan Regarding 
Consolidated Equity Market Data

    Notice is hereby given that, pursuant to Section 11A(a)(3)(B) of 
the Securities Exchange Act of 1934 (``Act''),\1\ the Securities and 
Exchange Commission (``Commission'') orders the Cboe BYX Exchange, Inc. 
(``BYX''), Cboe BZX Exchange, Inc. (``BZX''), Cboe EDGA Exchange, Inc. 
(``EDGA''), Cboe EDGX Exchange, Inc. (``EDGX''), Cboe Exchange, Inc. 
(``Cboe''), Investors Exchange LLC (``IEX''), Long Term Stock Exchange, 
Inc. (``LTSE''), Nasdaq BX, Inc. (``BX''), Nasdaq ISE, LLC (``ISE''), 
Nasdaq PHLX LLC (``PHLX''), Nasdaq Stock Market LLC (``Nasdaq''), New 
York Stock Exchange LLC (``NYSE''), NYSE American LLC (``NYSE 
American''), NYSE Arca, Inc. (``NYSE Arca''), NYSE Chicago, Inc. 
(``NYSE Chicago''), NYSE National, Inc. (``NYSE National''), and 
Financial Industry Regulatory Authority, Inc. (``FINRA'') (each a 
``Participant'' or a ``Self-Regulatory Organization'' (``SRO'') and, 
collectively, the ``Participants'' or ``the SROs'') to act jointly in 
developing and filing with the Commission a proposed new single 
national market system plan (the ``New Consolidated Data Plan''), which 
will replace the existing national market system plans (the ``Equity 
Data Plans'') \2\ that govern the public dissemination of real-time, 
consolidated equity market data for national market system stocks 
(``NMS stocks'').\3\ The New Consolidated Data Plan shall be filed with 
the Commission pursuant to Rule 608 of Regulation NMS \4\ no later than 
[90 days after the order is issued].
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    \1\ 15 U.S.C. 78k-1(a)(3)(B).
    \2\ See infra note 31 and accompanying text.
    \3\ Generally, NMS stocks include any security, other than an 
option, for which transaction reports are collected, processed, and 
made available pursuant to an effective transaction reporting plan. 
See 17 CFR 242.600(b)(47).
    \4\ 17 CFR 242.608.
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    The public dissemination of consolidated information about quotes 
and trades in equity securities is a fundamental component of the 
national market system. In creating the national market system, 
Congress specifically found that ensuring the availability of this 
information is in the public interest and appropriate for the 
protection of investors and the maintenance of fair and orderly 
markets.\5\ As the Commission has stated, ``one of the Commission's 
most important responsibilities is to preserve the integrity and 
affordability of the consolidated data stream.'' \6\
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    \5\ 15 U.S.C. 78k-1(a)(1)(C).
    \6\ Regulation NMS, Securities Exchange Act Release No. 51808 
(June 9, 2005), 70 FR 37496, 37560 (June 29, 2005) (``Regulation NMS 
Release'').
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    In the Commission's view, changes in the market \7\ have heightened 
an inherent conflict of interest between the Participants' collective 
responsibilities in overseeing the Equity Data Plans and their 
individual interests in maximizing the viability of proprietary data 
products that they sell to market participants. Under the current 
governance structure of the Equity Data Plans, the Participants have 
exclusive control of the Equity Data Plans. It is the Commission's 
belief that the Participants' conflicts of interest, combined with the 
concentration within exchange groups of voting power in the Equity Data 
Plans, create significant concerns regarding whether the consolidated 
feeds meet the purposes for them set out by Congress and by the 
Commission in adopting the national market system.\8\ Addressing these 
and other issues with the current governance structure of the Equity 
Data Plans is a key step in responding to the broader concerns about 
the consolidated data feeds.\9\
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    \7\ See infra Section II.A. and Section II.B.
    \8\ 15 U.S.C. 78k-1(a)(1)-(2).
    \9\ See infra Section II.A.
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    The Commission further believes that the consolidated data feeds 
can be improved by consolidating the three existing, separate Equity 
Data Plans into a single New Consolidated Data Plan. A New Consolidated 
Data Plan should reduce existing redundancies, inefficiencies, and 
inconsistencies between and among the Equity Data Plans and should 
simplify plan governance and maintenance. The Commission is therefore 
ordering the SROs to develop the New Consolidated Data Plan to address 
the governance issues described in this Order and to consolidate the 
Equity Data Plans into the single New Consolidated Data Plan. Based 
upon input received from a broad range of market participants 
(including the SROs), the Commission's Equity Market Structure Advisory 
Committee (``EMSAC''), and its own regulatory oversight of the Equity 
Data Plans, the Commission has set forth below specific governance 
provisions that the Commission believes would enable the New 
Consolidated Data Plan to address these issues.

I. Background

    In 1975, Congress, through the enactment of Section 11A of the 
Act,\10\ directed the Commission to facilitate the establishment of a 
national market system for the trading of securities in accordance with 
the Congressional findings and objectives set forth in Section 
11A(a)(1) of the Act.\11\ Among the findings and objectives of Section 
11A(a)(1) are that new data processing and communications techniques 
create the opportunity for more efficient and effective market 
operations,\12\ and that it is in the public interest and appropriate 
for the protection of investors and the maintenance of fair and orderly 
markets to ensure the availability of information with respect to 
quotations for and transactions in securities.\13\
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    \10\ 15 U.S.C. 78k-1.
    \11\ 15 U.S.C. 78k-1(a)(1).
    \12\ See 15 U.S.C. 78k-1(a)(1)(B). See also H.R. Rep. No. 94-
229, 94th Cong., 1st Sess. 93 (1975) (House Report noting that the 
systems for collecting and distributing consolidated market data 
would ``form the heart of the national market system.'').
    \13\ See 15 U.S.C. 78k-1(a)(1)(C).
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    Congress authorized the Commission to prescribe rules to ensure the 
``prompt, accurate, reliable, and fair collection, processing, 
distribution, and publication of information with respect to quotations 
for and transactions in such securities and the fairness and usefulness 
of the form and content of such information.'' \14\ In furtherance of 
these purposes, the Commission has sought through its rules and 
regulations to help ensure that certain ``core data'' \15\ is widely 
available for reasonable fees.\16\ The Commission has recognized that 
investors must have this core data ``to participate in the U.S. equity 
markets.'' \17\
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    \14\ 15 U.S.C. 78k-1(c)(1)(B).
    \15\ See infra note 27 and accompanying text (defining ``core 
data'').
    \16\ See 17 CFR 242.603; see also e.g., Regulation NMS Release, 
supra note 6, 70 FR at 37560 (stating that ``[i]n the Proposing 
Release, the Commission emphasized that one of its primary goals 
with respect to market data is to assure reasonable fees that 
promote the wide public availability of consolidated market 
data.'').
    \17\ Id. at 37560.
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    Section 11A of the Act also authorizes the Commission, by rule or 
order, to authorize or require the SROs to act jointly with respect to 
matters as to which they share authority under the Act in planning, 
developing, operating, or regulating a facility of the national market 
system.\18\ Pursuant to this authority, the Commission adopted

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Regulation NMS.\19\ Rule 608 of Regulation NMS authorizes two or more 
SROs, acting jointly, to file with the Commission a national market 
system plan (``NMS plan'') or a proposed amendment to an effective NMS 
plan.\20\ And Rule 603 of Regulation NMS requires the SROs to act 
jointly pursuant to NMS plans to ``disseminate consolidated 
information, including a national best bid and national best offer, on 
quotations for and transactions in NMS stocks.'' \21\ The purpose of 
the Equity Data Plans, adopted pursuant to Regulation NMS, is to 
facilitate the collection and dissemination of core data so that the 
public has ready access to a ``comprehensive, accurate, and reliable 
source of information for the prices and volume of any NMS stock at any 
time during the trading day.'' \22\ Widespread availability of timely 
market data promotes fair and efficient markets and facilitates the 
ability of brokers and dealers to provide best execution to their 
customers.\23\
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    \18\ See 15 U.S.C. 78k-1(a)(3)(B).
    \19\ 17 CFR 242.600-612; see also Regulation NMS Release, supra 
note 6, 70 FR at 37560.
    \20\ See 17 CFR 242.608.
    \21\ 17 CFR 242.603(b).
    \22\ Concept Release on Equity Market Structure, Securities 
Exchange Act Release No. 61358 (Jan. 14. 2010), 75 FR 3593, 3600 
(Jan. 21, 2010) (``Equity Market Structure Concept Release'').
    \23\ See In the Matter of the Application of Bloomberg L.P., 
Securities Exchange Act Release No. 83755 at 3 (July 31, 2018), 
available at https://www.sec.gov/litigation/opinions/2018/34-83755.pdf (``Bloomberg Order''); SEC Concept Release: Regulation of 
Market Information Fees and Revenues, Securities Exchange Act 
Release No. 44208 (Dec. 9, 1999), 64 FR 70613, 70615 (Dec. 17, 1999) 
(stating that the distribution of core data ``is the principal tool 
for enhancing the transparency of the buying and selling interest in 
a security, for addressing the fragmentation of buying and selling 
interest among different market centers, and for facilitating the 
best execution of customers' orders by their broker-dealers'').
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    Under Regulation NMS and the Equity Data Plans, the SROs are 
required to provide certain quotation \24\ and transaction data \25\ 
for each NMS stock to an exclusive securities information processor 
(``SIP''),\26\ which consolidates this market data and makes it 
available to market participants on the consolidated tapes, as 
described below. For each NMS stock, the Equity Data Plans provide for 
the dissemination of top-of-book (``TOB'') data, generally defining 
consolidated market information (or ``core data'') as consisting of: 
(1) The price, size, and exchange of the last sale; (2) each exchange's 
current highest bid and lowest offer, and the shares available at those 
prices; and (3) the national best bid and offer (``NBBO'') (i.e., the 
highest bid and lowest offer currently available on any exchange).\27\ 
In addition to disseminating core data, the SIPs collect, calculate, 
and disseminate certain regulatory data--including information required 
by the National Market System Plan to Address Extraordinary Market 
Volatility (``LULD Plan''),\28\ information relating to regulatory 
halts and market-wide circuit breakers, and information regarding the 
short-sale price test pursuant to Rule 201 of Regulation SHO.\29\ They 
also collect and disseminate other NMS stock data and disseminate 
certain administrative messages. Together with core data, the 
Commission refers to this broader set of data for purposes of this 
Order as ``SIP data.'' \30\
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    \24\ See 17 CFR 242.602.
    \25\ See 17 CFR 242.601.
    \26\ See 15 U.S.C. 78c(22)(A) (defining securities information 
processor). Rule 603(b) of Regulation NMS requires that every 
national securities exchange on which an NMS stock is traded and 
national securities association act jointly pursuant to one or more 
effective NMS plans to disseminate consolidated information on 
quotations for and transactions in NMS stocks, and that such plan or 
plans provide for the dissemination of all consolidated information 
for an individual NMS stock through a single SIP. See 17 CFR 
242.603(b).
    \27\ See Bloomberg Order, supra note 23, at 3; see also 
Securities Exchange Act Release No. 87193 (Oct. 1, 2019), 84 FR 
54794, 54795 (Oct. 11, 2019) (``Effective-Upon-Filing Release'').
    \28\ The LULD Plan is available at https://www.luldplan.com.
    \29\ 17 CFR 242.201(b)(3).
    \30\ Broker-dealers rely on SIP data disseminated by the Equity 
Data Plans to comply with a number of regulatory requirements. See 
infra notes 64-67 and accompanying text.
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    The three Equity Data Plans that currently govern the collection, 
consolidation, processing, and dissemination of SIP data are (1) the 
Consolidated Tape Association Plan (``CTA Plan''), (2) the Consolidated 
Quotation Plan (``CQ Plan''), and (3) the Joint Self-Regulatory 
Organization Plan Governing the Collection, Consolidation, and 
Dissemination of Quotation and Transaction Information for Nasdaq-
Listed Securities Traded on Exchanges on an Unlisted Trading Privileges 
Basis (``UTP Plan'').\31\ Pursuant to the Equity Data Plans, three 
separate networks disseminate consolidated data for equity securities: 
(1) Tape A for securities listed on the NYSE; (2) Tape B for securities 
listed on exchanges other than NYSE and Nasdaq; and (3) Tape C for 
securities listed on Nasdaq. The CTA Plan governs the collection, 
consolidation, processing, and dissemination of last sale information 
for Tape A and Tape B securities. The CQ Plan governs the collection, 
consolidation, processing, and dissemination of quotation information 
for Tape A and Tape B securities. And the UTP Plan governs the 
collection, consolidation, processing, and dissemination of last sale 
and quotation information for Tape C securities.
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    \31\ Each of the Equity Data Plans is an NMS plan under Rule 608 
of Regulation NMS. 17 CFR 242.608; see also Securities Exchange Act 
Release Nos. 10787 (May 10, 1974), 39 FR 17799 (order approving CTA 
Plan); 15009 (July 28, 1978), 43 FR 34851 (Aug. 7, 1978) (order 
temporarily approving CQ Plan); 16518 (Jan. 22, 1980), 45 FR 6521 
(Jan. 28, 1980) (order permanently approving CQ Plan); and 28146 
(June 26, 1990), 55 FR 27917 (July 6, 1990) (order approving UTP 
Plan).
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    As discussed further below, the structure of the equity markets and 
the corporate structure of exchanges have changed dramatically since 
the adoption of Regulation NMS in 2005.\32\ While a substantial amount 
of trading in 2005 was conducted on relatively slow manual markets,\33\ 
and was concentrated for any given stock on its listing exchanges,\34\ 
nearly all trading now occurs on fast electronic markets (where even 
small degrees of latency affect trading strategies) and is dispersed 
among a wide range of competing market centers.\35\ Furthermore, most 
exchanges have converted from entities mutually owned by their members 
to demutualized entities that are owned by shareholders

[[Page 2168]]

and that also offer proprietary market data products.\36\ Finally, 
``exchange groups'' (multiple exchanges operating under one corporate 
umbrella) have emerged, consolidating much of the voting power and 
control of the Equity Data Plans.\37\
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    \32\ See infra Sections II.A, II.B.1, and II.B.2.
    \33\ See Equity Market Structure Concept Release, supra note 22, 
75 FR at 3594 (``NYSE-listed stocks were traded primarily on the 
floor of the NYSE in a manual fashion until October 2006. At that 
time, NYSE began to offer fully automated access to its displayed 
quotations.''). In contrast to NYSE, stocks listed on Nasdaq traded 
in a highly automated fashion at many different trading centers 
following the introduction of SuperMontage in 2002. See Securities 
Exchange Act Release No. 46429 (Aug. 29, 2002), 67 FR 56862 (Sept. 
5, 2002). See also Steven Quirk, Senior Vice President, Trader 
Group, TD Ameritrade, Testimony before the U.S. Senate Committee on 
Homeland Security and Governmental Affairs, Permanent Subcommittee 
on Investigations, Hearing on ``Conflicts of Interest, Investor Loss 
of Confidence, and High Speed Trading in U.S. Stock Markets'' (June 
17, 2014), available at https://www.hsgac.senate.gov/imo/media/doc/STMT%20-%20Quirk%20-%20TD%20Ameritrade%20(June%2017%202014).pdf%20 
(citing statistics that average execution speed has improved by 90% 
since 2004--from 7 seconds to 0.7 seconds in 2014). Today, trading 
speed is measured in microseconds and is moving towards nanoseconds. 
See, e.g., Wall Street Journal, Trading Tech Accelerates Toward 
Speed of Light (Aug. 8, 2016), available at https://www.wsj.com/articles/trading-tech-accelerates-toward-speed-of-light-1470559173; 
Wall Street Journal, NYSE Aims to Speed Up Trading With Core Tech 
Upgrade (Aug. 5, 2019), available at https://www.wsj.com/articles/nyse-aims-to-speed-up-trading-with-core-tech-upgrade-11565002800.
    \34\ See Securities Exchange Act Release No. 59039 (Dec. 2, 
2008), 73 FR 74770, 74782 (Dec. 9, 2008) (File No. SR-NYSEArca-2006-
21) (NYSE's reported market share of trading in NYSE-listed stocks 
declined from 79.1% in January 2005 to 30.6% in June 2008.).
    \35\ See Equity Market Structure Concept Release, supra note 22, 
75 FR at 3598 (``The registered exchanges all have adopted highly 
automated trading systems that can offer extremely high-speed, or 
`low-latency,' order responses and executions.'').
    \36\ See infra Section II.B.1.
    \37\ See infra Section II.B.2.
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    In the Commission's view, these market developments have heightened 
conflicts of interest between the exchanges' commercial interests and 
their regulatory obligations under the Act and the Equity Data Plans to 
produce and provide core data. The Commission believes that the current 
governance structure of the Equity Data Plans is inadequate to respond 
to these changes or to the evolving needs of investors and other market 
participants. The SIPs have significant market power in the market for 
core and aggregated market data products and are monopolistic providers 
of certain market information.\38\ But the operation of the Equity Data 
Plans has not kept pace with the efforts of the exchanges to expand the 
content of--and to employ technology to reduce the latency and increase 
the throughput of--certain proprietary data products. For example, the 
exchanges have developed depth-of-book (``DOB'') products that provide 
greater content (e.g., information about orders resting on the order 
book and order imbalance information for opening and closing auctions) 
at lower latencies, relative to the SIPs, for one segment of the data 
market.\39\ The exchanges have also developed proprietary TOB products 
that provide data that is generally limited to the highest bid and 
lowest ask and last sale price information at a lower price for another 
segment of the data market that is less sensitive to latency.\40\ By 
contrast, the Participants of the Equity Data Plans have not taken 
comparable measures to update the SIPs to reflect new innovations in 
market data in response to evolving markets and the changing needs of 
investors (e.g., those that use low-latency DOB products versus those 
that use TOB products).\41\
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    \38\ See, e.g., Bloomberg Order, supra note 23, at 4. Although 
some proprietary market data products are comparable to core data 
and could be used by some core data subscribers as substitutes for 
core data in certain situations, these products are not exact 
substitutes and are not viable substitutes across all use cases. For 
example, some third-party data aggregators buy direct depth-of-book 
feeds from the exchanges and aggregate them to produce products 
similar to core data; these products, however, do not provide market 
information that is critical to some subscribers and available only 
through the SIPs. See Transcript of Day One, Roundtable, at 126:20-
129:8 (Oct. 25, 2018) (``Day One Transcript'') (statement of Mark 
Skalabrin, Redline Trading Solutions), available at https://www.sec.gov/spotlight/equity-market-structure-roundtables/roundtable-market-data-market-access-102518-transcript.pdf. 
Additionally, some exchanges offer TOB data feeds, which may be 
considered by some to be viable substitutes for core data for 
certain applications, however, broker-dealers typically obtain core 
data provided by the SIP to fulfill their obligations under Rule 603 
of Regulation NMS, which requires a broker-dealer to show a 
consolidated display of market data in a context in which a trading 
or order routing decision can be implemented. 17 CFR 242.603; see 
also infra note 67 and accompanying text.
    \39\ See, e.g., Nasdaq Global Data Products, available at https://www.nasdaqtrader.com/Trader.aspx?id=DPSpecs (last accessed Nov. 16, 
2019) (describing low-latency DOB data products); Real-Time--NYSE 
Proprietary Market Data, available at https://www.nyse.com/market-data/real-time (last accessed Nov. 16, 2019) (describing low-latency 
DOB data products); Cboe Equities Exchanges Market Data Product 
Offerings, available at https://markets.cboe.com/us/equities/market_data_services/ (last accessed Nov. 16, 2019) (describing low-
latency DOB data products). Particularly when aggregated, 
proprietary DOB market data products provide a consolidated view of 
the market with greater content and lower latency. See infra Section 
II.A.
    \40\ Examples of such proprietary TOB products include NYSE BBO 
(https://www.nyse.com/market-data/real-time/bbo), NASDAQ Basic 
(https://business.nasdaq.com/intel/GIS/nasdaq-basic.html), and CBOE 
One Feed (https://markets.cboe.com/us/equities/market_data_services/cboe_one). NYSE BBO provides TOB data. Nasdaq Basic and Cboe One's 
Summary Feed provide TOB and last sale information. Nasdaq Basic 
also provides Nasdaq Opening and Closing Prices and other 
information, including Emergency Market Condition event messages, 
System Status, and trading halt information. Cboe One, however, also 
offers a Premium Feed that includes DOB data. Each of these products 
is sold separately by the relevant exchange group. See Letter from 
Matthew J. Billings, Managing Director, Market Data Strategy, TD 
Ameritrade (Oct. 24, 2018), at 5-9, available at https://www.sec.gov/comments/4-729/4729-4560068-176205.pdf (``TD Ameritrade 
Letter'') (stating that the lower cost of exchange TOB products, 
coupled with costs associated with the process to differentiate 
between retail professionals and non-professionals imposed by the 
SIP Plans, and associated audit risk, favors retail broker-dealer 
use of exchange TOB products).
    \41\ See infra notes 57-62 and accompanying text.
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    The Commission believes that, under the current governance 
structure of the Equity Data Plans, improvements to the SIPs to 
adequately address important product, performance and pricing 
differentials between the SIPs and proprietary data products have not 
occurred.\42\ Also, the Commission does not believe that having 
multiple Equity Data Plans, which need to be separately maintained and 
operated, is necessary or efficient. The Commission believes the Equity 
Data Plans should be consolidated into a New Consolidated Data Plan. In 
the Commission's view, this would streamline operation of the SIP 
feeds, leading to greater efficiency in meeting the purposes of Section 
11A of the Act, including ensuring the prompt, accurate, reliable, and 
fair collection, processing, distribution, and publication of quotation 
and transaction information, as well as the fairness and usefulness of 
the form and content of such data.\43\ As discussed in more detail 
below, the Commission believes that the Participants should develop a 
New Consolidated Data Plan that: (i) Operates pursuant to a governance 
structure that takes into account the evolving nature of business and 
trading relationships among exchanges, their members, and investors; 
(ii) is designed to ensure the usefulness of core data to market 
participants and to ensure that core data is provided on terms that are 
fair and reasonable, consistent with Section 11A of the Act and the 
rules thereunder; \44\ and (iii) replaces the three Equity Data Plans 
to eliminate redundancies, inefficiencies, and duplicative costs. As 
noted above, the Commission believes that consolidating the Equity Data 
Plans into a single New Consolidated Data Plan should result in a more 
efficient governance structure for operation of the SIPs.\45\
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    \42\ See infra notes 84-86, 112 and accompanying text.
    \43\ See 15 U.S.C. 78k-1(c)(1)(B).
    \44\ 15 U.S.C. 78k-1; Rules 601-603 of Regulation NMS, 17 CFR 
242.601-603.
    \45\ See, e.g., Nasdaq Total Markets: A Blueprint for a Better 
Tomorrow (Apr. 2019), at 17 (``Nasdaq Total Markets Paper''), 
available at https://www.nasdaq.com/docs/Nasdaq_TotalMarkets_2019_2.pdf (characterizing the three Equity Data 
Plans as ``three bureaucratic, government-mandated monopolies, each 
with arcane rules and governance, designed in a drastically 
different time in the evolution of exchanges'').
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II. Discussion

    In recent years, the Commission has received, and in certain 
instances, solicited a substantial amount of comment on the current 
provision of SIP data by the Equity Data Plans and on the governance 
model of the Equity Data Plans. In 2015, the EMSAC was established and 
tasked with providing the Commission with diverse perspectives on the 
structure and operations of the U.S. equities markets, as well as 
advice and recommendations on matters related to equity market 
structure.\46\ In 2018, the Commission's

[[Page 2169]]

Division of Trading and Markets held a Roundtable on Market Data and 
Market Access (``Roundtable'') that included panelists representing 
exchanges, institutional and retail broker-dealers, academics, and 
other market participants.\47\ The Commission has also received several 
petitions for rulemaking from market participants concerning the 
provision of SIP data and the governance structure of the Equity Data 
Plans.\48\
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    \46\ See EMSAC Charter (Feb. 9, 2015), available at https://www.sec.gov/spotlight/emsac/equity-market-structure-advisory-committee-charter.pdf. Under the EMSAC Charter, committee membership 
was required to include at least one representative of retail 
investors, institutional investors, exchanges or other self-
regulatory organizations, broker-dealers and other market 
participants, as well as industry consultants and academics. See id. 
Although not all exchanges were members of the EMSAC, the EMSAC held 
a number of public meetings at which other parties, including 
representatives of exchange groups that were not members of the 
EMSAC, shared their views. See Equity Market Structure Advisory 
Committee Archives, available at https://www.sec.gov/spotlight/emsac/emsac-archives.htm (last accessed Nov. 16, 2019).
    \47\ The Roundtable agenda and list of panelists are available 
on the Commission's website at https://www.sec.gov/agendas/agenda-roundtable-market-data-market-access.
    \48\ See, e.g., Petition for Rulemaking Concerning Market Data 
Fees (Dec. 6, 2017) (SEC 5-716), available at https://www.sec.gov/rules/petitions/2017/petn4-716.pdf (petition undersigned by twenty-
four firms, including Bloomberg, Citadel, Fidelity Investments, 
Morgan Stanley, Charles Schwab, Vanguard, and Virtu) (``Patomak 
Petition''); Petition to Address Conflicts of Interests, Complexity, 
and Costs Related to Market Data (Jan. 17, 2018) (SEC 4-717), 
available at https://www.sec.gov/rules/petitions/2018/petn4-717.pdf 
(``Healthy Markets Petition''); Petition for Rulemaking Regarding 
Market Data Fees and Request for Guidance on Market Data Licensing 
Practices; Investor Access to Market Data (Aug. 22, 2018) (SEC 4-
728), available at https://www.sec.gov/rules/petitions/2018/petn4-728.pdf (``MFA Petition'').
---------------------------------------------------------------------------

    Based on this input from a broad range of market participants and 
its own regulatory experience,\49\ the Commission believes that the 
current governance structure of the Equity Data Plans no longer 
adequately serves to ensure that the Equity Data Plans provide for the 
``prompt, accurate, reliable, and fair collection, processing, 
distribution, and publication of information with respect to quotations 
for and transactions in such securities and the fairness and usefulness 
of the form and content of such information.'' \50\ As will be 
discussed next, the Commission believes that the SROs should propose a 
single New Consolidated Data Plan, with a governance structure that 
incorporates a broad array of market participant perspectives and 
reduces administrative and operational inefficiencies and redundancies, 
to more effectively administer the dissemination of SIP data.
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    \49\ In addition to the Commission's review of proposed 
amendments filed by the Equity Data Plans, the Commission staff 
attends the operating committee and subcommittee meetings, with the 
exception of discussions protected by attorney-client privilege, and 
conducts examinations of the Equity Data Plans.
    \50\ 15 U.S.C. 78k-1(c)(1)(B).
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A. The Commission's Concerns Regarding the Equity Data Plans' Provision 
of Equity Market Data

    Under the Equity Data Plans, the earliest of which dates from the 
1970s,\51\ market data for each NMS stock is collected, consolidated, 
and disseminated to investors and market participants through one of 
two exclusive SIPs. These SIPs, which collect market data for the NMS 
stock transmitted from the dispersed SRO data centers, then consolidate 
the data and distribute the data to end-users.\52\ Several market 
developments, however, have given rise to proprietary data feeds that 
are offered--along with connectivity services that enable low-latency 
transmission--directly by the various exchanges. The emergence of these 
proprietary products, along with the core data feeds that are 
distributed pursuant to the Equity Data Plans, have created a two-
tiered market-data environment.
---------------------------------------------------------------------------

    \51\ See supra note 31.
    \52\ NYSE is the administrator of the SIP for the CTA Plan and 
CQ Plan, which covers Tape A and Tape B and is located in Mahwah, 
New Jersey. NYSE's affiliate, Securities Industry Automation 
Corporation (``SIAC''), serves as the processor for Tapes A and B. 
Nasdaq is both the administrator and the processor for the UTP Plan, 
which covers Tape C and is located in Carteret, New Jersey.
---------------------------------------------------------------------------

    Technological advances, as well as the order routing and trading 
strategies that have followed, have greatly increased the speed and 
automation of both markets and trading strategies. These changes, along 
with the provisions adopted in Regulation NMS that allow for the sale 
of proprietary data products,\53\ have created incentives for exchanges 
to develop enhanced proprietary data products that they sell to the 
same market participants that are subscribers to core data feeds 
provided by the SIPs.
---------------------------------------------------------------------------

    \53\ See infra note 71 and accompanying text.
---------------------------------------------------------------------------

    Generally, proprietary data feeds that offer DOB data are designed 
for automated trading systems and are faster and more content rich, as 
well as more expensive, than the core data distributed by the SIPs. 
Other proprietary data feeds that offer TOB data are designed largely 
for the non-automated segment of the market (e.g., retail investors and 
wealth managers who look at market information on a screen) and are 
less content rich (but also less expensive) than the core data 
distributed by the SIPs.\54\ Thus, the exchanges offer proprietary data 
products in both of these significant segments of the market for data. 
The exchanges also offer connectivity products and services (e.g., co-
location, fiber connectivity, wireless connectivity) that provide low-
latency access to these proprietary data products, especially DOB 
products.\55\ Even though the exchanges' proprietary data products are 
not exact substitutes for the core data provided by the SIPs,\56\ users 
of the low-latency access provided by the exchanges for their DOB 
proprietary data products have a speed advantage over users of the core 
data because of the higher latency of the SIP data feeds.
---------------------------------------------------------------------------

    \54\ See also supra note 40 and accompanying text.
    \55\ See supra notes 39-40. Various forms of connectivity are 
integral to the latency and throughput benefits associated with 
proprietary market data products, especially DOB products. For 
example, co-location is a service that enables exchange customers to 
place their servers in close proximity to an exchange's matching 
engine in order to help minimize network and other types of 
latencies between the matching engine of the exchange and the 
servers of market participants. Data connections that use fiber 
optic cable transmit data more slowly than data connections that use 
wireless microwave transmissions, though microwave connections are 
susceptible to interruption by weather conditions and are therefore 
less reliable than fiber connections. Subscribers of wireless data 
connections need to establish backup connectivity to account for 
interference from weather conditions. See also infra note 76 and 
accompanying text.
    \56\ See supra note 38.
---------------------------------------------------------------------------

    Over the past several years, a number of market participants have 
raised concerns about how the differences between the SIPs and 
proprietary DOB data feeds affect their ability to use core data to be 
competitive in today's markets and provide best execution to their 
customers.\57\ According to certain market participants, the current 
speed of core data is no longer sufficient for them to trade 
competitively. One Roundtable panelist stated that broker-dealers do 
not have the option to forgo buying the proprietary data in meeting 
their clients' needs because the SIPs are slower and not as 
expansive.\58\ This panelist stated that, ``[i]f our brokers are not 
aligned in that manner to use the most direct, the fastest, the most 
robust feeds they can get their hands on, then we will trade with 
someone else.'' \59\ Another

[[Page 2170]]

Roundtable panelist stated that, ``broker-dealers are compelled to 
purchase exchanges' proprietary data feeds, both to provide competitive 
execution services . . . and to meet our best execution obligations due 
to the content of the information contained in the proprietary data 
fees as well as the latency differences between them. . . .'' \60\ 
Another commenter stated that ``most broker-dealers require the faster 
and deeper information to participate effectively in the market and 
provide customers with the competitive order routing quality.'' \61\ 
This commenter also stated, ``While business for proprietary market 
data innovated, the SIP utilities did not keep pace. Investment in the 
SIPs lagged, causing material latencies to develop between the top of 
book and last sale data available from the SIP as compared to the data 
offered privately by the market centers.'' \62\
---------------------------------------------------------------------------

    \57\ See, e.g., Letter from Theodore R. Lazo, Managing Director 
and Associate General Counsel, SIFMA (Oct. 24, 2014), at 8, 
available at https://www.sec.gov/comments/s7-02-10/s70210-422.pdf 
(``SIFMA Letter I''); Letter from Theodore R. Lazo, Managing 
Director and Associate General Counsel, SIFMA (Mar. 29, 2017), at 
11, available at https://www.sec.gov/comments/265-29/26529-1674696-149276.pdf (``SIFMA Letter II''); Letter from Melissa MacGregor, 
Managing Director and Associate General Counsel, Theodore R. Lazo, 
Managing Director and Associate General Counsel, SIFMA (Oct. 24, 
2018), at 6, available at https://www.sec.gov/comments/4-729/4729-4559181-176197.pdf (``SIFMA Letter III'').
    \58\ See Day One Transcript, supra note 38, at 65:8-66:10 
(statement of Mehmet Kinak, T. Rowe Price). See also Letter from 
Mehmet Kinak, Vice President--Global Head of Systematic Trading & 
Market Structure, Jonathan D. Siegel, Vice President--Senior Legal 
Counsel, T. Rowe Price Associates, Inc. (Jan. 10, 2019), at 2, 
available at https://www.sec.gov/comments/4-729/4729-4844471-177204.pdf.
    \59\ Day One Transcript, supra note 38, at 66:7-10 (statement of 
Mehmet Kinak, T. Rowe Price); see also id. at 136:5-16 (statement of 
Simon Emrich, Norges Bank Investment Management) (stating that, 
``the use cases for SIP data over the years [have] . . . decreased 
substantially'' and ``brokers can't really be . . . using the SIP. 
They need to have the full depth of book.'').
    \60\ Day One Transcript, supra note 38, at 198:24-199:6 
(statement of Joseph Wald, Clearpool Group); see also Letter from 
Joe Wald, Chief Executive Officer, Clearpool Group (Oct. 23, 2018), 
at 3, available at https://www.sec.gov/comments/4-729/4729-4555206-176185.pdf. The Commission recognizes that, as a practical matter, 
market participants may utilize proprietary market data products to 
execute orders. However, the Commission has determined that broker-
dealers are not required to purchase ``non-core'' data, such as DOB 
data, to satisfy their duty of best execution. See In the Matter of 
the Application of Securities Industry and Financial Markets 
Association, Securities Exchange Act Release No. 84432 at 33, n.174 
(Oct. 16, 2018), available at https://www.sec.gov/litigation/opinions/2018/34-84432.pdf (``SIFMA Order''). See also Shengwei 
Ding, John Hanna, and Terrence Hendershott, How Slow Is the NBBO? A 
Comparison with Direct Exchange Feeds, The Financial Review, Issue 
49 (2014) (313-332) (comparing the NBBO from the SIP and the NBBO of 
exchange proprietary data feeds and finding benefits of the faster 
proprietary data feeds over the SIP), available at https://utpplan.com/latency_chartshttps://faculty.haas.berkeley.edu/hender/NBBO.pdf; Michael Lehr, The Latency Differences Between Depth of 
Book and BBO Feeds (Aug. 8, 2016) (comparing relative latency of 
proprietary DOB and TOP data feeds), available at https://maystreet.com/api/files/mst_drive/public/TheLatencyDifferenceBetweenDepthAndBBO-MayStreet.pdf; CTA Latency 
Charts (providing statistics measuring latency from the inception of 
the Participant matching engine event (e.g., order execution, top of 
book update) to the point of dissemination from the CTA SIP), 
available at https://www.ctaplan.com/latency-charts (last accessed 
Dec. 12, 2019); UTP Realized Latency Charting (providing statistics 
measuring latency from the inception of the Participant matching 
engine event (e.g., order execution, top of book update) to the 
point of dissemination from the UTP SIP), available at https://utpplan.com/latency_charts (last accessed Dec. 12, 2019).
    \61\ SIFMA Letter III, supra note 57, at 6.
    \62\ SIFMA Letter I, supra note 57, at 8; see also Day One 
Transcript, supra note 38, at 64:4-15 (statement of Brad Katsuyama, 
IEX) (``Anyone who cares cannot use the SIP from a speed standpoint 
. . . if full information and speed are important, which it is for 
the majority of large players maintaining their own electronic 
trading platform, then I would not say the SIP serves much of a 
purpose for them.''); at 64:4-15 (statement of Douglas A. Cifu, 
Virtu) (``Anyone who cares, or is . . . making machine-level 
decisions cannot use the SIP just from a speed standpoint. But I do 
think if you improve the information on the SIP, it can certainly be 
valuable to a host of people now. . . . But if full information and 
speed become important, which it is for a majority of large players 
maintaining their own electronic trading platform, then I would not 
say the SIP serves much of a purpose to them.''). See also infra 
notes 80-82 and accompanying text (describing certain improvements 
made to aggregation latency in the SIP feeds).
---------------------------------------------------------------------------

    Broker-dealer panelists at the Roundtable stated that they are 
compelled to purchase SIP data for various reasons, including to 
receive LULD Plan price bands, to perform checks required by Rule 15c3-
5 under the Act (the ``market access rule''),\63\ and for redundancy 
purposes.\64\ Some broker-dealers use SIP data to comply with the 
requirements of Rule 611 of Regulation NMS \65\ to prevent trade-
throughs and to meet their best execution obligations for customer 
orders. Also, under Rule 603(c) of Regulation NMS,\66\ known as the 
``Vendor Display Rule,'' if a broker-dealer displays any information 
with respect to quotations for or transactions in an NMS stock in a 
context in which a trading or order-routing decision can be 
implemented, it must also provide a consolidated display for that 
stock. Broker-dealers typically meet this regulatory requirement by 
using core data and paying the attendant fees.\67\
---------------------------------------------------------------------------

    \63\ 17 CFR 240.15c3-5.
    \64\ See, e.g., Day One Transcript, supra note 38, at 138:23-
139:3, 169:12-24 (statements of Adam Inzirillo, Bank of America 
Merrill Lynch); at 184:14-185:2 (statement of Michael Friedman, 
Trillium).
    \65\ 17 CFR 242.611.
    \66\ 17 CFR 242.603(c).
    \67\ See Patomak Petition, supra note 48, at 1 (``As required by 
the SEC's Display Rule, vendors and broker-dealers are required to 
display consolidated data from all the market centers that trade a 
stock. In order to comply with the Display Rule, such vendors and 
broker-dealers must purchase and display consolidated data feeds 
distributed by securities information processors (`SIPs'), which are 
owned by the exchanges and operated pursuant to NMS plans. The fees 
charged by SIPs are distributed as income to each of the 
participating exchanges.'').
---------------------------------------------------------------------------

    The differences between the SIP data feeds and proprietary data 
feeds have the effect of increasing the demand for, and marketability 
of, proprietary data products to the financial benefit of the 
exchanges. And the Commission believes that this conflict of interest, 
combined with the Equity Data Plans' current governance structure, 
perpetuates disincentives for the Equity Data Plans to invest in 
certain improvements to enhance the distribution of core data or the 
content of the core data itself. In particular, lagging investment in 
updating and maintaining the operations of the SIPs has resulted in 
meaningful latency and content differentials between core data and the 
exchanges' proprietary market data products that have become 
consequential to market participants.\68\
---------------------------------------------------------------------------

    \68\ For example, and as described further above, many broker-
dealers have represented to the Commission that they are effectively 
compelled to purchase and rely primarily upon the low-latency 
proprietary data feeds in order to meet their regulatory obligations 
and to compete in the equity markets. See supra notes 59-62 and 
accompanying text.
---------------------------------------------------------------------------

    For example, the implementation of decimalization in 2001 \69\ 
reduced the minimum price increment from $0.0625 (1/16 of a dollar) to 
$0.01. Because this significantly increased the number of price points 
over which trading interest could be expressed, it had the ancillary 
effect of reducing the TOB liquidity that is displayed and disseminated 
as part of core data. And commenters on Regulation NMS stated that this 
reduction of TOB liquidity, in turn, increased the importance of 
information regarding DOB liquidity to market participants.\70\
---------------------------------------------------------------------------

    \69\ See Commission Notice: Decimals Implementation Plan for the 
Equities and Options Markets (July 24, 2000), available at https://www.sec.gov/rules/other/decimalp.htm.
    \70\ See, e.g., Regulation NMS Release, supra note 6, 70 FR at 
37529 (noting a comment from the Consumer Federation of America 
concerning ``complaints that decimal pricing has reduced price 
transparency because of the relatively thin volume of trading 
interest displayed at the best bid and offer''). See also Letter 
from Craig S. Tyle, General Counsel, Investment Company Institute 
(Nov. 20, 2001), available at https://www.ici.org/policy/comments/01_SEC_SUBPENNY_COM (stating in response to the Commission's Concept 
Release on the Effects of Decimal Trading in Subpennies in 2001, 
that ``the reduction in quoted market depth as the minimum quoting 
increment has narrowed to a penny has adversely affected 
institutional investors' ability to execute large orders. . . . 
Preliminary data has shown that, post-decimalization, it has become 
more difficult for large institutional orders to be filled entirely 
at the inside.'') (internal citations omitted).
---------------------------------------------------------------------------

    In adopting Regulation NMS in 2005, the Commission nonetheless 
determined not to require that DOB quotations be included in core data, 
reasoning that investors who needed DOB data would be able to obtain 
that data from markets or third-party vendors.\71\ In making that 
determination, the Commission stated that this would be ``a 
competition-driven outcome [that] would benefit investors and the 
markets in general.'' \72\ And, after the adoption of Regulation NMS in 
2005,\73\ exchanges began to sell

[[Page 2171]]

their proprietary data products separately from the core data required 
by Rule 603(b) of Regulation NMS.\74\ But, as the markets have evolved 
and DOB data has become more important, the exchanges have continued to 
improve their proprietary data feeds without similar improvements to 
the SIPs to reflect this market evolution.
---------------------------------------------------------------------------

    \71\ See Regulation NMS Release, supra note 6, 70 FR at 37567.
    \72\ Id. at 37530.
    \73\ See Regulation NMS Release, supra note 6.
    \74\ See supra notes 39-40 and accompanying text.
---------------------------------------------------------------------------

    Another issue flows from the centralized consolidation model of the 
Equity Data Plans and the SIPs. The centralized consolidation model has 
at least three specific sources of latency disadvantage relative to the 
exchanges' proprietary data feeds: geographic latency, aggregation 
latency, and transmission latency. Geographic latency, as used herein, 
refers to the time it takes for data to travel from one physical 
location to another, which must also take into account that data does 
not always travel between two locations in a straight line. Aggregation 
latency, as used herein, refers to the amount of time a SIP takes to 
aggregate the multiple sources of SRO market data into core data and 
includes calculation of the NBBO.\75\ And transmission latency, as used 
herein, refers to the time interval between when data is sent (e.g., 
from an exchange) and when it is received (e.g., at a SIP and/or at the 
data center of the subscriber).\76\ The Commission understands that 
geographic latency is typically the most significant component of the 
additional latency that core data feeds experience compared to 
proprietary data feeds.\77\ Because each SIP must collect data from 
geographically dispersed SRO data centers, consolidate the data, and 
then disseminate it from its location to end-users, which are often in 
other locations, this hub-and-spoke form of centralized consolidation 
creates additional latency. For example, information about quotes and 
trades on Nasdaq for NYSE-listed securities incurs latency as it 
travels from Nasdaq's data center in Carteret approximately 34.5 miles 
to the CTA/CQ SIP in Mahwah, and then back to Carteret.\78\
---------------------------------------------------------------------------

    \75\ Each SIP must collect data from the dispersed SRO data 
centers, consolidate the data, and then disseminate the core data 
from their locations to end-users. See Equity Market Structure 
Concept Release, supra note 22, 75 FR at 3611 (``Given the extra 
step required for SROs to transmit market data to plan processors, 
and for plan processors to consolidate the information and 
distribute it to the public, the information in the individual data 
feeds of exchanges and ECNs generally reaches market participants 
faster than the same information in the consolidated data feeds.''). 
As discussed further in the Order, aggregation latency continues to 
remain at inferior levels at the CTA/CQ SIP as compared to the UTP 
SIP. See infra notes 81-82 and accompanying text. Furthermore, 
market participants that use proprietary data feeds for their 
electronic trading tools and that use certain common order types 
(e.g., intermarket sweep orders, or ``ISOs'') must also aggregate 
proprietary data feeds to create an NBBO to comply with Rule 611 of 
Regulation NMS. Thus, aggregation latency can also be a factor for 
users of proprietary data feeds and is not unique to the SIPs.
    \76\ The transmission latency between two fixed points is 
determined by the transmission communications technology through 
which the data is conveyed (e.g., fiber optic cables, microwave 
networks, laser transmission). The modes of transmission for core 
data are typically slower than the modes of transmission used for 
proprietary data. In general, the Equity Data Plans rely on fiber 
optic cables for connectivity. For example, the NYSE, as the 
operator of the CTA/CQ SIP, requires that access to the CTA/CQ SIP 
be through the use of the NYSE's IP local area network. At the same 
time, NYSE, which owns SIAC, the CTA/CQ SIP, offers non-SIP 
proprietary data transmission to end-users via faster microwave 
networks. See, e.g., ICE Global Network: Chicago--New Jersey, 
available at https://www.theice.com/market-data/connectivity-and-feeds/wireless/chicago-to-new-jersey (last accessed Sept. 16, 2019) 
(describing ICE's microwave route between the Chicago metro trading 
hub to Nasdaq's data center in Carteret, NJ); ICE Global Network: 
New Jersey Metro, available at https://www.theice.com/market-data/connectivity-and-feeds/wireless/new-jersey-metro (last accessed 
Sept. 16, 2019) (describing ICE's laser and millimeter wave route 
between ICE's Mahwah data center and the Carteret and Secaucus data 
centers).
    \77\ See, e.g., Letter from Michael Blaugrund, Head of 
Transactions, NYSE (Oct. 24, 2018), at 1, available at https://www.sec.gov/comments/4-729/4729-4559383-176200.pdf (stating that, as 
``processing time approaches zero, it is clear that the time 
required for trade and quote data to travel from Participant 
datacenter -> SIP datacenter -> Recipient datacenter, or `geographic 
latency,' is a larger portion of the total latency'').
    \78\ See Day One Transcript, supra note 38, at 127:12-24 
(statement of Mark Skalabrin, Redline Trading Solutions) (stating 
that customers cannot be competitive using SIP data due to 
geographic latency, explaining ``[i]f you're sitting at Secaucus and 
you get a direct feed tick from BATS, it shows up in a few 
microseconds from when they publish it. That same tick for the SIP 
for Nasdaq-listed symbols goes to Carteret, for NYSE-listed symbols 
they go to Mahwah and they come back again. The real numbers are, 
for one, about 350 microseconds and the other about close to a 
millisecond in latency for those to show up for someone using the 
SIP to get the BATS tick. So this is just an architectural--an 
obsolete architecture for an automated trading system in today's 
world. . . . You can't be competitive with those kind of latencies 
compared to just getting it directly from the exchange.'').
---------------------------------------------------------------------------

    But these disadvantages are not inherent to the SIPs' role and 
operation in the markets, nor are they insurmountable. In recent years 
and in the face of ongoing public criticism,\79\ the SIP operating 
committees have made some improvements to aspects of the SIPs and 
related infrastructure.\80\ For example, from the second quarter of 
2016 to the second quarter of 2019, Tapes A and B reduced average quote 
feed aggregation latency from 490 microseconds to 69 microseconds, and 
average trade feed aggregation latency from 340 microseconds to 139 
microseconds.\81\ As another example, Tape C reduced its average quote 
feed aggregation latency during the same period from 777.8 microseconds 
to 16.9 microseconds, and its average trade feed aggregation latency 
from 604.8 microseconds to 17.5 microseconds.\82\ As shown by these 
latency statistics, however, aggregation latency for the CTA/CQ SIP 
data continues to be meaningfully greater than that of UTP SIP data, 
despite these improvements.\83\
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    \79\ For example, following the UTP SIP outage on August 22, 
2018 that led to a multiple hour, market-wide halt in trading of 
Nasdaq-listed securities (``UTP SIP Outage''), market participants 
raised concerns about the adequacy of the SIP infrastructure. See, 
e.g., USA TODAY, Outage Slams Nasdaq's Reputation (Aug. 22, 2013), 
available at https://www.usatoday.com/story/money/markets/2013/08/22/nasdaq-trading-freeze-reputation/2686883/; Wall Street Journal, 
Panel to Review Nasdaq Data-Feed Outage (Aug. 28, 2013), available 
at https://www.wsj.com/articles/panel-to-review-nasdaq-datafeed-outage-1377715288; Wall Street Journal, Nasdaq Shutdown Bares Stock 
Exchange Flaws (Aug. 24, 2013), available at https://www.wsj.com/articles/nasdaq-shutdown-bares-stock-exchange-flaws-1377382817?tesla=y.
    \80\ Following the UTP SIP Outage--and a meeting between the 
equities and options exchanges, FINRA, DTCC, and the Options 
Clearing Corporation and the then-Chair of the Commission--the 
Equity Data Plans' operating committees discussed with Commission 
staff the operating committees' plans for the SIPs ``designed to 
improve operational resiliency, strengthen interoperability 
standards and disaster recovery capabilities, enhance governance, 
accountability, and establish a clear testing framework for the 
industry.'' See Self-Regulatory Organizations Response to SEC for 
Strengthening Critical Market Infrastructure (Nov. 12, 2013), 
available at https://ir.theice.com/press/press-releases/all-categories/2013/11-12-2013. See also SIP Operating Committee 
Statement, supra note 75 (``In the last three years, the SIP 
Operating Committees have invested in the technology that powers 
them, increasing resiliency and redundancy while reducing 
latency.''). See also Letter from NYSE at 3 (Oct. 24, 2018), 
available at https://www.sec.gov/comments/4-729/4729-4559414-176201.pdf (``NYSE Group Letter'') (stating that, ``exchanges have 
invested significantly in the operation of the [SIPs], resulting in 
improved resilience and reduced latency, all while managing 
increased volumes'').
    \81\ See Key Operating Metrics of Tape A & B U.S. Equities 
Securities Information Processor (CTA SIP), available at https://www.ctaplan.com/publicdocs/ctaplan/notifications/trader-update/Q2%202019%20CTA%20SIP-Subscribers%20Metrics%20Report.pdf.
    \82\ See UTP Q3 2019--July Tape C Quote and Trade Metrics, 
available at https://www.utpplan.com/DOC/UTP_website_Statistics_Q3-2019-July.pdf. These latencies are perceived to be at or near 
competitive market standards. See also Day One Transcript, supra 
note 38, at 106:14-22 (statement of Oliver Albers, Nasdaq) (``There 
have been vast improvements in SIP data in recent years, even as SIP 
revenue to exchanges has fallen. The Nasdaq SIP has an average 
latency of just 16 millionths of a second. . .. The Nasdaq SIP can 
also handle 10 billion messages per day, 20 times more than a decade 
ago, and significant cybersecurity and fraud prevention investments 
by Nasdaq and other operators have increased the overall market 
efficiency and resiliency.'').
    \83\ See Nasdaq Total Markets Paper, supra note 45, at 19, n.19 
(stating that the CTA SIP ``currently operates with over 100 
microseconds of latency, which is not up to the standard that 
investors have come to expect in the modern markets''). The 
Commission notes that the aggregation latency incurred by market 
participants that consolidate the exchanges' proprietary data feeds 
for their own or their customers' use is not publicly available, 
making it difficult to compare the aggregation latency of the SIP 
feeds and the aggregated proprietary feeds.

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[[Page 2172]]

    And as numerous new product offerings have been introduced by 
individual exchanges to reduce the latency of proprietary data 
products,\84\ the Equity Data Plans, which are operated jointly by the 
SROs (including those offering proprietary data products), have not 
made--or have been slow to make \85\--the investments that are 
necessary to comprehensively address these concerns.\86\ For example, 
proprietary data products offered by the exchanges often rely on low-
latency wireless connections,\87\ whereas the Equity Data Plans rely on 
fiber optic cable.\88\ The Commission understands that these fiber 
networks, which the exchanges use to transmit data from their matching 
engines to the SIPs, are meaningfully slower than the wireless networks 
operated by the same exchanges for the transmission of proprietary data 
over the same routes.
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    \84\ See, e.g., Nasdaq Trade Management Services--Wireless 
Connectivity Suite (last accessed on Nov. 13, 2019), available at 
https://n.nasdaq.com/WirelessConnectivitySuite (describing low-
latency wireless network technology to deliver market data); ICE 
Global Network--Wireless (last accessed on Nov. 13, 2019), available 
at https://www.theice.com/market-data/connectivity-and-feeds/wireless (describing low-latency wireless connectivity options 
between trading hubs).
    \85\ See, e.g., supra note 62.
    \86\ See, e.g., SIFMA Letter II, supra note 57, at 8-9; SIFMA 
Letter III, supra note 57, at 12; Letter from John Ramsay, Chief 
Market Policy Officer, IEX, at 3 (Sept. 24, 2019) (``IEX Letter''), 
available at https://www.sec.gov/comments/4-729/4729-6190352-192448.pdf.
    \87\ Some of these services are solely offered by exchanges 
within the facility of an exchange (e.g., co-location connectivity 
at NYSE's data center in Mahwah and NASDAQ's co-location at its 
datacenter in Carteret) and some are offered by both exchanges and 
other third party providers (e.g., fiber and wireless connectivity 
between data centers). See, e.g., supra note 84.
    \88\ See supra note 76.
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    As a potential measure to help the SIPs' data products better 
respond to the needs of users, some market participants, including 
exchanges, have suggested that geographic latency issues could be 
addressed through a ``distributed SIP'' model.\89\ Under a distributed 
SIP model, each exclusive SIP could place an additional processor in 
other major data centers, which would separately aggregate and 
disseminate consolidated market data for its respective tape. The SROs 
would submit their quotations and trade information directly to each 
SIP location in each data center, and each SIP location would 
consolidate and disseminate its respective consolidated market data 
feeds to subscribers at those data centers. As a result, consolidated 
market data would not have to travel from an exchange at one location 
to a centralized SIP at a second location for consolidation and 
dissemination prior to traveling yet again to a subscriber that may be 
at a third location, significantly reducing geographic latency. But, 
despite consideration by the dedicated subcommittee established by one 
of the Equity Data Plans,\90\ none of the Equity Data Plans' operating 
committees has yet addressed the SIPs' geographic latency 
disadvantages.
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    \89\ See Day One Transcript, supra note 38, at 99:2-4 (statement 
of Stacey Cunningham, NYSE) (``There is debate the NYSE brought to 
the SIP Committee a long time ago to talk about the nature of a 
distributed SIP and that is something we should explore.''); at 
117:7-10 (statement of Michael Blaugrund, NYSE) (recommending that 
the Commission undertake an analysis of the cost and benefits to the 
industry of a shift to a distributed SIP model); at 228:3-9 
(statement of Chris Isaacson, Cboe) (``we're open to discussion 
about distributed SIPs''); at 231:23 (statement of Vlad Khandros, 
UBS) (stating that ``having a distributed SIP has a lot of merit to 
solve for the latency differences that are inherent in the current 
structure.''). See also Nasdaq Total Markets Paper, supra note 45, 
at 19 (``Distributed SIPs would reduce time spent transmitting quote 
information between an exchange (and firm) located in one data 
center and a SIP (and other firms) located in a different 
center.''); and SIFMA Letter II, supra note 57, at 3. See also NYSE 
Group Letter, supra note 84.
    \90\ The Commission's understanding that the Distributed SIP 
subcommittee has considered and continues to consider potential 
improvements to address geographic latency disadvantages is based on 
information obtained by the Commission or its staff as part of the 
Commission's oversight of the Equity Data Plans.
---------------------------------------------------------------------------

    The Commission recognizes that, as discussed above, the SROs have 
made certain improvements to the SIPs over the past several years, 
including upgrades that resulted in meaningful reductions in the time 
required to calculate and consolidate the NBBO. The Participants have 
also enhanced the content of the SIP feeds, including reports of odd-
lot trades.\91\ The Participants have also requested comment on a 
proposal to include odd-lot quotation information in response to the 
rise in odd-lot activity in the U.S. equity markets.\92\ In addition, 
Nasdaq migrated its SIP to a new technology platform in 2016 and stated 
that the update ``significantly improves the efficiency, resiliency, 
and reliability of the SIP in a meaningful and measurable way.'' \93\ 
And NYSE has publicly stated that it has undertaken two projects to 
enhance the SIP: (1) Building a new, dedicated network for SIP data to 
provide faster subscriber access to SIP data, and (2) migrating its SIP 
data feed engine to the NYSE's Pillar technology platform to reduce 
processing time and enhance resilience.\94\
---------------------------------------------------------------------------

    \91\ See, e.g., Securities Exchange Release Nos. 70793 (Oct. 31, 
2013), 78 FR 66788 (Nov. 6, 2013) (order approving Amendment No. 30 
to the UTP Plan to require odd-lot transactions to be reported to 
consolidated tape); 70794 (Oct. 31, 2013), 78 FR 66789 (Nov. 6, 
2013) (order approving Eighteenth Substantive Amendment to the 
Second Restatement of the CTA Plan to require odd-lot transactions 
to be reported to consolidated tape).
    \92\ See Equity Data Plan Odd Lot Proposal (announced Oct. 2, 
2019), available at https://www.ctaplan.com/publicdocs/CTA_Odd_Lots_Proposal.pdf and https://www.utpplan.com/DOC/Odd_Lots_Proposal.pdf. See NYSE Sharing Data-Driven Insights--Stock 
Quotes and Trade Data: One Size Doesn't Fit All (Aug. 22, 2019), 
available at https://www.nyse.com/equities-insights#20190822 (last 
accessed Nov. 16, 2019) (``NYSE Insights'').
    \93\ Securities Information Processor (SIP) Migrates to the 
Nasdaq Financial Framework and INET Technology (Oct. 24, 2016), 
available at https://www.globenewswire.com/news-release/2016/10/24/882097/0/en/Securities-Information-Processor-SIP-Migrates-to-the-Nasdaq-Financial-Framework-and-INET-Technology.html (last accessed 
on Nov. 18, 2019).
    \94\ See NYSE Insights, supra note 92.
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    Despite these changes, the SIPs have continued to meaningfully lag 
behind the proprietary data products and their related infrastructure 
with respect to content and speed. And while the Equity Data Plans' 
operating committees have discussed several ideas that could result in 
significant improvements to the SIPs both in terms of content and 
speed--ideas that could further reduce performance gaps when compared 
with proprietary data and its infrastructure \95\--these potential 
upgrades have failed to garner the support by Participants necessary 
for action.\96\ Thus, market participants that choose to pay for some 
or all of the DOB proprietary data feeds can consolidate those feeds 
and receive more comprehensive market data, and can receive it faster, 
than those who rely on the SIP feeds.\97\ As a result, significant 
information asymmetries persist between users of core data and users of 
proprietary DOB data, as well as potential disadvantages for market 
participants who do not access the

[[Page 2173]]

additional content included in proprietary data.\98\
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    \95\ See supra note 89 and accompanying text.
    \96\ See, e.g., NYSE Insights, supra note 92 (proposing to 
replace the SIP feeds with three tiered levels of service, including 
certain DOB data, based on the needs of specific types of 
investors); Nasdaq Total Markets Paper, supra note 45, at 22 
(discussing a single processor alternative and stating, ``Now that 
all exchanges trade all listed stocks, there no longer exists a 
bank, brokerage or rational basis for maintaining separate network 
processors and administrators based on historical listings 
decisions.''); supra note 89 and accompanying text (describing 
discussions regarding a distributed SIP model.). See also discussion 
accompanying note 116, infra (discussing proposal to add auction 
data to the SIP feeds).
    \97\ The fees for data and connectivity can be substantial and 
the fees for proprietary DOB products and connectivity have 
increased significantly in recent years. See SIFMA Order, supra note 
60, at 46-49 (providing examples of exchange proprietary market data 
fee increases).
    \98\ See, e.g., supra notes 80-82 and accompanying text. See, 
e.g., supra note 89 and accompanying text. A petition for rulemaking 
submitted to the Commission before the Roundtable emphasized the 
inherent conflict of interest in the exchanges' proprietary feeds 
competing with the SIPs, arguing that the greater the latency 
between the SIPs and the proprietary data feeds, the greater the 
market value of the exchange's proprietary feeds. See Healthy 
Markets Petition, supra note 48, at 6.
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    As discussed further below, the Commission believes that, under the 
current governance structure of the Equity Data Plans, improvements to 
the SIPs to adequately address important product, performance and 
pricing differentials between the SIPs and proprietary data products 
have not occurred.\99\ This failure contributes to the divergence in 
the usefulness of core data provided by the SIPs for some market 
participants compared to the proprietary data feeds. The Commission 
also believes that addressing these governance issues is an important 
first step in responding to concerns about the consolidated data feed.
---------------------------------------------------------------------------

    \99\ See infra notes 110-119 and accompanying text.
---------------------------------------------------------------------------

B. Conflicts of Interest Inherent in the Governance Model and Structure 
of the Equity Data Plans

    The Equity Data Plans provide the regulatory framework for the 
administration of SIP data. When it adopted Regulation NMS in 2005, the 
Commission contemplated that exchanges would offer proprietary market 
data feeds with greater content than the SIP feeds and that market 
participants might elect to purchase those feeds.\100\ However, since 
the adoption of Regulation NMS in 2005,\101\ the structure of the 
equity markets and the corporate structure of exchanges have changed 
dramatically.
---------------------------------------------------------------------------

    \100\ See Regulation NMS Release, supra note 6, 70 FR at 37569.
    \101\ See Regulation NMS Release, supra note 6.
---------------------------------------------------------------------------

    In addition to the technological developments already discussed, 
changes in the ownership structure of exchanges--in particular the 
demutualization of the exchanges and the rise of ``exchange groups''--
have created conflicts between the SROs' business interests and the 
need to ensure prompt, accurate, reliable, and fair dissemination of 
core data through the jointly administered Equity Data Plans consistent 
with their obligations as SROs under the national market system.\102\ 
As noted above, the Commission believes that these changes, combined 
with the Equity Data Plans' current governance structure, have 
exacerbated the exchanges' lack of incentives to improve the SIPs. And, 
as described further below, the Commission's views on the effect of 
conflicts of interest on the exchanges' incentives are informed by 
input received over the course of a number of years from a broad range 
of market participants--including industry trade associations, broker-
dealers (both those with a retail customer base and those with an 
institutional investor customer base), and the SROs themselves--through 
their participation in Commission-sponsored forums (i.e., the EMSAC 
\103\ and the Roundtable \104\) and through the submission of comment 
letters \105\ and petitions for rulemaking.\106\
---------------------------------------------------------------------------

    \102\ See 15 U.S.C. 78k-1(c)(1)(B) (stating that the Commission 
shall prescribe ``rules and regulations as necessary and appropriate 
in the public interest, for the protection of investors, to assure 
the prompt, accurate, reliable, and fair collection, processing, 
distribution, and publication of information with respect to 
quotations for and transactions in such securities and the fairness 
and usefulness of the form and content of such information'').
    \103\ See supra note 46 and infra notes 121 and 136.
    \104\ See supra note 47.
    \105\ See comments on Roundtable on Market Data and Market 
Access, available at https://www.sec.gov/comments/4-729/4-729.htm; 
comments on EMSAC, available at https://www.sec.gov/comments/265-29/265-29.shtml.
    \106\ See supra note 48.
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1. The Transformation of the Exchanges Into Publicly Owned Companies
    When the Equity Data Plans were created, U.S. equity exchanges were 
member owned, not-for-profit organizations. The members that owned the 
exchanges were registered broker-dealers, and those members had a voice 
in exchange decisions through their voting power on the governing 
bodies of the exchanges, including with respect to Equity Data Plan 
matters.
    When the exchanges demutualized, representation on exchange boards 
of directors broadened to require including non-industry 
representatives,\107\ thereby diluting exchange member representation, 
and the majority of the exchanges became part of publicly held 
companies seeking to maximize shareholder value. With this 
transformation, and following the adoption of Regulation NMS, many of 
the exchanges began to more actively pursue commercial interests that 
did not necessarily further the regulatory objective to ``preserve the 
integrity and affordability of the consolidated data stream,'' \108\ 
which is necessary to ensure that there is a ``comprehensive, accurate, 
and reliable source of information for the prices and volume of any NMS 
stock at any time during the trading day.'' \109\
---------------------------------------------------------------------------

    \107\ See, e.g., Securities Exchange Act Release Nos. 49098 
(Jan. 16, 2004), 69 FR 3974, 3979 (Jan. 27, 2004) (SR-PHLX-2003-73) 
(approving demutualization of Philadelphia Stock Exchange under by-
laws providing for 11 non-industry governors and ten industry 
governors, of which five would be on-floor governors); 51149 (Feb. 
8, 2005), 70 FR 7531, 7534 (Feb. 14, 2005) (SR-CHX-2004-26) 
(approving demutualization of Chicago Stock Exchange under bylaws 
that provided that half of the board must be public directors, with 
the remaining directors to be the exchange's CEO and participant 
directors); 53963 (June 8, 2006), 71 FR 34661, 34671 (June 15, 2006) 
(SR-NSX-2006-03) (approving demutualization of the National Stock 
Exchange under bylaws that provided for at least 50% independent 
directors and at least 20% directors representing exchange trading 
permit holders); and Securities Exchange Act Release No. 58375 (Aug. 
18, 2008), 73 FR 49498, 49500 (Aug. 21, 2008) (Application of BATS 
Exchange, Inc. for Registration as a National Securities Exchange; 
Findings, Opinion, and Order of the Commission) (stating that the 
non-industry directors will exceed the number of industry and member 
directors and that at least 20% of the directors will be member 
directors).
    \108\ Regulation NMS Release, supra note 6, 70 FR at 37503.
    \109\ Equity Market Structure Concept Release, supra note 22, 75 
FR at 3600.
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    An important example of this divergence of interest has been the 
development by certain exchanges of proprietary data products with 
reduced latency and expanded content (i.e., proprietary DOB data 
products), without the exchanges, in their role as Participants, 
similarly enhancing the data products offered by the Equity Data Plans. 
As discussed above, these DOB products have evolved to be considered 
competitive necessities for many market participants and are offered at 
significant premiums to SIP products.\110\ Another example of the 
divergence between commercial interests and regulatory goals has been 
the development by certain exchanges of limited TOB data products,\111\ 
which are offered at a discount compared to the SIP and marketed to a 
more price-sensitive segment of the market, without corresponding 
development by the Equity Data Plans of a less expensive SIP product 
for the price-sensitive segment of the market.\112\ The exchanges have 
continued to develop and enhance their proprietary market data 
businesses--which generate

[[Page 2174]]

revenues that, unlike Plan data revenues, do not have to be shared with 
the other SROs--while remaining fully responsible for the governance 
and operations of the Plans, including content, infrastructure, and 
pricing, as well as data consolidation and dissemination.
---------------------------------------------------------------------------

    \110\ See supra notes 57-62 and accompanying text.
    \111\ See supra note 40 and accompanying text (describing 
examples of exchange TOB products).
    \112\ The use of TOB products has expanded among retail and 
professional investors, who typically use TOB data via visual 
displays. However, these feeds do not show the full NBBO and 
therefore cannot be used to comply with the Vendor Display Rule. The 
Vendor Display Rule requires vendors and broker-dealers to display 
consolidated data from all the market centers that trade a stock in 
a context in which a trading or order routing decision can be 
implemented. In order to comply with the Vendor Display Rule, 
vendors and broker-dealers typically purchase and display 
consolidated data distributed by the SIPs. See 17 CFR 242.603. See 
supra notes 26, 38.
---------------------------------------------------------------------------

    Many non-SRO Roundtable panelists, commenters, and petitioners 
identified these circumstances as constituting an inherent conflict of 
interest in that the exchanges oversee the Equity Data Plans while 
selling their own proprietary feeds and connectivity services.\113\ One 
commenter stated that the ``exchanges maintain tight control of SIP 
governance to protect their lucrative market data revenue (plus 
associated SIP connectivity costs). . . .'' \114\ This commenter also 
stated that ``[g]iven conflicts of interest when a market competitor is 
also a regulator, it is critical that broker-dealers and asset managers 
have representation on SIP Operating Committees to ensure 
accountability and to promote initiatives to better develop market data 
products.'' \115\ One exchange stated that, in addition to an 
exchange's proprietary data products, other circumstances in which an 
exchange's conflicts of interest may affect the work of the Equity Data 
Plans' operating committees include consideration of whether auction 
data should be added to the SIPs and competition among the SROs for the 
role of processor.\116\ In contrast, another exchange maintained that 
selling exchange proprietary market data was contemplated under 
Regulation NMS and that doing what Regulation NMS contemplates does not 
itself create a conflict of interest.\117\
---------------------------------------------------------------------------

    \113\ See, e.g., Transcript of Day Two, Roundtable (Oct. 26, 
2018), available at https://www.sec.gov/spotlight/equity-market-structure-roundtables/roundtable-market-data-market-access-102618-transcript.pdf (``Day Two Transcript''), at 117:14-22 (statement of 
Richard Ketchum, Former CEO of FINRA); at 121:3-17 (statement of 
Michael Mason, Citigroup); 138:1-4 (statement of Kevin Cronin, 
Invesco); SIFMA Letter III, supra note 57, at 7 (stating that 
``exchanges offer their own proprietary feeds, some of which are 
designed to compete with the SIPs, while at the same time the 
exchanges operate the SIPs and control the SIP operating 
committees''); Letter from Theodore R. Lazo, Managing Director and 
Associate General Counsel, SIFMA (Sept. 18, 2019), at 3-4, available 
at https://www.sec.gov/comments/4-729/4729-6148210-192292.pdf 
(``SIFMA Letter IV'') (stating that the current SIP governance 
structure ``impedes the SIP from competing with the exchanges' 
proprietary data feeds.''); Letter from CTA/UTP Advisory Committee 
(Oct. 23, 2018), at 2, available at https://www.sec.gov/comments/4-729/4729-4553088-176181.pdf (``CTA/UTP Letter'') (``A perceived 
conflict is the lack of separation between CTA/UTP and proprietary 
data interests. An information barrier between CTA/UTP and 
exchanges' proprietary offering does not work in practice as the 
same individuals may represent both CTA/UTP and exchange proprietary 
data products.''); Letter from Tyler Gellasch, Executive Director, 
Healthy Markets Association (Oct. 23, 2018), at 11, available at 
https://www.sec.gov/comments/4-729/4729-4554022-176182.pdf 
(``Healthy Markets Letter'') (``One of the most direct conflicts of 
interest is that the exchanges effectively control the public market 
data stream while also competing with it.''); Healthy Markets 
Petition, supra note 48, at 6 (noting that the greater the latency 
between the SIPs and the proprietary data feeds, the greater the 
market value of the exchange's proprietary feeds); IEX Letter, supra 
note 86; Patomak Petition, supra note 48, at 1 (``Exchanges exercise 
complete control over key aspects of NMS plan governance, including 
setting fees, and this governance structure exacerbates conflicts of 
interest and allows exchanges to promulgate rules unilaterally to 
the detriment of broker-dealers and buy-side representatives.''); 
MFA Petition, supra note 48, at 13 (``SIP governance model under 
Regulation NMS does not effectively mitigate conflicts of 
interest.'').
    \114\ Letter from Marcy Pike, SVP, Enterprise Infrastructure, 
Krista Ryan, VP, Associate General Counsel, Fidelity Investments 
(Oct. 26, 2018), at 4, available at https://www.sec.gov/comments/4-729/4729-4566044-176136.pdf (``Fidelity Letter'').
    \115\ Id.
    \116\ See, e.g., Day Two Transcript, supra note 113, at 123:14-
127:3 (statement of John Ramsay, IEX) (``For over a year I've been 
pushing to try to get auction data added to the SIP that would make 
it more useful . . . . [but] there is at least one or more exchanges 
that will say, well, it requires unanimity, and therefore it's not 
going to happen.'').
    \117\ See NYSE Group Letter, supra note 84, at 19.
---------------------------------------------------------------------------

    Moreover, the Equity Data Plans are currently administered by two 
of the exchanges,\118\ which gives employees of those exchanges access 
to confidential data subscriber information of potentially significant 
commercial value, including subscriber audit information. The 
Commission notes that concerns have been raised about the exchange 
administrators' use of market data and associated customer information 
obtained through their role as Equity Market Data Plan administrators 
for their proprietary data feed businesses.\119\
---------------------------------------------------------------------------

    \118\ Currently, NYSE operates as the administrator for the CTA 
Plan and the CQ Plan, while Nasdaq serves as the administrator for 
the UTP Plan.
    \119\ See, e.g., Letter from Tyler Gellasch, Executive Director, 
Healthy Markets Association (Dec. 12, 2018), available at https://www.sec.gov/comments/4-729/4729-6413383-198487.pdf. In addition, 
commenters have expressed concerns with the burdens imposed by the 
SIPs' subscriber audits and have stated that these burdens create an 
incentive to purchase exchange TOB products. See infra notes 164-165 
and accompanying text.
---------------------------------------------------------------------------

    Consequently, the Commission believes that the exchanges' 
commercial interests in their proprietary data businesses, as well as 
the exchange administrators' access to confidential subscriber 
information, have created conflicts of interest that could influence 
decisions as to the Equity Data Plans' operation and thereby impede 
their ability to ensure the ``prompt, accurate, reliable, and fair 
collection, processing, distribution, and publication of information 
with respect to quotations for and transactions in such securities and 
the fairness and usefulness of the form and content of such 
information.'' \120\
---------------------------------------------------------------------------

    \120\ 15 U.S.C. 78k-1(c)(1)(B).
---------------------------------------------------------------------------

2. The Emergence of Exchange Groups
    In addition to the demutualization of the exchanges and the rise of 
proprietary data feeds, another significant change in the SRO landscape 
has been the emergence of exchange groups. As acknowledged by the EMSAC 
\121\ and echoed by Roundtable participants,\122\ the proliferation of 
exchange groups has had a significant effect on the allocation and 
concentration of voting power among certain SROs serving on the Equity 
Data Plans' operating committee.
---------------------------------------------------------------------------

    \121\ See, e.g., Transcript of EMSAC Meeting (Apr. 26, 2016), at 
0106:8-24 (statement of Richard Ketchum, Former CEO of FINRA), 
available at https://www.sec.gov/spotlight/emsac/emsac-042616-transcript.txt (``EMSAC Transcript'').
    \122\ See, e.g., Day Two Transcript, supra note 113, at 148:5-18 
(statement of Kevin Cronin, Invesco).
---------------------------------------------------------------------------

    Under the Equity Data Plans, each Participant is entitled to cast 
one vote, but the exchanges within each exchange group vote as a block. 
Currently, 14 of the 17 total votes are controlled by three exchange 
groups: (1) CBOE Holdings, Inc. has five votes (BYX, BZX, Cboe, EDGA, 
and EDGX); (2) Intercontinental Exchange Group, Inc. (``ICE'') has five 
votes (NYSE, NYSE American, NYSE Arca, NYSE Chicago, and NYSE 
National); and (3) Nasdaq, Inc. has four votes (BX, ISE, Nasdaq, and 
PHLX).\123\ As a result, the votes of only two exchange groups are 
sufficient to command a majority of votes and thereby control 
significant Equity Data Plan actions, including decisions that affect: 
(a) The capacity of the Equity Data Plans to transmit SIP data,\124\ 
(b) investments in infrastructure that could in turn affect performance 
and latency of Plan processors, (c) the fees charged for SIP data,\125\ 
and (d) the selection of individuals that participate in advisory 
committees.\126\
---------------------------------------------------------------------------

    \123\ In addition to these three exchange groups, each of the 
three unaffiliated SROs (FINRA, IEX, and LTSE) currently has one 
vote, resulting in a total of 17 Participant votes in Equity Data 
Plan matters.
    \124\ See, e.g., Section IV.(a) and Exhibit A of the CTA Plan.
    \125\ See, e.g., Section IV.(b)(iii) of the CTA Plan.
    \126\ See, e.g., Section XII.(b)(iii) of the CTA Plan.
---------------------------------------------------------------------------

    The Commission believes that the consolidation of most of the 
exchange SROs into exchange groups has altered the relative voting 
power of Equity Data Plan Participants so that exchange groups now have 
greater voting power with respect to Plan governance matters. 
Correspondingly, the relative voting power of unaffiliated Equity Data 
Plans'

[[Page 2175]]

Participants has been diluted over time. Exchanges that historically 
had only one vote have now been consolidated into exchange groups under 
common management that can control blocks of four or five votes.\127\ 
Consequently, any two exchange groups can now command a majority of 
votes on the Equity Data Plans' operating committee, while the relative 
voting power of unaffiliated Equity Data Plan Participants has been 
diluted over time. Notably, as the primary producers of exchange 
proprietary data products, these exchange groups' voting power on the 
Equity Data Plans exacerbates the conflicts between their business 
interests and their regulatory obligations.\128\ Accordingly, the 
Commission believes that the current voting structure may not promote 
the goals of Section 11A of the Act \129\ with respect to equity market 
data.
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    \127\ For example, for years the NYSE held a single exchange 
license and therefore had only one vote on the Equity Data Plans' 
operating committees, despite having approximately 80% of the 
trading volume in NYSE-listed securities. Today, the NYSE group of 
SROs as a whole has approximately 30% market share of trading in 
NYSE-listed securities, but because the NYSE group holds five 
exchange licenses, it has five votes and significantly more 
influence over Equity Data Plans' decisions than before. See Cboe 
U.S. Equities Volume Data, available at https://markets.cboe.com/us/equities/market_share/ (last accessed Aug. 11, 2019) (month-to-date 
volume summary as of Aug. 9, 2019).
    \128\ Specifically, the three exchange groups, which represent 
14 of the 17 votes on the operating committees of the Equity Data 
Plans, sell proprietary data products that are significant sources 
of revenues for these exchanges. Consequently, the Commission 
believes that they may not be incentivized to adequately improve the 
latency of the SIPs, as making SIP latency comparable to the 
proprietary feeds could decrease revenues earned from certain 
proprietary data products. See, e.g., Clearpool Group Viewpoints 
Rethinking the Current Market Structure (Sept. 2019), at 7 (stating, 
``Currently, SIP Plans are governed by SROs that have conflicts of 
interest in the provision of market data (i.e., the exchanges, 
excluding FINRA) as they are selling market data products that 
directly compete with the SIPs. These SROs therefore have a 
disincentive to either invest in the SIPs or to make SIPs 
competitive products to their proprietary data products, and it is 
unlikely that they would vote to make needed changes to the SIP 
Plans.''), available at https://cdn2.hubspot.net/hubfs/1855665/Clearpool%20Group%20Viewpoints%20-%20September%202019%20FINAL.pdf. 
See also IEX Letter, supra note 86, at 3 (``SIP governance is still 
under the control of exchanges that have no reason to want the SIPs 
to be competitive with their own lucrative feeds. Some exchanges 
even overtly market their own data as a better alternative to the 
SIPs. The conflicts of interest are obvious and acute.'').
    \129\ 15 U.S.C. 78k-1.
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C. The Governance Structure of the New Consolidated Data Plan

    As discussed below, the Commission believes that the existing 
Equity Data Plans should be replaced by a single New Consolidated Data 
Plan with a modernized governance structure.
1. Exchange Group Voting Power
    Several interested parties have suggested various ways to realign 
Participants' voting power. In response to the Roundtable,\130\ several 
panelists and commenters recommended that SRO voting rights be limited 
to one vote per exchange group,\131\ which they believe would increase 
the voting representation of unaffiliated exchanges.\132\ Panelists and 
one commenter also supported having voting provisions that reflect 
market size, so that the SROs with greater market share would have 
increased voting power.\133\ One commenter recommended capping the 
voting control permissible for any single exchange group.\134\ One 
panelist supported maintaining the current voting construct and 
highlighted the importance of protecting the voting rights of the 
unaffiliated SROs that have just one vote on the operating 
committee.\135\ In addition, the EMSAC recommended that the existing 
one-vote-per-exchange model should be replaced with an allocation of 
voting rights at the exchange group level--resulting in one vote per 
exchange group.\136\ The EMSAC recommended that an exchange group 
receive two votes, however, when the exchange group has consolidated 
market share of at least 10% in the particular market relevant to the 
Equity Data Plan.
---------------------------------------------------------------------------

    \130\ See https://www.sec.gov/spotlight/equity-market-structure-roundtables.
    \131\ The recommendation of one vote per exchange group was also 
included in a pre-Roundtable petition for rulemaking that was 
submitted to the Commission. See Healthy Markets Petition, supra 
note 48, at 6 (supporting ``one vote per exchange group'').
    \132\ See, e.g., Day Two Transcript, supra note 113, at 148:5-12 
(statement of Kevin Cronin, Invesco), available at https://www.sec.gov/spotlight/equity-market-structure-roundtables/roundtable-market-data-market-access-102618-transcript.pdf; at 
150:12-14 (statement of Hubert de Jesus, Blackrock); at 152:23-153:2 
(statement of John Ramsay, IEX); Fidelity Letter, supra note 114, at 
3 (recommending that NMS plan voting rights be limited to one vote 
per exchange group); Healthy Markets Letter, supra note 113, at 40.
    \133\ See, e.g., Day Two Transcript, supra note 113, at 150:17-
21 (statement of Richard Ketchum, Former CEO of FINRA); at 152:6-10 
(statement of Michael Masone, Citigroup); SIFMA Letter IV, supra 
note 113, at 4.
    \134\ See SIFMA Letter IV, supra note 113, at 4.
    \135\ See, e.g., Day Two Transcript, supra note 113, at 149:1-13 
(statement of Emily Kasparov, Chicago Stock Exchange, Inc. (n/k/a 
NYSE Chicago)).
    \136\ See EMSAC Recommendations Regarding Enhanced Industry 
Participation in Certain SRO Regulatory Matters (``EMSAC Governance 
Recommendations''), July 8, 2016, available at https://www.sec.gov/spotlight/emsac/recommendations-enhanced-industry-participation-sro-reg-matters.pdf; EMSAC Recommendations Relating to Trading Venues 
Regulation, April 12, 2016, available at https://www.sec.gov/spotlight/emsac/emsac-trading-venues-subcommittee-recommendations-041916.pdf.
---------------------------------------------------------------------------

    NYSE and Nasdaq objected to the EMSAC recommendation to reallocate 
votes among Equity Data Plan Participants by exchange group.\137\ In 
particular, Nasdaq argued that it would be inconsistent for the 
Commission not to provide each SRO with a vote when, in Nasdaq's view, 
the Commission has consistently held that each SRO is individually 
approved by the Commission and must have its own systems, rules, 
operations, and members.\138\
---------------------------------------------------------------------------

    \137\ See Letter from Elizabeth K. King, General Counsel and 
Corporate Secretary, NYSE (May 13, 2016), available at https://www.sec.gov/comments/265-29/26529-66.pdf (``NYSE Letter''); and 
Letter from Joan Conley, Senior Vice President and Corporate 
Secretary, Nasdaq (May 24, 2016), available at https://www.sec.gov/comments/265-29/26529-71.pdf (``Nasdaq Letter'').
    \138\ See Nasdaq Letter, supra note 137, at 7. Nasdaq also 
argued that the Commission has prevented exchange operating 
companies from offering ``cross-SRO'' products that bundle products 
from multiple exchanges, and Nasdaq believes that consolidating 
voting rights for purposes of the Equity Data Plans would contradict 
this past treatment of exchange groups by the Commission. See id. 
For the Commission's response to Nasdaq's argument, see infra notes 
148-151 and accompanying text.
---------------------------------------------------------------------------

    The Commission believes that the New Consolidated Data Plan should 
modify the current voting allocation structure to address the issues 
described above.\139\ Consistent with the EMSAC recommendation, the 
Commission believes that voting rights in the New Consolidated Data 
Plan should be allocated so that each unaffiliated SRO \140\ and 
exchange group has one vote on the operating committee--with a second 
vote provided if the exchange group or unaffiliated SRO has a market 
center or centers that trade more than a designated percentage of 
consolidated equity market share.\141\
---------------------------------------------------------------------------

    \139\ See supra notes 127-130 and accompanying text. The 
Commission notes that the one-vote-per-exchange governance model for 
NMS plans is not compelled by statute or regulation.
    \140\ For purposes of this Order, an unaffiliated SRO means an 
SRO that is not part of the same corporate ownership group as other 
SROs. The currently unaffiliated SROs are FINRA, IEX, and LTSE.
    \141\ For purposes of this Order, the Commission considers 
``consolidated equity market share'' to mean the average daily 
dollar equity trading volume of an exchange group or unaffiliated 
SRO as a percentage of the average daily dollar equity trading 
volume of all of the SROs, as reported by the Equity Data Plans.
---------------------------------------------------------------------------

    However, the Commission believes that the threshold percentage 
should be 15%, rather than the 10% threshold recommended by the EMSAC. 
The EMSAC's recommendation to the Commission concedes that there was no 
``magic'' in selecting 10% as its

[[Page 2176]]

suggested threshold amount,\142\ and, based on the current size of the 
exchange groups in terms of both exchange licenses and trading volume, 
the Commission believes that using the 10% threshold recommended by the 
EMSAC for obtaining a second vote on New Consolidated Data Plan matters 
would suggest that a third vote would be appropriate at 20% of 
consolidated equity market share. Given that the existing consolidated 
market share of the largest exchange groups generally ranges from 17% 
to 23% \143\--as of December 4, 2019, the figures for the CBOE, Nasdaq, 
and NYSE exchange groups were 17.03%, 19.58%, and 23.05%, respectively 
\144\-- setting the threshold for additional votes at 10% intervals 
would create the reasonable likelihood that exchange groups might 
receive a third vote, which would lead to a continuing concentration of 
voting power.
---------------------------------------------------------------------------

    \142\ See, e.g., EMSAC Transcript, supra note 121, at 0106:25-
0107:1 (statement of Richard Ketchum, Former CEO of FINRA).
    \143\ See Cboe U.S. Equities Volume Data, available at https://markets.cboe.com/us/equities/market_share/ (last accessed Dec. 4, 
2019). The consolidated market share of these three exchange groups 
has remained roughly comparable over the past three years, remaining 
above 15% and below 25%. As of August 16, 2016, the NYSE exchange 
group had approximately 23% consolidated market share, the Nasdaq 
exchange group had approximately 16%, and the Cboe exchange group 
had approximately 21%. As of August 15, 2017, the NYSE exchange 
group had approximately 23% consolidated market share, the Nasdaq 
exchange group had approximately 18%, and the Cboe exchange group 
had approximately 20%. As of August 16, 2018, the NYSE exchange 
group had approximately 23% consolidated market share, the Nasdaq 
exchange group had approximately 19%, and the Cboe exchange group 
had approximately 18%. See Cboe U.S. Equities Volume Data, available 
at https://markets.cboe.com/us/equities/market_share/ (last accessed 
Aug. 16, 2019).
    \144\ Id.
---------------------------------------------------------------------------

    Accordingly, the Commission believes that setting the threshold for 
a second vote at 15%, and limiting the total votes available to an 
exchange group or unaffiliated exchange to two votes, would provide 
greater relative voting power for the three exchange groups that 
currently have the highest trading volumes--the CBOE, Nasdaq, and NYSE 
exchange groups would each get two votes. The Commission believes that 
a 15% threshold for a second vote on the operating committee would thus 
provide an exchange group or unaffiliated exchange with extra voting 
power in recognition of its responsibility as an SRO for the operations 
of a trading platform that generates a greater share of equity market 
data. Under this approach, FINRA would not be eligible for a second 
vote on the operating committee, because, despite facilitating a 
significant proportion of trade reporting, it does not produce 
quotations or operate a market center.\145\
---------------------------------------------------------------------------

    \145\ The Commission notes, however, that while the voting 
allocation contemplated herein would not give a second vote to 
FINRA, it would effectively increase FINRA's voting power in that 
FINRA's vote on all matters would constitute approximately 11.1% of 
the SRO vote, and 7.4% of all votes on the operating committee, 
rather than its current 5.9% of all votes on the operating 
committees of the Equity Data Plans.
---------------------------------------------------------------------------

    The Commission further believes that an exchange group or an 
unaffiliated exchange should be granted a second vote only if it has 
maintained consolidated equity market share of at least 15% for at 
least four of the six calendar months preceding a vote of the operating 
committee. While exchange group market share has remained relatively 
steady over the past several years,\146\ competition for order flow 
among the exchanges and the registration of new national securities 
exchanges that trade equities may lead to more significant changes in 
market share. The Commission believes that using a look-back period of 
at least four of the six calendar months preceding a vote of the 
operating committee for determining whether an exchange group or an 
unaffiliated exchange has met the threshold for a second vote would 
allow the voting structure of the New Consolidated Data Plan to adapt 
over time to changing trading volume among exchanges while avoiding 
frequent changes in vote allocations as a result of short-term changes 
in activity.\147\
---------------------------------------------------------------------------

    \146\ See supra note 143.
    \147\ The Commission notes that it adopted a similar look-back 
period in the adoption of Regulation ATS for determining whether an 
alternative trading system (``ATS'') has reached trading volume 
thresholds that trigger certain requirements. See Rule 301 of 
Regulation ATS, 17 CFR 242.301(b)(3), (providing that, ``[a]n 
alternative trading system shall comply with the requirements set 
forth in paragraph (b)(3)(ii) of this section, with respect to any 
NMS stock in which the alternative trading system . . . [d]uring at 
least 4 of the preceding 6 calendar months, had an average daily 
trading volume of 5 percent or more of the aggregate average daily 
share volume for such NMS stock as reported by an effective 
transaction reporting plan.''). See also Securities Exchange Act 
Release No. 40760 (Dec. 8, 1998), 63 FR 70844 (Dec. 22, 1998) 
(Regulation of Exchanges and Alternative Trading Systems).
---------------------------------------------------------------------------

    As noted above, Nasdaq has argued that an approach that limits 
exchange groups to only one vote would be inconsistent with the 
Commission's prior action to prevent exchange operating companies from 
offering ```cross-SRO' products that bundle products from multiple 
exchanges.'' \148\ The Commission believes, however, that a meaningful 
distinction exists between, on one hand, examining whether an 
exchange's proposed rule change unfairly discriminates between market 
participants and, on the other hand, regulating the actions of multiple 
SROs in collectively operating critical market systems.\149\ Under 
Section 6 of the Act,\150\ the Commission oversees individual 
exchanges, not exchange groups, regarding, among other things, their 
obligations to not engage in disparate treatment of their members. In 
contrast, Section 11A and Rule 608 address the joint responsibilities 
of multiple SROs to the national market system as a whole, including 
operating a central utility for market data that has a broader class of 
stakeholders. Moreover, as discussed above, the Commission believes 
that, given the current structure of the market for NMS securities, 
allocating votes on the operating committees for critical market 
systems simply on an exchange-by-exchange basis--and thereby permitting 
exchanges under common ownership to collectively vote the interests of 
their corporate parent and to therefore command a majority of votes on 
the operating committees--does not facilitate representation of the 
interests of all stakeholders and no longer supports the integrity and 
affordability of SIP data.\151\
---------------------------------------------------------------------------

    \148\ Nasdaq Letter, supra note 137. See also supra note 138 and 
accompanying text.
    \149\ See, e.g., Securities Exchange Act Release No. 73639 (Nov. 
19, 2014), 79 FR 72251, 72271-72 (Dec. 5, 2014) (Regulation Systems 
Compliance and Integrity adopting release) (designating the SIPs as 
``critical SCI systems'' because ``consolidated market data is 
central to the functioning of the securities markets.'').
    \150\ 15 U.S.C. 78f.
    \151\ See supra notes 130-141 and accompanying text. The 
Commission notes that the one-vote-per-exchange voting model 
precedes the demutualization of the exchanges and the emergence of 
exchange groups. See, e.g., Order temporarily approving CQ Plan, 
supra note 31, 43 FR at 34852.
---------------------------------------------------------------------------

    Finally, to ensure that only those SROs that are contributing to 
the generation or collection of the core data disseminated by the New 
Consolidated Data Plan have a vote on New Consolidated Data Plan 
decisions, the Commission believes that the New Consolidated Data Plan 
should provide that if an exchange ceases operation as an equity 
trading venue, or has yet to commence operation as an equity trading 
venue, that exchange should not have a vote on Plan matters.\152\
---------------------------------------------------------------------------

    \152\ Both ISE and Cboe have been inactive as equities exchanges 
for several years but continue to retain full voting rights on the 
Equity Data Plans. ISE ceased trading equities on December 23, 2008. 
See Securities Exchange Act Release No. 80873 (June 4, 2017), 82 FR 
27094 (June 13, 2017). Cboe stopped trading equities on April 30, 
2014. See Securities Exchange Act Release No. 71880 (Apr. 4, 2014), 
79 FR 19950 (Apr. 10, 2014).

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[[Page 2177]]

2. Non-SRO Participation
    In 2005, when the Commission adopted Regulation NMS,\153\ it 
amended the Equity Data Plans to establish non-voting advisory 
committees to give interested parties an opportunity to express their 
views on Equity Data Plan business before any decision by the operating 
committees.\154\ Those advisory committees are made up of at least one 
representative from each of the following categories: (1) A broker-
dealer with a substantial retail investor customer base, (2) a broker-
dealer with a substantial institutional investor customer base, (3) an 
ATS, (4) a data vendor, and (5) an investor. As the Commission 
explained, the creation of the advisory committees was ``a useful first 
step toward improving the responsiveness of Plan participants and the 
efficiency of Plan operations.'' And the Commission said that it would 
``continue to monitor and evaluate Plan developments to determine 
whether any further action is warranted.'' \155\ After monitoring the 
activities of the Equity Data Plans over many years, the Commission 
believes that non-SROs are important stakeholders in the operation of 
the Equity Data Plans. The Commission now believes that the governance 
structure of the New Consolidated Data Plan should provide for non-SROs 
to participate as full members of the operating committee, rather than 
in an advisory capacity.
---------------------------------------------------------------------------

    \153\ See Regulation NMS Release, supra note 6.
    \154\ See Regulation NMS Release, supra note 6, 70 FR at 37561 
(``Expanding the participation of interested parties other than SROs 
in Plan governance should increase the transparency of Plan 
business, as well as provide an established mechanism for 
alternative views to be heard by the Plans and the Commission. 
Earlier and more broadly based participation could contribute to the 
ability of the Plans to achieve consensus on disputed issues . . . . 
The Commission particularly believes that the Plans should give full 
consideration to the views of industry participants on steps that 
would streamline the administrative procedures and burdens of the 
three Plans. Enhanced participation of advisory committee members in 
Plan affairs should help further this process.'').
    \155\ See Regulation NMS Release, supra note 6, 70 FR at 37561.
---------------------------------------------------------------------------

    Under the current governance structure of the Equity Data Plans, 
the SROs retain substantial influence over the advisory committees. 
Members of the advisory committees are selected by the majority vote of 
the SROs,\156\ and each SRO has the right to select an additional 
member of the advisory committee.\157\ Members of the Equity Data 
Plans' advisory committees are currently permitted to attend Plan 
meetings, receive certain information distributed to the operating 
committee relating to Plan matters, and submit their views prior to 
Plan decisions.\158\ Members of the Equity Data Plan advisory 
committees, however, may not vote on Equity Data Plan matters; can be 
excluded from substantive discussions, including, for example, 
discussions about potential amendments to the Equity Data Plans (e.g., 
discussions in ``executive sessions''); and can be denied access to 
critical information, such as cost and detailed revenue 
information.\159\ Thus, under the Equity Data Plans' current governance 
structure, the operating committees, which make decisions regarding 
Equity Data Plans' actions, such as expenditures for technology 
upgrades and programming updates (including those to address latency 
issues), changes to fees, and amendments, are controlled exclusively by 
SRO representatives, and no other market constituency has voting 
rights.
---------------------------------------------------------------------------

    \156\ See, e.g., Day Two Transcript, supra note 113, at 91:13-
19, 136:17-19, 137:8-12 (statements of Hubert de Jesus, Blackrock) 
(stating that advisors should be selected in an independent fashion 
to avoid Participants potentially choosing not to renew an advisor, 
or removing an advisor who does not support SRO interests).
    \157\ See Regulation NMS Release, supra note 6, 70 FR at 37610 
(Text of amendments to the Equity Data Plans, Governance Amendment 
(b)(2)).
    \158\ See, e.g., Section III(e)(iii) of the CTA Plan, supra note 
31 (``Members of the Advisory Committee shall have the right to 
submit their views to CTA on Plan matters, prior to a decision by 
CTA on such matters. Such matters shall include, but not be limited 
to, any new or modified product, fee, contract, or pilot program 
that is offered or used pursuant to the Plan.''); Section III(e)(iv) 
of the CTA Plan (``Members of the Advisory Committee shall have the 
right to attend all meetings of CTA and to receive any information 
concerning Plan matters that is distributed to CTA; provided, 
however, that CTA may meet in executive session if, by affirmative 
vote of a majority of the Participants entitled to vote, CTA 
determines that an item of Plan business requires confidential 
treatment.'').
    \159\ See id.
---------------------------------------------------------------------------

    Although advisory committee representatives currently have no 
voting power in the Equity Data Plans and have limited access to non-
public information on Equity Data Plan matters,\160\ they have 
substantial interests at stake in the Equity Data Plans' decision-
making process. Market participants who use SIP data--including 
investors, broker-dealers, data vendors, and others--are required to 
pay the fees charged by the Equity Data Plans. Retail investors that 
access core data through their broker-dealers can also be affected by 
data fees in that the fees charged to their broker-dealers can impact 
investors' ready access through their broker-dealers to full NBBO 
market information.\161\ The Commission has previously stated that 
investors must have core data to participate in the U.S. equity 
markets.\162\ And many market participants, including all broker-
dealers, must have access to SIP data to meet their regulatory 
obligations.\163\
---------------------------------------------------------------------------

    \160\ Advisory Committee members may have access to non-public 
drafts of amendments to the Equity Data Plans and public statements; 
however, they do not have access to plan cost and detailed revenue 
information. See Patomak Petition, supra note 48, at 4-5 
(``Currently, however, exchanges' disclosures related to their 
equity market data fees and expenses are inadequate, making it 
difficult for market participants to make informed comments and the 
Commission to make reasoned findings. Although exchanges recently 
have begun to modestly enhance their disclosures related to market 
data fees, they remain inadequate.''). The Commission notes that the 
CTA/CQ Plans and the Nasdaq/UTP Plan currently publicly disclose, on 
a quarterly basis (with a 60-day lag), the percentage of revenue 
earned by fee type. See, e.g., Q4 2018 CTA Quarterly Revenue 
Disclosure, available at https://www.ctaplan.com/publicdocs/ctaplan/notifications/trader-update/Q4%202018%20CTA%20Quarterly%20Revenue%20Disclosure.pdf; Q4 2018 UTP 
Quarterly Revenue Disclosure, available at https://www.utpplan.com/DOC/UTP_Revenue_Disclosure_Q42018.pdf. The fee types currently 
identified in the public disclosures are: Professional subscribers, 
non-professional subscribers, non-display, quote query, and 
``other.'' Although the current disclosures break down the revenue 
earned for certain fee types, the current disclosures are not broken 
down by each line item in the Equity Data Plans' fee schedule. For 
example, both the CTA/CQ Plans and the Nasdaq/UTP Plan group certain 
fee types under the general ``other'' category. The ``other'' 
category for the CTA/CQ Plans includes data feed access fees, 
redistribution fees, and TV ticker fees. The ``other'' category for 
the Nasdaq/UTP Plan includes data feed access fees, annual 
administrative fees, redistributor fees, voice port fees, and cable 
TV ticker fees. As another example, the CTA/CQ Plans and the Nasdaq/
UTP Plan have more than one type of non-display fees and access 
fees, which are not separately identified in the current revenue 
disclosures. In addition, the current disclosures by the CTA/CQ 
Plans and Nasdaq/UTP Plan do not include the revenue recovered from 
audits or any other methods of recovery.
    \161\ Some broker-dealers provide customers with market 
information from exchange proprietary TOB data feeds as substitutes 
for core data in certain applications. This proprietary TOB data may 
be cheaper than core data, but may contain information from only one 
exchange or one exchange group. See Effective-Upon-Filing Release, 
supra note 27, 84 FR at 54798 n.39.
    \162\ See Bloomberg Order, supra note 23, at 4.
    \163\ See Effective-Upon-Filing Release, supra note 27, 84 FR at 
54798.
---------------------------------------------------------------------------

    Roundtable panelists also stated that there are substantial burdens 
associated with the Equity Data Plans' audits of their firms' 
subscriber data usage and fee payment.\164\ A retail broker-dealer,

[[Page 2178]]

for example, has stated that compliance with the requirement to 
differentiate between the professional and non-professional status of 
their customers can be costly for a retail broker in terms of both time 
and manpower needed to complete the audit, and that these burdens are a 
factor favoring broker-dealer use of the exchanges' proprietary TOB 
products.\165\ Exchanges have also acknowledged the administrative 
burden associated with determining the professional and non-
professional status of broker-dealers' customers.\166\
---------------------------------------------------------------------------

    \164\ See, e.g., Day One Transcript, supra note 38, at 112:21-24 
and 114:2-9 (statements of Matt Billings, TD Ameritrade) (``The 
plans regularly audit brokers for compliance with their overly 
complex rules, which are not harmonized across the CTA and UTP 
Plans, and are a cause for misinterpretation. . . . The question 
ultimately becomes, at what point does a retail broker move away 
from the NMS plans . . . to avoid . . . the audit risk liability 
that currently exists under the plans.''); Day Two Transcript, supra 
note 113, at 196:20-197:7 (statement of Marcy Pike, Fidelity 
Investments) (``Most large brokerage firms or asset managers that 
are consuming this data have significant staffs that are counting 
and reporting the usage of this data . . . . There is a whole group 
of folks that have entered into the industry to help facilitate 
audits for the exchanges . . . .'').
    \165\ See TD Ameritrade Letter, supra note 40, at 5-8 (stating 
that the lower cost of proprietary TOB products, coupled with costs 
associated with the process to differentiate between retail 
professionals and non-professionals imposed by the Equity Data 
Plans, and associated audit risk, favors retail broker-dealer use of 
proprietary TOB products). See also Fidelity Letter, supra note 114, 
at 9 (``Exchanges spend considerable resources auditing broker-
dealers to ensure that subscriber status categories are correctly 
applied. Why? Because it is in their commercial interest to do so--
Professional subscriber market data rates are significantly higher 
than Non-professional subscriber rates. We question whether exchange 
resources used to audit member firms might be better deployed to 
reduce SIP costs.''). Under their respective policies, the Equity 
Data Plans deem data recipients to be professionals unless 
demonstrated to be a non-professional (a non-professional being a 
natural person who receives market data solely for his/her personal, 
non-business use, and who further does not fall into certain other 
categories). See, e.g., CTA Plan Nonprofessional Subscriber Policy, 
available at https://www.ctaplan.com/publicdocs/ctaplan/notifications/trader-update/Policy%20-%20Non-Professional%20Subscribers%20-%20CTA.pdf (last accessed Nov. 9, 
2019); UTP Plan, Exhibit 2 (Fees for UTP Services), Section (b)(2), 
available at https://www.utpplan.com/DOC/Nasdaq-UTPPlan_after_43rd_Amendment-Excluding_21st_36th_38th_42nd_Amendments.pdf (last accessed Nov. 9, 
2019).
    \166\ See, e.g., NYSE Insights, supra note 92 (``Subscribers pay 
different rates for the product based on whether the individual 
viewing the data is deemed a `professional' or `non-professional' 
user. This is a policy that has provided steep discounts for Main 
Street investors, but has created complex administrative burdens for 
brokers.''); Nasdaq Total Markets Paper, supra note 45, at 4 
(stating that the distinctions between ``professional'' and ``non-
professional'' users ``have become arbitrary and more complex than 
is necessary and create undue administrative burden to manage. We 
should modernize the user definitions to achieve the same general 
goals while streamlining the administrative burden.''). See also Day 
Two Transcript, supra note 113, at 258:19-25 (statement of Kevin 
Carrai, Cboe) (highlighting a compliance tool developed by the CTA 
Plan to determine whether an individual should be charged 
professional or non-professional rates for the receipt and use of 
the plan's market data).
---------------------------------------------------------------------------

    During the Roundtable, many panelists expressed support for 
expanding the role of advisory committees in the governance of Equity 
Data Plans and for providing the advisory committees with the right to 
a formal vote on the operating committees.\167\ One panelist stated 
that current members of the advisory committees could initially serve 
as the pool of candidates from which to draw non-SRO representatives 
with voting power and that once the non-SRO representatives are 
appropriately constituted, they may be able to select among themselves 
their successors.\168\ Exchange panelists were not unified in their 
views during the Roundtable, however. One exchange panelist expressed 
support for full voting representation by brokers, traders, and 
investors on the operating committees of the Equity Data Plans.\169\ 
Several exchange panelists suggested a willingness to add an additional 
non-SRO vote, but only after consideration of the obligations attached 
to the voting right.\170\ Another exchange, NYSE, argued in its comment 
letter that, before providing advisory committee members with a vote, 
the Commission would need to take into consideration their conflicts of 
interest and to place obligations on the advisory committee members 
similar to those placed on the exchanges.\171\
---------------------------------------------------------------------------

    \167\ See, e.g., Day Two Transcript, supra note 113, at 91:13-
19, 136:17-19, 137:8-12 (statements of Hubert de Jesus, Blackrock) 
(advocating for advisory committee members to have equitable voting 
representation--a 50:50 balanced voting representation--and that 
advisors should be selected in an independent fashion to avoid 
Participants potentially choosing not to renew an advisor, or 
removing an advisor who does not support SRO interests); at 87:17-
20, 118:14-20, 133:2-14 (statements of Richard Ketchum, Former CEO 
of FINRA) (supported advisory committee votes, but stressed that 
having a fiduciary responsibility tied to enforceable accountability 
for both Participants and advisors is important and could benefit 
from Commission action); at 122:17-20, 129:16-19 (statements of 
Michael Masone, Citigroup) (recommended a minimum of two additional 
advisory committee votes--specifically an asset manager and a 
broker-dealer--to be represented on the NMS plans); at 127:23-128:6 
(statement of John Ramsay, IEX).
    \168\ See, e.g., Day Two Transcript, supra note 113, at 128:7-16 
(statement of John Ramsay, IEX).
    \169\ See, e.g., Day Two Transcript, supra note 113, at 128:17-
23 (statement of John Ramsay, IEX).
    \170\ See, e.g., Day Two Transcript, supra note 113, at 134:21-
135:8 (statement of Emily Kasparov, Chicago Stock Exchange, Inc. (n/
k/a NYSE Chicago)); at 136:4-16 (statement of Bryan Harkins, Cboe); 
at 251:16-25 (statement of Jeff Davis, Nasdaq).
    \171\ See NYSE Group Letter, supra note 116, at 19 (stating that 
``absent the same regulatory obligations as the exchanges, Advisory 
Committee members would not have an incentive to cast votes 
consistent with the terms of the [Equity Data Plans]''). See also 
NYSE Letter, supra note 137, at 9 (stating that ``broker-dealers and 
other industry participants are free to and do act entirely in their 
own commercial interests unfettered by statutory or public interest 
concerns'').
---------------------------------------------------------------------------

    Many Roundtable commenters expressed support for permitting the 
Equity Data Plans' advisory committee members to have votes.\172\ In 
particular, one commenter suggested that the governance structure 
should call for a board and operating committees with equal non-SRO 
voting membership, including user, vendor, and public investor 
participation.\173\ One commenter asserted that giving voting 
representation on the operating committee to broker-dealers and asset 
managers would mitigate potential conflicts of interest.\174\ One 
commenter supported equal voting power between the SROs and industry 
representatives on the Equity Data Plans and replacing those 
representatives every two to four years.\175\ Another commenter stated 
that meaningful governance of the Equity Data Plans cannot be 
accomplished unless user and vendor representatives have a voice in 
their operations.\176\
---------------------------------------------------------------------------

    \172\ See, e.g., SIFMA Letter III, supra note 57, at 7 (``SIP 
governance (and that of all other NMS Plans) should include voting 
representation by both broker-dealers and asset managers.''); SIFMA 
Letter IV, supra note 113, at 4 (stating that the SIP operating 
committees should provide equal voting rights to industry 
representatives from: (1) Institutional broker-dealers; (2) retail 
broker-dealers; (3) buy-side firms; (4) data vendors; (5) ATSs; and 
(6) an individual with significant and reputable regulatory 
expertise); Fidelity Letter, supra note 114, at 3 (recommending that 
the Commission improve SIP governance by providing broker-dealers 
and asset managers a vote on all matters before the operating 
committees to provide alternative views, and to promote initiatives 
to better develop core data).
    \173\ See CTA/UTP Letter, supra note 113, at 2.
    \174\ See SIFMA Letter III, supra note 57, at 7.
    \175\ See SIFMA Letter IV, supra note 113, at 4-5.
    \176\ See TD Ameritrade Letter, supra note 40, at 9 (``TD 
Ameritrade also believes that meaningful governance of the Equity 
Data Plans cannot be accomplished unless user and vendor 
representatives have a true voice in their operation. The governance 
structure should allow for fair and equitable voting rights for 
exchanges and for members of the CTA/UTP Advisory Committee.''). 
Similarly, another commenter supported equitable voting 
representation from investment advisers, broker-dealers, and data 
vendors. See Healthy Markets Letter, supra note 113, at 40.
---------------------------------------------------------------------------

    In one of its comment letters on the Roundtable, Nasdaq recommended 
expanding the authority and responsibilities of the advisory 
committees, particularly on fees and policy-related matters, and 
supported providing the general investing public a voice on the 
advisory committees.\177\ Nasdaq further stated that increased 
authority for the advisory committees should be coupled with ``a fair 
and transparent mechanism'' to address conflicts of interest among 
advisory committee members.\178\ In addition,

[[Page 2179]]

Nasdaq has expressed support for establishing a partnership between the 
exchanges and industry participants for Equity Data Plans' governance, 
specifically suggesting that industry participants have two votes on 
the plans' operating committees, to be split among the six members of 
the Equity Data Plans' advisory committee members.\179\ Nasdaq further 
supported requiring non-SRO voting members to ``adhere to existing 
conflicts of interest and confidentiality policies, such as those that 
require exchanges and their affiliates to recuse themselves when they 
might receive a unique benefit not shared with other exchanges.'' \180\
---------------------------------------------------------------------------

    \177\ See Letter from Thomas Wittman, Executive Vice President, 
Head of Global Trading and Market Services, and CEO, Nasdaq (Oct. 
25, 2018), at 12, available at https://www.sec.gov/comments/4-729/4729-4562784-176135.pdf (``Nasdaq 2018 Letter'').
    \178\ Id. See also Nasdaq Letter, supra note 137, at 7 (stating 
that, ``other than ensuring their own compliance with the securities 
laws and rules of SROs, broker-dealers must be expected to act in 
their own commercial interests.'').
    \179\ See Nasdaq Total Markets Paper, supra note 45, at 22-23.
    \180\ See id. at 23.
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    The Commission also received petitions for rulemaking that 
requested that the Commission improve the Equity Data Plans' governance 
by including voting representation from investment advisers and broker-
dealers,\181\ and that the Commission conduct a review of the equity 
market data fee structure \182\ and study the governance of the U.S. 
equity market data regulatory framework with respect to proprietary 
market data and the consolidated data processor model.\183\ The EMSAC 
also recommended that the advisory committee have the right to a formal 
vote to express its views before consideration of any matter on which 
the operating committee votes.\184\
---------------------------------------------------------------------------

    \181\ See Healthy Markets Petition, supra note 48, at 6.
    \182\ See Patomak Petition, supra note 48, at 8-9 (``Based on 
this review, the SEC should consider whether any additional 
regulatory changes related to market data are warranted, potentially 
including . . . reforming NMS plan governance to allow voting 
representation from stakeholders such as broker-dealers and buy-side 
representatives.'').
    \183\ See MFA Petition, supra 48, at 13.
    \184\ See EMSAC Governance Recommendations, supra note 136, at 
2. The EMSAC also recommended that, if the operating committee 
approves any action that was opposed by a majority of the advisory 
committee, the operating committee should explain and document its 
reasons for proceeding contrary to advisory committee input and 
that, in the event that the matter is the subject of a rule filing, 
the operating committee should also summarize and explain the 
results of the operating committee and advisory committee votes in 
the filing submitted to the Commission. See id.
---------------------------------------------------------------------------

    NYSE and Nasdaq, however, expressed concern with enhancing advisory 
committee involvement in Equity Data Plan governance.\185\ NYSE argued 
in its comment letter that the current non-voting advisory committee 
structure is ``working as intended'' and that Section 11A of the Act 
and Rule 608 of Regulation NMS enable only SROs to become official 
voting members or participants of the Equity Data Plans, consistent 
with the SROs' regulatory obligations.\186\ In particular, NYSE stated 
that, ``[i]f the advisors of the NMS Plans were allowed effectively to 
interfere with the actions of the operating committees of the Plans, 
the advisors might be able to block or slow down changes the SROs felt 
were necessary to discharge their statutory obligations.'' \187\ Nasdaq 
similarly asserted that non-SROs have a ``strong voice in the operation 
of NMS Plans through the significant participation of advisory 
committees'' and expressed concern that enhanced industry participation 
in the Equity Data Plans could frustrate the regulatory obligations 
that attach to the SROs as Participants.\188\ Nasdaq also stated that 
expanding the role of advisory committees to include voting rights 
``would need to be accomplished through an amendment to Rule 608 of 
Regulation NMS and to the NMS plans to ensure proper and consistent 
application.'' \189\
---------------------------------------------------------------------------

    \185\ See supra note 137 and accompanying text.
    \186\ NYSE Letter, supra note 137, at 9.
    \187\ Id. at 9.
    \188\ Nasdaq Letter, supra note 137, at 7.
    \189\ Id. at 22.
---------------------------------------------------------------------------

    Since the Commission took the step of establishing non-voting 
advisory committees in Regulation NMS, the equity markets have seen a 
number of important changes, which as discussed above include the 
demutualization of exchanges--and the resulting divergence of the 
interests of the exchanges and their members--and the conflicts of 
interests that have emerged as exchanges have developed a variety of 
proprietary data products and marketed them to the subscribers of core 
data disseminated by the SIPs. Moreover, while non-SROs bear 
significant burdens from subscriber audits, those market participants 
have no role in selecting or overseeing the plan administrator that is 
responsible for the audit process. Thus, in light of the critical 
importance of disseminating SIP data to a broad range of market 
participants, the important role that the Equity Data Plans play in the 
national market system, and the financial \190\ and operational burdens 
\191\ that the Equity Data Plans' decisions frequently place on non-SRO 
market participants--as well as the comments the Commission has 
received supporting voting rights for non-SROs on the Equity Data 
Plans' operating committees.\192\ The Commission believes that, to help 
ensure that the New Consolidated Data Plan addresses the needs of all 
market participants, broader participation in the governance of the New 
Consolidated Data Plan would be beneficial.\193\ Consequently, the 
Commission believes that the New Consolidated Data Plan should include 
provisions that permit non-SRO representatives reflecting a diverse 
range of affected market participants to participate as voting members 
of the New Consolidated Data Plan operating committee.\194\
---------------------------------------------------------------------------

    \190\ The total revenues derived from Equity Data Plans' fees 
are substantial. For example, total revenue for the three Equity 
Data Plans totaled more than $430 million in 2017, based on their 
audited financial statements. Moreover, while non-SROs bear 
significant burdens from subscriber audits, see supra notes 164-165 
and accompanying text, those market participants have no role in 
selecting or overseeing the plan administrator that is responsible 
for the audit process.
    \191\ Any changes in the data feeds, connectivity options, and 
policies and procedures of the Equity Data Plans often require 
responsive technology changes by each subscriber.
    \192\ See supra notes 172-176 and accompanying text.
    \193\ See supra note 159 and accompanying text.
    \194\ The Commission understands that previous efforts to amend 
the Equity Data Plans to provide votes on the operating committees 
to non-SROs have not been successful due, in part, to the 
significant hurdle of satisfying the plans' unanimity requirements 
before an amendment to any of the plans may be proposed. See Letter 
from Eric Swanson, General Counsel, Bats Global Markets, Inc. (Aug. 
17, 2016), available at https://www.sec.gov/comments/265-29/26529-83.pdf (``In early 2015, Bats submitted proposals to the UTP and 
CTA/CQ Plans' Operating Committees to allow one broker-dealer and 
one investment advisor representative as full voting members. These 
proposals were not designed to be a final recommendation; but to 
rather act as a strawman to facilitate further discussions on how to 
increase participation by industry participants in the governance of 
the UTP and CTA/CQ Plans. Bats was unable to obtain sufficient 
support from the Operating Committee to move that initiative forward 
. . . .'').
---------------------------------------------------------------------------

    Broader participation in the governance of the New Consolidated 
Data Plan should be beneficial in providing more meaningful inclusion 
of key stakeholders' views in New Consolidated Data Plan decision 
making, and the Commission believes that the New Consolidated Data Plan 
should provide for separate voting member representatives of an 
institutional investor (e.g., an asset management firm), a broker-
dealer with a predominantly retail investor customer base, a broker-
dealer with a predominantly institutional investor customer base, a 
securities market data vendor, an issuer of NMS stock, and a retail 
investor. The representatives on the New Consolidated Data Plan would, 
therefore, closely mirror the categories of representatives on the 
advisory committees of the Equity Data Plans. However, because the 
Commission believes that ATSs and institutional broker-dealers serve 
similar roles in the markets, as they both operate as over-

[[Page 2180]]

the-counter trading venues, the Commission believes that the New 
Consolidated Data Plan operating committee should not include a 
designated ATS representative.\195\ To further ensure that non-SRO 
members reflect a diversity of perspectives, the Commission believes 
that the New Consolidated Data Plan should not permit a person 
affiliated with an SRO or a broker-dealer to serve as the 
representative of an ``issuer,'' a ``retail investor,'' or a ``market 
data vendor.''
---------------------------------------------------------------------------

    \195\ As noted above, the advisory committees of the Equity Data 
Plans currently have representatives from the following categories: 
(1) A broker-dealer with a substantial retail investor customer 
base; (2) a broker-dealer with a substantial institutional investor 
customer base; (3) an ATS; (4) a data vendor; and (5) an investor. 
The Commission notes that the individual representing an ATS on the 
Equity Data Plans advisory committee has, for several years, been 
from a large institutional broker.
---------------------------------------------------------------------------

    The Commission also believes that the extent of the SROs' current 
involvement in the Equity Data Plans' advisory committees--from 
selection of the members to selection of their own representatives on 
the advisory committees--limits the ability of the advisory committee 
members to be fully independent and to provide alternative views to be 
heard by the Equity Data Plans and the Commission, as contemplated when 
the advisory committees were created.\196\ Therefore, the Commission 
believes that the SROs should not be permitted to select the non-SRO 
members of the New Consolidated Data Plan operating committee. The 
Commission believes that the operating committee should provide for a 
process to publicly solicit, and make available for public comment, 
nominations for non-SRO members.
---------------------------------------------------------------------------

    \196\ See Regulation NMS Release, supra note 6, 70 FR at 37561 
(``Expanding the participation of interested parties other than SROs 
in Plan governance should increase the transparency of Plan 
business, as well as provide an established mechanism for 
alternative views to be heard by the Plans and the Commission.'').
---------------------------------------------------------------------------

    Further, the Commission believes that the initial non-SRO operating 
committee members should be selected by the current members of the 
Equity Data Plans' advisory committees, excluding advisory committee 
members who were selected by a Participant to be its representative, 
and subsequent non-SRO members should be selected solely by the then-
serving non-SRO members of the New Consolidated Data Plan operating 
committee.\197\ Additionally, the Commission believes that, to enhance 
the ability of non-SRO members to obtain sufficient experience with the 
operation of the New Consolidated Data Plan, and to make informed 
contributions as members of the operating committee, the New 
Consolidated Data Plan should provide that non-SRO members serve for a 
term of two years, which is the current term of advisory committee 
members of the Equity Data Plans.\198\ The Commission further believes 
that to ensure that a diversity of viewpoints are reflected among the 
non-SRO members of the operating committee, the New Consolidated Data 
Plan should provide for reasonable term limits for non-SRO 
members.\199\
---------------------------------------------------------------------------

    \197\ A list of current members of the CTA Plan advisory 
committee is available at https://www.ctaplan.com/advisory-committee 
(last accessed on Nov. 13, 2019). The Equity Data Plans all share 
the same advisory committee members. See also supra notes 156 and 
168.
    \198\ Section III.(e)(2) of the CTA Plan; Section IV.E.(b) of 
the UTP Plan.
    \199\ For example, one commenter recommended that non-SRO 
members should nominate individuals to replace then-serving non-SRO 
members every two to four years. See supra note 175.
---------------------------------------------------------------------------

    The Commission further believes that the current membership of the 
Equity Data Plans' advisory committees, excluding exchange 
representatives, should, to the extent possible, be maintained through 
the transition to the New Consolidated Data Plan to facilitate 
continuity. The Commission believes that the current advisory committee 
members' experience with, and expertise in, the operation of the Equity 
Data Plans will be valuable in selecting the initial non-SRO operating 
members (as discussed in more detail below) and will thus support the 
stable transition of operations from the Equity Data Plans to the New 
Consolidated Data Plan. Therefore, until the initial non-SRO members 
have been selected, the Commission believes that the Participants 
should renew the expiring terms of all members of the Equity Data 
Plans' advisory committees (other than those selected to represent a 
Participant) who remain willing to serve in that role.
    As noted above, certain exchanges have expressed concerns regarding 
extending voting rights on the Equity Data Plans to non-SROs.\200\ The 
Commission recognizes that the SROs have special legal obligations and 
responsibilities under the Act, including with regard to operating the 
Equity Data Plans.\201\ However, neither the Act nor the applicable 
rules thereunder, including Rule 608 of Regulation NMS, prohibit non-
SROs from participating in the governance of any NMS plan or from 
having voting rights in the administration of NMS plans. Therefore, the 
Commission believes that it is not necessary to amend Rule 608 of 
Regulation NMS in order for the New Consolidated Data Plan to include 
voting rights for non-SROs. The Commission believes that providing non-
SROs with voting rights in the New Consolidated Data Plan should help 
to further ensure that SIP data is available for the benefit of the 
public interest, by incorporating input from a range of stakeholders, 
consistent with the findings and goals of Section 11A of the Act.\202\ 
Moreover, the Commission believes that votes can be provided to non-
SROs in a manner that results in the SROs retaining the voting power 
necessary to act jointly on behalf of the plan pursuant to the 
requirements of Section 11A of the Act \203\ and Rule 608 of Regulation 
NMS.\204\
---------------------------------------------------------------------------

    \200\ See supra notes 170-171, 185-189 and accompanying text.
    \201\ 15 U.S.C. 78k-1(a)(3)(B).
    \202\ 15 U.S.C. 78k-1(a)(1).
    \203\ 15 U.S.C. 78k-1
    \204\ 17 CFR 242.608.
---------------------------------------------------------------------------

    Specifically, the Commission believes that the New Consolidated 
Data Plan should provide the SROs in aggregate with two-thirds of the 
voting power on the operating committee--and non-SRO members of the 
operating committee in aggregate with one-third of the voting power--
with proportionate fractional votes allocated to non-SRO members of the 
operating committee as necessary to preserve this ratio. To ensure that 
the SROs retain primary control of the New Consolidated Data Plan, the 
Commission believes that this ratio should be maintained at all times, 
including when a member of the operating committee is not present or 
unable to vote for any reason. In addition, the relative value of non-
SRO votes should be adjusted as necessary to account for new exchange 
registrations and consolidations to continually ensure that the ratio 
between aggregate SRO voting power and aggregate non-SRO voting power 
remains the same.
    Thus, under the provisions that the Commission believes should be 
part of the New Consolidated Data Plan regarding the allocation of 
votes among the SROs and non-SROs, as applied to the current number and 
ownership structure of the SROs, there would be nine aggregate SRO 
votes \205\ (two-thirds) and four and one-half aggregate non-SRO votes 
(one-third) on the New Consolidated Data Plan operating committee. 
Because there would be six non-SRO operating committee members eligible 
to vote in the New Consolidated Data Plan, but only four and one-half 
non-SRO votes in the aggregate, each

[[Page 2181]]

non-SRO member's vote would be worth three-quarters of one vote (4.5 / 
6 = \3/4\).
---------------------------------------------------------------------------

    \205\ The NYSE exchange group would have two votes; the Nasdaq 
exchange group would have two votes; the Cboe exchange group would 
have two votes; and IEX, FINRA, and LTSE would each have one vote--
totaling nine votes.
---------------------------------------------------------------------------

    Further, the Commission believes that action by the operating 
committee of the New Consolidated Data Plan should require an 
``augmented majority vote,'' meaning a two-thirds majority of all votes 
on the operating committee, provided that this vote also includes a 
majority of the SRO votes, which will ensure that the SROs have 
sufficient voting power to act jointly on behalf of the plan pursuant 
to the requirements of Section 11A of the Act \206\ and Rule 608 of 
Regulation NMS.\207\ For example, under the current number and 
ownership structure of the SROs, there would be nine SRO votes and four 
and one-half non-SROs votes. For an ``augmented majority vote,'' nine 
votes of the operating committee would be required for a two-thirds 
majority, and five SRO votes would be required for an SRO majority 
vote. Five SRO votes would be necessary to obtain a majority of SRO 
votes as well as a two-thirds majority vote of the operating committee. 
There would not be a situation in which a two-thirds majority would not 
also include a majority of the SRO votes. However, the number of the 
SROs may not remain static. If in the future another SRO joined the New 
Consolidated Data Plan, there would then be ten SRO votes, and the non-
SRO operating committee members would then have five votes. Under those 
circumstances, a two-thirds majority could be obtained without a 
majority of the SRO votes--in other words, if five SROs and five non-
SROs vote in favor of a motion, and five SROs vote against the motion, 
two-thirds of the operating committee voted in favor, but a majority of 
SROs did not. Therefore, this would not constitute an augmented 
majority vote and the motion would fail.
---------------------------------------------------------------------------

    \206\ 15 U.S.C. 78k-1.
    \207\ 17 CFR 242.608.
---------------------------------------------------------------------------

    Finally, the Commission believes that the New Consolidated Data 
Plan should include provisions to address circumstances in which a 
member is unable to attend an operating committee meeting or to cast a 
vote.
3. Voting Requirements for Changes to the New Consolidated Data Plan
    Under the current governance model, certain actions by the Equity 
Data Plans' operating committees require the unanimous vote of all 
Participants.\208\ While the majority of actions under the Equity Data 
Plans require only a majority vote, unanimity is required, for example, 
to propose amendments to the provisions of the Plans,\209\ to amend 
contracts between the Equity Data Plans' processor and vendors,\210\ 
and to terminate a Plan processor.\211\ The EMSAC, however, recommended 
that unanimity not be required for NMS plan votes, stating that 
limiting the use of unanimity requirements would ``prevent undue 
friction or delay in Plan voting matters.'' \212\
---------------------------------------------------------------------------

    \208\ See Section IV.(b) of the CTA Plan; Section IV.(c) of the 
CQ Plan; Section IV.C.1 of the UTP Plan.
    \209\ See Section IV.(b)(i) of the CTA Plan; Section IV.(c)(i) 
of the CQ Plan; Sections IV.C.1.a. and XVI of the UTP Plan.
    \210\ See, e.g., Section IV.C.1(b) of the UTP Plan.
    \211\ See, e.g., Section IV.C.1(c) of the UTP Plan.
    \212\ See EMSAC Governance Recommendations, supra note 136.
---------------------------------------------------------------------------

    The Commission believes that, because unanimous voting provides 
each exchange, despite the conflicts of interest it may face, with an 
effective veto over certain significant Equity Data Plans' matters, the 
requirement for unanimous voting can enable a single exchange to 
obstruct improvements to the collection (e.g., connectivity), 
processing (e.g., aggregation or consolidation), and distribution 
(e.g., transmission) of SIP data that the other SROs support. To 
address the concerns that arise from the Equity Data Plans' requirement 
for unanimous voting, the Commission believes that the submission of 
amendments to the New Consolidated Data Plan to the Commission, like 
other actions by the operating committee as described above,\213\ 
should be approved by an augmented majority vote, defined above, rather 
than a unanimous vote. As noted above, the Commission believes that 
requiring an augmented majority vote for changes to the New 
Consolidated Data Plan would provide non-SRO members with a voice in 
New Consolidated Data Plan governance, while also ensuring that the 
SROs have sufficient voting power to act jointly on behalf of the New 
Consolidated Data Plan.
---------------------------------------------------------------------------

    \213\ See supra Section II.C.2.
---------------------------------------------------------------------------

    One Roundtable panelist and one commenter raised the concern that 
eliminating the current Equity Data Plans' requirements regarding 
unanimous voting would reduce the influence of FINRA and the 
unaffiliated exchanges.\214\ The Commission, however, believes that the 
voting allocation described above for the New Consolidated Data Plan--
coupled with the existing requirement that NMS plan amendments (except 
those put into effect upon filing) \215\ must be published for comment 
and subject to approval by the Commission to become effective--should 
help to address this concern.\216\ Actions by the Equity Data Plans 
would no longer be subject to veto by a single SRO or exchange group, 
and substantive New Consolidated Data Plan amendments would continue to 
be subject to review by the Commission and public notice and comment, 
and would not become effective unless the Commission finds them to be 
consistent with the Act.
---------------------------------------------------------------------------

    \214\ See, e.g., Day Two Transcript, supra note 113, at 113:24-
114:9, 149:1-13, 24 (statements of Emily Kasparov, Chicago Stock 
Exchange, Inc. (n/k/a NYSE Chicago)); Healthy Markets Letter, supra 
note 113, at 10 (``In recent years, the CTA Plan has modified its 
procedures to permit votes by less than unanimity. This severely 
limits the ability of FINRA or an independent exchange to block CTA 
Plan actions, arguably granting much greater power to the dominant 
exchange operators.'').
    \215\ See 17 CFR 242.608(b)(3).
    \216\ See also supra note 145 (noting FINRA's proportional 
voting power would increase under the provisions of the New 
Consolidated Data Plan as contemplated by this Order).
---------------------------------------------------------------------------

    In addition, unanimous voting is not a requirement for NMS plans. 
In fact, the most-recently approved NMS plan, which governs the 
facility for a consolidated audit trail (``CAT''), requires the 
affirmative vote of a two-thirds supermajority of all members of the 
operating committee for plan amendments.\217\ In the adopting release 
for Rule 613 under the Act,\218\ which required the creation of the CAT 
Plan, the Commission stated that ``an alternate approach'' to voting 
involving ``the possibility of a governance requirement other than 
unanimity, or even super-majority approval, for all but the most 
important decisions'' should be considered, as it ``may be appropriate 
to avoid a situation where a significant majority of plan sponsors--or 
even all but one plan sponsor--supports an initiative but, due to a 
unanimous voting requirement, action cannot be undertaken.'' \219\
---------------------------------------------------------------------------

    \217\ See Limited Liability Company Agreement of CAT NMS, LLC 
(effective Jan. 10, 2018), available at https://www.catnmsplan.com/wp-content/uploads/2018/01/CAT-NMS-Plan-Current-as-of-1.10.18.pdf; 
Securities Exchange Act Release No. 79318 (Nov. 15, 2016), 81 FR 
84696 (Nov. 23, 2016) (Order Approving the National Market System 
Plan Governing the CAT or ``CAT Plan''). See also Section 12.3 of 
the CAT Plan.
    \218\ 17 CFR 242.613.
    \219\ See Securities Exchange Act Release No. 67457 (July 18, 
2012), 77 FR 45722, 45787 (Aug. 1, 2012).
---------------------------------------------------------------------------

    The Commission believes that the proposed reallocation of voting 
rights among the SROs--combined with the provision of formal voting 
power to non-SROs, the provision of a two-thirds majority of votes 
allocated to the SROs, and the provision of an augmented majority vote 
rather than unanimous vote for amendments to the New Consolidated Data 
Plan--would further the objectives of Section 11A of the

[[Page 2182]]

Act.\220\ Together, these provisions would promote the prompt, 
accurate, reliable, and fair dissemination of core data \221\ by 
providing for meaningful input from a broad range of stakeholders while 
also ensuring that the SROs retain sufficient voting power to act 
jointly on behalf of the plan pursuant to the requirements of Section 
11A of the Act and Rule 608 of Regulation NMS.\222\ The Commission also 
believes that broader representation on the New Consolidated Data Plan 
operating committee would help to ensure that decisions relating to New 
Consolidated Data Plan operations support the prompt, accurate, 
reliable, and fair dissemination of core data.\223\
---------------------------------------------------------------------------

    \220\ 15 U.S.C. 78k-1.
    \221\ See supra note 102.
    \222\ 15 U.S.C. 78k-1 and 17 CFR 242.608.
    \223\ See 15 U.S.C. 78k-1(c)(1)(B).
---------------------------------------------------------------------------

4. Consolidating the Three Equity Data Plans Into a Single New 
Consolidated Data Plan
    Although the Equity Data Plans are structured as three separate NMS 
plans--which reflects the less integrated equity markets at the time 
the Equity Data Plans were organized and approved--the three Equity 
Data Plans now have identical operating committees that hold joint 
meetings to oversee the collection, processing, and distribution of SIP 
data in today's tightly integrated equity markets. Additionally, the 
three Equity Data Plans have the same advisory committee members, who 
function as one advisory committee for all three Equity Data Plans. The 
three Equity Data Plans also have overlapping administrative and 
regulatory functions and share the same revenue distribution formula, 
legal representation, and other professional services. The Commission 
believes that maintaining three separate Equity Data Plans is 
inefficient and creates redundant efforts on the part of the operating 
and advisory committee members that unnecessarily burden ongoing 
improvements to the SIPs and that contribute to certain duplicative 
costs. These redundant efforts include, among other things, maintaining 
accounting for three sets of legal and auditor fees, maintaining books 
and records for the Equity Data Plans' businesses, filing separate 
amendments regarding some aspects of the Equity Data Plans with the 
Commission, and devoting personnel resources to coordinate and 
facilitate three separate Equity Data Plans.
    The Commission therefore believes that there should be one New 
Consolidated Data Plan to promote the application of consistent 
policies, procedures, terms, fees, and conditions that would be more 
transparent and easily understood across all data products offered and 
that reflect the provisions that are the subject of this Order. The 
Commission also believes that replacing the three existing Equity Data 
Plans with a single New Consolidated Data Plan with the governance 
structure discussed above would simplify the process of making future 
enhancements to the Equity Data Plans' operations so that core data 
meets on a continuing basis the needs of market participants and 
furthers the objectives of Section 11A of the Act.\224\
---------------------------------------------------------------------------

    \224\ 15 U.S.C. 78k-1. The Commission notes that, recently, as 
part of a comprehensive recommendation on reforming the U.S. equity 
markets, Nasdaq recommended consideration of consolidating the NMS 
plans for disseminating equity market data. See Nasdaq Total Markets 
Paper, supra note 45, at 21.
---------------------------------------------------------------------------

    Finally, the Commission believes that the terms of the New 
Consolidated Data Plan should provide for the orderly transition of 
functions and responsibilities from the three Equity Data Plans to the 
New Consolidated Data Plan. The Commission believes that the 
Participants, because of their significant experience in the operations 
of NMS plans, are well positioned to propose an efficient and orderly 
transition as part of the New Consolidated Data Plan they file with the 
Commission.

D. The Operation of the New Consolidated Data Plan

    Given the importance of core data to the national market system, as 
recognized by both Congress and the Commission, and consistent with 
Rule 608 of Regulation NMS,\225\ the Commission believes that the 
terms, policies, and procedures of the New Consolidated Data Plan 
should promote the joint work of the SRO members (i.e., members that 
represent an exchange group or an unaffiliated SRO) and non-SRO members 
of the operating committee to ensure the prompt, accurate, reliable, 
and fair dissemination of core data.\226\ The Commission has set forth 
below certain governance provisions that the Commission believes would 
enable the New Consolidated Data Plan to address these issues.
---------------------------------------------------------------------------

    \225\ 17 CFR 242.608.
    \226\ See supra note 102.
---------------------------------------------------------------------------

1. The Role and Responsibilities of the Operating Committee
    The Commission believes that the New Consolidated Data Plan should 
set forth the role and responsibilities of the operating committee. The 
Commission believes that the duties of the operating committee should 
include, at a minimum, the provisions described below.
    The New Consolidated Data Plan should state that the operating 
committee should be responsible for proposing amendments to the New 
Consolidated Data Plan or implementing other policies and procedures, 
as necessary, to ensure the prompt, accurate, reliable, and fair 
collection, processing, distribution, and publication of information 
with respect to quotations for and transactions in NMS stocks and the 
fairness and usefulness of the form and content of that information, 
consistent with the goals of Section 11A of the Act.\227\ While each of 
the Equity Data Plans includes a general provision stating that the 
operating committees will propose changes to the Equity Data Plans 
through amendments, the Commission believes that the New Consolidated 
Data Plan should specifically provide that the responsibilities of the 
operating committee include proposing amendments to ensure that SIP 
data is distributed consistent with these statutory goals. The 
Commission believes that such a provision would encourage the operating 
committee to actively examine New Consolidated Data Plan operations and 
propose to change provisions of the New Consolidated Data Plan (or 
policies and procedures thereunder) that are no longer effective in 
carrying out the objectives of the Act.
---------------------------------------------------------------------------

    \227\ 15 U.S.C. 78k-1; see supra note 102.
---------------------------------------------------------------------------

    The Commission believes that the New Consolidated Data Plan 
operating committee's role should also include selecting, overseeing, 
specifying the role and responsibilities of, and evaluating the 
performance of, an independent plan administrator,\228\ plan 
processors, a firm to examine and assess data usage reports and fee 
payments by subscribers (``auditor''),\229\ and other professional 
service providers. While the Equity Data Plans provide that the 
performance of the processor must be reviewed,\230\ the Commission 
believes that this obligation should be expanded to cover other 
professional service providers that have a significant role in the 
operations of the New Consolidated Data Plan to ensure that the non-SRO 
members of the New Consolidated Data Plan operating committee have a 
voice in these matters.
---------------------------------------------------------------------------

    \228\ See infra note 234 and accompanying text.
    \229\ See supra note 164 and accompanying text.
    \230\ See Section V.(d) of the CTA Plan; Section V.(d) of the CQ 
Plan; Section V.A. of the UTP Plan.
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    With respect to reviewing the performance of the New Consolidated

[[Page 2183]]

Data Plan's processor(s), the Commission believes that the operating 
committee's role should include ensuring the public reporting of the 
performance of the processor(s) and other metrics and information about 
the processor(s). The CTA Plan requires the operating committee to 
periodically review whether ``the Processor has failed to perform its 
functions in a reasonably acceptable manner in accordance with the 
provisions of [the] CQ Plan,'' whether ``its reimbursable expenses have 
become excessive and are not justified on a cost basis,'' and whether 
``the Processor should continue in such capacity or should be 
replaced.'' \231\ The CTA Plan also states that, in reviewing the 
performance of the processor, the operating committee shall consider 
factors such as ``experience, technological capability, quality and 
reliability of service, relative costs, back-up facilities, and 
regulatory considerations.'' \232\
---------------------------------------------------------------------------

    \231\ Section V.(d) of the CTA Plan.
    \232\ Id.
---------------------------------------------------------------------------

    The Commission believes that the provisions in the New Consolidated 
Data Plan regarding the review of the processor(s) should also include 
a requirement that the results of the performance evaluation be made 
public, along with the metrics used to evaluate the processor(s) and 
other pertinent information about the processor(s). The Commission 
believes that making this information public would provide all market 
participants with a view of how well or poorly a processor is 
performing across various metrics, which would allow market 
participants to provide meaningful input to the operating committee and 
to the Commission. Further, the Commission believes that, if 
performance metrics are made public, the operating committee of the New 
Consolidated Data Plan would have enhanced incentives to ensure that 
the processor is functioning well and that the New Consolidated Data 
Plan is providing prompt, accurate, and reliable publication of 
information with respect to quotations for and transactions in NMS 
stocks.\233\
---------------------------------------------------------------------------

    \233\ See 15 U.S.C. 78k-1(c)(1)(B).
---------------------------------------------------------------------------

    The Commission further believes that the administrator of the New 
Consolidated Data Plan should be independent, meaning that the 
administrator should not be owned or controlled by a corporate entity 
that separately offers for sale a market data product, either directly 
or via another subsidiary. As discussed above, the Commission believes 
that an entity that acts as the administrator while also offering its 
own proprietary data products faces a substantial, inherent conflict of 
interest, because it would have access to sensitive customer 
information.\234\ While conflict-of-interest and confidentiality 
provisions of the New Consolidated Data Plan, or of the administrator, 
may serve to mitigate conflicts to some extent, the Commission believes 
the conflicts of interest faced by a non-independent administrator are 
so great that these conflicts cannot be sufficiently alleviated through 
policies and procedures.
---------------------------------------------------------------------------

    \234\ As noted above, NYSE and Nasdaq currently act as 
administrators of the Equity Data Plans, which provides certain 
employees of these exchanges, through the subscriber audit process, 
with access to confidential data subscriber information. See supra 
note 52. Under the independence provision discussed above, NYSE and 
Nasdaq would be excluded from operating as plan administrators, 
although they would not be excluded from continuing to act as SIPs. 
There is precedent in other NMS plans for the roles of administrator 
and processor to be performed by different entities. As an example, 
for the NMS plan that governs the collection, consolidation, 
processing, and dissemination of last sale and quotation information 
for listed options--the Limited Liability Company Agreement of 
Options Price Reporting Authority, LLC Plan--Cboe Exchange, Inc. 
serves as the plan administrator and SIAC serves as the processor. 
The Commission notes that there would be some loss of revenue to the 
exchange groups currently acting as administrators to the Equity 
Data Plans if they are excluded from acting as plan administrator 
for the New Consolidated Data Plan.
---------------------------------------------------------------------------

    The Commission also believes that a requirement that the New 
Consolidated Data Plan administrator be independent would address 
concerns that have been raised about the burdens imposed by the current 
audit process for the Equity Data Plans.\235\ Specifically, the 
Commission believes that the oversight of an independent plan 
administrator would help to ensure that the burdens imposed by the 
audit process are fair, that they are reasonably related to ensuring 
that data subscribers pay the amounts properly due for their data 
usage, and that they are not designed in a manner that affects the 
decision making of subscribers when determining whether to purchase 
proprietary TOB data feeds.
---------------------------------------------------------------------------

    \235\ See supra notes 164-165 and accompanying text.
---------------------------------------------------------------------------

    Additionally, the Commission believes that the New Consolidated 
Data Plan should provide that any expenditures for professional 
services--including for example, legal counsel, public relations, and 
accounting services--that are paid for using New Consolidated Data Plan 
revenues must be for activities consistent with the terms of the New 
Consolidated Data Plan and must be authorized by an augmented majority 
of the operating committee. Because the New Consolidated Data Plan's 
governance structure would be designed to represent the interests of a 
broad range of market participants--who may at times hold diverging 
views about how the New Consolidated Data Plan should operate--the 
Commission believes that requiring that professional services engaged 
by the New Consolidated Data Plan be consistent with the terms of the 
New Consolidated Data Plan and be authorized by an augmented majority 
vote would help ensure that New Consolidated Data Plan resources are 
expended in furtherance of the purposes of the New Consolidated Data 
Plan and that both SRO and non-SRO members of the operating committee 
have input into this important aspect of New Consolidated Data Plan 
operations.
    Further, the Commission believes that the New Consolidated Data 
Plan should include provisions to ensure that the operating committee 
is responsible for assessing the marketplace for equity market data 
products and ensuring that SIP data offerings are priced in a manner 
that is fair and reasonable and are designed to ensure the widespread 
availability of SIP data \236\ that is useful to a broad range of 
investors and other market participants.\237\ Imposing a direct 
responsibility on the operating committee of the New Consolidated Data 
Plan to keep abreast of changes in the marketplace regarding demands 
for and pricing of equity market data, and to ensure that SIP data 
meets those demands and are widely distributed at fair and reasonable 
prices, should help ensure that the SIPs' data feeds support the 
findings and goals of Section 11A of the Act.\238\
---------------------------------------------------------------------------

    \236\ See supra note 16.
    \237\ See 15 U.S.C. 78k-1(c)(1)(C) (providing that the 
Commission shall assure the usefulness of the form and content of 
information with respect to quotations for and transactions in 
securities).
    \238\ 15 U.S.C. 78k-1.
---------------------------------------------------------------------------

    Finally, the Commission believes that the New Consolidated Data 
Plan operating committee's role should include designing and 
maintaining a fair and reasonable revenue allocation formula for 
distributing plan revenues to be applied by the independent plan 
administrator, and overseeing, reviewing and revising that formula as 
needed. Over the past several years, market participants have suggested 
updating the market data revenue allocation.\239\ For example, during 
the

[[Page 2184]]

Roundtable, one panelist recommended that the Commission undertake 
rulemaking to simplify the revenue allocation formula.\240\ Another 
panelist highlighted work done to increase transparency on the revenue 
allocation formula, including publishing a ``plain-language version of 
the revenue allocation formula'' on the Equity Data Plans' 
websites.\241\ In addition, Nasdaq has stated that the revenue 
allocation formula needs improvement as certain exchanges have ``skewed 
the expected allocation of revenue by attracting displayed quotations 
without executing a commensurate number of trades.'' \242\ Nasdaq has 
expressed support for modifying the revenue allocation formula to 
reward displayed quotes where investors receive an execution.\243\ The 
Commission believes that the operating committee of the New 
Consolidated Data Plan, with the broader representation of market 
participants contemplated by this Order, would be well situated to 
address issues such as these regarding Equity Data Plans' revenue 
allocation.
---------------------------------------------------------------------------

    \239\ See, e.g., Transcript of EMSAC Meeting (Apr. 5, 2017), at 
0037:5-11 (statement of Adam Nunes, Hudson River Trading), available 
at https://www.sec.gov/spotlight/equity-market-structure/emsac-transcript-040517.txt (``We had people splitting all their trades up 
into hundred-share lots to maximize their revenue share. And now, we 
look today with . . . quote-sharing where . . . you see a massive 
disparity between exchanges' quote share and their market share. So, 
I do think that that's something that should be addressed.''); 
Letter from David M. Weisberger, President, Exquam LLC (Mar. 24, 
2017), at 4-5, available at https://www.sec.gov/comments/265-29/26529-1666811-148978.pdf (stating that the ``quote based calculation 
in the rule is . . . flawed'' and recommending that the allocation 
formula be based ``on the value of trades in each stock resulting 
from interaction with a displayed quote.'').
    \240\ See Day One Transcript, supra note 38, at 117:1-2 
(statement of Michael Blaugrund, NYSE) (recommending that the 
Commission undertake rulemaking to simplify the revenue allocation 
formula).
    \241\ Day Two Transcript, supra note 113, at 90:13-16 and 97:16-
22 (statements of Emily Kasparov, Chicago Stock Exchange, Inc. (n/k/
a NYSE Chicago)).
    \242\ See Nasdaq Total Markets Paper, supra note 45, at 22. See 
also Day Two Transcript, supra note 113, at 174:25-175:10 (statement 
of John Yetter, Nasdaq); Nasdaq 2018 Letter, supra note 177, at 5.
    \243\ See id. (``If the goal of consolidated data is to improve 
market quality, the revenue allocation formula should aim to improve 
the quality of quotes on public exchanges, where available liquidity 
is always on display and an execution can be accomplished.'').
---------------------------------------------------------------------------

2. Executive Session Policy
    In response to requests for improving the transparency of the use 
of executive session (i.e., meetings from which members of the advisory 
committee are excluded),\244\ the Equity Data Plans have implemented an 
executive session policy under which the following topics are 
appropriate for consideration or action in executive session: Fees that 
require discussion of non-public financial information; subscriber 
audit findings; discussions requiring the disclosure of material non-
public information; financial reports containing non-public financial 
information; the portion of a discussion or evaluation of administrator 
and processor performance that includes confidential information; 
contract negotiations, awards, and revocations that contain 
confidential information; advisory committee member selection; 
litigation matters; and confidential, non-public discussions with the 
Commission and its staff.\245\ While the Commission believes that the 
New Consolidated Data Plan would have no need to provide for an 
advisory committee,\246\ the Commission expects that the SROs will 
continue to hold executive sessions that will exclude non-SRO members 
of the operating committee. Thus, the Commission believes the New 
Consolidated Data Plan should include an executive session policy.
---------------------------------------------------------------------------

    \244\ See, e.g., EMSAC Governance Recommendations, supra note 
136, at 2.
    \245\ The Commission's understanding of the executive session 
policies of the Equity Data Plans is based on information obtained 
by the Commission or its staff as part of the Commission's oversight 
of the Equity Data Plans.
    \246\ See infra note 253.
---------------------------------------------------------------------------

    During the Roundtable, exchanges pointed to progress on limiting 
the use of executive sessions by the SROs.\247\ One exchange commenter 
highlighted recent improvements in transparency that have resulted from 
shifting more discussions about SIP operations from executive sessions 
to the general sessions.\248\ Another exchange commenter expressed a 
willingness to increase public transparency of SIP operations and limit 
time spent in executive sessions.\249\ Other panelists, however, raised 
continuing concerns.\250\ For example, one industry panelist stated 
there should be a ``litmus test'' for determining if a matter deserved 
executive session consideration.\251\
---------------------------------------------------------------------------

    \247\ Day Two Transcript, supra note 113, at 141:3-18 (statement 
of Emily Kasparov, Chicago Stock Exchange, Inc. (n/k/a NYSE 
Chicago)). One exchange commenter highlighted meeting minutes that 
showed SIP Participants spending little time in executive sessions. 
See Nasdaq 2018 Letter, supra note 177, at 21 (``The executive 
session minutes reveal that the SIP Participants spend very little 
time in executive session, as little as 12 minutes in the last 
meeting.''). This commenter also stated that ``[g]overnance of the 
SIPs is substantially more transparent than it once was'' and that 
advisory committee members ``enjoy access to information that is 
nearly coextensive with that of the SIP Participants.''
    \248\ See NYSE Letter, supra note 137, at 19 (``Among other 
things, the Operating Committees have shifted most discussions about 
SIP operations from its Executive Sessions, which are not attended 
by the Advisory Committee, to the General Sessions, which are. The 
Operating Committee also provides transparency into why an agenda 
item is confidential and should be included in the Executive Session 
and requires a vote by the Plan participants before an agenda item 
is moved to the Executive Session.'').
    \249\ See Letter from Oliver Albers, SVP, Head of Global 
Partnerships, Nasdaq (Oct. 24, 2018), at 9, available at https://www.sec.gov/comments/4-729/4729-4560081-176209.pdf.
    \250\ Day Two Transcript, supra note 113, at 143:16-21 
(statement of John Ramsay, IEX) (``I have witnessed cases where 
matters end up in executive session because they're sensitive, in 
the sense that the committee members might come under criticism from 
folks in the industry, rather than it's really so much a direct 
conflict of the type that really should require executive 
session.''); id. at 144:8-19 (statement of Hubert de Jesus, 
Blackrock) (expressing concern for the carve-outs permitting use of 
executive session).
    \251\ See Day Two Transcript, supra note 113, at 145:11-15 
(statement of Kevin Cronin, Invesco).
---------------------------------------------------------------------------

    The Commission believes that, by permitting the SROs to hold 
discussions and make decisions in executive session without the 
advisory committee members present, the Equity Data Plans have limited 
the ability of advisory committee members to influence the operation of 
the Equity Data Plans.\252\ While the Commission recognizes there may 
be circumstances in which deliberation by the SROs alone may be 
appropriate, any overuse of executive session limits transparency on 
Equity Data Plans' governance and has the potential to impede the 
advisory committee's ability to exercise its voice in key decisions.
---------------------------------------------------------------------------

    \252\ See Fidelity Letter, supra note 114, at 4 (``SIP Operating 
Committees typically meet in an executive session for formal votes. 
SIP Advisory Committee members act in a consultative role on select 
issues that the Operating Committees choose to bring to them, and 
Advisory Committee members are not invited to, nor do they have a 
vote on, matters discussed in the Operating Committees.''); SIFMA, 
Proposal for the Creation of Competing Market Data Aggregators, at 
13 (attached to SIFMA Letter III, supra note 57) (``Advisory 
committee members are given no substantive voice in the operation of 
the SIPs, and the SROs conduct all of the meaningful business of the 
SIPs in executive session, from which advisory committee members are 
excluded.'').
---------------------------------------------------------------------------

    The Commission acknowledges that the current Equity Data Plans' 
executive session policies provide some specificity regarding the 
subject matters eligible for executive session. The Commission 
believes, however, that the list of eligible items for executive 
session under the New Consolidated Data Plan should be more limited, 
particularly given that, as contemplated by this Order, the membership 
of the New Consolidated Data Plan operating committee would include 
non-SRO members.\253\ Therefore, the Commission believes that the New 
Consolidated Data Plan should include an executive session policy that 
permits the SROs to hold executive sessions only in circumstances when 
it is appropriate to

[[Page 2185]]

exclude non-SRO members of the operating committee, such as, for 
example, discussions regarding matters that exclusively affect the SROs 
with respect to the Commission's oversight of the New Consolidated Data 
Plan (including attorney-client communications relating to such 
matters). The Commission also believes that, in furtherance of greater 
transparency, the New Consolidated Data Plan should require that a 
request to enter into an executive session be included on the written 
agenda along with a clearly stated rationale for each matter to be 
discussed and be approved by a majority vote of the SRO members of the 
operating committee.
---------------------------------------------------------------------------

    \253\ As noted above, the Commission believes that non-SRO 
members should have voting rights on the New Consolidated Data Plan 
operating committee, and therefore the New Consolidated Data Plan 
would not need to provide for an advisory committee. See supra note 
155 and accompanying text.
---------------------------------------------------------------------------

3. Conflicts of Interest Policy
    Several Roundtable panelists discussed imposing a disclosure-based 
policy to address conflicts of interest concerns,\254\ including one 
exchange that supported greater disclosure--for both the SROs and 
advisory committee members.\255\ Another exchange stated that the 
operating committees of the Equity Data Plans should not have exchange 
representatives who have a ``direct-line responsibility for proprietary 
data.'' \256\ Other commenters and one panelist observed that the 
advisory committee members are not immune to conflicts of interest 
\257\ and recommended that the Equity Data Plans establish a conflict-
of-interest identification and management provision, as well as 
enforcement mechanisms, for both the SROs and advisory committee 
members.\258\
---------------------------------------------------------------------------

    \254\ See, e.g., Day Two Transcript, supra note 113, at 117:24-
118:7 (statement of Richard Ketchum, Former CEO of FINRA).
    \255\ See Day Two Transcript, supra note 113, at 108:3-20 
(statement of Bryan Harkins, Cboe).
    \256\ Day Two Transcript, supra note 113, at 125:15-18 
(statement of John Ramsay, IEX).
    \257\ See, e.g., Day Two Transcript, supra note 113, at 117:22-
23 (statement of Richard Ketchum, Former CEO of FINRA) (``Industry 
members obviously have conflicts in a variety of ways.'').
    \258\ See Healthy Markets Letter, supra note 113, at 16 (``These 
`appointed' members may dominate the committee's membership and may 
also have loyalties and business interests that may conflict with 
sound governance practices. This concern may be exacerbated if 
Advisory Committee members remain on the committee for extended 
periods of time, or if the leadership of the committee does not 
rotate.''); id. at 40 (recommending that the Commission 
``[e]stablish clear conflicts of interest identification and 
management provisions and enforcement mechanisms for both Operating 
Committee and Advisory Committee members''); Nasdaq 2018 Letter, 
supra note 177, at 20 (``Expanding the authority of the advisory 
committees magnifies potential conflicts of interest that must be 
acknowledged, controlled, and coupled with increased obligations to 
promote public transparency. For example, market participants that 
operate their own `dark pools' are simultaneously SIP customers, SIP 
revenue recipients, and SRO competitors.''); NYSE Group Letter, 
supra note 116, at 19 (``[A]bsent the same regulatory obligations of 
exchanges, Advisory Committee members would not have an incentive to 
cast their votes consistent with the terms of the Plan.'').
---------------------------------------------------------------------------

    The Commission believes that the New Consolidated Data Plan should 
include a comprehensive conflicts of interest policy. As discussed 
above, in the Commission's view, conflicts of interest are inherent to 
the Equity Data Plans' current governance structure because some 
exchange Participants have a dual role as both an SRO jointly 
responsible for the operation of the Equity Data Plans and part of a 
publicly held company that offers proprietary data products.\259\ 
Moreover, an SRO representative on the operating committee may have 
direct responsibility for some or all of an exchange's proprietary data 
business. Recognizing that non-SRO representatives in the New 
Consolidated Data Plan may also have dual roles as voting members of 
the operating committee and employees of businesses that utilize core 
data or proprietary data feeds, the Commission believes that the New 
Consolidated Data Plan should include comprehensive conflict-of-
interest provisions for both SRO and non-SRO representatives of the 
operating committee.\260\
---------------------------------------------------------------------------

    \259\ As discussed above, the Commission has observed that 
advisory committee members currently have limited ability to 
participate in the decision making of the Equity Data Plans, and the 
interests of many shareholders of the exchanges may not be aligned 
with members' interests or the interests of other interested 
parties. See supra Section II.B.1.
    \260\ See Day Two Transcript, supra note 113, at 92:16-20 
(statement of Hubert de Jesus, Blackrock) (stating that the 
conflicts of interest policy should address the core conflict 
between SIP and proprietary data feed interests and establish 
procedures to manage these conflicts among representatives).
---------------------------------------------------------------------------

4. Confidentiality Policy
    In the operation of the Equity Data Plans, Participants and 
Participant representatives have been privy to confidential and 
proprietary information of substantial commercial or competitive value, 
including, among other things, information about core data usage, the 
SIPs' customer lists, financial information, and subscriber audit 
results.\261\ However, the terms of the Equity Data Plans do not 
address commercial use of confidential or proprietary information by 
the Participants. The Commission therefore believes that the New 
Consolidated Data Plan should include provisions regarding the 
treatment of confidential information.
---------------------------------------------------------------------------

    \261\ See supra note 118-119 and accompanying text.
---------------------------------------------------------------------------

5. Other Provisions of the New Consolidated Data Plan
    Because SIP data plays a critical role in the operation of the 
national market system, the Commission believes that the prompt, 
accurate, reliable, and fair collection, processing, distribution, and 
publication of SIP data must be maintained through the transition from 
the existing Equity Data Plans to the New Consolidated Data Plan. 
Therefore, the Commission believes that the New Consolidated Data 
Plan's terms should provide for the orderly and predictable transition 
of functions and responsibilities from the three existing Equity Data 
Plans to the New Consolidated Data Plan. The Commission believes that 
this transition should contemplate a period of time during which the 
Equity Data Plans continue to have responsibility for the collection, 
processing, and dissemination of SIP data, and for determining, 
collecting, and allocating data fees, while the New Consolidated Data 
Plan commences operations and prepares to assume responsibility for SIP 
data.
    The Commission believes that this transition period should provide 
that, before the New Consolidated Data Plan assumes responsibility for 
the dissemination of SIP data, the members of the New Consolidated Data 
Plan operating committee will be selected and the New Consolidated Data 
Plan operating committee will have a reasonable period of time to 
launch its formal operations. For example, before commencing 
operations, the operating committee of the New Consolidated Data Plan 
would need to, among other things, select plan processors \262\ and an 
independent plan administrator, and adopt a fee schedule. In 
particular, as part of this transition, the Commission believes that 
until the New Consolidated Data Plan has become operational, fees for 
data products disseminated by the SIPs should continue to be governed 
by the provisions of the existing Equity Data Plans. As discussed 
above,\263\ the Commission believes that the SROs face inherent 
conflicts of interest with respect to the operation of the Equity Data 
Plans, and the Commission therefore believes that a schedule of fees 
for data products offered by the New Consolidated Data Plan should be 
filed by the New Consolidated Data Plan operating committee, which 
would reflect broader representation of market

[[Page 2186]]

participants. The Commission believes that this should help to mitigate 
the conflicts of interest faced by the exchanges and should help to 
ensure that decisions relating to New Consolidated Data Plan operations 
support the prompt, accurate, reliable, and fair dissemination of core 
data.\264\
---------------------------------------------------------------------------

    \262\ The role of the operating committee of the New 
Consolidated Data Plan would include selecting plan processors.
    \263\ See supra Section II.A.
    \264\ See 15 U.S.C. 78k-1(c)(1)(B).
---------------------------------------------------------------------------

    Finally, the Commission recognizes that the Equity Data Plans 
govern the operations of separate and distinct SIPs, each of which 
contains unique features, and that the Equity Data Plans therefore 
contain distinct operational and technical provisions relating to these 
SIPs. In addition, the Equity Data Plans contain a number of provisions 
relating to other areas, including provisions specifically addressing 
governance, administrative, financial, and other miscellaneous matters. 
Under the New Consolidated Data Plan, there would be one NMS plan, 
along with one independent plan administrator, responsible for the 
governance and operation of multiple SIPs. The Commission believes, 
therefore, that the New Consolidated Data Plan submitted by the SROs 
under this Order should propose to adopt and include all other 
provisions of the Equity Data Plans necessary for the operation and 
oversight of the SIPs under the New Consolidated Data Plan, provided 
that these additional provisions are in furtherance of the purposes of 
the New Consolidated Data Plan as expressed in this Order and are not 
inconsistent with any regulatory requirements. Further, the New 
Consolidated Data Plan should, where possible, attempt to harmonize 
inconsistencies among, and combine duplicate provisions in, the Equity 
Data Plans that do not unavoidably arise from the existence of separate 
and distinct SIPs. Finally, as discussed above, existing fee schedules 
should continue to remain in effect under the Equity Data Plans until a 
fee schedule for the New Consolidated Data Plan, authorized by the new 
operating committee of the New Consolidated Data Plan after it is 
constituted, becomes effective.
* * * * *
    As noted above, Section 11A(a)(2) of the Act \265\ directs the 
Commission, having due regard for the public interest, the protection 
of investors, and the maintenance of fair and orderly markets, to 
facilitate the establishment of a national market system for 
securities. Section 11A(a)(3)(B) provides the Commission the authority 
to require the SROs, by order, ``to act jointly . . . in planning, 
developing, operating, or regulating a national market system (or a 
subsystem thereof).'' \266\
---------------------------------------------------------------------------

    \265\ 15 U.S.C. 78k-1(a)(2).
    \266\ 15 U.S.C. 78k-1(a)(3)(B).
---------------------------------------------------------------------------

    For the reasons discussed above, the Commission believes that it is 
in the public interest to require the Participants in the Equity Data 
Plans to jointly develop and file with the Commission a New 
Consolidated Data Plan as an NMS plan pursuant to Rule 608(a) of 
Regulation NMS.\267\
---------------------------------------------------------------------------

    \267\ 17 CFR 242.608(a).
---------------------------------------------------------------------------

III. The New Consolidated Data Plan

    The Commission hereby orders the Participants in the Equity Data 
Plans to jointly develop and file with the Commission, as an NMS plan 
pursuant to Rule 608(a) of Regulation NMS,\268\ a single New 
Consolidated Data Plan that consolidates the three current Equity Data 
Plans and that includes, at a minimum, the following terms and 
conditions:
---------------------------------------------------------------------------

    \268\ 17 CFR 242.608(a). The New Consolidated Data Plan, or any 
amendment thereto, must comply with the requirements of Rule 608 of 
Regulation NMS, including the requirement in Rule 608(a) to include 
an analysis of the impact on competition. 17 CFR 242.608(a).
---------------------------------------------------------------------------

     The New Consolidated Data Plan shall provide for the 
orderly transition of functions and responsibilities from the three 
existing Equity Data Plans and shall provide that dissemination of, and 
fees for, SIP data will continue to be governed by the provisions of 
the Equity Data Plans until the New Consolidated Data Plan is ready to 
assume responsibility for the dissemination of SIP data and fees of the 
New Consolidated Data Plan have been approved.
     The New Consolidated Data Plan shall provide that each 
exchange group and unaffiliated SRO will be entitled to name a member 
of the operating committee (SRO member), who will be authorized to cast 
one vote on all operating committee matters pertaining to the operation 
and administration of the New Consolidated Data Plan, provided that an 
SRO member representing an exchange group or an unaffiliated SRO whose 
market center(s) have consolidated equity market share of more than 15% 
during four of the six calendar months preceding a vote of the 
operating committee will be authorized to cast two votes, and provided 
that an SRO member representing an exchange that has ceased operations 
as an equity trading venue, or has yet to commence operation as an 
equity trading venue, will not be permitted to cast a vote on New 
Consolidated Data Plan matters.
     The New Consolidated Data Plan shall provide that the 
operating committee will include, for a term of two years, and for a 
maximum term to be set forth in the New Consolidated Data Plan, 
individuals representing each of the following categories: An 
institutional investor (e.g., an asset management firm), a broker-
dealer with a predominantly retail investor customer base, a broker-
dealer with a predominantly institutional investor customer base, a 
securities market data vendor, an issuer of NMS stock, and a retail 
investor (i.e., Non-SRO Members), provided that the representatives of 
the securities market data vendor, the issuer, and the retail investor, 
respectively, may not be affiliated with an SRO, a broker-dealer, or an 
institutional investor.
     The New Consolidated Data Plan shall provide that the 
initial Non-SRO Members will be selected by a majority vote of those 
current members of the Equity Data Plans' advisory committees, 
excluding advisory committee members who were selected by a Participant 
to be its representative, and, further, that until the initial Non-SRO 
Members have been selected, the Participants shall renew the expiring 
terms of all members of the Equity Data Plans' advisory committee 
(other than those selected to represent a Participant) who remain 
willing to serve in that role.
     The New Consolidated Data Plan shall provide for a fair 
and transparent nomination process for Non-SRO Members.
     The New Consolidated Data Plan shall provide that the 
aggregate number of votes provided to Non-SRO Members will, at all 
times, be one half of the aggregate number of SRO member votes and the 
number of Non-SRO Member votes will increase or decrease as necessary 
to ensure that the ratio between the number of SRO member votes and the 
number of Non-SRO Member votes is maintained, with Non-SRO Member votes 
equally allocated, by fractional shares of a vote as necessary, among 
the Non-SRO Members authorized and eligible to vote.
     The New Consolidated Data Plan shall include provisions to 
address circumstances in which a member is unable to attend an 
operating committee meeting or to cast a vote on a matter.
     The New Consolidated Data Plan shall provide that all 
actions under the terms of the New Consolidated Data Plan, except for 
the selection of Non-SRO Members and decisions to enter into an SRO-
only executive session, will be required to be authorized by an 
augmented majority vote.
     The New Consolidated Data Plan shall provide that the 
responsibilities of the operating committee will include:

[[Page 2187]]

    [cir] Proposing amendments to the New Consolidated Data Plan or 
implementing other policies and procedures as necessary to ensure 
prompt, accurate, reliable, and fair collection, processing, 
distribution, and publication of information with respect to quotations 
for and transactions in NMS stocks and the fairness and usefulness of 
the form and content of that information;
    [cir] selecting, overseeing, specifying the role and 
responsibilities of, and evaluating the performance of, an independent 
plan administrator, plan processors, an auditor, and other professional 
service providers, provided that any expenditures for professional 
services that are paid for from New Consolidated Data Plan revenues 
must be for activities consistent with the terms of the New 
Consolidated Data Plan and must be authorized by an augmented majority 
of the operating committee;
    [cir] developing and maintaining fair, reasonable, and consistent 
terms and fees for the distribution, transmission, and aggregation of 
core data;
    [cir] reviewing the performance of the plan processors; and 
ensuring the public reporting of plan processors' performance and other 
metrics and information about the plan processors;
    [cir] assessing the marketplace for equity market data products and 
ensuring that SIP data offerings are priced in a manner that is fair 
and reasonable, and designed to ensure the widespread availability of 
SIP data to investors and market participants; and
    [cir] designing a fair and reasonable revenue allocation formula 
for allocating plan revenues to be applied by the independent plan 
administrator, and overseeing, reviewing and revising that formula as 
needed.
     The New Consolidated Data Plan shall provide that the 
independent plan administrator will not be owned or controlled by a 
corporate entity that offers for sale its own proprietary market data 
product, either directly or via another subsidiary.
     The New Consolidated Data Plan shall include provisions 
designed to address the conflicts of interest of SRO Members and Non-
SRO Members.
     The New Consolidated Data Plan shall include provisions 
designed to protect confidential and proprietary information from 
misuse.
     The New Consolidated Data Plan shall provide that the use 
of executive session of SRO members will be confined to circumstances 
in which it is appropriate to exclude Non-SRO Members, such as, for 
example, discussions regarding matters that exclusively affect the SROs 
with respect to the Commission's oversight of the New Consolidated Data 
Plan (including attorney-client communications relating to such 
matters).
     The New Consolidated Data Plan shall provide that requests 
to enter into an executive session of SRO members will be required to 
be included on a written agenda, along with a clearly stated rationale 
for each matter to be discussed and must be approved by a majority vote 
of the SRO members of the operating committee.
     To the extent that those provisions are in furtherance of 
the purposes of the New Consolidated Data Plan as expressed in this 
Order and not inconsistent with any other regulatory requirements, the 
New Consolidated Data Plan shall adopt and include all other provisions 
of the Equity Data Plans necessary for the operation and oversight of 
the SIPs under the New Consolidated Data Plan, and the New Consolidated 
Data Plan should, to the extent possible, attempt to harmonize and 
combine existing provisions in the Equity Data Plans that relate to the 
Equity Data Plans' separate processors.
* * * * *
    It is hereby ordered, pursuant to Section 11A(a)(3)(B) of the 
Act,\269\ that the Participants act jointly in developing and filing 
with the Commission, as an NMS plan pursuant to Rule 608(a) of 
Regulation NMS,\270\ a New Consolidated Data Plan, as described above. 
The Participants are ordered to file the New Consolidated Data Plan 
with the Commission no later than [90 days after the order is issued].

    \269\ 15 U.S.C. 78k-1(a)(3)(B).
    \270\ 17 CFR 242.608(a).
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    By the Commission.

Vanessa Countryman,
Secretary.

[FR Doc. 2020-00360 Filed 1-13-20; 8:45 am]
BILLING CODE 8011-01-P

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