Order Directing the Exchanges and the Financial Industry Regulatory Authority To Submit a New National Market System Plan Regarding Consolidated Equity Market Data, 28702-28731 [2020-10041]

Download as PDF 28702 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88827; File No. 4–757] Order Directing the Exchanges and the Financial Industry Regulatory Authority To Submit a New National Market System Plan Regarding Consolidated Equity Market Data May 6, 2020. 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’’), MEMX LLC, 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’’). This new plan will replace the three existing national market system plans (the ‘‘Equity Data Plans’’ or ‘‘Plans’’) that govern the public dissemination of real-time, consolidated equity market data for national market system stocks (‘‘NMS stocks’’).2 The New Consolidated Data Plan shall be filed with the Commission pursuant to Rule 608 of Regulation NMS 3 no later than August 11, 2020. jbell on DSKJLSW7X2PROD with NOTICES2 I. Introduction On January 8, 2020, the Commission issued for comment a Notice of Proposed Order Directing the Exchanges and FINRA to Submit a New National Market System Plan Regarding Consolidated Equity Market Data (‘‘Proposed Order’’).4 As the 1 15 U.S.C. 78k–1(a)(3)(B). 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). 3 17 CFR 242.608. 4 Securities Exchange Act Release No. 87906 (Jan. 8, 2020), 85 FR 2164 (Jan. 14, 2020) (File No. 4– 2 Generally, VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 Commission explained in the Proposed Order, in Section 11A of the Act, Congress directed the Commission to facilitate the establishment of a national market system for securities. The public dissemination of consolidated information about quotes and trade activity is a fundamental component of that system. Pursuant to its statutory responsibility, therefore, the Commission has authorized the Equity Data Plans to facilitate the required collection and dissemination of core data 5 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 day.’’ 6 In adopting Regulation NMS in 2005,7 in order to improve the transparency and effective operations of the Plans, the Commission established advisory committees of nonSRO market participants to advise the Equity Data Plans.8 The Commission stated that it was a useful first step toward improving the responsiveness of Plan participants to broader non-SRO market participants’ concerns and the efficiency of Plan operations.9 The Commission also stated that it would continue to monitor and evaluate Plan developments to determine whether any further action is warranted.10 Since that time, developments in technology and changes in the equities markets 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. This conflict of interest, combined with the concentration of voting power in the Equity Data Plans among a few large ‘‘exchange groups’’— multiple exchanges operating under one corporate umbrella—has contributed to 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. Additionally, the Commission believes that the continued existence of three separate 757). Comments received in response to the Proposed Order are available at https:// www.sec.gov/comments/4-757/4-757.htm. 5 See, e.g., Section 11A(b) of the Act and Rule 603(b) of Regulation NMS. 6 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’’). 7 Regulation NMS, Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37495 (June 29, 2005) (‘‘Regulation NMS Release’’). 8 See id. at 37503. 9 See id. at 37561. 10 Id. PO 00000 Frm 00002 Fmt 4701 Sfmt 4703 NMS plans for equity market data creates inefficiencies and unnecessarily burdens ongoing improvements in the provision of equity market data to market participants. Addressing the issues with the current governance structure of the Equity Data Plans discussed in this Order is a key step in responding to broader concerns about the consolidated data feeds.11 To that end, in the Proposed Order, the Commission proposed to direct the exchanges and FINRA to jointly develop and file with the Commission, as an NMS plan pursuant to Rule 608(a) of Regulation NMS,12 a single New Consolidated Data Plan that consolidates the three current Equity Data Plans and that includes certain changes to the governance structure of the Equity Data Plans.13 II. Discussion A. Background In 1975, Congress, through the enactment of Section 11A of the Act,14 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.15 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,16 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.17 11 See Proposed Order, supra note 4, 85 FR at 2166, 2168–74 (discussing broader concerns about the Equity Data Plans and the consolidated data feeds). 12 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). 13 One commenter suggests that the governance structure in the Proposed Order be extended to apply to all NMS plans. See Letter from Ellen Greene, Managing Director, Equity & Options Market Structure, SIFMA (Feb. 28, 2020), at 6 (‘‘SIFMA Letter’’). The Commission is taking an incremental approach to addressing governance issues related to NMS plans and is at this time addressing only the governance of the Equity Data Plans. The Commission may in the future consider the governance of other NMS plans. 14 15 U.S.C. 78k–1. 15 15 U.S.C. 78k–1(a)(1). 16 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.’’). 17 See 15 U.S.C. 78k–1(a)(1)(C). E:\FR\FM\13MYN2.SGM 13MYN2 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices 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.’’ 18 In furtherance of these purposes, the Commission has sought through its rules and regulations to help ensure that certain ‘‘core data’’ 19 is widely available for reasonable fees.20 The Commission has recognized that investors must have this core data ‘‘to participate in the U.S. equity markets.’’ 21 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.22 Pursuant to this authority, the Commission adopted Regulation NMS.23 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.24 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.’’ 25 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.’’ 26 Widespread availability of timely market data promotes fair and efficient markets and facilitates the ability of jbell on DSKJLSW7X2PROD with NOTICES2 18 15 U.S.C. 78k–1(c)(1)(B). 19 See infra note 31 and accompanying text (defining ‘‘core data’’). 20 See 17 CFR 242.603; see also, e.g., Regulation NMS Release, supra note 7, 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.’’). 21 Id. at 37560. 22 See 15 U.S.C. 78k–1(a)(3)(B). 23 17 CFR 242.600–612; see also Regulation NMS Release, supra note 7, 70 FR at 37560. 24 See 17 CFR 242.608. 25 17 CFR 242.603(b). 26 Equity Market Structure Concept Release, supra note 6, 75 FR at 3600. VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 brokers and dealers to provide best execution to their customers.27 Under Regulation NMS and the Equity Data Plans, the SROs are required to provide certain quotation 28 and transaction data 29 for each NMS stock to an exclusive securities information processor (‘‘SIP’’),30 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).31 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’’),32 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.33 They also collect and disseminate other NMS stock data and disseminate certain 27 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’’). 28 See 17 CFR 242.602. 29 See 17 CFR 242.601. 30 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). 31 See Bloomberg Order, supra note 27, at 3; see also Rescission of Effective-Upon-Filing Procedures for NMS Plan Fee Amendments, Securities Exchange Act Release No. 87193 (Oct. 1, 2019), 84 FR 54794, 54795 (Oct. 11, 2019) (‘‘Effective-UponFiling Proposing Release’’). 32 The LULD Plan is available at https:// www.luldplan.com. 33 17 CFR 242.201(b)(3). PO 00000 Frm 00003 Fmt 4701 Sfmt 4703 28703 administrative messages. Together with core data, the Commission refers to this broader set of data for purposes of this Order as ‘‘SIP data.’’ 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’’).34 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. B. The Need for Changes in the Governance Structure of the Equity Data Plans As described in the Proposed Order, the Commission believes that the current governance structure of the three existing Equity Data Plans is inadequate to respond to changes in the market and in the ownership of exchanges, and to the evolving needs of investors and other market 34 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). E:\FR\FM\13MYN2.SGM 13MYN2 28704 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices participants.35 Below, the Commission explains the basis for its action in ordering the Participants to file the New Consolidated Data Plan, the reasons the Commission believes that the Order reasonably addresses concerns identified by the Commission, the relationship between the Commission’s Order to create the New Consolidated Data Plan and the Commission’s Infrastructure Proposal,36 and the need for a new, single plan. jbell on DSKJLSW7X2PROD with NOTICES2 1. The Basis of the Commission’s Order The Equity Data Plans’ governance model was established in the 1970s, at a time when trading volume in any given stock was concentrated on its listing market and when the U.S. equity exchanges were member owned, not-forprofit organizations. Since then, the markets have changed dramatically, and technology has fundamentally changed market operations. Exchanges have demutualized, and they or their parent companies now trade as public companies on exchanges. In addition, the three Equity Data Plans are effectively governed by the same operating committee and the same advisors, yet there are still three separate NMS plans for equity market data. The Plans—which, despite changes in the market, still provide sole voting power to the exchanges and FINRA as members of the operating committee—control the operations of the SIPs that produce and disseminate core data, as well as the data products offered and their prices, while most of the exchanges also offer proprietary data products for sale. As discussed in the Proposed Order, the Commission believes that the demutualization of the exchanges and the proliferation of proprietary exchange data products have heightened the conflicts between the SROs’ business interests in proprietary data offerings and their obligations as SROs under the national market system to ensure prompt, accurate, reliable, and fair dissemination of core data through the jointly administered Equity Data Plans.37 And these conflicts bear on the exchanges’ incentives to meaningfully improve the provision of core data.38 35 See Proposed Order, supra note 4, 85 FR at 2167–68. 36 See Market Data Infrastructure, Securities Exchange Act Release No. 88216 (Feb. 14, 2020), 85 FR 16726 (Mar. 24, 2020) (File No. S7–03–20) (Proposed Rule) (‘‘Infrastructure Proposal’’). 37 See Proposed Order, supra note 4, 85 FR at 2168–74 (discussing the basis for the Proposed Order and sources of input). 38 Proprietary data products are significant sources of revenues for exchanges that offer them. Consequently, the Commission believes, and market participants have stated, that the exchanges may not VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 For certain proprietary data products in particular, exchanges have deployed cutting edge technology to reduce latency and made other enhancements to improve content. For example, the exchanges have developed depth-ofbook (‘‘DOB’’) products that, relative to the SIPs, provide greater content at lower latencies. For another segment of the data market that is less sensitive to latency, exchanges have also developed proprietary TOB products that provide data that is generally limited to the highest bid, lowest ask, and last sale price information at a lower cost to subscribers. Despite the Equity Data Plans’ improvements to certain aspects of the SIPs and related infrastructure,39 these improvements have not been sufficient to meet the needs of equity market participants, and the SIPs have continued to meaningfully lag behind the proprietary data products and their related infrastructure with respect to content and speed.40 Input received from a diverse array of market participants supports the Commission’s view that the differentials between SIP data and DOB data feeds has reduced the usefulness of the form and content of SIP data.41 One commenter on the Proposed Order asserts that ‘‘few market participants can rely on the SIP for order routing be incentivized to adequately improve the SIPs, including the content and latency of the SIPs, as making SIP content and 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 [p]lans 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-%20 September%202019%20FINAL.pdf. See also Letter from John Ramsay, Chief Market Policy Officer, IEX, at 3 (Sept. 24, 2019) (‘‘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.’’). 39 See Proposed Order, supra note 4, 85 FR at 2171–72 (describing improvements to some aspects of the SIPs and related infrastructure). 40 See Proposed Order, supra note 4, 85 FR at 2171–72. See, e.g., Letters from Gregory Babyak, Global Head of Regulatory Affairs, Bloomberg L.P. (Feb. 28, 2020), at 3 (‘‘Bloomberg Letter’’); Joe Wald, Chief Executive Officer, and Ray Ross, Chief Technology Officer, Clearpool Group (Feb. 28, 2020), at 2 (‘‘Clearpool Letter’’); Tyler Gellasch, Executive Director, Healthy Markets Association (Feb. 20, 2020), at 6 (‘‘Healthy Markets Letter’’); and SIFMA Letter, supra note 13, at 2. 41 See Proposed Order, supra note 4, 85 FR at 2169–70. PO 00000 Frm 00004 Fmt 4701 Sfmt 4703 because the necessary improvements to the SIPs have not been made under the current governance structure.’’ 42 Another commenter similarly states that it has ‘‘significant concerns regarding whether the consolidated feeds meet the purposes set out by Congress and by the Commission . . . ’’ 43 And a third commenter asserts that the SIPs are ‘‘facially inadequate for investors’ or brokers’ trading strategies—or for operating a competitive trading venue.’’ 44 Certain commenters, however, challenge the need for the Commission’s Proposed Order. One commenter states that the Commission’s assertions that the exchanges have failed to invest in improvements to the dissemination of data through the Equity Data Plans, and that the Equity Data Plans have not kept pace with the exchanges’ proprietary data products, are ‘‘unsubstantiated,’’ ‘‘demonstrably false,’’ and ‘‘cannot provide a basis for agency action under the APA [Administrative Procedure Act].’’ 45 This commenter states that SIP performance is defined by three factors—availability, latency, and message throughput—and provides statistics that, it contends, demonstrate that investments by the Equity Data Plans have ‘‘significantly increased’’ the performance of the SIPs with respect to these three factors.46 This commenter further asserts that the Commission has implied that the exchanges have intentionally slowed progress on employing a ‘‘distributed SIP’’ model, which would reduce geographic latency, ‘‘to make their own proprietary data products look better by comparison,’’ 47 and that such an allegation is ‘‘unwarranted’’ and reflects a ‘‘failure to grasp the complexity of the proposal.’’ 48 Another commenter also highlights efforts that have already been undertaken to increase the speed with which subscribers can access SIP data.49 42 SIFMA Letter, supra note 13, at 2. Letter, supra note 40, at 2. 44 Healthy Markets Letter, supra note 40, at 5. 45 Letter from Joan C. Conley, Senior Vice President and Corporate Secretary, Nasdaq (Feb. 28, 2020), at 9 (‘‘Nasdaq Letter’’); see also Nasdaq Letter at 10 (‘‘The Commission must take these facts into account when analyzing the performance of the SIP processors, and base the proposal on grounds other than the verifiably false assertion that the SIP processors have under-invested in technology.’’). On February 28, 2020, Nasdaq filed a (i) petition for clarification and extension of comment period and (ii) comment letter in response to the Proposed Order, which restated portions of the petition. Throughout this Order, the Commission is citing to the latter. 46 Nasdaq Letter, supra note 45, at 9. 47 Id. at 10. 48 Id. at 11. 49 See Letter from Elizabeth K. King, Chief Regulatory Officer, ICE, and General Counsel and 43 Clearpool E:\FR\FM\13MYN2.SGM 13MYN2 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 The Commission disagrees that recent improvements in SIP performance obviate the need for the governance changes outlined in this Order. While we recognize recent efforts by the Equity Data Plans to improve the performance of the SIPs,50 those actions have not fully mitigated our concerns with SIP performance.51 Congress charged the Commission with ensuring 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.’’ 52 In furtherance of this responsibility, the Commission seeks through its rules and regulations to help ensure that certain ‘‘core data’’ 53 is widely available for reasonable fees.54 The Commission has recognized that investors must have this core data ‘‘to participate in the U.S. equity markets.’’ 55 And the purpose of the Equity Data Plans, adopted pursuant to Regulation NMS, is to facilitate the Corporate Secretary, NYSE (Feb. 5, 2020), at 6–7 (‘‘NYSE Letter’’). 50 See Proposed Order, supra note 4, 85 FR at 2172. 51 The Commission also notes that some of the recent improvements made to the SIPs have been responses to significant SIP outages. For example, in 2013, after a significant SIP outage that caused operations to cease and a market-wide halt in the trading of Nasdaq-listed securities (‘‘UTP SIP Outage’’), the then-Chair of the Commission met with the heads of the equities and options exchanges to address the reliability of market systems. See SEC Chair White Statement on Meeting With Leaders of Exchanges, September 12, 2013, available at https://www.sec.gov/News/Press Release/Detail/PressRelease/1370539804861. In response, the exchanges implemented some enhancements to the reliability of the SIPs and backup systems. See Joint Press Release by the Participants, available at https://ir.theice.com/ press/news-details/2013/Self-RegulatoryOrganizations-Response-to-SEC-for-StrengtheningCritical-Market-Infrastructure/default.aspx. After the UTP SIP Outage, however, several market participants continued to raise concerns about the adequacy of the SIP infrastructure. SIFMA, for example, argued that the UTP SIP Outage was a symptom of the outdated system by which critical market data is controlled and distributed and stated that the current system suffers from a lack of transparency and competition, questions of underfunding, and insulated governance. See Letter from Theodore R. Lazo, Managing Director and Associate General Counsel, SIFMA, to Mary Jo White, Chair, Commission (Dec. 5, 2013), available at https://www.sifma.org/wp-content/uploads/2017/ 05/sifma-submits-comments-to-the-sec-onsecurities-information-processors-and-operationalresiliency.pdf. 52 15 U.S.C. 78k–1(c)(1)(B). 53 See supra note 31 for definition of core data. 54 See 17 CFR 242.603; see also, e.g., Regulation NMS Release, supra note 7, 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.’’). 55 Id. at 37560. VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 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.’’ 56 Despite recent efforts to improve SIP performance, disparities between SIP data and proprietary DOB data feeds with respect to both speed and content continue to affect the ability of many market participants to use core data to be competitive in today’s markets and thereby call into question whether the SIPs continue to adequately serve their regulatory purposes. Moreover, the relevant measure of SIP performance under Section 11A of the Act is not limited to the three factors discussed by one commenter—availability, latency, and message throughput.57 The Commission must evaluate whether the collection, processing, distribution, and publication of equity market data is ‘‘prompt, accurate, reliable, and fair’’— and also, crucially, the ‘‘usefulness of the form and content of such information,’’ 58 which recent efforts have not sufficiently addressed. Nor is the basis of the Commission’s action that the Participants have failed to make any improvements to the SIPs. Rather, changes in the market, combined with the current governance structure of the Equity Data Plans, have ‘‘exacerbated the exchanges’ lack of incentives to improve the SIPs.’’ 59 As the Commission explained in the Proposed Order, addressing these governance concerns is a ‘‘key step’’ in responding to the broader concerns about whether the consolidated data feeds continue to serve their regulatory purpose.60 While the Commission understands that substantial changes to the SIPs are complicated undertakings, the Commission believes that the current governance model of the Equity Data Plans—with its concentration of voting power in a small number of exchange groups, its lack of voting power for non-SRO representatives, and the requirement for unanimity in support of any substantial change to the SIPs—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. Finally, one commenter argues that the Commission has relied on ‘‘cherrypicked opinions of self-interested 56 Equity Market Structure Concept Release, supra note 6, 75 FR at 3600. 57 Nasdaq Letter, supra note 45, at 9. 58 15 U.S.C. 78k–1(c)(1)(B). 59 Proposed Order, supra note 4, 85 FR 2173. 60 Proposed Order, supra note 4, 85 FR at 2173. PO 00000 Frm 00005 Fmt 4701 Sfmt 4703 28705 market participants to justify the Proposed Order—without any of its own independent analysis’’ and that this ‘‘further underscores the arbitrary and capricious nature of its decisionmaking.’’ 61 The Commission has studied market data issues over the course of many years and has devoted considerable resources to this study and to the analysis of these issues.62 Moreover, the Commission published the Proposed Order expressly to provide the opportunity for public comment on this proposal by all interested parties, including the Participants, for the Commission to consider in its analysis.63 Indeed, the Proposed Order specifically solicited any ‘‘additional insights into the concerns and issues discussed in the Proposed Order’’ from the Participants and stated that the Commission ‘‘will consider such information and suggestions, as well as any other comment on the Proposed Order.’’ 64 In addition, the New Consolidated Data Plan submitted in response to this Order will itself be published for public comment prior to any Commission decision to disapprove or to approve the plan with any changes or subject to any conditions the Commission deems necessary or appropriate after considering public comment. 2. The Efficacy of the Proposed Order (a) The Proposed Order Reasonably Addresses the Concerns Identified by the Commission One commenter argues that, ‘‘[r]ather than improving the SIPs, the Proposed Order will instead undermine the SROs’ ability to efficiently improve them for the benefit of investors and the market,’’ and that, therefore, ‘‘[b]ecause the Commission’s approach is not reasonably calculated to address the disparate data feed problem identified by the Commission, it is arbitrary and 61 NYSE Letter, supra note 49, at 16. Regulation of Market Information Fees and Revenues, Securities Exchange Act Release No. 42208 (Dec. 9, 1999), 64 FR 70613 (Dec. 17, 1999); Equity Market Structure Concept Release, supra note 6; Securities and Exchange Commission, ‘‘SEC Announces Members of New Equity Market Structure Advisory Committee’’ (Jan. 13, 2015), available at https://www.sec.gov/news/pressrelease/ 2015-5.html; and Securities and Exchange Commission, Equity Market Structure Roundtables, https://www.sec.gov/spotlight/equity-marketstructure-roundtables (last visited Apr. 17, 2020). 63 The Commission also notes that the Proposed Order itself included a summary of comments raised in the past by this commenter and others who were opposed to central aspects of the Commission’s proposal, including the limitation on exchange-group voting, see Proposed Order, supra note 4, 85 FR at 2175–76, and the provision of votes to non-SROs. See Proposed Order, supra note 4, 85 FR at 2178–81. 64 Proposed Order, supra note 4, 85 FR at 2165. 62 See E:\FR\FM\13MYN2.SGM 13MYN2 28706 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices capricious.’’ 65 This commenter also argues that the Proposed Order relies on the ‘‘unfounded assumption’’ that granting non-SROs authority in the New Consolidated Data Plan would reduce conflicts of interest,66 and that the Commission’s ‘‘decision to ignore the likely impact of the non-SRO’s own conflicted interests is a critical oversight.’’ 67 This commenter further argues that, ‘‘[w]hile failing to establish how the Proposed Order will reduce the influence of alleged conflicted interests, the Commission has also failed to demonstrate how the Proposed Order will otherwise improve SIP functionality.’’ 68 This commenter concludes that the Proposed Order will not advance the Commission’s stated purpose and therefore ‘‘lacks the necessary ‘rational connection’ between regulatory means and ends mandated by the APA [Administrative Procedure Act].’’ 69 Other commenters assert that the Proposed Order does not go far enough. One commenter argues that the Proposed Order uses an ‘‘overly elaborate and conflicted process to potentially implement piecemeal changes that will not fix the fundamental conflict of interest at the heart of SIP governance,’’ 70 because the Proposed Order would direct the forprofit exchanges to draft the terms of the New Consolidated Data Plan.71 The commenter concludes that the Commission should instead ‘‘exercise its authority to directly assume control over the equity data plans, and appoint the SROs to . . . an advisory committee for the provision of the public market data stream,’’ 72 ensure that filings by the Equity Data Plans meet the applicable regulatory standards, and adopt its proposed rule to rescind effective-on-filing procedures for NMS plan amendments.73 Another commenter similarly asserts that the Proposed Order does not directly address the issues presented by the coexistence of SIPs and proprietary data 65 See 66 Id. NYSE Letter, supra note 49, at 12. at 16. 67 Id. 68 Id. 69 Id. at 16–17. Markets Letter, supra note 40, at 14; see also Letter from Dan Jamieson (Mar. 29, 2020) (generally concurring with the comment letters submitted by Healthy Markets and Council of Institutional Investors (‘‘CII’’), infra note 74). 71 See id. at 8–9, 14; see also id. at 15 (‘‘While we appreciate the intent of the Proposed Order, it simply doesn’t do enough, and in our view further entrenches the deeply flawed system for years to come.’’). 72 Id. at 14–15. 73 See Effective-Upon-Filing Proposing Release, supra note 31. jbell on DSKJLSW7X2PROD with NOTICES2 70 Healthy VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 feeds and that the Proposed Order would not sufficiently improve the governance of the Equity Data Plans.74 This commenter suggests that the Commission itself should appoint the members of the SIPs’ operating committees and include a majority of non-SRO members.75 Other commenters, however, support the Commission’s view that improving the governance structure of the SIPs would likely improve the SIPs. One commenter offers support for the Commission’s belief that the evolution of the exchanges into publicly held companies has created a conflict with their regulatory objectives in operating the SIPs.76 One commenter states that it agrees that ‘‘broader industry participation in the governance of the NMS Plans would be an effective tool to address these conflicts of interest and ensure that core data provided by the SIP[s] continues to improve.’’ 77 Another commenter states that it believes that the Proposed Order would ‘‘substantially improve the governance of the SIP, which should enhance both the operations of the SIP and the quality of SIP data.’’ 78 And another commenter agrees that ‘‘[i]mproving the governance structure should help ensure that the SIPs keep up with market data innovations in the future.’’ 79 Several other commenters also express the view that the Commission’s proposed changes to SIP governance would 74 See Letter from Jeffrey P. Mahoney, General Counsel, CII, (Feb. 20, 2020), at 2 (‘‘CII Letter’’). See also Letters from Jeffrey T. Brown. Senior Vice President, Legislative and Regulatory Affairs, Charles Schwab & Company, Inc. (Feb. 28, 2020), at 5 (‘‘Schwab Letter’’) (expressing concern that ‘‘the proposed changes to the voting structure of the operating committees may still yield only the status quo’’); Joseph Kinahan, Managing Director, Client Advocacy and Market Structure, TD Ameritrade, Inc. (Feb. 24, 2020), at 5 (‘‘TD Ameritrade Letter’’) (asserting that allowing the SROs to propose amendments to the New Consolidated Data Plan without buy-in from non-SROs ‘‘may lead to substantially similar circumstances which exist currently’’); Kelvin To, Founder and President, Data Boiler Technologies, LLC (Feb. 4, 2020), at 2, 4 (asserting that ‘‘spinning off’’ the SIPs from the exchanges would be better than prescribing a particular governance structure). 75 See CII Letter, supra note 74, at 6. 76 See Letter from Nathaniel N. Evarts, Managing Director, Head of Trading, Americas, et al., State Street Global Advisors (Feb. 28, 2020), at 2 (‘‘State Street Letter’’). 77 Letter from Lisa Mahon Lynch, Associate Director, Global Trading, Wellington Management Company LLP (Feb. 28, 2020), at 1 (‘‘Wellington Letter’’). 78 Letter from Dorothy Donohue, Deputy General Counsel, Securities Regulation, Investment Company Institute (Feb. 28, 2020), at 6 (‘‘ICI Letter’’). 79 SIFMA Letter, supra note 13, at 3; see also id. at 2 (‘‘We support the Commission mandating these governance changes and recommend finalizing the order as quickly as possible . . . .’’). PO 00000 Frm 00006 Fmt 4701 Sfmt 4703 facilitate improvements to the SIPs.80 One of these commenters states, ‘‘the decision to give non-SROs voting rights and recognizing exchange operators as a single entity for purposes of voting is a positive step in helping to promote useful upgrades of the SIP.’’ 81 Another commenter observes, ‘‘[w]e anticipate that the proposed changes will help mitigate the conflicts of interest that are inherent to the current structure and will establish a solid, new foundation through which future enhancements to the SIPs, as necessary, can be more efficiently and fairly made.’’ 82 One commenter agrees that ‘‘reform of the current governance structure of the Equity Data Plans can better serve the needs of investors and other market participants.’’ 83 Another commenter anticipates that ‘‘reducing the concentration of power in large exchange groups makes SIP enhancements more likely.’’ 84 Additionally, one commenter states that, as long as the Commission’s final order ‘‘explicitly directs [the] exchanges to take specific actions in the new Plan, without allowing them optionality to craft a different alternative—the current process ought to be sufficient to ensure substantial progress in this area.’’ 85 The Commission believes, as it stated in the Proposed Order, that addressing issues with the current governance structure of the Equity Data Plans is ‘‘an 80 See Letters from Michael Blasi, SVP, Enterprise Infrastructure, and Krista Ryan, VP, Associate General Counsel, Fidelity Investments (Feb. 28, 2020), at 2 (‘‘Fidelity Letter’’); Clearpool Letter, supra note 40, at 2; Allison Bishop, President, Proof Services LLC (Feb. 27, 2020), at 7 (‘‘Proof Letter’’); Anders Franzon, General Counsel, MEMX LLC (Feb. 28, 2020), at 3 (‘‘MEMX Letter’’); see also Letters from Sherry Madera, Chief Industry & Government Affairs Officer, Refinitiv (Feb. 27, 2020), at 3 (‘‘Refinitiv Letter’’) (asserting that the Proposed Order ‘‘will significantly improve the health of our industry and all the market to take concrete, reasonable action to improve administrative, operational and fee-setting processes associated with market data and market access’’); Thomas M. Merritt, Deputy General Counsel, Virtu Financial, Inc. (Feb. 25, 2020), at 1 (‘‘Virtu Letter’’) (asserting that the Proposed Order ‘‘represents an important step forward in enhancing the transparency and efficiency of the NMS [p]lan structure, and in eliminating potential conflicts of interest associated with the dissemination of consolidated equity market data’’); Schwab Letter, supra note 74, at 4 (‘‘The SEC’s proposal to both consolidate equity market data plans and provide for non-SRO representation on the operating committees is both a welcome development and a substantial departure from the status quo of exchange-run market data plans.’’). 81 Clearpool Letter, supra note 40, at 2. 82 Fidelity Letter, supra note 80, at 2. 83 MEMX Letter, supra note 80, at 3. 84 Proof Letter, supra note 80, at 7. 85 Letter from Daniel Keegan, Head of North America Market Securities Services, Co-Head of Global Equities & Securities Services, Citigroup Global Markets Inc. (Mar. 2, 2020), at 4 (‘‘Citi Letter’’). E:\FR\FM\13MYN2.SGM 13MYN2 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices important first step in responding to concerns about the consolidated data feed.’’ 86 And, as the Proposed Order explained, the Commission believes that the current governance structure of the Equity Data Plans is inadequate to respond to recent changes in the market and to the evolving needs of investors and other market participants,87 and that, under the current governance structure, sufficient improvements to the consolidated market data feeds have not occurred.88 Further, the Commission recognizes that the inadequacies in the governance model of the Equity Data Plans that it has identified may not be the sole cause of broader concerns about the consolidated feed. But, based on its extensive experience overseeing the Equity Data Plans and the national market system, as well as input received from market participants through numerous Commission initiatives,89 the Commission believes that the governance structure of the Equity Data Plans contributes significantly to the broader concerns about the consolidated data feed.90 Thus, the Commission believes that changes to the governance structure of the SIPs are appropriate to create a governance structure that will reduce obstacles to ongoing improvement of the consolidated market data feeds in ways that the current governance structure of the Equity Data Plans has not. The Commission recognizes that additional operational changes may also be appropriate in order to improve SIP functionality, and believes that making these governance changes will facilitate decision-making regarding operational changes.91 As noted above, certain commenters question whether the Commission’s proposed changes to SIP governance will, in fact, improve the governance of the SIPs, either because the Commission has not, in their view, appropriately considered the conflicted interests of the non-SRO members of the operating committee of the proposed New Consolidated Data Plan,92 or because the Commission has not removed the 86 Proposed jbell on DSKJLSW7X2PROD with NOTICES2 87 See Order, supra note 4, 85 FR at 2173. Proposed Order, supra note 4, 85 FR at 2168. 88 See Proposed Order, supra note 4, 85 FR at 2168. 89 See supra note 62 and accompanying text. 90 See Proposed Order, supra note 4, 85 FR at 2169–73 (discussing the Commission’s concerns regarding the Equity Data Plans’ provision of equity market data). 91 Separately, the Commission has proposed to make specific changes to the operations of the SIPs through the Commission’s market data infrastructure proposal. See Infrastructure Proposal, supra note 36. 92 See NYSE Letter, supra note 49. VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 conflicted SROs from the process of creating the New Consolidated Data Plan.93 Regarding the conflicts of interests of non-SROs, the Commission recognizes that each representative of a buyer of market data would also have an inherent conflict of interest in serving on the operating committee of the Plans. With respect to both SROs and nonSRO representatives, it is not possible to completely eliminate conflicts from the governance structure of the existing Equity Data Plans or the New Consolidated Data Plan. But the Commission is attempting to balance the views of the exchanges, which are subject to inherent conflicts of interest and which also have dominant voting power on the Equity Data Plans (as well as on the New Consolidated Data Plan), with the views of non-SROs, which would also be subject to conflicts of interest.94 The Commission believes that a more diverse set of perspectives from full voting members of the operating committee of the New Consolidated Data Plan would improve the governance structure of the SIPs and would help to ensure that the operating committee benefits from these views before it takes action or files proposed plan amendments with the Commission. In addition, the Commission believes that broadening the perspectives represented on the operating committee by including non-SROs would be beneficial in providing more meaningful inclusion of key stakeholders’ views in New Consolidated Data Plan decisionmaking. As the Plans play an important role in the national market system, and because the Plans’ decisions frequently place financial and operational burdens on non-SRO market participants, the non-SROs’ representation as voting members, combined with a reallocation of voting power, would support the goals of the New Consolidated Data Plan by ensuring that a broader range of relevant opinions and perspectives have voting representation on the operating committee, which the Commission believes will help to facilitate enhanced decision-making and innovation in the provision of equity market data. Moreover, the Proposed Order specifically acknowledged that the New Consolidated Data Plan should also include provisions to address conflicts of interest of non-SRO representatives on the operating committee.95 As discussed in more detail below, a conflicts-of-interest policy would apply to non-SRO representatives and would require disclosures similar to those of SRO representatives.96 (b) The Relationship Between the Proposed Order and the Commission’s Infrastructure Proposal Two commenters argue that significant unexplained inconsistencies exist between the Proposed Order and the Commission’s Infrastructure Proposal.97 The commenters assert that the Proposed Order would create a single consolidator for equity market data, while the Infrastructure Proposal would replace this system with a system of multiple competing consolidators.98 One of the commenters also argues that the Proposed Order advocates changes in the governance model because these changes would lead to a distributed SIP model and an expansion of the categories of data disseminated, and that the Infrastructure Proposal instead does not mandate distributed data dissemination by any consolidator and replaces voluntary consideration of expanded data content with ‘‘government mandated depth-of-book and auction data.’’ 99 That commenter further argues that the Infrastructure Proposal would make ‘‘extensive changes in the scope of authority vested in the operating committee of the New Consolidated Data Plan’’; that the Infrastructure Proposal ‘‘would apparently nullify, or at least undermine, the authority of the New Consolidated Data Plan to continue to act as a data consolidator’’; and that the Infrastructure Proposal would ‘‘vest the operating committee with unprecedented new authority to regulate SRO fees far beyond what is included in the consolidated feed operated by the New Consolidated Data Plan.’’ 100 And the commenter states that, while the Proposed Order does not directly address market structure, the Infrastructure Proposal would ‘‘significantly impact substantive provisions of Regulation NMS,’’ but that the Commission has not provided an analysis of how these market structure 96 See infra Section II.E.1. Nasdaq Letter, supra note 45, at 2–3, 5; Letter from Elizabeth K. King, Chief Regulatory Officer, ICE, and General Counsel and Corporate Secretary, NYSE (Apr. 23, 2020), at 3–4 (‘‘NYSE Letter 2’’). 98 Nasdaq Letter, supra note 45, at 2; NYSE Letter 2, supra note 97, at 3. 99 Nasdaq Letter, supra note 45, at 2. 100 Id. at 2; see also id. at 11–12. 97 See 93 See Healthy Markets Letter, supra note 40; CII Letter, supra note 74. 94 See infra Section II.E. The Commission also believes that many non-SROs, as subscribers to SIP data, would have incentives to improve the usefulness of SIP offerings. 95 Proposed Order, supra note 4, 85 FR at 2185; see also infra Section II.E.1. PO 00000 Frm 00007 Fmt 4701 Sfmt 4703 28707 E:\FR\FM\13MYN2.SGM 13MYN2 28708 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices changes may affect aspects of the Proposed Order.101 The commenters argue that the alleged inconsistencies between the Proposed Order and the Infrastructure Proposal work to deny commenters a meaningful opportunity to comment on either proposal, and that commenters will therefore be denied procedural rights guaranteed by the Administrative Procedure Act (‘‘APA’’).102 One of the commenters further urges the Commission to extend the comment period for both the Proposed Order and the Infrastructure Proposal,103 and to issue a statement that articulates how the Proposed Order and the Commission’s Infrastructure Proposal are intended to work together and that reconciles the conflicts between the two proposals.104 The other commenter argues that the Commission has offered no explanation for why the Proposed Order remains necessary in light of the Infrastructure Proposal,105 and asks that the Commission withdraw both proposals and propose a ‘‘single, unified, and well-reasoned rule’’ to address the issues.106 The Commission disagrees with the view that there are inconsistencies between the Proposed Order and the Infrastructure Proposal. The two proposals address distinct aspects of the SIPs. The Proposed Order, as discussed above, addressed only the governance structure of the Plans that oversee the SIPs, and it did not address the core operational structure of the SIPs— including the content of SIP data products and the method by which such NMS stock information is collected, consolidated, and disseminated—or whether there would continue to be multiple SIPs for equity market data. Contrary to the commenter’s assertion, the Commission did not propose governance changes in order to bring about specific operational changes to the SIPs, such as a distributed SIP model or specified expansion of data content. Rather, the governance changes are designed to address the Plans’ inefficiencies and the inherent conflicts 101 Id. at 2. Nasdaq Letter, supra note 45, at 3–5; NYSE Letter 2, supra note 97, at 4–5. 103 See Nasdaq Letter, supra note 45, at 3. The Commission extended the comment period for the Proposed Order from February 28, 2020, to March 20, 2020. See Securities Exchange Act Release No. 88340 (Mar. 6, 2020), 85 FR 14987 (Mar. 16, 2020). 104 See id. at 2–3; see also id. at 2 (asserting that the Commission has not provided an analysis of how the market structure changes of the Infrastructure Proposal might affect aspects of the Proposed Order, such as the mandate to create a single SIP). 105 NYSE Letter 2, supra note 97, at 4. 106 NYSE Letter 2, supra note 97, at 2, 5. jbell on DSKJLSW7X2PROD with NOTICES2 102 See VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 of interest of the SROs, which have affected the provision of core data. The Commission believes that an improved governance structure should foster improvements to the SIPs; however, in the Proposed Order, it did not specify what those improvements might be. In contrast, specific operational changes that the Commission has proposed to the SIPs are contained within the Infrastructure Proposal. Moreover, while the Proposed Order would require that the three existing Equity Data Plans be replaced by the single New Consolidated Data Plan, it clearly contemplated that processors— plural—could continue to exist.107 Accordingly, the Commission disagrees with the argument that the Proposed Order would require the Plans to retain a processor, but that the Infrastructure Proposal would subsequently ‘‘nullify, or at least undermine the authority of the New Consolidated Data Plan to continue to act as a data consolidator.’’ 108 For the same reason, although one commenter argues that the Proposed Order seeks to mitigate a problem that the Infrastructure Proposal hopes to eliminate,109 this Order addresses governance issues that are not addressed in the Infrastructure Proposal. Should the Commission adopt the operational changes contemplated by the Infrastructure Proposal, the governance structure of the operating committee of the New Consolidated Data Plan would be applicable to the new operational structure for the equity market’s data collection, consolidation, and dissemination and any changes would be subject to the augmented majority voting structure of the new plan, as discussed below. Further, the Commission disagrees with one commenter’s view that, through the Proposed Order and the Infrastructure Proposal, the Commission proposes to create a ‘‘governmentsponsored pricing consortium.’’ 110 This commenter argues that—because the Proposed Order requires the operating committee to assess the marketplace for equity market data and ensure that SIP data is priced in a manner that is fair and reasonable and not unreasonably discriminatory, and because the Infrastructure Proposal mandates 107 See, e.g., Proposed Order, supra note 4, 85 FR at 2182 (‘‘[t]he 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 . . . plan processors’’), 2185 (‘‘the operating committee of the New Consolidated Data Plan would need to, among other things, select plan processors’’). 108 Nasdaq Letter, supra note 45, at 2. 109 NYSE Letter 2, supra note 97, at 4. 110 Nasdaq Letter, supra note 45, at 11–12. PO 00000 Frm 00008 Fmt 4701 Sfmt 4703 inclusion of DOB and exchange auction data—these proposals, taken together, would promote a framework where fees would be set by a committee of data providers and consumers. But under the Proposed Order—as under the current Equity Data Plans—the operating committee of the New Consolidated Data Plan would file with the Commission proposals to create and set prices for SIP data products, which would be reviewed consistent with the requirements of Rule 608 of Regulation NMS. And exchanges would be able, as they are now, to file with the Commission proposals to create and set prices for proprietary data products, which would be reviewed consistent with the requirements of Section 19(b) of the Act and Rule 19b–4 thereunder.111 The Commission therefore disagrees that the changes contemplated in the Proposed Order, even if combined with the changes contemplated in the Infrastructure Proposal, would create a pricing consortium. Other commenters also addressed the relationship between the Commission’s Proposed Order and the Commission’s Infrastructure Proposal. One commenter encourages the Commission to combine governance and infrastructure into a single package of reforms.112 Another commenter states that the Commission should coordinate changes in governance with changes to the system for disseminating consolidated data.113 And other commenters express the view that changes to market data infrastructure are necessary in addition to changes to SIP governance.114 As 111 15 U.S.C. 78s(b); 17 CFR 240.19b–4. CII Letter, supra note 74, at 3; see also MEMX Letter, supra note 80, at 3 (recommending that the Commission consider the Proposed Order and the Infrastructure Proposal together to ensure that issues around the content of the SIP and market data in general are appropriately considered). 113 See Letter from John Ramsay, Chief Market Policy Officer, Investors Exchange LLC (Mar. 4, 2020), at 1–2 (‘‘IEX Letter’’) (‘‘We believe that progress on both fronts—governance and changing the system for distributing consolidated data—is critical to addressing broker, fiduciary, and investor concerns about market data.’’). 114 See, e.g., Letter from Hubert De Jesus, Managing Director, and Joanne Medero, Managing Director, BlackRock, Inc. (Feb. 28, 2020) at 1 (‘‘BlackRock Letter’’) (supporting the Commission’s Proposed Order, but noting that ‘‘effective governance only addresses one dimension of market data regulations’’ and that ‘‘more comprehensive reforms are warranted’’); Virtu Letter, supra note 80, at 4 (‘‘While we strongly support the efforts of the agency to make enhancements to the NMS [p]lans governing SIP data, we urge the Commission to take even bolder steps to introduce needed reforms in the regulatory construct governing market data and market access.’’); Bloomberg Letter, supra note 40, at 1 (encouraging the Commission to move forward on plan governance issues, as well as continue the Commission’s broader efforts, including the 112 See E:\FR\FM\13MYN2.SGM 13MYN2 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices discussed above, the Commission has proposed to address its concerns with two aspects of consolidated equity market data—the governance of the SIPs and the operation of the SIPs—with different remedies. And while the Commission has proposed to modify the governance and operations of the SIPs separately with different remedies, each of these efforts has been undertaken in furtherance of the same, broader goal: 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,’’ consistent with Section 11A of the Act.115 3. The Commission’s Proposals Are Consistent With the Act and Will Benefit Investors and Support the Regulatory Structure of Regulation NMS jbell on DSKJLSW7X2PROD with NOTICES2 One commenter argues that the Proposed Order, combined with the Infrastructure Proposal, would ‘‘reflect a fundamentally anti-competitive transformation that will harm investors, particularly Main Street investors, stifle innovation, and undermine the regulatory structure established by Regulation NMS.’’ 116 This commenter further asserts that ‘‘there is no doubt that expanding the breadth and scope of products offered under the SIP would fundamentally change the balance between competition and regulation established by Regulation NMS in 2005,’’ which, the commenter argues, ‘‘sought to avoid creation of a ‘totally centralized system that loses the benefits of vigorous competition and innovation among individual markets,’ and therefore ‘allow[ed] market forces, rather than regulatory requirements, to determine what, if any, additional quotations outside the NBBO are displayed to investors.’ ’’ 117 This commenter argues that, instead of requiring the SROs to file the New Consolidated Data Plan, the Commission should review the SIPs to ensure that they only include the data needed to meet regulatory mandates, Infrastructure Proposal). One commenter also expressed support for enhancements both to the governance structure of the Equity Data Plans and the content and delivery of market data through the consolidated tape. See Letter from Patrick Sexton, EVP, General Counsel & Corporate Secretary, Cboe Global Markets, Inc. (Feb. 28, 2020), at 2 (‘‘Cboe Letter’’). 115 15 U.S.C. 78k–1(c)(1)(B). 116 Nasdaq Letter, supra note 45, at 5, 8, 11–12. 117 Id. at 12 (quoting Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37495, 37499 (June 29, 2005)). VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 which in turn must match the needs of investors.118 As the Commission stated in the Proposed Order, it believes that changes to the current SIP governance model are appropriate precisely because the Equity Data Plans, under the current governance structure, have not taken sufficient measures to update the SIPs to reflect innovations in market data in response to evolving markets and the changing needs of investors.119 Given the Congressional mandate that the Commission 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—and the Commission’s ongoing monitoring and evaluation of Equity Data Plan developments 121—the Commission believes that the structure governing the provision of SIP data should be improved to better meet the needs of market participants in light of changes in the markets since the adoption of Regulation NMS. And the Commission believes that the governance changes addressed in this Order will facilitate those improvements. 4. The Need for a Single New Consolidated Data Plan Several commenters oppose the proposed creation of a single New Consolidated Data Plan.122 These commenters assert that the Commission failed to adequately consider the cost implications of consolidating the three separate Equity Data Plans.123 One of these commenters states that the Commission both overestimates the costs of the Equity Data Plans and underestimates the implementation cost associated with the New Consolidated Data Plan.124 This commenter believes that the Commission is required under Section 3(f) of the Act to consider ‘‘whether the [proposed rulemaking] will promote efficiency, competition, and capital formation.’’ 125 To meet this 118 See id. at 12. e.g., Proposed Order, supra note 4, 85 FR 119 See, at 2168. 120 15 U.S.C. 78k–1(c)(1)(B). 121 See supra note 10 and accompanying text. 122 See, e.g., Cboe Letter, supra note 114, at 12; Nasdaq Letter, supra note 45, at 4, n.11; NYSE Letter, supra note 49, at 18–19. 123 See, e.g., Cboe Letter, supra note 114, at 12; Nasdaq Letter, supra note 45, at 4, n.11; NYSE Letter, supra note 49, at 18–19. 124 See NYSE Letter, supra note 49, at 18. 125 See id.; 15 U.S.C. 78c(f). Another commenter states that it agrees with the commenter above ‘‘to the extent that they focus on the Commission’s clear obligations to assess the economic effects of its PO 00000 Frm 00009 Fmt 4701 Sfmt 4703 28709 requirement, this commenter states, ‘‘the Commission must consider the economic effects of a proposed rule, including the costs of implementation.’’ 126 This commenter further states that the Commission ‘‘asserts without support that the current administrative structure of the [Equity Data Plans] creates ‘redundancies, inefficiencies, and inconsistancies’ [sic] that necessitates consolidating the Plans under a single Plan with one [a]dministrator.’’ 127 This commenter argues that, as recognized in the Proposed Order, the Equity Data Plans ‘‘already largely function as one plan today’’ with ‘‘the same distribution formula, legal representation, and other professional services,’’ and that the Participants and advisory committee ‘‘do not incur additional costs for the three Plans to meet at the same time, compared to one plan.’’ 128 The commenter also states that the SIP operating committees and advisory committees each have identical membership, and their quarterly meetings are held concurrently.129 This commenter further asserts that the SROs would need to expend significant resources hiring outside counsel to assist with tasks related to the creation and adoption of the New Consolidated Data Plan, including ‘‘negotiating and drafting the New [Consolidated Data] Plan, drafting contracts with the SIP processors, replacing current contracts with data recipients, and filing to obtain Commission approval of the draft new Plan.’’ 130 Additionally, this commenter asserts that ‘‘only the SROs would face the financial burden in Plan consolidation development’’ despite being ‘‘forced to abdicate decisionmaking to non-SROs’’ under the New Consolidated Data Plan.131 Moreover, the commenter states that the New Consolidated Data Plan would ‘‘not reduce the costs of the Participants to produce—nor the costs of the processors to aggregate and distribute— consolidated market data for Tapes A, B, and C.’’ 132 This commenter concludes that creating a single New Consolidated Data Plan would not ‘‘provide meaningful cost-savings that would proposed action.’’ See Nasdaq Letter, supra note 45, at 4, n.11. 126 See NYSE Letter, supra note 49, at 18. 127 See id. at 19. 128 See id. 129 See id. 130 See id. at 19. 131 See id. 132 See id. E:\FR\FM\13MYN2.SGM 13MYN2 28710 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices support lowering the fees charged for market data products.’’ 133 The Commission disagrees with this commenter’s position for several reasons. By its terms, Section 3(f) of the Act does not apply to the Commission’s issuance of an order such as this one requiring the Participants to file a new NMS plan.134 Moreover, the particular costs of implementing the New Consolidated Data Plan will depend on the specific choices made by the Participants as they consider how to implement this Order. And when the Participants file the New Consolidated Data Plan, it will be considered by the Commission under Rule 608 of Regulation NMS. Among other things, Rule 608 requires every national market system plan to be accompanied by an analysis of the impact on competition,135 which is then published for comment and evaluated by the Commission.136 In this Order, the Commission considers the overall scope of the implementation costs as well as the costs of developing the New Consolidated Data Plan. In publishing the Proposed Order for comment, the Commission asked interested parties to ‘‘submit written presentations of views, data, and arguments concerning the Proposed Order,’’ including comments on ‘‘the likely economic consequences’’ of issuing a final order to the SROs containing the provisions in the Proposed Order.137 While commenters did not provide quantitative data on development or implementation costs for creating a single New Consolidated Data Plan, the Commission has considered those costs qualitatively by leveraging its oversight experience of the Equity Data Plans and examining the qualitative factors raised by a broad range of market participants. The Commission acknowledges certain efforts of the Equity Data Plans to operate jointly regarding certain administrative elements.138 But the 133 See id. jbell on DSKJLSW7X2PROD with NOTICES2 134 ‘‘Whenever pursuant to this chapter the Commission is engaged in rulemaking, or in the review of a rule of a self-regulatory organization, and is required to consider or determine whether an action is necessary or appropriate in the public interest, the Commission shall also consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation.’’ Section 3(f) of the Act, 15 U.S.C. 78c(f). 135 17 CFR 242.608(a)(4)(ii)(C). 136 17 CFR 242.608(b). 137 See Proposed Order, supra note 4, 85 FR at 2165. 138 See id. at 2182. The Commission believes that the current examples of joint operation of the Plans demonstrates that there are certain areas of operation for which creating a single New Consolidated Data Plan would be expected to give VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 Commission believes that redundancies, inefficiencies, and inconsistencies remain under the current administrative structure of the Equity Data Plans that can be significantly reduced under a single New Consolidated Data Plan. Some commenters agree with the Commission’s view and state 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.139 As one commenter states, the ‘‘historical reasons that resulted in the three plans for NYSE-listed, Nasdaqlisted and other exchange-listed stocks no longer exist today in a postRegulation NMS world.’’ And this commenter opines that ‘‘consolidation is a good first step to reforming the current market data infrastructure.’’ 140 One commenter states that a single New Consolidated Data Plan ‘‘will promote efficiencies, especially in terms of streamlining the operation of the SIP feeds.’’ 141 Another commenter states that consolidating the Plans would ‘‘lead to greater efficiency in meeting the purposes of Section 11A of the Act’’ and ‘‘reduce confusion for investors.’’ 142 Another commenter states that the differences between the Equity Data Plans are ‘‘substantial and create unnecessary compliance complexity for SIP data users’’ in the areas of ‘‘audit practices and requirements[,] entitlement controls, administrative usage policies, free trial policy, non-professional usage, [and] qualifications as non-professional users.’’ 143 Another commenter states that the needless duplication under the current framework results in ‘‘two different sets of staff to deal with, two rise to minimal, if any, additional implementation costs. 139 See, e.g., Fidelity Letter, supra note 80, at 3; IEX Letter, supra note 113, at 3; MEMX Letter, supra note 80, at 2; Schwab Letter, supra note 74, at 5; SIFMA Letter, supra note 13, at 3; Wellington Letter, supra note 77, at 2. While one commenter agrees with the Commission’s view that creating a single New Consolidated Data Plan is ‘‘likely to promote efficiency and cost-savings,’’ this commenter believes that ‘‘those efficiencies may be considerably undermined’’ by the Infrastructure Proposal. See Nasdaq Letter, supra note 45, at 4. See supra Section II.B.2 for a discussion on the relationship between this Order and the Infrastructure Proposal. 140 See SIFMA Letter, supra note 13, at 3. 141 See State Street Letter, supra note 76, at 2. 142 See Letter from Jennifer W. Han, Associate General Counsel, Managed Funds Association, and Adam Jacobs-Dean, Managing Director, Global Head of Markets Regulation, Alternative Investment Management Association (Feb. 28, 2020), at 2 (‘‘MFA/AIMA Letter’’). 143 See Schwab Letter, supra note 74, at 5–6. PO 00000 Frm 00010 Fmt 4701 Sfmt 4703 sets of contracts, two sets of reporting requirements, and two separate audit teams to manage.’’ 144 The same commenter states that ‘‘there is no reason for the three distinctive plans to exist,’’ and believes that combining the two administrators along with their policies and staffs under a single New Consolidated Data Plan would ‘‘significantly decrease the administrative burden’’ that SIP consumers experience.145 The Commission agrees with these commenters’ statements for the reasons discussed below and believes that creating a single New Consolidated Data Plan with the governance structure discussed below would simplify the administration of the Equity Data Plans’ operations to facilitate functional improvements to the provision of equity market data, and would further efforts to ensure that core data meets on a continuing basis the needs of market participants and furthers the objectives of Section 11A of the Act.146 The Commission believes that a single New Consolidated Data Plan would simplify the Plans’ billing structure to require only one inventory reporting system, one billing method, one reporting obligation for data subscribers, and one plan administrator payment for the Participants. The Commission believes that the simplified billing structure would provide the Plans with a single standardized and comprehensive view of SIP data costs for subscribers. Additionally, the Commission expects that, instead of two auditing teams under the Equity Data Plans, only one auditing team would be necessary for SIP data usage under the New Consolidated Data Plan. Finally, the Commission anticipates that the Plans would no longer need to maintain separate books and records for the Equity Data Plans’ businesses (including separate plan websites and secure web portals for Participants), to file with the Commission separate (and often duplicative) plan amendments regarding some aspects of the Equity Data Plans,147 or to devote additional 144 See Refinitiv Letter, supra note 80, at 2. id. 146 See 15 U.S.C. 78k–1(c)(1)(B). 147 One commenter suggests as an alternative consideration to the New Consolidated Data Plan that the Commission amend its rules to allow filings made by the Equity Data Plans to be filed with the Commission as a single filing for all three Equity Data Plans. See Cboe Letter, supra note 114, at 12– 13. The Commission agrees with the commenter that the Equity Data Plans’ filing process is one aspect of the many inefficiencies that need to be addressed under the New Consolidated Data Plan. This commenter also highlights the inefficiencies of the SRO rule filing process under Section 19(b) of the Act and Rule 19b–4 thereunder. See Cboe 145 See E:\FR\FM\13MYN2.SGM 13MYN2 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 personnel resources to coordinate and facilitate three separate Equity Data Plans.148 The Commission believes that reducing the existing redundancies, inefficiencies, and inconsistencies through a single New Consolidated Data Plan should further the goals of Section 11A of the Act and provide meaningful cost savings in the long term for SROs and for other market participants by consolidating the operational costs incurred by the administration of three separate Equity Data Plans. Whereas market participants today must navigate their obligations under three separate Plans, a single New Consolidated Data Plan would remove impediments to the efficient operation of the national market system by providing the foundation for the application of consistent policies,149 procedures, terms,150 and conditions. This should provide for a more streamlined approach to the administration and provision of consolidated equity market data and thereby reduce the costs Letter, supra note 114, at 13, n.24. While the Commission appreciates the views shared by the commenter on the SRO rule filing process, more generally, we do not believe that such arguments support keeping three separate Equity Data Plans, which is the issue addressed in this Order. Indeed, consolidating NMS plan filings would be facilitated by creating a single New Consolidated Data Plan. 148 See, e.g., Refinitiv Letter, supra note 80, at 2; Schwab Letter, supra note 74, at 5–6. 149 For example, the Commission understands that there are currently differences among the Equity Data Plans in the policies related to, among other things, the following: Consolidated volume, audit look-back period, entitlement review, entitlement control, disaster recovery, non-display usage, service facilitator, administrative usage, quote meter, and controlled versus uncontrolled products. 150 See supra note 143 (commenter stating that differences among the qualifications as nonprofessional users create compliance complexity for SIP data users). Additionally, exchanges have acknowledged the administrative burden associated with determining the professional and nonprofessional status of broker-dealers’ customers. See, e.g., 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 Apr. 20, 2020) (‘‘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: A Blueprint for a Better Tomorrow (Apr. 2019), at 4, available at https://www.nasdaq.com/ docs/Nasdaq_TotalMarkets_2019_2.pdf (stating that the distinctions between ‘‘professional’’ and ‘‘nonprofessional’’ 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.’’). VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 imposed on other market participants, including SIP data subscribers.151 In addition, the Commission believes that the economic effects of creating a single New Consolidated Data Plan are likely to provide long-term cost-savings for the SROs in the administration of the Plans, as well. The Commission acknowledges that SROs would incur costs in the process of creating the New Consolidated Data Plan. One commenter asserts that, given the significant resources that would need to be diverted to drafting the New Consolidated Data Plan, the effort would likely increase rather than decrease inefficiencies.152 Three commenters highlight prior experience in the joint development of an NMS plan as instructive for the significant amount of time and resources devoted to the creation a new NMS plan.153 However, while it is likely that initially, the implementation cost of combining the Equity Data Plans may exceed the short-term cost savings from the reduction of existing redundancies, inefficiencies, and inconsistencies described above, the Commission anticipates that ongoing cost savings would continue to accrue over the period that the New Consolidated Data Plan is likely to remain in effect, thereby providing long-term cost savings. In addition, with respect to the costs of creating the New Consolidated Data Plan, we note that SROs, as the parties that have been operating the NMS plans, can provide unique insight in formulating the specific terms and provisions of the New Consolidated Data Plan. The Commission also believes that the plan development costs will differ significantly from those incurred in the development of prior NMS plans. Specifically, the Equity Data Plans have been in existence for over 30 years. This should provide the Participants with the requisite experience to limit the scope of the costs to create the New Consolidated Data Plan.154 In addition, the 151 See State Street Letter, supra note 76, at 2; TD Ameritrade Letter, supra note 74, at 2; Virtu Letter, supra note 80, at 2. 152 See Cboe Letter, supra note 114, at 12. 153 See Cboe Letter, supra note 114, at 12, n.22; Nasdaq Letter, supra note 45, at 15; NYSE Letter, supra note 49, at 19, n.46. As discussed below, the Commission acknowledges that there will be a transition period with additional costs to onboard a new independent Plan administrator pursuant to this Order. See infra Section II.D. 154 For example, the Commission believes that the Participants’ and the advisory committee members’ longstanding experience in the Plans would reduce the costs for identifying Plan provisions that could be harmonized or combined under a New Consolidated Data Plan. In fact, based on information the Commission obtained through its oversight of the Plans, the Commission is aware that PO 00000 Frm 00011 Fmt 4701 Sfmt 4703 28711 Participants may incorporate some or all of the current operational provisions of the existing Equity Data Plans into the New Consolidated Data Plan.155 Furthermore, as contemplated in the Proposed Order,156 the New Consolidated Data Plan could retain the same SIP processors under the same terms and conditions, thereby eliminating what otherwise would be a significant burden for the development of the New Consolidated Data Plan.157 Thus, the Commission anticipates that, at least initially, most of the detailed provisions relating to the operation of the existing Equity Data Plans could be imported into the New Consolidated Data Plan without substantial effort or great cost.158 C. Voting Rights on the New Consolidated Data Plan Operating Committee In its Proposed Order, the Commission set forth specific governance provisions and the voting structure to be included in the New Consolidated Data Plan to help to address certain concerns it identified relating to the provision of consolidated equity market data under the existing Equity Data Plans. The proposed the Participants and the advisory committee members of the Equity Data Plans have already engaged in some recent efforts to facilitate standardization of the policies of the Equity Data Plans. 155 The Commission believes that the New Consolidated Data Plan submitted by the SROs under this Order should 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. See Proposed Order, supra note 4, 85 FR at 2186. The Commission believes that this exercise would be incorporated into the process of creating a single New Consolidated Data Plan and provide the administrative benefits described above. 156 See supra note 107 (quoting statements from the Proposed Order that the existing SIP processors could continue to exist under the New Consolidated Data Plan). 157 The Commission’s requirement to create the New Consolidated Data Plan does not contemplate changes to the production, aggregation, or distribution of consolidated market data. Thus, the Commission does not anticipate that any costs associated with the production of market data would be affected. Instead, the direct cost savings envisioned by the Commission are likely to result from the reduction of existing redundancies, inefficiencies, and inconsistencies related to the operation of three separate Equity Data Plans. 158 The Commission does not anticipate that substantial revisions or re-negotiations of existing SIP subscriber contracts would be necessary to transition to the New Consolidated Data Plan. For example, the Commission understands that the SIP contracting process is automated (i.e., an online form that uses conditional logic to determine the data licensing requirements of a subscriber), which should ease the electronic transfer of existing SIP subscriber requirements to the New Consolidated Data Plan. The Commission did not receive comments on the level of burden to replace current contracts with the New Consolidated Data Plan. E:\FR\FM\13MYN2.SGM 13MYN2 28712 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices governance provisions include: (i) An allocation of voting rights to unaffiliated exchanges and exchange groups, along with the possibility of additional voting power based on market share, (ii) the inclusion of non-SRO voting members on the operating committee of the New Consolidated Data Plan, specifying the categories to be represented and a nomination and selection process, and (iii) the voting requirements for action under the New Consolidated Data Plan. 1. Voting Rights for SROs jbell on DSKJLSW7X2PROD with NOTICES2 (a) The Need for the Allocation of Voting Power by Exchange Group and Market Share As it stated in the Proposed Order, the Commission believes that exchange consolidation has altered the relative voting power of SROs such that exchange groups under common management now have greater voting power with respect to plan governance. Exchanges that historically had only one vote on NMS plans have now been consolidated into exchange groups that can control blocks of four or five votes.159 Consequently, any two exchange groups can now command a majority of votes,160 and the relative voting power of unaffiliated SROs has been diluted over time. Accordingly, the Commission continues to believe that changing the current voting structure would be beneficial and would promote the goals of Section 11A of the Act 161 with respect to equity market data. To address the disproportionate influence that the exchange groups have had on the operation of the existing Equity Data Plans, in its Proposed Order, the Commission proposed that voting rights in the New Consolidated Data Plan should be allocated so that each unaffiliated SRO 162 and exchange 159 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 percent of the trading volume in NYSE-listed securities. Today, the NYSE group of SROs as a whole has approximately 30 percent 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 Apr. 17, 2020) (month-to-date volume summary as of Apr. 17, 2020). 160 Specifically, the three exchange groups currently represent 14 of the 17 votes on the operating committees of the Equity Data Plans, and any two exchange groups together command a minimum of 9 votes. 161 15 U.S.C. 78k–1. 162 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, LTSE, and MEMX. VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 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 15 percent of consolidated equity market share 163 for four of the six consecutive months preceding a vote of the operating committee. A number of commenters share the Commission’s concern about the concentration of voting power in exchange groups and support the Commission’s proposal to rebalance the relative voting power on the New Consolidated Data Plan’s operating committee.164 One commenter argues that the current voting structure of the Equity Data Plans reduces incentives for SROs to ‘‘agree on changes that could impact the proprietary interests of one or two exchange groups.’’ 165 Another commenter ‘‘strongly supports reducing the emphasis on voting based on individual exchange medallions,’’ stating, ‘‘this aspect of the proposed order is key to addressing the inherent conflicts of interest that exist relating to SIP governance.’’ 166 A third commenter supports the proposed voting allocation structure by noting that the proposal ‘‘would modernize the voting structure . . . while facilitating the fair representation of all participants on the operating committee.’’ 167 One commenter agrees, stating that the proposal ‘‘importantly removes some of the perverse incentives for exchange groups to acquire or ‘light up’ new exchange medallions.’’ 168 Another commenter adds that the proposal would ‘‘reward exchanges with market share while balancing potential fluctuations in market share and 163 As defined in the Proposed Order, and for purposes of this Order, the term ‘‘consolidated equity market share’’ means 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 or the New Consolidated Data Plan. See Proposed Order, supra note 4, 85 FR at 2175, n.141. 164 See, e.g., Citi Letter, supra note 85, at 3; Clearpool Letter, supra note 40, at 3–4; Fidelity Letter, supra note 80, at 4; ICI Letter, supra note 78, at 4–5; IEX Letter, supra note 113, at 2; MFA/AIMA Letter, supra note 142, at 3; Letter from Christopher Solgan, VP, Senior Counsel, MIAX Exchange Group (Mar. 3, 2020), at 2 (‘‘MIAX Letter’’); MEMX Letter, supra note 80, at 3; SIFMA Letter, supra note 13, at 4; Refinitiv Letter, supra note 80, at 2; Letter from Mehmet Kinak, Vice President & Global Head of Systematic Trading & Market Structure, and Jonathan D. Siegel, Vice President & Senior Legal Counsel, T. Rowe Price Associates, Inc. (Feb. 24, 2020), at 2 (‘‘T. Rowe Price Letter’’); Virtu Letter, supra note 80, at 2. 165 IEX Letter, supra note 113, at 2. 166 MEMX Letter, supra note 80, at 4. 167 MIAX Letter, supra note 164, at 2. 168 Citi Letter, supra note 85, at 3. PO 00000 Frm 00012 Fmt 4701 Sfmt 4703 preventing further consolidation of voting power.’’ 169 Several commenters, however, oppose the Commission’s proposal.170 Specifically, these commenters argue that the Commission’s proposal is inconsistent with the APA 171 and with the Commission’s historical treatment of the exchanges, in which affiliated exchanges have been treated individually for regulatory purposes.172 One of these commenters states that the Commission’s proposal ‘‘disenfranchises individual exchanges,’’ arguing that, ‘‘[t]he concept of ‘exchange group’ is found nowhere in the statute or SEC rules, but operates to deprive SROs of the votes that they would otherwise have.’’ 173 This commenter further asserts that ‘‘one can easily see a scenario in which a proposal could be adopted even though a majority of SEC licensed SROs disapproved of the proposal.’’ 174 Another commenter states that the Commission ‘‘fails . . . to explain why the unified votes of multiple, independent SROs are less deserving or meaningful than the votes of unaffiliated SROs.’’ 175 This commenter similarly argues that, ‘‘[e]ach SRO participating in the proposed New [Consolidated Data] Plan would have independent obligations under the Exchange Act and the Plan with respect to administering SIPs, irrespective of whether the SRO is affiliated with an exchange group. Yet the impact of the Proposed Order would be to curtail the independence of affiliated SROs by, in effect, requiring that they vote as a bloc.’’ 176 This commenter further states that the proposal would result in ‘‘otherwise equal and independent SROs . . . [having] unequal voting power based on their corporate affiliations. And it assumes that the degree of voting power inequity should increase or decrease based on the SRO-affiliate group sizes.’’ 177 169 SIFMA Letter, supra note 13, at 4. e.g., Cboe Letter, supra note 114; Nasdaq Letter, supra note 45; NYSE Letter, supra note 49. 171 See NYSE Letter, supra note 49, at 17–18 (arguing that the Commission’s proposal lacks a reasonable basis and is therefore arbitrary and capricious). 172 See Cboe Letter, supra note 114, at 9–10; Nasdaq Letter, supra note 45, at 6–7; NYSE Letter, supra note 49, at 17–18; but see ICI Letter, supra note 78, at 4. 173 Nasdaq Letter, supra note 45, at 7. 174 Id. (providing as an example, ‘‘a proposal supported by four unaffiliated SROs and one exchange group would garner a majority of the permitted SROs votes (six to four in favor) but would not be supported by a majority of SROs (nine to seven against).’’). 175 NYSE Letter, supra note 49, at 17. 176 Id. 177 Id. at 18. 170 See, E:\FR\FM\13MYN2.SGM 13MYN2 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 The Commission disagrees. The Commission continues to believe that there is a need to rebalance voting power in Plan governance to address the disproportionate influence of affiliated exchange groups.178 The Proposed Order described in detail the effects on Plan governance of the exchange groups’ conflicts of interest arising from their sale of proprietary data products. The current governance structure provides voting power based on each exchange license and thereby concentrates voting power in a small number of exchange group stakeholders, which also have inherent conflicts of interest with respect to the operation of the Plans. The Commission believes that this has perpetuated disincentives for the Equity Data Plans to make improvements to the SIP data products. The Commission continues to believe that modernizing plan governance by reallocating votes by exchange group should help 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. As the exchange group commenters accurately point out, however, the Commission has treated affiliated exchanges as separate entities for regulatory purposes in the past. The Commission believes, nonetheless, that a meaningful legal distinction exists between, on one hand, each SRO’s individual responsibility pursuant to Sections 6, 15A, 17, and 19 of the Act 179 to comply with the statutory and regulatory requirements that apply to its operation and self-regulation of its market center, including the requirement that its rules ‘‘not impose any burden on competition not necessary or appropriate in furtherance of the purposes of [the Act]’’ 180—and, on the other hand, the responsibility of the SROs to jointly operate the NMS plans pursuant to Section 11A of the Act 181 and to disseminate consolidated market data to which different SROs may contribute in varying degrees. The Commission believes that this legal 178 One commenter noted the relatively recent acquisition by NYSE’s parent company of two exchanges that typically account for less than 3 percent of trading volume, yet represent 12 percent of voting power on the Equity Data Plans, allowing the NYSE to ‘‘command 29% of the operating committees vote . . . [rather than] the 18% voting power they had prior to acquiring these exchanges.’’ ICI Letter, supra note 78, at 5. 179 15 U.S.C. 78f, 15 U.S.C. 78o–3, 15 U.S.C. 78q, and 15. U.S.C. 78s. 180 Section 6(b)(8) and Section 15A(b)(9) of the Act, 15 U.S.C. 78f(b)(8) and 15 U.S.C. 78o-3(b)(9). 181 15 U.S.C. 78k–1. VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 distinction justifies treating affiliated exchanges under common management and control as one exchange group limited to one, or at most two, vote(s) in the context of NMS plan governance. And, as a practical matter, the Commission, in its oversight of the Equity Data Plans, is unaware of an individual affiliated exchange member of an exchange group having cast its vote differently than the votes cast by its affiliated exchanges. The Commission further believes that its authority under Section 11A of the Act 182 is broad and is not limited with respect to a determination as to the allocation of voting power to exchanges, either individually or in groups, based on common management or control. Moreover, the Commission believes that treating affiliated SROs differently from non-affiliated SROs is justified in this context from a policy perspective because of the disproportionate influence affiliated exchange groups currently exercise in Plan matters by voting as a block and diluting the voting power of other Participants. Indeed, the Commission agrees with the commenter that points out that the augmented majority vote could result in a scenario in which a proposal is adopted with the support of a supermajority of votes on the operating committee and a majority of SRO votes, but without the support of a majority of the individual exchanges.183 This is precisely the outcome that this Order is intended to achieve—plan action supported by a supermajority of the New Consolidated Data Plan’s operating committee, which would include a majority of SRO votes along with sufficient non-SRO votes to achieve the supermajority, that is not constrained by the votes of one or two exchange groups under common management and control that currently command a majority of the votes on the Equity Data Plans. Similarly, while one commenter argues that the Commission’s proposal would ‘‘curtail the ability of independent SROs to act independently in service of their own obligations,’’ 184 another commenter questions the independence of the affiliated exchanges, noting the lack of evidence that affiliated exchanges vote separately and observing that an exchange group commented in a unified 182 Section 11A of the Act, 15 U.S.C. 78k–1 (‘‘having due regard for the public interest, the protection of investors, and the maintenance of fair and orderly markets, to use its authority under this [Act] to facilitate . . . a national market system for securities . . . in accordance with the findings and to carry out the objectives set forth in paragraph (1) of [Section 11A(a)].’’). 183 See Nasdaq Letter, supra note 45 and accompanying text. 184 NYSE Letter, supra note 49, at 17. PO 00000 Frm 00013 Fmt 4701 Sfmt 4703 28713 voice on behalf of all affiliated exchanges.185 Similarly, one commenter asserts that the Proposed Order assumes that ‘‘the degree of voting power inequity should increase or decrease based on the SRO-affiliate group sizes.’’ 186 In the Commission’s view, this assertion is incorrect, in that a second vote would be granted only on the basis of the exchange group’s consolidated equity market share, not the size or number of exchange licenses of the affiliate group. In addition, the fact that, as one commenter argues, the concept of an exchange group is not created by statute or rule does not, in the Commission’s view, preclude the Commission from recognizing that affiliated exchanges act in some contexts as a collective organization. Instead, the Commission notes that, unlike the SROs’ individual regulatory obligations, the one-vote-perexchange governance model for NMS plans is not compelled by statute or regulation. Further, because of the inherent conflicts of interest that certain exchanges face in their operation of the existing Equity Data Plans, as detailed in the Proposed Order and discussed above, the Commission does not believe that permitting exchange SROs under common ownership to exercise disproportionate influence through block voting over New Consolidated Data Plan decisions, including fees and technology updates, supports the reliability and affordability of consolidated market data. Two commenters state that the Commission provides no adequate rationale for the decision to cap at two votes the number of votes that affiliated SROs would be granted.187 One of these commenters questions why there could not be a third vote and advocates adding tiers so that the proposal would ‘‘align the number of votes allocated to exchange groups or unaffiliated SROs with meaningful market share to their overall significance in the market.’’ 188 Several other commenters argue to the contrary that currently each exchange license obtained by an exchange group provides another vote on the Equity Data Plan’s operating committee with ‘‘little incremental overhead expenses. Capping the number of SRO votes at two per exchange group removes this 185 ICI Letter, supra note 78, at 4 (emphasis in original). 186 NYSE Letter, supra note 49, at 18. 187 Id.; Cboe Letter, supra note 114, at 10. 188 Cboe Letter, supra note 114, at 10 (advocating that instead there should be one vote for up to 5 percent consolidated market share, two votes for 5 percent to 15 percent consolidated market share, and three votes for more than 15 percent consolidated market share). E:\FR\FM\13MYN2.SGM 13MYN2 28714 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 incentive.’’ 189 Another commenter that generally supports the proposed voting structure suggests that the threshold for a second vote should be 10 percent of consolidated equity market share, as recommended by the Commission’s Equity Market Structure Advisory Committee, rather than the 15 percent threshold proposed by the Commission.190 This commenter argues that, ‘‘in the current fragmented market structure, 10 percent represents a very significant threshold that we believe would justify a slightly stronger voice in governance.’’ 191 The Commission continues to believe that it is appropriate to limit an SRO or affiliated exchange group to no more than two votes because providing more than two votes to any one SRO or affiliated exchange group would perpetuate the ability of two exchange groups to command a majority of votes on the operating committee, which would perpetuate the status quo. The Commission believes that this outcome would not address the disproportionate influence that the exchange groups have on the governance of the Equity Data Plans. Moreover, the Commission agrees with another commenter’s assertion that the two-vote cap would serve to deter actions, such as establishing a new exchange or further consolidation of existing exchanges into groups, taken for the sole purpose of gaining additional voting power on the operating committee.192 In addition, the Commission continues to believe that the voting allocation set forth in the Proposed Order, which would provide a second vote only where an unaffiliated SRO or exchange group has a consolidated equity market share of more than 15 percent over a specified period of time, is appropriate. A 15 percent threshold signifies the importance to the national market system of those exchanges that, in their roles as SROs, therefore oversee trading activity that generates a significant amount of equity market data and, as noted below, each exchange group would have an additional vote. While one commenter argues instead for a 10 percent threshold and another advocates for a tiered approach, with 189 Citi Letter, supra note 85, at 3; see also IEX Letter, supra note 113, at 2; ICI Letter, supra note 78, at 5; Letter from RBC Capital Markets, LLC, Rich Steiner, Head of Client Advocacy and Market Innovation (Feb. 28, 2020), at 2 (‘‘Royal Bank of Canada Letter’’); T. Rowe Price Letter, supra note 164, at 2. 190 See IEX Letter, supra note 113, at 2. 191 Id.; but see MEMX Letter, supra note 80, at 4; Clearpool Letter, supra note 40, at 4 (stating it would not support lowering the 15 percent threshold). 192 See ICI Letter, supra note 78, at 5. VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 the possibility of a third vote, the Commission, as discussed below, continues to believe that the 15 percent threshold is appropriate. The Commission disagrees that 10 percent consolidated equity market share is sufficiently significant to warrant a second vote, particularly given the trend toward exchange consolidation. The consolidated equity market share of the largest exchange groups is already well above 10 percent and continues to range from 17 percent to 22 percent.193 Setting the threshold for a second vote at 10 percent consolidated equity market share would create the expectation that exchange groups should receive a third vote at the same interval threshold above 10 percent (e.g., 20 percent). However, the Commission is not permitting the exchange groups, regardless of their consolidated equity market share, to have a third vote as this would lead to a continuing concentration of voting power. For the same reason, the Commission is concerned that a 10 percent threshold may be too easy to achieve through consolidation, which would result in too low a threshold for obtaining an additional vote and could lead to a continuing concentration of voting power. Conversely, as discussed above, the Commission believes that it is appropriate to provide an extra vote for exchanges or exchange groups with a greater consolidated equity market share. With respect to the proposed ‘‘lookback period’’ of four of the six consecutive months preceding a vote of the operating committee, the Commission notes that several commenters expressly supported the specified period, while none objected to it.194 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 potential fluctuations in trading volume among exchanges, while avoiding frequent changes in vote 193 See Cboe U.S. Equities Volume Data, available at https://markets.cboe.com/us/equities/market_ share/ (last accessed Apr. 20, 2020) (month-to-date volume summary as of Apr. 20, 2020). Specifically, the consolidated market shares for the Cboe, Nasdaq, and NYSE exchange groups were 16.63 percent, 17.84 percent, and 22.65 percent, respectively. Id. 194 See, e.g., SIFMA Letter, supra note 13, at 4; Clearpool Letter, supra note 40, at 4; MEMX Letter, supra note 80, at 4. PO 00000 Frm 00014 Fmt 4701 Sfmt 4703 allocations resulting from short-term changes in trading activity. (b) Prohibiting Voting by Nonoperational Equity Trading Venues The Commission proposed 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.195 The Commission proposed this provision 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, and several commenters expressed their support for the Commission’s view.196 The Commission continues to believe that exchanges should have voting rights for New Consolidated Data Plan matters only if those exchanges actively operate equity market trading venues, and no commenters disagreed with this view. Accordingly, this Order requires that the New Consolidated Data Plan provide that if an exchange ceases operation as an equity trading venue, or has yet to commence operation as an equity trading venue,197 that exchange will not be permitted to have a vote on Plan matters. 2. The Need for Non-SRO Participation in Plan Governance A key provision in the Proposed Order was providing voting representation to non-SROs on the New Consolidated Data Plan’s operating committee. Commenters express opinions on a range of issues relating to non-SRO voting, including the Commission’s statutory authority, the categories of non-SROs proposed to have representation on the operating committee, the process for selecting non-SRO members, as well as the number of terms and term length each non-SRO member should be permitted to serve. 195 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). 196 See Clearpool Letter, supra note 40, at 4; ICI Letter, supra note 78, at 5; MEMX Letter, supra note 80, at 4. 197 For purposes of this Order, operating a trading venue means trading NMS stocks on the venue as opposed to maintaining status as a national securities exchange without actually trading. E:\FR\FM\13MYN2.SGM 13MYN2 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices (a) The Commission Has Statutory Authority to Require Non-SRO Voting Power on the Operating Committee The Commission believes that an operating committee that takes into account views from non-SRO members that are charged with carrying out the objectives of the New Consolidated Data Plan will have an overall improved governance structure that better supports 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,’’ 198 because it will reflect a more diverse set of perspectives from a range of market participants, including significant subscribers of SIP core data products. Some commenters, however, question the Commission’s statutory authority to require an NMS plan to provide voting power to non-SROs.199 These commenters state that Section 11A of the Act does not authorize the Commission to require the SROs to work with non-SROs in developing or administering NMS plans, and instead obligates SROs only to ‘‘act jointly’’ with other SROs to operate the national market system.200 These exchange group commenters state that, because the statute does not directly provide for non-SRO participation, the Commission does not have the authority to require the SROs to coordinate with them in developing and maintaining an NMS plan.201 One of these commenters argues that ‘‘because Congress only granted the Commission authority to empower SROs to develop and maintain the operation of the national market system, the Commission could not grant non-SROs voting authority over the SIPs under Section 11A even if the SROs wish the Commission to do so.’’ 202 Another commenter states, ‘‘[w]here a statute or regulation contains express 198 15 U.S.C. 78k–1(c)(1)(B). NYSE Letter, supra note 49, at 14–15; Nasdaq Letter, supra note 45, at 5–6. 200 See NYSE Letter, supra note 49, at 14; Nasdaq Letter, supra note 45, at 5–6; see also Cboe Letter, supra note 114, at 7, n.13 (stating that it supports greater participation for non-SROs, but that the Commission should ‘‘ensure that any steps it takes to further this participation are within its statutory authority’’). This commenter also suggests that nonSRO members of the operating committee be entities regulated by the Commission, rather than individual employees of the entities, and therefore, subject to the same obligations and responsibilities as SRO members. Id. at 7. For a full discussion of this comment, see infra Section II.E.1. 201 See NYSE Letter, supra note 49, at 14–15; Nasdaq Letter, supra note 45, at 5–6. 202 NYSE Letter, supra note 49, at 14 (emphasis in original). jbell on DSKJLSW7X2PROD with NOTICES2 199 See VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 language limited only to a particular group, the negative implication is that other groups are not covered by the provision.’’ 203 Thus, while it supports voting rights for non-SROs on the New Consolidated Data Plan’s operating committee, this commenter believes that Section 11A of the Act204 and Rule 608 of Regulation NMS 205 currently do not allow for non-SRO voting power on an NMS plan and this statute and regulation would need to be amended to permit such voting power on an NMS plan.206 The Commission disagrees. Section 11A of the Act 207 directs the Commission to ‘‘use its authority under this title’’—including all of our authority over SROs —to facilitate the establishment of the national market system and further the objectives set forth in that section.208 And Section 11A(a)(3)(B) of the Act provides the Commission the authority to require the SROs ‘‘to act jointly . . . in planning, developing, operating, or regulating a national market system (or a subsystem thereof).’’ 209 Thus, while Section 11A affirmatively authorizes the Commission to allow or require the SROs to act jointly, it does not prohibit non-SRO participation in developing and administering NMS plans. Rather, it is silent on this issue. And, as explained by the Commission in the Proposed Order, permitting non-SRO views to be more directly heard regarding Plan matters (while preserving joint SRO control of the New Consolidated Data Plan provided for by the plan voting structure discussed below) 210 would neither impede the SROs’ ability to act jointly nor interfere with their ability to operate the national market system. Thus, pursuant to its authority over the national market system, the Commission is ordering the Participants to the New Consolidated Data Plan, as they act jointly, to include in the Plan voting rights for non-SROs. The Commission disagrees with the commenter that believes that because the language of a statute or regulation expressly refers to a particular group, the negative implication is that other groups are not covered by the provision. To the contrary, in the context of a statute delegating rulemaking to an agency, statutory silence leaves 203 Nasdaq Letter, supra note 45, at 6. U.S.C. 78k–1. 205 17 CFR 242.608. 206 See Nasdaq Letter, supra note 45, at 5–6. 207 15 U.S.C. 78k–1. 208 15 U.S.C. 78k–1(a)(2). 209 15 U.S.C. 78k–1(a)(3)(B). 210 See infra Section II.C.2. 204 15 PO 00000 Frm 00015 Fmt 4701 Sfmt 4703 28715 discretion with the agency.211 In this instance, the Commission believes it is appropriate to exercise that discretion to give non-SROs a vote on the New Consolidated Data Plan’s operating committee. While two commenters argue that the plain language of the statute provides that the Commission may do no more than authorize the non-SROs to act as advisory committees to the Equity Data Plans,212 these arguments misconstrue the statutory language. The statute is silent on the use of advisory committees with respect to the planning, developing, operating, or regulating of a national market system.213 Even though the language of Section 11A(a)(3)(A) of the Act does not expressly address the creation of advisory committees to an NMS plan or the participation of nonSROs in Plan matters, the Commission has previously exercised its authority to provide non-SROs a role on the Equity Data Plans as advisors.214 With this Order, the Commission is similarly exercising its statutory authority to require that the role of the non-SROs be expanded to include voting power on the operating committee of the New Consolidated Data Plan.215 Notably, however, as discussed in greater detail below, the Commission is not granting the non-SRO members sufficient voting power to compel plan action or to block action agreed upon by a supermajority of the operating committee that includes a majority of the SROs.216 Moreover, several commenters agree that the Commission has the authority 211 See NAM v. SEC, 748 F.3d 359, 368 (D.C. Cir. 2014); Catawba Cty, N.C. v. EPA, 571 F.3d 20, 36 (D.C. Cir. 2009). 212 See Nasdaq Letter, supra note 45, at 5–6; NYSE Letter, supra note 49, at 13–14. 213 While Section 11A(a)(3)(A) of the Act does refer to advisory committees, that provision provides for the creation by the Commission of committees pursuant to the Federal Advisory Committee Act to advise the Commission itself on the development of the national market system. See 15 U.S.C. 78k–1(a)(3)(A). 214 See Regulation NMS Release, supra note 7, 70 FR at 37561. 215 As discussed above, the Commission believes that changes in the markets over the last two decades (e.g., conversion from member-owned exchanges to for-profit exchanges, consolidation of exchange voting power, and exchanges offering for sale proprietary data products) have heightened these inherent conflict of interests between certain exchanges’ commercial interests and their regulatory obligations under the Act and rules, as well as pursuant to the effective Equity Data Plans to produce and provide equity market data. The Commission believes that providing voting power on the New Consolidated Data Plan to non-SROs, including to individuals representing entities that have previously served in an advisory capacity to the operating committees of the Equity Data Plans, will serve to mitigate these conflicts and will result in improved governance over equity market data matters. 216 See infra Section II.C.3. E:\FR\FM\13MYN2.SGM 13MYN2 28716 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 under Section 11A of the Act to provide for non-SRO participation on the New Consolidated Data Plan’s operating committee as voting members.217 One commenter, for example, states that an interpretation of Section 11A that concludes the SEC lacks authority under Section 11A to force the SROs to act jointly with non-SROs in the operation of NMS plans is too narrow. The commenter states that Congress granted the SEC authority in Section 11A(c)(1) to prescribe rules and regulations as necessary or appropriate in the public interest 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.218 Some commenters also question the wisdom of granting votes to non-SROs, citing the conflicts of interests that nonSROs would bring to the operation of the New Consolidated Data Plan, as well as potential inefficiencies.219 One commenter states that the non-SRO and SRO members of the New Consolidated Data Plan’s operating committee may face challenges in working together for the benefit of the SIP data.220 This commenter further opines that it does not believe there would be ‘‘many areas of likely agreement, and there may also be areas wherein there is agreement— but that agreement may be in a direction that is contrary to the timely provision of essential market data at a reasonable cost through the public market data stream.’’ 221 The Commission does not share these concerns. Broader representation on the New Consolidated Data Plan’s operating committee, along with the Commission’s continued oversight and 217 See Royal Bank of Canada Letter, supra note 189, at 3 (‘‘One of the SROs has already provided comments arguing that this voting construct violates Section 11A because it would afford voting rights to entities not expressly identified in the law. We do not believe they are correct in this argument, and that the law is so limiting.’’); ICI Letter, supra note 78, at 2–4; Fidelity Letter, supra note 80, at 5– 6 (stating, ‘‘[t]he Commission has plenary authority to prescribe rules governing the collection and dissemination of equity market data.’’); Schwab Letter, supra note 74, at 4–5; SIFMA Letter, supra note 13, at 5 (‘‘SIFMA believes that the SEC has the broad authority to instruct the SROs to take action to consolidate the existing Plans into a single new Plan and to incorporate its non-SRO representation and voting structure.’’). 218 Schwab Letter, supra note 74, at 4–5. 219 See NYSE Letter, supra note 49, at 16–17; Cboe Letter, supra note 114, at 7–9; Nasdaq Letter, supra note 45, at 9; Healthy Markets Letter, supra note 40, at 11–13. 220 See Healthy Markets Letter, supra note 40, at 12–13. 221 Id. VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 supervision and the strengthened conflict of interest and confidentiality policies,222 should help to ensure that plan governance facilitates the provision of consolidated market data consistent with Congressional goals. The Commission believes that including representatives from non-SROs alongside the SROs on the operating committee will enhance the ability of all relevant constituencies to work together to facilitate the goals of Section 11A of the Act. Although non-SROs members of the operating committee will themselves have conflicts of interests based on the type of business and constituency they represent, the Commission believes that the views of the non-SRO members, as data customers, will provide some balance with respect to the views of the exchanges, as data providers.223 Further, the non-SRO members of the New Consolidated Data Plan’s operating committee will be subject to the same conflict of interest policy as the SROs, which, as discussed below, will require disclosure of all material facts necessary for market participants and the public to understand any potential conflicts of interest and will require recusal in certain defined instances.224 In addition, the New Consolidated Data Plan will include a confidentiality policy applicable to the non-SRO members that addresses sharing of information and data, which will also serve to manage conflicts of interest.225 One commenter suggests that any non-SRO member on the operating committee should be a Commissionregulated entity and subject to the same obligations and responsibilities as SRO members.226 This commenter believes that having a Commission-regulated entity participate on the operating committee would reduce individual conflicts of interests, treat non-SRO members similarly to SROs, and facilitate the Commission’s ability to exercise its oversight of the operating committee.227 The Commission is now requiring a broader representation of market participants in the governance of the 222 See Conflicts of Interest Approval Orders, infra note 325, and Confidentiality Policy Approval Order, infra note 340 (both stating that the policies, as modified, further the goals set forth by Congress). 223 See infra Section II.C.3 regarding the augmented voting requirement. See also Royal Bank of Canada Letter, supra note 189, at 2 (stating, ‘‘This conflict can be mitigated by granting voting rights to other market participants, rather than exclusively to the exchanges . . . .). 224 See infra Section II.E.1 and Conflicts of Interest Approval Orders, infra note 326. 225 See infra Section II.E.2 226 See Cboe Letter, supra note 114, at 8–9. 227 See id. at 7–9. PO 00000 Frm 00016 Fmt 4701 Sfmt 4703 New Consolidated Data Plan by including non-SROs as voting members on the operating committee of the New Consolidated Data Plan. The Commission does not believe that it is necessary to require that non-SRO members of the operating committee be associated with a regulated entity in order for the Commission to be able to exercise its oversight of the operating committee.228 As discussed below,229 the Commission believes that the SROs should, by themselves, maintain sufficient voting power at all times to act jointly on behalf of the New Consolidated Data Plan, thus providing them with the ability to ensure that the New Consolidated Data Plan meets the requirements of Section 11A of the Act 230 and Rule 608 of Regulation NMS.231 Further, any substantive amendment of the New Consolidated Data Plan would require Commission approval, and the Commission would be able, if it deemed it appropriate, to amend the terms of the New Consolidated Data Plan pursuant to Rule 608 of Regulation NMS.232 Thus, the Commission does not believe that the inclusion of non-SRO members on the operating committee, with insufficient votes to block plan action by themselves, would interfere with the Commission’s ability to exercise its oversight over the New Consolidated Data Plan. Nor does the Commission believe that potential disagreements between these members and the SROs will result in overall inefficiencies. The existence of different perspectives that result in additional discussion does not equate to inefficiency, but rather helps to ensure that more options for addressing an issue are considered by the operating committee. Adding non-SRO views to the discussions of the operating committee could therefore add to the range of solutions presented on issues and could, in fact, result in an ultimate resolution that is more beneficial to the market. In addition, as described below, the voting structure for the New Consolidated Data Plan will not require a unanimous vote for plan action. Therefore, even if all members of the operating committee do not agree on a matter, the operating committee can 228 Non-SRO members will be individuals that hold positions with firms or entities that satisfy a category of non-SRO members (e.g., a broker-dealer with a predominantly retail customer base). 229 See infra Section II.C.3 (describing the voting structure of the New Consolidated Data Plan). 230 15 U.S.C. 78k–1. 231 17 CFR 242.608. 232 17 CFR 242.608. E:\FR\FM\13MYN2.SGM 13MYN2 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices move forward with an augmented majority vote in favor of an action.233 jbell on DSKJLSW7X2PROD with NOTICES2 (b) Categories of Non-SRO Members As noted above, in the Proposed Order, the Commission proposed to require a broader representation of market participants in the governance of the New Consolidated Data Plan by including as voting members on the operating committee of the New Consolidated Data Plan a number of non-SRO market participants. The categories of non-SRO representatives proposed by the Commission included 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, provided that the representatives of the securities market vendor, the issuer, and the retail investor, respectively, may not be affiliated with an SRO, a broker-dealer, or an institutional investor. A number of commenters suggest modifications to the Commission’s proposed categories of non-SRO voting representatives to the New Consolidated Data Plan’s operating committee. Two commenters recommend the addition of a broker-dealer with a substantial wholesale customer base.234 One of these commenters states that the vast majority of retail orders are routed to wholesale broker-dealers, and therefore these broker-dealers play a role in protecting investors through price and liquidity enhancement. The commenter believes that these firms have knowledge regarding market structure that would benefit the New Consolidated Data Plan.235 Another commenter suggests that either a wholesale broker-dealer or a marketmaking broker-dealer would be a better representative of issues facing the industry than an issuer representative.236 The Commission disagrees with these commenters’ suggestion. The Commission believes that the perspective and knowledge base of such a broker-dealer sufficiently overlaps 233 See infra Section II.C.3. An augmented majority vote is a supermajority vote of the New Consolidated Data Plan’s operating committee, along with a majority vote of the SRO members of the operating committee. Id. 234 See Schwab Letter, supra note 74, at 5; TD Ameritrade Letter, supra note 74, at 4. 235 See TD Ameritrade Letter, supra note 74, at 4. 236 See Schwab Letter, supra note 74, at 5. This commenter argues that issuer representatives have a strong interest in how well their securities trade, but ‘‘lack the operational knowledge relevant to operating committee discussions.’’ Id. VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 with a broker-dealer that has a predominantly retail customer business as both have familiarity with the price and liquidity issues associated with retail trading. Further, the Commission believes that the interests of the constituencies that would be served by these representatives would be aligned, as ultimately they are both servicing the same end-user base, retail customers. Therefore, the Commission does not believe it is necessary to add a brokerdealer with a substantial wholesale customer base to the operating committee. The Commission believes that the same is true for a marketmaking broker-dealer. The Commission believes that the interests specifically of market-making broker-dealers are sufficiently aligned with those of retail broker-dealers that adding a separate representative to the operating committee is warranted. One commenter recommends including a representative of an alternative trading system (‘‘ATS’’) as a voting member of the operating committee.237 This commenter acknowledges that the views of ATSs could be represented by a broker-dealer with a predominantly institutional customer base, but notes that not all institutional broker-dealers operate an ATS and some ATSs exist that are not affiliated with large institutional brokerdealers, and therefore the commenter argues that ATSs should have separate representation on the operating committee.238 The Commission disagrees with this commenter. In the Proposed Order, the Commission stated that ‘‘ATSs and institutional broker-dealers serve similar roles in the markets, as both operate as over-the-counter trading venues’’ and concluded that ‘‘the New Consolidated Data Plan operating committee should not include a designated ATS representative.’’ 239 The Commission continues to hold this view. The Commission does not believe that it is necessary for an ATS to be operated by an institutional broker-dealer in order for these two market participants to share opinions and perspectives on market data issues. Regardless of whether an institutional broker-dealer operates an ATS or an ATS is an affiliate of institutional broker-dealer, their business models are sufficiently aligned with respect to market data issues that the Commission continues to believe that an institutional brokerdealer representative on the operating 237 See SIFMA Letter, supra note 13, at 4. 238 Id. 239 Proposed PO 00000 committee is adequate to represent the interests of ATSs. The Commission also disagrees with the commenter’s suggestion to add an investment technology provider supporting the buy-side as a representative on the operating committee. While the Commission believes that input from technology providers on matters the operating committee will consider with respect to market data and its collection, consolidation, and dissemination will be valuable, there will be a market data vendor representative on the operating committee who should be able to provide input and guidance for New Consolidated Data Plan decision-making from a technological perspective. The Proposed Order also provided for one representative of an institutional investor (e.g., an asset management firm) on the operating committee. One commenter argues that there should be at least two representatives from institutional investors, including at least one representative from a public pension plan.240 However, because adding additional non-SRO members to the operating committee would dilute the votes of the other non-SROs members, and because the operating committee of the New Consolidated Data Plan would already include a representative for institutional investors, the Commission does not believe it is necessary to provide an additional slot on the operating committee exclusively for the representative of an institutional investor. In the Proposed Order, the Commission also included a retail investor among the non-SRO members on the operating committee of the New Consolidated Data Plan to ensure that the interests of Main Street investors were represented in discussions regarding the equity data feeds. The interests of retail investors are central to the Commission’s mission, and the Commission believes it is important that the operating committee of the New Consolidated Data Plan have a non-SRO member who can effectively represent the interests of individual investors with regard to the issues considered by the operating committee of the New Consolidated Data Plan. In particular, the Commission is ordering that the member of the operating committee representing retail investors shall have experience working with or on behalf of retail investors and have the requisite background and professional experience to understand the interests of retail investors, the work of the operating Order, supra note 4, 85 FR at 2179– 240 See 80. Frm 00017 Fmt 4701 Sfmt 4703 28717 E:\FR\FM\13MYN2.SGM CII Letter, supra note 74, at 6. 13MYN2 jbell on DSKJLSW7X2PROD with NOTICES2 28718 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices committee of the New Consolidated Data Plan, and the role of market data in the U.S. equity market. The Commission believes it is less important that this person simply be a ‘‘retail investor’’ and more important that this position be filled by a person with a combination of the background and experience described above so that he or she can effectively represent the interests of retail investors as a ‘‘retail representative.’’ Accordingly, the Commission is modifying the language in the proposal to replace ‘‘retail investor’’ with ‘‘a person who represents the interests of retail investors (‘retail representative’).’’ As proposed, the retail investor representative could not be affiliated with an SRO, broker-dealer, or institutional investor. However, as discussed above, the Commission is expanding the available group from which the ‘‘retail representative’’ could be chosen to a ‘‘person who represents the interests of retail investors.’’ Because many retail investors gain exposure to the equities markets through various types of institutional investors, the Commission believes it is appropriate to permit (but not require) the ‘‘retail representative’’ to be associated with an institutional investor, provided that this person otherwise meets the requirements as set forth in this Order. The retail representative may not be affiliated with an SRO or broker-dealer, however, because, in the Commission’s view, both SROs and broker-dealers will have adequate representation on the New Consolidated Data Plan’s operating committee, including a broker-dealer with a predominantly retail customer base. Thus, the Commission believes that prohibiting duplicative representation in this regard will help ensure that the non-SRO members reflect a diversity of perspectives. Another commenter proposes adding voting representatives of a custodial bank, arguing that such a representative has unique insights into the needs of large institutional broker-dealers and has an interest in ensuring cost-effective access to market data.241 This commenter also recommends adding an agency broker-dealer focused on institutional investors, and an investment technology provider supporting the buy-side to serve as additional voices representative of the ‘‘financial markets ecosystem.’’ 242 The Commission disagrees with adding to the operating committee these additional non-SRO members that 241 See 242 Id. State Street Letter, supra note 76, at 3. at 5. VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 purport to represent the views or needs of institutional broker-dealers. The Order currently provides for an operating committee member that represents a broker-dealer with a predominantly institutional investor customer base. The Commission believes that the views of institutional broker-dealers will be adequately represented without the addition of a custodial bank or a designated agency broker. Two commenters question the usefulness of an issuer as a voting member of the operating committee.243 One of these commenters asserts that an issuer representative should not be eligible to serve under another non-SRO category,244 while another commenter suggests that the Commission provide ‘‘certain objective requirements’’ to make sure that such representatives understand the technical aspects of equity market structure.245 In addition, one commenter argues that the Commission’s final order should specify that non-SRO members, to maintain their neutrality, should not be permitted to be representatives of an entity that ‘‘has an ownership interest in an SRO or its holding company beyond a specified level.’’ 246 The Commission disagrees with the commenters that believe a representative of an issuer should not have a vote on the operating committee. The Commission believes that an issuer representative has unique knowledge about a segment of the industry—the corporations that issue the stocks traded—that is not represented by the other representatives and should have a voice on matters relating to market data. However, the Commission agrees with a commenter that it is appropriate that the issuer representative should not also be eligible to serve as a representative of another category on the operating committee.247 The Commission believes the representative who will serve as the issuer representative on the operating committee should serve to represent primarily the point of view of issuers, as views that support other categories of non-SRO members will have their own dedicated representative. If an issuer representative were also eligible to serve as another category of representative, 243 See Schwab Letter, supra note 74, at 5; TD Ameritrade Letter, supra note 74, at 4. 244 See TD Ameritrade Letter, supra note 74, at 4. The Commission notes that this Order is not intended to dictate all of the specific terms of the New Consolidated Data Plan, which the Commission will notice for public comment and consider when submitted by the SROs. 245 See SIFMA Letter, supra note 13, at 4. 246 IEX Letter, supra note 113, at 3. 247 See TD Ameritrade Letter, supra note 74, at 4. PO 00000 Frm 00018 Fmt 4701 Sfmt 4703 questions could be raised as to whether the issuer representative is solely wearing his or her issuer ‘‘hat’’ in operating committee discussions or if he or she is actually advocating for views that are more aligned with another category on the operating committee. The Commission believes that it is important to ensure that the representative for the issuer constituency does not have business interests that significantly overlap with the interests of other non-SRO members on the operating committee such that the issuer representative’s interests would be duplicative of other non-SRO members. To address these concerns, the Commission is ordering that the representative for the issuer category not be affiliated or associated with an SRO, a broker-dealer, or an investment adviser with third-party clients. Another commenter objects to the restriction in the Proposed Order that vendors, issuers, and retail investors 248 may not be affiliated with an SRO, a broker-dealer, or an institutional investor. This commenter argues that the restriction could prevent otherwise qualified candidates with relevant industry experience or knowledge from serving on the operating committee.249 The Commission anticipates that— notwithstanding the Order’s restriction on affiliations for securities market data vendors and issuers with SROs, brokerdealers, and institutional investors, and the Order’s restriction on a retail representative’s affiliations with SROs and broker-dealers—the operating committee of the New Consolidated Data Plan will be able to attract knowledgeable representatives of securities market data vendors and issuers as the New Consolidated Data Plan will address issues and make important decisions that will impact these constituencies. The Commission believes that the opportunity to have a voice on the operating committee of a Plan responsible for issues related to market data will be highly coveted and there will be qualified nominees willing to serve as representatives from organizations that are not affiliated with SROs, broker-dealers, or institutional investors. (c) Process for Selecting Non-SRO Members and Term Limits The Commission proposed that the non-SRO members of the New Consolidated Data Plan’s operating committee should be selected solely by 248 As discussed above, the Commission has modified the requirements relating to the retail investor category of non-SRO member. 249 See BlackRock Letter, supra note 114, at 2. E:\FR\FM\13MYN2.SGM 13MYN2 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 non-SROs and 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 Proposed Order would require that the initial non-SRO operating committee members be selected by the current members of the Equity Data Plans’ advisory committees, excluding advisory committee members selected by a Participant to be its representative, and that subsequent non-SRO members be selected collectively by the thenserving non-SRO members of the New Consolidated Data Plan’s operating committee. In addition, to facilitate continuity of membership of the Equity Data Plan’s advisory committees (excluding exchange representatives) through the transition to the New Consolidated Data Plan, the Commission proposed, to the extent possible, that the SROs should renew the expiring terms of all members of the Equity Data Plans’ advisory committees (other than those selected to represent an SRO) who remain willing to serve in that role. A number of commenters support the Commission’s proposal to have the current advisory committee members, excluding exchange representatives, select the initial non-SRO members of the New Consolidated Data Plan’s operating committee.250 One commenter states, ‘‘[t]o help promote independence of views, we agree that the Plan Participants should not select non-SRO members of the [o]perating [c]ommittee.’’ 251 Several of these commenters also emphasize the importance of an independent and transparent nomination and selection process for non-SRO members of the New Consolidated Data Plan’s operating committee.252 These commenters agree that the operating committee should provide for a process to publicly solicit, and make available for public comment, nominations for non-SRO members.253 Additionally, as discussed above, one commenter suggests that the Commission appoint the members of the operating committee.254 One commenter objects to the proposed mechanism by which the nonSRO representatives would be selected 250 See Fidelity Letter, supra note 80, at 5; IEX Letter, supra note 113, at 3; Royal Bank of Canada Letter, supra note 189, at 3; SIFMA Letter, supra note 13, at 4. 251 Fidelity Letter, supra note 80, at 5. 252 See Fidelity Letter, supra note 80, at 5; IEX Letter, supra note 113, at 3; SIFMA Letter, supra note 13, at 4. 253 See Fidelity Letter, supra note 80, at 5; IEX Letter, supra note 113, at 3; SIFMA Letter, supra note 13, at 4. 254 See CII Letter, supra note 74, at 6. VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 for service on the Plan stating that is clearly inconsistent with Section 11A of the Act and Rule 608 of Regulation NMS, as it would bar SROs from having any role in the selection of those representatives.255 This commenter argues that such restriction cannot be reconciled with the clear requirement of the statute and rule that NMS plans be governed by the joint action of SROs.256 The Commission disagrees with this commenter’s position. As discussed above, Section 11A of the Act 257 affirmatively authorizes the Commission to allow or require the SROs to act jointly to further the statutory objectives of a national market system, but it does not prohibit non-SRO participation in developing and administering NMS plans. Pursuant to its statutory authority ‘‘to facilitate the establishment of a national market system,’’ 258 the Commission believes that permitting non-SROs solely to select the non-SRO members of the New Consolidated Data Plan’s operating committee will facilitate the governance of this Plan in that it will help ensure the independence of these members. As the Commission discussed in the Proposed Order, the SROs currently select the members of the advisory committee, including both members representing specific categories of market participants and members chosen by individual exchanges to serve on the committee. The Commission believes that this may deter advisory committee members from expressing views that might contradict the views of the exchanges. The Commission’s decision to prohibit the SROs from having a role in selecting the non-SRO members who will serve on the operating committee is designed to address this concern. Non-SRO members must be wholly independent from the SROs in order to represent their constituency free from interference. The ability of SROs to fully participate in, and ultimately act jointly to control decisions made by the operating committee,259 will not be compromised simply because they are not involved in the selection of certain other members of the operating committee. The Commission therefore continues to believes that, as proposed, the existing advisory committee members of the Equity Data Plans (excluding the exchange-selected 255 See Nasdaq Letter, supra note 45, at 7–8. at 8 (stating, ‘‘[q]uite simply, an NMS plan in which SROs play no part at all in important aspects of plan governance is not an NMS plan at all.’’). 257 15 U.S.C. 78k–1. 258 15 U.S.C. 78k–1(a)(2). 259 See infra Section II.C.3. 256 Id. PO 00000 Frm 00019 Fmt 4701 Sfmt 4703 28719 representatives), rather than the SROs or the Commission, should select the initial group of non-SRO members of the New Consolidated Data Plan’s operating committee and subsequent non-SRO members should be selected solely by the then-serving non-SRO members of the New Consolidated Data Plan’s operating committee in order to help ensure the independence of the nonSRO members. The Commission further believes that the current Equity Data Plans’ advisory committee members’ experience with the operation of the Equity Data Plans will assist in the selection of the initial non-SRO operating committee members 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 it is important to maintain the current membership of the Equity Data Plans’ advisory committees, to the extent possible when excluding exchangeselected representatives, through the transition to the New Consolidated Data Plan. Accordingly, to facilitate continuity, the Commission is ordering the SROs to renew the expiring terms of all members of the Equity Data Plans’ advisory committees (other than those members selected by an individual SRO) who remain willing to serve in that role. In the Proposed Order, the Commission also proposed that nonSRO members of the operating committee would serve for a term of two years and that the New Consolidated Data Plan should establish reasonable term limits. The Commission noted that advisory committee members of the Equity Data Plan currently serve twoyear terms and stated its belief that a two-year term would 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. Several commenters, expressing concern about individual members becoming ‘‘de facto permanent members’’ of the operating committee, specifically recommend term limits as an antidote to non-SRO member inertia.260 Other commenters agree, stating that the benefits of limiting the number of terms a non-SRO representative could serve on the operating committee would include 260 See Fidelity Letter, supra note 80, at 5; IEX Letter, supra note 113, at 3; SIFMA Letter, supra note 13, at 4. E:\FR\FM\13MYN2.SGM 13MYN2 28720 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 obtaining diverse perspectives.261 Two commenters support a two-year term for non-SRO members, as proposed by the Commission, and these commenters recommend a two-term limit for representation on the operating committee.262 Certain other commenters, however, suggest alternative terms and term limits for non-SRO members’ tenure on the New Consolidated Data Plan’s operating committee. For example, a number of commenters recommend that the nonSRO members serve on the operating committee for a three-year term with a two-term limit.263 Another commenter suggests one four-year term, but argues that ‘‘the need for institutional knowledge specific to the New Plan and the need for new perspectives . . . can be accomplished by rotating out one half of the members every two years.’’ 264 Finally, one commenter argues that the Commission should have the opportunity to object to the slate of nominees.265 With respect to terms of service and term limits for non-SRO members, the Commission believes that it is appropriate that the New Consolidated Data Plan balance the advantages of institutional knowledge with the potential benefits to be derived from new perspectives on Plan governance. Moreover, the Commission notes that the commenters’ varied suggestions highlight the diversity of views with respect to the appropriate term and term limits to achieve this goal. The Commission believes a term of two years will provide non-SRO members with sufficient time to become familiar with the operations and issues affecting the New Consolidated Data Plan and to make informed contributions. The Commission believes that a term less than two years could result in a member being removed from the operating committee before he or she had an adequate opportunity to get familiar with the issues before the operating committee at that time and could result in a significant amount of disruptive turnover, resulting in inefficiencies on the operating committee. However, the Commission believes that a term of two 261 See Royal Bank of Canada Letter, supra note 189, at 3; T. Rowe Price Letter, supra note 164, at 2. 262 See MFA/AIMA Letter, supra note 142, at 2; SIFMA Letter, supra note 13, at 3. 263 See Fidelity Letter, supra note 80, at 5; Schwab Letter, supra note 74, at 5; State Street Letter, supra note 76, at 3; T. Rowe Price Letter, supra note 164, at 2. 264 TD Ameritrade Letter, supra note 74, at 5; see also Royal Bank of Canada Letter, supra note 189, at 3. 265 See Royal Bank of Canada Letter, supra note 189, at 3. VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 years, with the potential for additional terms to be determined in the New Consolidated Data Plan, would provide sufficient time for a member to become familiar with the issues dealt with by the operating committee.266 The Commission further believes that the New Consolidated Data Plan should provide a maximum term limit for nonSRO members to ensure that new and diverse viewpoints are reflected among the non-SRO members of the operating committee. The Commission is not dictating in this Order what the maximum term limit must be. The Commission believes that the SROs, as current members of numerous NMS plan operating committees, may have useful insights into balancing the value of having long-standing members on an operating committee with the potential detriment of allowing a membership to become stale and no longer useful or engaged and are thus well positioned to propose what the maximum term limit should be in the first instance. Accordingly, as proposed, the Commission is ordering that the New Consolidated Data Plan provide that non-SRO members of the operating committee serve for a term of two years and that the New Consolidated Data Plan set forth a maximum term limit for non-SRO members. One commenter raises concerns that the non-SRO members on the New Consolidated Data Plan’s operating committee would not ‘‘adequately and fairly’’ represent the views of the constituencies that the member was selected to represent.267 This commenter further asserts that the nomination process outlined by the Commission is inadequate to address these concerns.268 To the contrary, the Commission believes that the requirement that the non-SRO members of the operating committee will collectively select replacement non-SRO members will help to ensure that the individuals selected will represent their constituencies’ views on important market data issues, and will help to ensure that the most effective and knowledgeable advocates for their views serve on the operating committee. Further, because the then-serving nonSRO members, and not the SROs, will select non-SRO members, the Commission does not believe that individuals may be blocked from serving on the New Consolidated Data Plan’s operating committee because they 266 See supra note 262. 267 See Healthy Markets Letter, supra note 40, at 13. 268 Id. PO 00000 Frm 00020 Fmt 4701 Sfmt 4703 are perceived by the Participants as ‘‘anti-exchange,’’ 269 as the commenter suggests. In addition, the New Consolidated Data Plan will require that the process for soliciting nominations for non-SRO members to serve on the operating committee be transparent. The Commission is requiring in this Order that the New Consolidated Data Plan must specifically include a process for publicly soliciting and making available for public comment nominations for non-SRO members and the public will be permitted to submit nominees for consideration and to provide comment on the pool of nominees.270 Therefore, if the non-SRO members select a new member to serve on the operating committee who is less qualified than other nominees to represent a particular constituency, the decision will face public scrutiny. Finally, the Commission also disagrees that providing some discretion to the SROs to propose a transparent nomination process and reasonable term limits for non-SRO member service renders its proposal ‘‘facially inadequate.’’ Instead, the Commission believes that the requirements set forth in this Order, coupled with the Rule 608 process under which the New Consolidated Data Plan will be considered by the Commission, which includes public notice and comment, should help to assure that the nomination and selection process is fair, transparent, and public. 3. Voting Structure Under the New Consolidated Data Plan In its Proposed Order, the Commission proposed that the New Consolidated Data Plan 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 at all times. Further, the Commission proposed that action by the operating committee of the New Consolidated Data Plan on all matters, including amendments to 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 269 Id. 270 See Proposed Order, supra note 4, 85 FR at 2180 (‘‘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.’’). E:\FR\FM\13MYN2.SGM 13MYN2 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices votes. The requirement for an augmented majority vote was intended to ensure that at all times the SROs have sufficient voting power to act jointly on behalf of the plan pursuant to the requirements of Section 11A of the Act 271 and Rule 608 of Regulation NMS.272 Commenters express opinions on several aspects of the Proposed Order’s voting structure. Notably, several commenters support that the Proposed Order does not permit a requirement for a unanimous vote for plan action, as is currently required for certain actions of the Equity Data Plans.273 As one commenter points out, unanimous voting is not a requirement for NMS plans and, in fact, the most-recently approved NMS plan required by Rule 613 of Regulation NMS (‘‘CAT NMS Plan’’) requires the affirmative vote of a two-thirds supermajority of all members of the operating committee for plan amendments.274 Another commenter, however, states that unanimous voting ‘‘can help protect individual SRO participants that may have divergent structures or interests from otherwise dominant SROs.’’ 275 This commenter recommends that, if unanimous voting requirements in the SIP plan governance structure are eliminated, plan participants should be ‘‘permitted and encouraged’’ by the Commission to communicate dissenting views and concerns to the Commission about New Consolidated Data Plan actions that they believe may be ‘‘discriminatory, contrary to the public interest or improperly influenced by commercial interests.’’ 276 The Commission agrees with commenters who support not including a unanimous voting requirement in the new plan and believes that the New Consolidated Data Plan should provide that plan action, including amendments to the plan, will be approved by less than a unanimous vote. Further, the Commission believes that expanding the voting membership of the operating committee of the New Consolidated 271 15 U.S.C. 78k–1. CFR 242.608. 273 See NYSE Letter, supra note 49, at 10 (‘‘Adopting such a structure here would eliminate the ability of any single SRO to impose roadblocks to innovation, and would further encourage collaboration among the participants to the Plans.’’); SIFMA Letter, supra note 13, at 4–5; IEX Letter, supra note 113, at 4; MEMX Letter, supra note 80, at 4; Royal Bank of Canada Letter, supra note 189, at 2–3; Clearpool Letter, supra note 40, at 4; Fidelity Letter, supra note 80, at 5; Virtu Letter, supra note 80, at 2; Refinitiv Letter, supra note 80, at 2. 274 See NYSE Letter, supra note 49, at 10. 275 Letter from Robert Colby, Executive VicePresident & Chief Legal Officer, FINRA (May 1, 2020) (‘‘FINRA Letter’’). 276 Id. jbell on DSKJLSW7X2PROD with NOTICES2 272 17 VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 Data Plan, limiting the voting power of exchange groups, and providing for augmented majority voting—coupled with the existing requirement that NMS plan amendments must be published for comment and (except those put into effect upon filing) subject to approval by the Commission to become effective— should help to address concerns that the views of individual SRO participants will not be given adequate consideration. Additionally, consistent with its decision to expand the membership of the operating committee governing the SIPs, the Commission encourages open debate of issues within the operating committee and the communication of dissenting views to the Commission. A number of commenters express support for the Commission’s proposal to require an augmented majority vote for action of the New Consolidated Data Plan.277 Other commenters, however, suggest variations on the voting requirements. One commenter suggests imposing a supermajority requirement for plan amendments and a majority vote for all other actions, similar to the requirements of the CAT NMS Plan.278 Another commenter expresses concern that the augmented majority vote proposal would require that ‘‘a majority of SROs must support any proposal before it can be adopted.’’ 279 This commenter suggests that the Commission’s proposal for the augmented majority vote, designed to address the SROs’ statutory and regulatory obligations under the Act, should be limited to apply only to ‘‘those decisions tied to statutory SRO responsibilities.’’ 280 Another commenter argues that the definition of augmented majority vote should be ‘‘expanded to include, at a minimum, a required one-third total vote of the nonSRO members in support of any amendment,’’ noting that this would recognize the needs of those subject to regulatory requirements to display consolidated market data.281 A number of commenters state that non-SRO members of the New Consolidated Data Plan’s operating committee should have greater voting power than that proposed 277 See, e.g., SIFMA Letter, supra note 13, at 4– 5; IEX Letter, supra note 113, at 4; MEMX Letter, supra note 80, at 4; Royal Bank of Canada Letter, supra note 189, at 2–3; Clearpool Letter, supra note 40, at 4; Fidelity Letter, supra note 80, at 5; Virtu Letter, supra note 80 at 2; Refinitiv Letter, supra note 80, at 2. 278 See NYSE Letter, supra note 49, at 10. 279 Royal Bank of Canada Letter, supra note 189, at 3. 280 Id. 281 TD Ameritrade Letter, supra note 74, at 6. PO 00000 Frm 00021 Fmt 4701 Sfmt 4703 28721 by the Commission.282 Some commenters advocate for an even distribution of voting power between SROs and non-SROs,283 while one argues for non-SRO members of the operating committee to have majority voting power, noting that independent directors outnumber other directors on SRO boards today.284 The Commission disagrees with these variations on the voting requirements. First, rather than adopting, as one commenter suggests, the particular voting requirements established in the CAT NMS Plan, the Commission has elected to require an ‘‘augmented majority vote,’’ which requires a supermajority vote of the operating committee, as well as a majority vote of the SRO members of the operating committee.285 The Commission notes that, among other distinctions between the two plans,286 here the Commission has determined that it is appropriate to include non-SRO members on the New Consolidated Data Plan’s operating committee. Because all votes on the CAT NMS Plan are allocated to SROs, the concern about whether SROs retain sufficient voting power is not present for the CAT NMS Plan. Second, the Commission disagrees with the commenter’s suggestion that the augmented majority vote should apply only to decisions of the New Consolidated Data Plan relating to the SROs’ statutory responsibilities. While the Commission acknowledges the commenter’s concern about requiring a majority of SRO votes, the Commission believes that any attempt to identify and separate statutory-related items to come before the operating committee would likely require more of the operating committee’s time and attention than the potential benefits could justify. In addition, the Commission believes nonSRO members would offer informed views on statutory-related matters given their expertise. 282 See, e.g., IEX Letter, supra note 113, at 3; CII Letter, supra note 74, at 6; State Street Letter, supra note 76, at 3; SIFMA Letter, supra note 13, at 4; BlackRock Letter, supra note 114, at 2. 283 See IEX Letter, supra note 113, at 3; Schwab Letter, supra note 74, at 5; SIFMA Letter, supra note 13, at 4; State Street Letter, supra note 76, at 3. 284 See CII Letter, supra note 74, at 6. In addition, CII advocates that all actions of the New Consolidated Data Plan be approved by a simple majority vote. Id. 285 All plan action, including amendments to the New Consolidated Data Plan, will require an augmented majority vote, with two exceptions. First, the selection of non-SRO members will require a majority vote of non-SROs. Second, the decision to enter into an executive session, discussed below, will require a majority vote of the SRO members. 286 Other differences between the two plans include, among other things, their distinct purposes and different impact on market participants. E:\FR\FM\13MYN2.SGM 13MYN2 28722 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 Finally, the Commission does not agree that the proposed definition of augmented majority should be modified to require, in addition to the two-thirds majority of the operating committee and the majority of SRO votes, the vote of one-third of all non-SRO members eligible to vote, as suggested by a commenter. While this approach would further help to ensure that no proposed amendments to the New Consolidated Data Plan could be filed with the Commission without some level of nonSRO member concurrence, the Commission believes that creating a governance structure that would not, at a minimum, provide the SROs alone with the voting power necessary to effectuate action by the New Consolidated Data Plan 287 does not appropriately recognize the SROs’ regulatory responsibilities to act jointly to operate the Plan. For the same reason, the Commission does not agree that non-SRO members should have greater voting power than that proposed by the Commission. The Commission continues to believe that broader representation than currently exists on the Equity Data Plans would help to ensure that decisions relating to operations facilitate the regulatory goals of the New Consolidated Data Plan, and the Commission believes that providing non-SROs a vote for the first time furthers this goal. Increased representation, however, must be balanced against the SROs’ statutory regulatory responsibilities under the Act and Rule 608 of Regulation NMS with respect to operation of the Plans. The Commission believes that the distribution of voting power, as proposed, appropriately strikes this balance 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 their regulatory responsibilities.288 Therefore, the Commission disagrees with the commenters’ calls for greater non-SRO voting power than that proposed. Nonetheless, the Commission believes that permitting non-SRO stakeholders to have voting power on the New Consolidated Data Plan should facilitate discussion and encourage the SROs to more carefully consider the anticipated effects of plan action. Moreover, in the Commission’s view, this approach represents a logical step in the evolution 287 The augmented majority vote would allow a measure to pass with support of only the SRO votes on the operating committee, which would satisfy the requirements of a supermajority vote of the operating committee and a majority of the SRO votes. 288 15 U.S.C. 78k–1 and 17 CFR 242.608. VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 of NMS plan governance.289 As noted in the Proposed Order, the Commission explained in Regulation NMS that the creation of advisory committees to the Equity Data Plans was ‘‘a useful first step toward improving the responsiveness of Plan participants and the efficiency of Plan operations.’’290 And in adopting Regulation NMS, the Commission stated that it would ‘‘continue to monitor and evaluate Plan developments to determine whether any further action is warranted.’’ 291 The Commission believes that further action, in the form of the governance measures discussed in this Order, including the exchange group voting allocation, the provision of voting power to non-SROs, and the augmented majority voting requirement, is warranted at this time and should help to ensure that New Consolidated Data Plan decisions and action relating to consolidated market data result in improved governance that will benefit the equity markets as a whole. D. The Need for an Independent Plan Administrator In the Proposed Order, the Commission included a requirement that the New Consolidated Data Plan use an independent plan administrator that could 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.292 Commenters reflecting a broad range of market participants (including one exchange) express support for the Commission’s requirement of an independent plan administrator.293 In contrast, two 289 See 290 Id., Regulation NMS Release, supra note 7. 70 FR at 37561. 291 Id. 292 See Proposed Order, supra note 4, 85 FR at 2187. NYSE and Nasdaq currently act as administrators of the Equity Data Plans. Under the independence provision, NYSE and Nasdaq would be excluded from operating as plan administrators, although they would not be excluded from continuing to act as SIPs. 293 See, e.g., T. Rowe Price Letter, supra note 164, at 2; Refinitiv Letter, supra note 80, at 2; ICI Letter, supra note 78, at 5; Wellington Letter, supra note 77, at 2; MFA/AIMA Letter, supra note 142, at 5; Bloomberg Letter, supra note 40, at 2; State Street Letter, supra note 76, at 2; Fidelity Letter, supra note 80, at 3; Schwab Letter, supra note 74 at 6; Royal Bank of Canada Letter, supra note 189, at 4; MEMX Letter, supra note 80, at 5; Clearpool Letter, supra note 40, at 5; Citi Letter, supra note 85, at 4; IEX Letter, supra note 113, at 3. One commenter recommends that the independence requirement also apply to the SIP processors for all the same reasons. See Schwab Letter, supra note 74, at 6. The Commission acknowledges that independence of the plan processors may mitigate some concerns regarding conflicts of interest. In this regard, the Proposed Order, as recognized by this commenter, requires the operating committee to review the performance of the plan processors and ensure the PO 00000 Frm 00022 Fmt 4701 Sfmt 4703 commenters question the rationale for requiring an independent plan administrator and express concern with the potential burdens imposed by changing the existing framework, in which plan administrators are SROaffiliated.294 One commenter states that the Proposed Order failed to identify ‘‘any shortcomings or problems’’ in the current approach and highlights the existence of information control policies and procedures that are designed to safeguard the confidential information handled by the plan administrator.295 Another commenter requests clarification on the scope of activity that would disqualify an entity from acting as the independent plan administrator.296 This commenter believes that the prohibition on an entity offering its own proprietary market data products should be ‘‘expressly limited to data products that compete with the SIP—in other words, data with content that includes NMS stock quotations or transactions.’’ 297 The Commission continues to believe that, as stated in the Proposed Order, an entity that acts as the administrator while also offering for sale its own proprietary data products faces a substantial, inherent conflict of interest, because it would have access to sensitive SIP customer information of significant commercial value.298 As discussed further below, the Commission has separately approved amendments to the Equity Data Plans establishing policies, as modified by the Commission, designed to address conflicts of interest and protect confidential information from misuse.299 The Commission continues public reporting of plan processor’s performance and other metrics and information about the plan processors. Furthermore, as discussed above, the Commission has proposed rule amendments related to the SIP processors in the Infrastructure Proposal. See supra Section II.B.2(b). 294 See Nasdaq Letter, supra note 45, at 13; NYSE Letter, supra note 49, at 20. Nasdaq also expresses support for a single administrator and processor for the SIPs. See Nasdaq Letter, supra note 45, at 13. Nasdaq believes that the Commission should consider a single consolidated tape for all exchangelisted equities. See id. As discussed above, this Order is taking an incremental approach to the governance issues related to the Equity Data Plans and is at this time not addressing the production, aggregation, or distribution of consolidated market data. 295 See NYSE Letter, supra note 49, at 20. Similarly, Nasdaq states that the Commission cited ‘‘no actual evidence as justification for impairing the functioning of the administrator, only ‘concerns.’’’ See Nasdaq Letter, supra note 45, at 13. 296 See FINRA Letter, supra note 275. 297 Id. 298 See Proposed Order, supra note 4, 85 FR at 2183. 299 See infra Section II.E.1 and 2. The new conflicts of interest policy will require the administrators of the Equity Data Plans to disclose E:\FR\FM\13MYN2.SGM 13MYN2 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 to believe that the conflicts of interest faced by a non-independent administrator are so great that these conflicts cannot be sufficiently mitigated. Unlike the exchanges, an independent plan administrator would not have as a competing objective maximizing the profitability of its own proprietary data products.300 The Commission agrees that, as one commenter states, ‘‘[t]rue separation or independence is necessary to mitigate the conflicts of controlling the SIP data products while selling proprietary products.’’ 301 Similarly, another commenter states that an independent administrator ‘‘would eliminate any potential conflict of interest and allow the administrator to focus efforts on improved technology and reduced latency.’’ 302 The Commission agrees, as the independence requirement would separate the independent administrator from an exchange’s commercial interests and allow it to focus on the regulatory objectives of Section 11A of the Act. Additionally, because the relevant conflict of interest for an administrator would arise from administration of the SIPs while selling overlapping proprietary data products, the Commission believes that the independence requirement for the administrator must prohibit an entity from serving as administrator of the New Consolidated Data Plan if it is owned or controlled by a corporate entity that, either directly or via another subsidiary, offers for sale its own proprietary market data products for NMS stocks. As stated in the Proposed Order, Participants and Participant representatives have been privy to confidential 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 any employment or affiliation with an SRO and a narrative description of functions performed. See Conflicts of Interest Approval Orders, infra note 326. After the Participants have transitioned to the New Consolidated Data Plan and adopted a conflicts of interest policy as outlined in the Conflicts of Interest Approval Orders, the Commission believes that the administrator’s disclosure requirements would continue to provide transparency with respect to the independence of the plan administrator. 300 See, e.g., Clearpool Letter, supra note 40, at 5; ICI Letter, supra note 78, at 5; IEX Letter, supra note 113, at 5; Fidelity Letter, supra note 80, at 3; MFA/ AIMA Letter, supra note 142, at 5; Schwab Letter, supra note 74, at 6; State Street Letter, supra note 76, at 2; T. Rowe Price Letter, supra note 164, at 2. 301 Schwab Letter, supra note 74, at 6. 302 Refinitiv Letter, supra note 80, at 2. VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 results.303 A particular area of heightened sensitivity with an exchange-affiliated administrator relates to the audit function. As one commenter points out, ‘‘the audit function creates special conflicts when it is managed by an affiliate of a Participant (which is presently the case for all the [Equity Data] Plans) because it is directly involved in raising revenue for the [P]lans, which benefits the affiliated Participants directly through distributions of Plan revenue (almost all revenue collected is distributed to Participants).’’ 304 This commenter further states that ‘‘there is the potential for the audit function to be used to advance the business objectives of one or more Participants, in cases where they compete in one or more businesses with an entity that is the subject of an audit.’’ 305 The Commission believes that the proposed independent plan administrator requirement would address concerns regarding the potential use of SIP subscriber audit data to pursue commercial interests outside of the New Consolidated Data Plan. However, two commenters state that employing an independent administrator would disrupt the administration of the Plans.306 One commenter states that the independence requirement ‘‘may impair the eventual functioning of the administrator as having separate firms responsible for administration and processing may slow coordination and response time during a possible market event. ’’307 Another commenter emphasizes that the current SRO-affiliated administrators have specialized experience, established relationships with SIP customers, and familiarity with the practices and systems of the SIP.308 This commenter states that the SROs would incur costs in the process of identifying, negotiating 303 See Proposed Order, supra note 4, 85 FR at 2185. 304 IEX Letter, supra note 113, at 4–5. 305 IEX Letter, supra note 113, at 5. This commenter recommends that the Commission specify that the New Consolidated Data Plan ‘‘require strict independence of the audit function.’’ See id. Under the terms of the proposal, the independent plan administrator would help to ensure that the audit process is fair and reasonable. Another commenter states that confidential information received by exchanges under the Equity Data Plans may have been used to further the exchanges’ commercial interests. See Healthy Markets Letter, supra note 40, at 20. 306 See Nasdaq Letter, supra note 45, at 13; NYSE Letter, supra note 49, at 20. One commenter states that the Commission failed to consider in the Proposed Order the potential disruption to the administration of the Equity Data Plans by switching to an independent administrator. See NYSE Letter, supra note 49, at 20. 307 Nasdaq Letter, supra note 45, at 13. 308 See NYSE Letter, supra note 49, at 20. PO 00000 Frm 00023 Fmt 4701 Sfmt 4703 28723 with, and hiring a new administrator.309 This commenter also states that ‘‘[a]ll of that experience and shared institutional knowledge would be lost in a transition to an unaffiliated [a]dministrator, and SIP customers would have to shoulder the burden of familiarizing the new Administrator with their practices and systems.’’ 310 The commenter further states that the Proposed Order ‘‘failed to consider substantial benefits enjoyed by SIP customers as a result of the Administrators’ affiliation with SROs [and that] . . . [c]ustomers generally appreciate that administrators can concurrently audit the customer’s use of the SRO’s proprietary data feeds when auditing the customer’s SIP usage . . . . ’’ 311 Finally, this commenter asserts that under the independent plan administrator framework, each SIP customer that is also a customer of NYSE and Nasdaq proprietary data feeds would be audited three times—by the new independent plan administrator, by NYSE, and Nasdaq— instead of only by NYSE and Nasdaq.312 The Commission acknowledges that the current plan administrators’ significant experience and familiarity with the SIPs’ practices and systems facilitate the continuity of the administration of the SIPs, and that there will be a transition period with additional costs to onboard the new independent plan administrator, including system infrastructure (e.g., network connectivity to exchanges, hosting, and database upgrades) and human capital (e.g., contract management, hiring personnel, service support, and consolidating policies). In addition, depending on the level of experience and knowledge in the operation of the SIPs, the Commission anticipates that there will be a transition period for the new independent administrator, as would be anticipated in any new role involving the New Consolidated Data Plan. On balance, however, the Commission believes that eliminating the conflict of interest justifies the requirement. Other NMS plans, moreover, have the roles of administrator and processor performed by different entities.313 The Commission also disagrees with one commenter’s statement that employing separate firms responsible for administration and processing would slow coordination and response time to market events 309 See 310 Id. id. at 19. at 20. 311 Id. 312 See id. 313 Under the OPRA Plan, for example, Cboe Exchange, Inc. serves as the plan administrator and the Securities Industry Automation Corporation (‘‘SIAC’’), an NYSE affiliate, serves as the processor. E:\FR\FM\13MYN2.SGM 13MYN2 jbell on DSKJLSW7X2PROD with NOTICES2 28724 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices because the roles of administrator and processor are functionally different, as prescribed by the Plans, and operate independently of one another (e.g., do not share the same personnel, shared systems, monitoring systems or databases). The Commission acknowledges commenters’ concerns regarding the transition to an independent administrator, including the burden of familiarizing the new administrator with subscriber practices and systems. With respect to one commenter’s statement regarding the benefits of established relationships and familiarity with SIP customers and their systems, the Commission understands that administrators receive confidential and competitively sensitive information from broker-dealers about their products, systems, and operations, when engaging in the contracting process. This access to information and familiarity of SIP customers is the exact concern raised by commenters, some representing those same SIP customers, regarding conflicts of interest in the current administrator framework.314 For example, the Commission understands that the administrators have significant latitude with respect to the information they may request during contract approval process for use of SIP market data, some of which may be highly sensitive. With respect to concerns regarding loss of expertise and shared institutional knowledge, the Commission believes this expertise would be leveraged in a different manner under the New Consolidated Data Plan because the Participants currently acting as administrators would continue to be active members of the operating committee and could advise and facilitate the onboarding process of the new administrator. As stated in the Proposed Order, the New Consolidated Data Plan shall provide for the orderly transition of functions and responsibilities from the three existing Equity Data Plans, which generally would include administrator functions, thereby helping to ameliorate the risk for disruption to the SIP administration process. Furthermore, the Commission highlights that any industry experience loss would be specific to the previous administrative policies and procedures under the Equity Data Plans instead of the New Consolidated Data Plan (e.g., two auditing teams under the Equity Data Plans instead of only one team under the New Consolidated Data Plan). 314 See supra notes 304–305 and accompanying discussion. VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 The Commission disagrees with the commenter’s assertion that SIP customers generally appreciate that administrators can concurrently audit the customer’s use of the SRO’s proprietary data feeds when auditing the customer’s SIP usage. In 2018, during the Commission’s Division of Trading and Markets Roundtable on Market Data and Market Access (‘‘Market Data Roundtable’’), panelists stated there are substantial burdens associated with the Equity Data Plans’ audits of their firms’ subscriber data usage and fee payment.315 The Commission also understands that firms must engage in a burdensome approval process with the administrators each time the firms add a new market data product and also upon the request of an administrator at any time.316 The Commission believes that such burdens identified by these commenters reflect the sort of concerns about the fairness and reasonableness of the audit and contract administration process that the new independent plan administrator is intended to address by completely separating the New Consolidated Data Plan’s audit function from the commercial interests of members of the operating committee and their employers and affiliates. Additionally, as discussed above, a single New Consolidated Data Plan would provide the foundation for the application of consistent policies and procedures, which generally would include the audit function.317 Furthermore, the Commission acknowledges the commenter’s example that a joint SIP and NYSE/Nasdaq proprietary data feed customer would be audited three times under the proposal; however, the Commission believes that a consolidated SIP audit under one independent administrator would promote independence of the audit staff 315 See, e.g., Transcript of Day One, Market Data Roundtable, 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.’’); Transcript of Day Two, Market Data Roundtable, 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. . . .’’). 316 For example, an administrator may view something on a firm’s website and seek further explanation from the firm. 317 See supra Section II.B.4 (describing the need for a single New Consolidated Data Plan). PO 00000 Frm 00024 Fmt 4701 Sfmt 4703 of the New Consolidated Data Plan from exchange personnel and directly address concerns related to cross-selling exchange proprietary data products for NMS stocks to the same market participants that are SIP subscribers. The Commission believes that, despite the implementation costs of selecting an independent administrator, it is a necessary step to ensure that the Plans further the objectives of Section 11A. Further, based on its oversight experience and as described by commenters, the Commission believes that these costs are justified because the inherent conflicts of interest identified by the Commission, whereby an entity acts as a plan administrator while also offering its own competing products to the SIPs, either directly or via a subsidiary, raises significant concerns regarding access to confidential subscriber information. Access to such confidential subscriber information and its use for purposes outside the scope of the Plans by an SRO-affiliated administrator undermines the fair administration of equity market data in the public interest. Additionally, two commenters argue that the independent plan administrator requirement would constrain the administrator selection process.318 One of these commenters asserts that the independence requirement would eliminate all firms that have experience in managing a SIP and ‘‘necessarily diminish the quality of the competition among potential administrators.’’ 319 Rather than adopt the independence requirement, this commenter states that the operating committee tasked with selecting an administrator is in the best position to weigh the conflicts of interest issues against the risk of hiring an administrator without experience.320 The Commission disagrees with commenters’ concerns that the independence requirement will prevent the New Consolidated Data Plan from employing an administrator capable of managing the SIPs and inappropriately constrain the selection process.321 The Commission believes that there is a broad range of financial service firms, unaffiliated with an SRO, with specialized capabilities to oversee market data administrative functions, such as licensing, billing, contract administration and client relationship management, and record keeping. Finally, the Commission disagrees with 318 See Nasdaq Letter, supra note 45, at 13; NYSE Letter, supra note 49, at 20. 319 Nasdaq Letter, supra note 45, at 13. 320 See id. 321 See Nasdaq Letter, supra note 45, at 13; NYSE Letter, supra note 49, at 20. E:\FR\FM\13MYN2.SGM 13MYN2 jbell on DSKJLSW7X2PROD with NOTICES2 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices one commenter’s statement that the operating committee is currently in the best position to weigh administrator conflicts of interest issues in selecting an administrator because members of the operating committee would face their own conflict of interest concerns related to any affiliated bidders. Rather, the Commission believes that the independence requirement will ameliorate the burden on the operating committee of deliberating over administrator’s conflicts of interest concerns by eliminating conflicted parties at the outset. One commenter also argues that the termination of contracts of the existing Equity Data Plans’ administrators as a result of the transition to a single New Consolidated Data Plan would result in an unconstitutional taking in violation of the Fifth Amendment of the U.S. Constitution.322 This commenter believes that the Commission should mandate in the Proposed Order that ‘‘no action may be taken that alters the administrators’ or processors’ rights under current contractual provisions.’’ 323 The Commission disagrees with the commenter’s argument that the Commission’s proposal would constitute a Fifth Amendment ‘‘taking.’’ As discussed in the Proposed Order, 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 commenter fails to explain how that legally authorized transition in this highly regulated field could upset a protected property interest for purposes of the Fifth Amendment’s takings clause. Moreover, the operation of the Equity Data Plans is a fundamental component of the national market system, and Congress has given the Commission broad authority to regulate that system. Indeed, the role of administrator exists solely in response to the regulatory requirements of Section 11A of the Act and Regulation NMS. Here, the Commission has determined that it is appropriate, in response to changes in the market, to alter the existing regulatory structure pursuant to this authority. In a highly regulated industry such as the national market system for securities, the Commission does not believe that such a change impermissibly interferes with an 322 See 323 Id. Nasdaq Letter, supra note 45, at 13–14. at 14. VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 administrator’s reasonable investmentbacked expectations.324 E. New Consolidated Data Plan Policies and Procedures 1. Conflicts of Interest Policy The Proposed Order provided that the New Consolidated Data Plan shall include provisions designed to address the conflicts of interest of SRO members and non-SRO members. On January 8, 2020, the Commission issued for notice and comment the Participants’ proposal to amend the Equity Data Plans to make mandatory the current voluntary conflicts-of-interest disclosure regime.325 Simultaneously with this Order, the Commission is approving the Conflicts of Interest Amendments to the Plans, as modified by the Commission.326 The Commission received a number of comments in response to the Proposed Order that address the appropriate scope of conflicts-of-interest policies for the New Consolidated Data Plan, including some comments directly referring to the Conflicts of Interest Amendments. Most commenters acknowledge the conflicts that exchanges face between their regulatory obligations to produce and provide core data and their commercial interests, and support including a robust conflicts-ofinterest policy in the New Consolidated Data Plan.327 However, one commenter states that it believes that the Conflicts of Interest Amendments reduce or eliminate many of the concerns that the Commission raised in the Proposed Order about the governance of the Equity Data Plans, and, in particular, potential conflicts of interests.328 The Commission agrees with the commenters that the Conflicts of Interest Amendments, as proposed, attempt to address some of the conflicts inherent in the current market data structure where 324 See, e.g., Ruckleshaus v. Monsanto Co., 467 U.S. 986, 1005 (1984); District Intown Properties Ltd. P’ship v. District of Columbia, 198 F.3d 874, 884 (D.C. Cir. 1999). 325 See Securities Exchange Act Release Nos. 87907 (Jan. 8, 2020), 85 FR 2193 (Jan. 14, 2020) and 87908 (Jan. 8, 2020), 85 FR 2202 (Jan. 14, 2020) (together, the ‘‘Conflicts of Interest Amendments’’). 326 See Securities Exchange Act Release Nos. 88823, 88824 (May 6, 2020) (‘‘Conflicts of Interest Approval Orders’’). 327 See CII Letter, supra note 74, at 6; T. Rowe Price Letter, supra note 164, at 2; Refinitiv Letter, supra note 80, at 3; MEMX Letter, supra note 80, at 6; MFA/AIMA Letter, supra note 142, at 5; SIFMA Letter, supra note, 13 at 6; Citi Letter, supra note 85, at 4; Clearpool Letter, supra note 40, at 5; IEX Letter, supra note 113, at 4–5. 328 See NYSE Letter, supra note 49, at 10. See also Cboe Letter, supra note 114, at 4 (stating that the Conflicts of Interest Amendments would constitute meaningful improvements to Equity Data Plan governance). PO 00000 Frm 00025 Fmt 4701 Sfmt 4703 28725 exchanges can offer proprietary market data products while also sharing responsibility for the public SIP data stream. In fact, the Commission believes that full disclosure of all material facts necessary for market participants and the public to understand the potential conflicts of interest is one important approach to dealing with those potential conflicts. As the Commission states today in its separate approval order, detailed, clear, and meaningful disclosures that provide insight into otherwise non-transparent structures and operations can raise awareness of potential conflicts of interest inherent in the current equity market data structure and increased access to information can facilitate public confidence in Plan operations.329 However, the Commission believes that broader market developments, such as exchanges converting from being mutually owned to demutualized entities that serve their shareholders, and the emergence of exchange groups, have heightened the potential for competing interests to affect the governance of the Equity Data Plans to a degree that simply cannot be addressed solely by enhanced disclosures.330 As such, the Commission believes that the Conflicts of Interest Amendments are by themselves insufficient to address these issues. Some of the exchange groups raise concerns that non-SRO members of the New Consolidated Data Plan’s operating committee would favor their own business interests, and that the Proposed Order included neither obligations on non-SRO members nor a mechanism to enforce compliance with the terms of the New Consolidated Data Plan.331 Another commenter states it would not object to a provision in the New Consolidated Data Plan explicitly providing that non-SRO members have a duty to act in good faith and in the public interest in furtherance of the purposes of Section 11A of the Act.332 The Commission recognizes that nonSRO members also face conflicts of interest as both voting members of the operating committee and employees of 329 See Conflicts of Interest Approval Orders, supra note 326, at 6. 330 See Proposed Order, supra note 4, 85 FR at 2173–75. 331 See NYSE Letter, supra note 49, at 15; Nasdaq Letter, supra note 45, at 8–9 (arguing that the Proposed Order does not impose any obligations on non-SRO members of the New Consolidated Data Plan, nor even a clear means to enforce their compliance with the terms of the New Consolidated Data Plan); Cboe Letter, supra note 114, at 7–9 (stating that it is critical that the Commission take steps to ensure that it can exercise appropriate oversight over any non-SRO members). 332 See ICI Letter, supra note 78, at 4. E:\FR\FM\13MYN2.SGM 13MYN2 28726 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices businesses that utilize core data or proprietary data feeds. Thus, the Commission believes that the New Consolidated Data Plan should include conflicts-of-interest provisions for both SRO and non-SRO representatives of the operating committee, and as approved, the Conflicts of Interest Amendments will apply equally to SRO and non-SRO representatives. The Commission believes that each of the disclosing parties will be required to disclose conflicts of interest, and will be guided by the goals of the New Consolidated Data Plan 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.’’ 333 Additionally, because the recusal process outlined in the Conflicts of Interest Amendments as approved is applicable not only to nonSRO members, but to all disclosing parties, it is designed to address these conflicts-of-interest concerns as well. As stated in the Conflicts of Interest Approval Orders, the Commission believes that those policies, as approved, will enhance the governance of the existing Equity Data Plans and would similarly help the New Consolidated Data Plan address the conflicts of interest that its expanded set of operating committee members would face. The Commission therefore orders the SROs to incorporate into the New Consolidated Data Plan provisions consistent with the Conflicts of Interest Amendments as modified by the Commission. jbell on DSKJLSW7X2PROD with NOTICES2 2. Confidentiality Policy The Proposed Order provided that the New Consolidated Data Plan shall include provisions designed to protect confidential and proprietary information from misuse. On January 8, 2020, the Commission issued the notice of the Equity Data Plans’ proposal to adopt a confidentiality policy to provide guidelines for the operating committee and the advisory committee of the Plans, and all subcommittees thereof, regarding the confidentiality of any data or information generated, accessed, or transmitted to the operating committee, as well as discussions occurring at a meeting of the operating committee or any subcommittee.334 333 15 U.S.C. 78k–1. Securities Exchange Act Release Nos. 87909 (Jan. 8, 2020), 85 FR 2207 (Jan. 14, 2020) and 87910 (Jan. 8, 2020), 85 FR 2212 (Jan. 14, 2020) (together, the ‘‘Confidentiality Policy Amendments’’). 334 See VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 The Commission received a number of comments in response to the Proposed Order that address the appropriate confidentiality policy for the New Consolidated Data Plan, including comments that addressed the Confidentiality Policy Amendments submitted by the Participants to the Equity Data Plans. Most commenters support a robust confidentiality policy in the New Consolidated Data Plan that would apply to both SRO and non-SRO members of the operating committee.335 One commenter believes that the Confidentiality Policy Amendments reduced or eliminated many of the concerns expressed in the Proposed Order.336 Another commenter states that the proposed Confidentiality Policy Amendments would improve the handling of confidential information and are designed to both protect confidential information from misuse and facilitate the sharing of confidential information with the advisory committee.337 In the Proposed Order, the Commission stated its concerns about the possibility of an exchange or its representative obtaining confidential data subscriber information of potentially significant commercial value, as they are privy to information about core data usage, the SIPs’ customer lists, financial information, and subscriber audit results via their position on the operating committee.338 The conflicts resulting from such access could influence decisions as to the Equity Data Plans’ operations and thereby impede their ability to achieve the goals of the Plans 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.’’ Thus, the Commission agrees with the commenters that the Confidentiality Policy Amendments, as initially proposed, are a necessary first step towards implementing a policy to address the commercial use of confidential or proprietary information. Another commenter recommends that any adopted confidentiality policy 335 See Refinitiv Letter, supra note 80, at 3; Wellington Management Letter, supra note 77, at 2; MEMX Letter, supra note 80, at 6; MFA/AIMA Letter, supra note 142 at 5; SIFMA Letter, supra note 13, at 6; Royal Bank of Canada Letter, supra note 189, at 4; Clearpool Letter, supra note 40, at 5; Citi Letter, supra note 85, at 4. 336 See NYSE Letter, supra note 49, at 10. 337 See Cboe Letter, supra note 114, at 5. 338 See Proposed Order, supra note 4, 85 FR at 2185. PO 00000 Frm 00026 Fmt 4701 Sfmt 4703 included in the New Consolidated Data Plan be sufficiently robust and implemented in a manner to ensure that topics in any executive session are appropriately handled in a secure manner by SRO members, so that nonSRO members may participate in executive sessions.339 Simultaneously with the issuance of this Order, the Commission is approving the Confidentiality Policy Amendments to the Equity Data Plans, as modified by the Commission.340 In approving the Confidentiality Policy Amendments, the Commission modified a provision so that classification of information would be based on the content and sensitivity of the information, rather than on whether it is shared in an executive session, resulting in a more vigorous confidentiality policy.341 The Commission believes that the Confidentiality Policy Amendments, as approved by the Commission, will enhance the governance of the existing Equity Data Plans and would similarly help the New Consolidated Data Plan appropriately identify and treat confidential information. The Commission therefore orders the SROs to incorporate into the New Consolidated Data Plan, provisions consistent with the Confidentiality Policy Amendments as modified by the Commission. 3. Executive Session Policy The Proposed Order provided 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 exclude non-SRO members.342 The Commission further proposed 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 subsequently approved by a majority vote of the SRO members of the operating committee.343 The Commission received several comments regarding the proposed executive session policy.344 Most 339 See TD Ameritrade Letter, supra note 74, at 7– 8. 340 See Securities Exchange Act Release Nos. 88825, 88826 (May 6, 2020) (‘‘Confidentiality Policy Approval Orders’’). 341 See Confidentiality Policy Approval Order, supra note 340. 342 See Proposed Order, supra note 4, 85 FR at 2184–85. 343 See id. at 2185. 344 See NYSE Letter, supra note 49; TD Ameritrade Letter, supra note 74; Virtu Letter, supra note 80; Refinitiv Letter, supra note 80; MEMX Letter, supra note 80; Cboe Letter, supra note 114; Royal Bank of Canada Letter, supra note 189; Clearpool Letter, supra note 40. E:\FR\FM\13MYN2.SGM 13MYN2 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices commenters were supportive of the Commission’s proposal, reiterating that executive sessions should be severely limited to certain circumstances.345 However, one commenter believes that the executive session policy should be limited to ‘‘necessary’’ circumstances, and not merely ‘‘appropriate’’ as proposed by the Commission, and states that coupled with the Confidentiality Policy Amendments, the need for executive sessions should be minimal.346 The exchange groups contend that the Equity Data Plans’ operating committee had already limited the use of executive sessions and implemented a process of disclosing potential topics for executive sessions in advance and voting on them in the presence of the advisory committee.347 One commenter suggests that, instead of approving an executive session by a majority vote of the SRO members, an executive session request should be approved by the augmented majority voting procedures (as discussed above) and the votes should be reflected in the meeting minutes.348 Specifically, the commenter is concerned that limiting non-SRO members’ voting rights, in determining whether to move into executive session or not, could potentially cause topics outside the stated policy to be approved for executive session. The commenter further recommends that the policy should provide a process by which decisions to close meetings can be challenged by any operating committee member with cause.349 Another commenter proposes that non-SRO members should be able to participate, but not vote, in executive sessions, arguing that non-SRO participation would still allow SROs to effect solely SRO business, while providing non-SRO members with the necessary context to inform their positions.350 Regarding non-SRO member participation in executive sessions, the commenter further suggests that one non-SRO member voted on by peers be permitted to participate without a vote in the executive session, or, alternatively, that a non-conflicted legal counsel be in attendance.351 jbell on DSKJLSW7X2PROD with NOTICES2 345 See TD Ameritrade Letter, supra note 74, at 7; Virtu Letter, supra note 80, at 2; MEMX Letter, supra note 80, at 7; Clearpool Letter, supra note 40, at 5; Refintiv Letter, supra note 80, at 3. 346 See Royal Bank of Canada Letter, supra note 189, at 3. 347 See NYSE Letter, supra note 49, at 8; Cboe Letter, supra note 114, at 5. 348 See TD Ameritrade Letter, supra note 74, at 7. 349 See id. at 8. 350 See TD Ameritrade Letter, supra note 74, at 8. 351 Id. VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 28727 fairness and usefulness of the form and content of that information.’’ 356 Several commenters support the operating committee’s responsibility to select, oversee, specify the role and responsibilities of, and evaluate the performance of, an independent plan administrator, plan processors, and auditor, and other professional service providers.357 Commenters also express support for the operating committee’s role to review the performance of the plan processors, and ensure the public reporting of plan processors’ performance and other metrics and information about the plan processors and believed it would allow industry participants to provide meaningful input to the operating committee and the Commission.358 However, one commenter contends that the Equity Data Plan administrators and processors operate pursuant to service contracts and that terminating the contracts without regard to the administrators’ or processors’ rights would violate the Fifth Amendment prohibition against takings without just compensation. The commenter asserts that the Commission should mandate that the operating committee not take any action that would alter the administrators’ or processors’ rights under their current contractual provisions.359 The Commission does not agree that 4. Responsibilities of the Operating the Proposed Order would mandate the Committee termination of the current contract with the processors, because the Proposed The Proposed Order set forth several Order contemplated that the New responsibilities of the operating committee under the New Consolidated Consolidated Data Plan may incorporate Data Plan.354 The Commission received the current operational provisions of the Equity Data Plans and that therefore the several comments regarding the role of existing processors for the Equity Data the operating committee, with most Plans would become the processors for commenters supporting the enunciated functions.355 One commenter agrees that the New Consolidated Data Plan. Thus, the New Consolidated Data Plan should the Proposed Order would not impermissibly interfere with a protected make explicit that the operating property interest and does not represent committee is responsible for taking a ‘‘taking’’ within the meaning of the action to meet the statutory goals of assuring the ‘‘prompt, accurate, reliable, Fifth Amendment. Indeed, the Proposed Order should not result in any economic and fair collection, processing, harm to the processors. Currently under distribution, publication of information the Equity Data Plans, the SIAC is the with respect to quotations for and transactions in NMS stock and the 356 As reflected in the Proposed Order,352 the Commission recognizes that there may be circumstances in which deliberations by the SROs alone may be appropriate. Because this Order provides that the New Consolidated Data Plan shall confine executive sessions 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 Commission believes that it is appropriate that the request to enter into an executive session require a majority vote of the SRO members of the operating committee. The Commission further believes that requiring only a majority vote of the SROs is balanced by the requirement that a request to enter into an executive session be included on a written agenda, along with a clearly stated rationale for each matter to be discussed.353 Non-SROs, as voting members of the operating committee, would have access to this agenda and be present for the vote to enter into executive session, providing an opportunity to discuss or inquire about the basis for the requested session. 352 See Proposed Order, supra note 4, 85 FR at 2184–85. 353 See id. at 2185. 354 See id. at 2186–87. 355 See Clearpool Letter, supra note 40, at 5; Letter from John L. Thornton, Co-Chair, Hal S. Scott, President, and R. Glenn Hubbard, Co-Chair, Committee on Capital Markets Regulation (Feb. 28, 2020), at 6 (‘‘Capital Markets Letter’’); IEX Letter, supra note 113, at 3–4; Virtu Letter, supra note 80, at 2; MEMX Letter, supra note 80, at 5–6; TD Ameritrade Letter, supra note 74, at 6–7; Bloomberg Letter, supra note 40, at 3–5; MFA/AIMA Letter, supra note 142, at 4–5. PO 00000 Frm 00027 Fmt 4701 Sfmt 4703 See IEX Letter, supra note 113, at 3. See also Virtu Letter, supra note 80, at 2 (supporting implementation of governance reforms and mandating new policies and procedures to ensure transparency and accountability for actions taken by the operating committee); TD Ameritrade Letter, supra note 74, at 8 (supporting adoption and inclusion of all other provisions of the Equity Data Plans necessary for the operation and oversight of the SIPs under the New Consolidated Data Plan). 357 See Clearpool Letter, supra note 40, at 5; MEMX Letter, supra note 80, at 5–6. 358 See Capital Markets Letter, supra note 355, at 6; Clearpool Letter, supra note 40, at 5; MEMX Letter, supra note 80, at 6. 359 See Nasdaq Letter, supra note 45, at 14. E:\FR\FM\13MYN2.SGM 13MYN2 28728 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 exclusive processor for Tapes A and B and Nasdaq is the exclusive processor for Tape C. While the Commission is ordering a single New Consolidated Data Plan, it is not imposing requirements or taking a position as to whether the three Tapes will continue to exist. Upon commencement of the New Consolidated Data Plan, the operating committee may determine to select new processors, however, such selection will be subject to the augmented voting structure and subsequent review, pursuant to Rule 608, by the Commission. In any event, even if contractual arrangements with processors would have to be altered, no commenter has presented any identifiable and protected property interest. Nor has any commenter explained how such arrangements would alter any reasonable investment-backed expectations in this highly regulated field. The Commission also received comments regarding the proposed requirement about terms and fees for the distribution, transmission, and aggregation of core data.360 Some commenters recommend that the operating committee clarify the terms ‘‘fair and reasonable.’’ 361 Commenters alternatively suggest that the Commission use its rulemaking authority to codify its ‘‘Staff Guidance on SRO Rule Filings Relating to Fees’’ to assist in the review of prices or that the Commission introduce additional rulemaking to include clear and specific cost-based requirements to support SIP data fees.362 One commenter argues that the current SIP fees have already gone through the required regulatory review process and as such, should remain in place unless the new operating committee determines to change them.363 As the Commission stated in the Proposed Order, the existing Equity Data Plans will continue to be responsible for the consolidation and dissemination of SIP data and the fees for SIP data will continue to be governed by the provisions of the Equity 360 See Capital Markets Letter, supra note 355, at 6 (stating that cost transparency is crucial to ensuring that consolidated market data fees are ‘‘not unreasonably discriminatory’’ and ‘‘fair and reasonable’’); MFA/AIMA Letter, supra note 142, at 4 (stating that the New Consolidated Data Plan should make clear that fees should be related to the cost of production, aggregation and distribution, rather than to user value). 361 See TD Ameritrade Letter, supra note 74, at 6; Bloomberg Letter, supra note 40, at 4–5; NYSE Letter, supra note 49, at 11. 362 See TD Ameritrade Letter, supra note 74, at 6– 7; NYSE Letter, supra note 49, at 11. 363 See Cboe Letter, supra note 114, at 11. VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 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 become effective.364 Thus, the Equity Data Plans will continue to function, with their existing fees, until those Plans are decommissioned and are no longer responsible for the consolidation and dissemination of equity market data. This Order creates a new NMS plan for equity market data, and the Commission believes that any new SIP data fees, including consideration of what would be ‘‘fair and reasonable,’’ should be discussed among and developed by the new operating committee and would need to be voted and approved by an augmented vote pursuant to the terms of the New Consolidated Data Plan. Consistent with the requirements of Rule 608, all of the terms of the New Consolidated Data Plan, both those filed as part of the initial plan itself, or those submitted as later amendments to address products or fees, would be subject to public notice and comment and Commission review. The Commission also received comments regarding the operating committee’s responsibility to design 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.365 One commenter recommends that the Commission revisit the current revenue allocation formula now, with the goal of arriving at a new formula that better rewards displayed liquidity resulting in price discovery.366 Another commenter concurs, stating that the revenue allocation formula should be modified to reward displayed quotes where investors receive an execution.367 The Commission believes that the SROs as operators of the SIPs are well suited to determine how the revenues are distributed among the SROs. Consistent with any other plan actions, once the operating committee determines a fair and reasonable allocation and files a proposed amendment with the Commission, the Commission will publish such an amendment for notice and comment pursuant to Rule 608, and will have an opportunity to review the provisions, consider the operating committee’s 364 See Proposed Order, supra note 4, 85 FR at 2186. 365 See NYSE Letter, supra note 49, at 11; MEMX Letter, supra note 80, at 6. 366 See NYSE Letter, supra note 49, at 11. 367 See Nasdaq Letter, supra note 45, at 4–5. PO 00000 Frm 00028 Fmt 4701 Sfmt 4703 rationale, and at that time make a determination as to whether the proposal is fair and reasonable. F. Transition From Equity Data Plans to New Consolidated Data Plan The Proposed Order stated that 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 the dissemination of, and fees for, SIP data 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 has been approved.368 The Commission received several comments on the proposed transition to the New Consolidated Data Plan.369 One commenter argues that the proposed allocation of 90 days for the SROs to file the New Consolidated Data Plan with the Commission was unreasonable, stating that the current operating committee would have to resolve numerous issues, such as (1) developing comprehensive conflicts-ofinterest provisions for both SRO and non-SRO representatives of the operating committee, (2) reconciling inconsistencies between the Equity Data Plans, (3) designing processes for selection and evaluation of an independent plan administrator, auditor, and other professional service providers, and (4) setting parameters for a revision to the revenue allocation formula.370 Alternatively, this commenter suggests a 180-day deadline for an initial progress report, followed by progress reports every 90 days until completion.371 Conversely, another commenter asserts that a shorter period of time, for example 45 days after the Order is issued, would be sufficient for the SROs to file the New Consolidated Data Plan with the Commission, and suggests that the Commission be more prescriptive in providing the terms for the New Consolidated Data Plan to avoid implementation delay.372 The Commission continues to believe that it is appropriate and in the public 368 See Proposed Order, supra note 4, 85 FR at 2186. 369 See ICI Letter, supra note 78; Nasdaq Letter, supra note 45; TD Ameritrade Letter, supra note 74; Royal Bank of Canada Letter, supra note 189; Fidelity Letter, supra note 80; SIMFA Letter, supra note 13; State Street Letter, supra note 76; IEX Letter, supra note 113. 370 See Nasdaq Letter, supra note 45, at 14–15. 371 See id. at 15. 372 See IEX Letter, supra note 113, at 2. E:\FR\FM\13MYN2.SGM 13MYN2 jbell on DSKJLSW7X2PROD with NOTICES2 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices interest for the Participants to submit the New Consolidated Data Plan to the Commission within 90 days to ensure timely implementation of the enhanced governance structure. As discussed above, the Participants have significant experience to draw upon in developing the New Consolidated Data Plan. And the Commission anticipates that the Participants may incorporate many, if not most, of the operational provisions of the Equity Data Plans into the New Consolidated Data Plan filed with the Commission, substantially reducing the work required to prepare and file the New Consolidated Data Plan. Further, through this Order, the Commission is prescribing, in substantial detail, most of the governance provisions that would differ between the Equity Data Plans and the New Consolidated Data Plan, further reducing the work required of the Participants to prepare the new plan. In addition, as stated above, the Commission is simultaneously issuing the Conflicts of Interest Approval Orders and the Confidentiality Policy Approval Orders, and the conflicts of interest and confidentiality policies, as approved by the Commission, can be incorporated into the New Consolidated Data Plan. Notwithstanding the above, the Commission understands the challenges associated with the current global pandemic. As the impact of the pandemic unfolds, the Commission continues to monitor market developments, including as they may relate to this initiative. Commenters also express concerns that SROs may unnecessarily delay implementing the New Consolidated Data Plan and recommend that the Commission prescribe specific milestones, and establish timetables for the completion of such milestones to compel an expedient transition to the New Consolidated Data Plan.373 Specifically, one commenter suggests that the New Consolidated Data Plan be implemented and the new independent administrator be selected within 180 days of the date of the Order, with the ability for the Commission to grant an extension.374 Another commenter recommends that the Order either impose immediate reforms on the SROs or alternatively require that the New Consolidated Data Plan have a rolling implementation schedule specifying that some reforms take effect immediately, such as including non373 See ICI Letter, supra note 78, at 6; Fidelity Letter, supra note 80, at 6; TD Ameritrade Letter, supra note 74, at 8; Royal Bank of Canada Letter, supra note 189, at 2; SIFMA Letter, supra note 13, at 5–6; State Street Letter, supra note 76, at 4. 374 See TD Ameritrade Letter, supra note 74, at 8. VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 SRO members on the operating committee, implementing the augmented voting structure, and adopting the Conflicts of Interest and Confidentiality Amendments.375 Separately, several commenters suggest penalizing the SROs for any unwarranted delays or failures to meet a milestone deadline.376 Commenters also recommend that the Commission impose a fine on SROs for delays or prohibit the SROs from receiving market data revenues from the SIP data fees for a certain period of time to incentivize timely implementation.377 For the reasons discussed above, the Commission continues to believe that 90 days is an appropriate amount of time for the SROs to file the New Consolidated Data Plan. The Commission is not imposing, beyond the 90-day requirement to file the New Consolidated Data Plan, specific timetables, milestones or implementation schedules because the Commission expects that the SROs will be able to act expeditiously based on their experience as operators of the SIP, coupled with their statutory requirement 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.’’ 378 G. Other Comments Comment letters also addressed financial disclosures regarding New Consolidated Data Plan operations,379 the calculation of SIP fees,380 the timing of financial disclosures,381 the information such disclosures should include,382 and concerns raised by high 375 See Royal Bank of Canada Letter, supra note 189, at 2. 376 See ICI Letter, supra note 78, at 6; Fidelity Letter, supra note 80, at 6; SIFMA Letter, supra note 13, at 5–6. 377 See ICI Letter, supra note 78, at 6; Fidelity Letter, supra note 80, at 6. 378 15 U.S.C. 78k–1(c)(b). 379 See Bloomberg Letter, supra note 40, at 3–4; Capital Markets Letter, supra note 355, at 6; IEX Letter, supra note 113, at 5; Schwab Letter, supra note 74, at 6–7; Virtu Letter, supra note 80, at 5; TD Ameritrade Letter, supra note 74, at 6 (suggesting that the Commission codify explicit requirements regarding what is ‘‘fair and reasonable.’’). 380 See MFA/AIMA Letter, supra note 142, at 4. 381 See Bloomberg Letter, supra note 40, at 3–4; Schwab Letter, supra note 74, at 6–7; IEX Letter, supra note 113, at 5; Virtu Letter, supra note 80, at 5. 382 See Bloomberg Letter, supra note 40, at 3–4; IEX Letter, supra note 113, at 5; Virtu Letter, supra note 80, at 5; Schwab Letter, supra note 74, at 6– 7. PO 00000 Frm 00029 Fmt 4701 Sfmt 4703 28729 speed trading.383 Ultimately, however, this Order focuses on certain critical aspects of the governance structure of the Plans. These additional topics fall outside the scope of this Order. * * * * * As noted above, Section 11A(a)(2) of the Act 384 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) of the Act 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).’’ 385 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.386 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,387 a single New Consolidated Data Plan that replaces 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 become effective. • 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 383 See Letter from Kermit R. Kubitz, Individual Consumer, San Francisco, CA (Mar. 20, 2020). 384 15 U.S.C. 78k–1(a)(2). 385 15 U.S.C. 78k–1(a)(3)(B). 386 17 CFR 242.608(a). 387 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). E:\FR\FM\13MYN2.SGM 13MYN2 jbell on DSKJLSW7X2PROD with NOTICES2 28730 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices 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 percent 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, 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 person who represents the interests of retail investors (‘‘retail representative’’) (collectively, ‘‘Non-SRO Members’’), provided that the representatives of the securities market data vendor and the issuer are not permitted to be affiliated or associated with an SRO, a brokerdealer, or an investment adviser with third-party clients. The retail representative shall have experience working with or on behalf of retail investors and have the requisite background and professional experience to understand the interests of retail investors, the work of the operating committee of the New Consolidated Data Plan, and the role of market data in the U.S. equity market. The retail representative shall not be affiliated with an SRO or a broker-dealer. • 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 that subsequent Non-SRO Members be selected solely by the then-serving Non-SRO Members of the New Consolidated Data Plan’s operating committee, 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 VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 represent a Participant) who remain willing to serve in that role. • The New Consolidated Data Plan shall provide for a fair, transparent, and public nomination process for Non-SRO Members and shall specify a process for publicly soliciting and making available for public comment nominations 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 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, i.e., a supermajority vote of the New Consolidated Data Plan’s operating committee, along with a majority vote of the SRO members of the operating committee. • The New Consolidated Data Plan shall provide that the responsibilities of the operating committee will include: 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 the operating committee; PO 00000 Frm 00030 Fmt 4701 Sfmt 4703 Æ developing and maintaining fair and reasonable fees and consistent terms 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, either directly or via another subsidiary, offers for sale its own proprietary market data product for NMS stocks. • The New Consolidated Data Plan shall include provisions designed to address the conflicts of interest of SRO members and Non-SRO Members as outlined in the Conflicts of Interest Approval Orders. • The New Consolidated Data Plan shall include provisions designed to protect confidential and proprietary information from misuse as outlined in the Confidentiality Policy Approval Orders. • The New Consolidated Data Plan shall identify the circumstances in which SRO members may meet in executive session and shall confine executive sessions to circumstances in which it is appropriate to exclude NonSRO 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 must be included on a written agenda, along with a clearly stated rationale for each matter to be discussed, and that each such request 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 E:\FR\FM\13MYN2.SGM 13MYN2 Federal Register / Vol. 85, No. 93 / Wednesday, May 13, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES2 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. * * * * * VerDate Sep<11>2014 20:21 May 12, 2020 Jkt 250001 it is hereby ordered, pursuant to Section 11A(a)(3)(B) of the Act,388 that the Participants act jointly in developing and filing with the Commission, as an NMS plan pursuant to Rule 608(a) of Regulation NMS,389 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 August 11, 2020. By the Commission. Vanessa A. Countryman, Secretary. [FR Doc. 2020–10041 Filed 5–12–20; 8:45 am] BILLING CODE 8011–01–P 388 15 U.S.C. 78k–1(a)(3)(B). 389 17 CFR 242.608(a). PO 00000 Frm 00031 Fmt 4701 Sfmt 9990 28731 E:\FR\FM\13MYN2.SGM 13MYN2

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 93 (Wednesday, May 13, 2020)]
[Notices]
[Pages 28702-28731]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10041]



[[Page 28701]]

Vol. 85

Wednesday,

No. 93

May 13, 2020

Part II





 Securities and Exchange Commission





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

Federal Register / Vol. 85 , No. 93 / Wednesday, May 13, 2020 / 
Notices

[[Page 28702]]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88827; File No. 4-757]


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

May 6, 2020.
    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''), MEMX LLC, 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''). This 
new plan will replace the three existing national market system plans 
(the ``Equity Data Plans'' or ``Plans'') that govern the public 
dissemination of real-time, consolidated equity market data for 
national market system stocks (``NMS stocks'').\2\ The New Consolidated 
Data Plan shall be filed with the Commission pursuant to Rule 608 of 
Regulation NMS \3\ no later than August 11, 2020.
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    \1\ 15 U.S.C. 78k-1(a)(3)(B).
    \2\ 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).
    \3\ 17 CFR 242.608.
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I. Introduction

    On January 8, 2020, the Commission issued for comment a Notice of 
Proposed Order Directing the Exchanges and FINRA to Submit a New 
National Market System Plan Regarding Consolidated Equity Market Data 
(``Proposed Order'').\4\ As the Commission explained in the Proposed 
Order, in Section 11A of the Act, Congress directed the Commission to 
facilitate the establishment of a national market system for 
securities. The public dissemination of consolidated information about 
quotes and trade activity is a fundamental component of that system. 
Pursuant to its statutory responsibility, therefore, the Commission has 
authorized the Equity Data Plans to facilitate the required collection 
and dissemination of core data \5\ 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 day.'' 
\6\ In adopting Regulation NMS in 2005,\7\ in order to improve the 
transparency and effective operations of the Plans, the Commission 
established advisory committees of non-SRO market participants to 
advise the Equity Data Plans.\8\ The Commission stated that it was a 
useful first step toward improving the responsiveness of Plan 
participants to broader non-SRO market participants' concerns and the 
efficiency of Plan operations.\9\ The Commission also stated that it 
would continue to monitor and evaluate Plan developments to determine 
whether any further action is warranted.\10\
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    \4\ Securities Exchange Act Release No. 87906 (Jan. 8, 2020), 85 
FR 2164 (Jan. 14, 2020) (File No. 4-757). Comments received in 
response to the Proposed Order are available at https://www.sec.gov/comments/4-757/4-757.htm.
    \5\ See, e.g., Section 11A(b) of the Act and Rule 603(b) of 
Regulation NMS.
    \6\ 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'').
    \7\ Regulation NMS, Securities Exchange Act Release No. 51808 
(June 9, 2005), 70 FR 37495 (June 29, 2005) (``Regulation NMS 
Release'').
    \8\ See id. at 37503.
    \9\ See id. at 37561.
    \10\ Id.
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    Since that time, developments in technology and changes in the 
equities markets 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. This conflict of interest, combined with the 
concentration of voting power in the Equity Data Plans among a few 
large ``exchange groups''--multiple exchanges operating under one 
corporate umbrella--has contributed to 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. 
Additionally, the Commission believes that the continued existence of 
three separate NMS plans for equity market data creates inefficiencies 
and unnecessarily burdens ongoing improvements in the provision of 
equity market data to market participants. Addressing the issues with 
the current governance structure of the Equity Data Plans discussed in 
this Order is a key step in responding to broader concerns about the 
consolidated data feeds.\11\
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    \11\ See Proposed Order, supra note 4, 85 FR at 2166, 2168-74 
(discussing broader concerns about the Equity Data Plans and the 
consolidated data feeds).
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    To that end, in the Proposed Order, the Commission proposed to 
direct the exchanges and FINRA to jointly develop and file with the 
Commission, as an NMS plan pursuant to Rule 608(a) of Regulation 
NMS,\12\ a single New Consolidated Data Plan that consolidates the 
three current Equity Data Plans and that includes certain changes to 
the governance structure of the Equity Data Plans.\13\
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    \12\ 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).
    \13\ One commenter suggests that the governance structure in the 
Proposed Order be extended to apply to all NMS plans. See Letter 
from Ellen Greene, Managing Director, Equity & Options Market 
Structure, SIFMA (Feb. 28, 2020), at 6 (``SIFMA Letter''). The 
Commission is taking an incremental approach to addressing 
governance issues related to NMS plans and is at this time 
addressing only the governance of the Equity Data Plans. The 
Commission may in the future consider the governance of other NMS 
plans.
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II. Discussion

A. Background

    In 1975, Congress, through the enactment of Section 11A of the 
Act,\14\ 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.\15\ 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,\16\ 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.\17\
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    \14\ 15 U.S.C. 78k-1.
    \15\ 15 U.S.C. 78k-1(a)(1).
    \16\ 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.'').
    \17\ See 15 U.S.C. 78k-1(a)(1)(C).

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[[Page 28703]]

    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.'' \18\ In furtherance of 
these purposes, the Commission has sought through its rules and 
regulations to help ensure that certain ``core data'' \19\ is widely 
available for reasonable fees.\20\ The Commission has recognized that 
investors must have this core data ``to participate in the U.S. equity 
markets.'' \21\
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    \18\ 15 U.S.C. 78k-1(c)(1)(B).
    \19\ See infra note 31 and accompanying text (defining ``core 
data'').
    \20\ See 17 CFR 242.603; see also, e.g., Regulation NMS Release, 
supra note 7, 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.'').
    \21\ 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.\22\ Pursuant to this authority, the Commission adopted 
Regulation NMS.\23\ 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.\24\ 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.'' \25\ 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.'' \26\ 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.\27\
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    \22\ See 15 U.S.C. 78k-1(a)(3)(B).
    \23\ 17 CFR 242.600-612; see also Regulation NMS Release, supra 
note 7, 70 FR at 37560.
    \24\ See 17 CFR 242.608.
    \25\ 17 CFR 242.603(b).
    \26\ Equity Market Structure Concept Release, supra note 6, 75 
FR at 3600.
    \27\ 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 \28\ and transaction data \29\ 
for each NMS stock to an exclusive securities information processor 
(``SIP''),\30\ 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).\31\ 
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''),\32\ 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.\33\ 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.''
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    \28\ See 17 CFR 242.602.
    \29\ See 17 CFR 242.601.
    \30\ 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).
    \31\ See Bloomberg Order, supra note 27, at 3; see also 
Rescission of Effective-Upon-Filing Procedures for NMS Plan Fee 
Amendments, Securities Exchange Act Release No. 87193 (Oct. 1, 
2019), 84 FR 54794, 54795 (Oct. 11, 2019) (``Effective-Upon-Filing 
Proposing Release'').
    \32\ The LULD Plan is available at https://www.luldplan.com.
    \33\ 17 CFR 242.201(b)(3).
---------------------------------------------------------------------------

    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'').\34\ 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.
---------------------------------------------------------------------------

    \34\ 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).
---------------------------------------------------------------------------

B. The Need for Changes in the Governance Structure of the Equity Data 
Plans

    As described in the Proposed Order, the Commission believes that 
the current governance structure of the three existing Equity Data 
Plans is inadequate to respond to changes in the market and in the 
ownership of exchanges, and to the evolving needs of investors and 
other market

[[Page 28704]]

participants.\35\ Below, the Commission explains the basis for its 
action in ordering the Participants to file the New Consolidated Data 
Plan, the reasons the Commission believes that the Order reasonably 
addresses concerns identified by the Commission, the relationship 
between the Commission's Order to create the New Consolidated Data Plan 
and the Commission's Infrastructure Proposal,\36\ and the need for a 
new, single plan.
---------------------------------------------------------------------------

    \35\ See Proposed Order, supra note 4, 85 FR at 2167-68.
    \36\ See Market Data Infrastructure, Securities Exchange Act 
Release No. 88216 (Feb. 14, 2020), 85 FR 16726 (Mar. 24, 2020) (File 
No. S7-03-20) (Proposed Rule) (``Infrastructure Proposal'').
---------------------------------------------------------------------------

1. The Basis of the Commission's Order
    The Equity Data Plans' governance model was established in the 
1970s, at a time when trading volume in any given stock was 
concentrated on its listing market and when the U.S. equity exchanges 
were member owned, not-for-profit organizations. Since then, the 
markets have changed dramatically, and technology has fundamentally 
changed market operations. Exchanges have demutualized, and they or 
their parent companies now trade as public companies on exchanges. In 
addition, the three Equity Data Plans are effectively governed by the 
same operating committee and the same advisors, yet there are still 
three separate NMS plans for equity market data. The Plans--which, 
despite changes in the market, still provide sole voting power to the 
exchanges and FINRA as members of the operating committee--control the 
operations of the SIPs that produce and disseminate core data, as well 
as the data products offered and their prices, while most of the 
exchanges also offer proprietary data products for sale.
    As discussed in the Proposed Order, the Commission believes that 
the demutualization of the exchanges and the proliferation of 
proprietary exchange data products have heightened the conflicts 
between the SROs' business interests in proprietary data offerings and 
their obligations as SROs under the national market system to ensure 
prompt, accurate, reliable, and fair dissemination of core data through 
the jointly administered Equity Data Plans.\37\ And these conflicts 
bear on the exchanges' incentives to meaningfully improve the provision 
of core data.\38\ For certain proprietary data products in particular, 
exchanges have deployed cutting edge technology to reduce latency and 
made other enhancements to improve content. For example, the exchanges 
have developed depth-of-book (``DOB'') products that, relative to the 
SIPs, provide greater content at lower latencies. For another segment 
of the data market that is less sensitive to latency, exchanges have 
also developed proprietary TOB products that provide data that is 
generally limited to the highest bid, lowest ask, and last sale price 
information at a lower cost to subscribers. Despite the Equity Data 
Plans' improvements to certain aspects of the SIPs and related 
infrastructure,\39\ these improvements have not been sufficient to meet 
the needs of equity market participants, and the SIPs have continued to 
meaningfully lag behind the proprietary data products and their related 
infrastructure with respect to content and speed.\40\
---------------------------------------------------------------------------

    \37\ See Proposed Order, supra note 4, 85 FR at 2168-74 
(discussing the basis for the Proposed Order and sources of input).
    \38\ Proprietary data products are significant sources of 
revenues for exchanges that offer them. Consequently, the Commission 
believes, and market participants have stated, that the exchanges 
may not be incentivized to adequately improve the SIPs, including 
the content and latency of the SIPs, as making SIP content and 
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 [p]lans 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 Letter from John Ramsay, 
Chief Market Policy Officer, IEX, at 3 (Sept. 24, 2019) (``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.'').
    \39\ See Proposed Order, supra note 4, 85 FR at 2171-72 
(describing improvements to some aspects of the SIPs and related 
infrastructure).
    \40\ See Proposed Order, supra note 4, 85 FR at 2171-72. See, 
e.g., Letters from Gregory Babyak, Global Head of Regulatory 
Affairs, Bloomberg L.P. (Feb. 28, 2020), at 3 (``Bloomberg 
Letter''); Joe Wald, Chief Executive Officer, and Ray Ross, Chief 
Technology Officer, Clearpool Group (Feb. 28, 2020), at 2 
(``Clearpool Letter''); Tyler Gellasch, Executive Director, Healthy 
Markets Association (Feb. 20, 2020), at 6 (``Healthy Markets 
Letter''); and SIFMA Letter, supra note 13, at 2.
---------------------------------------------------------------------------

    Input received from a diverse array of market participants supports 
the Commission's view that the differentials between SIP data and DOB 
data feeds has reduced the usefulness of the form and content of SIP 
data.\41\ One commenter on the Proposed Order asserts that ``few market 
participants can rely on the SIP for order routing because the 
necessary improvements to the SIPs have not been made under the current 
governance structure.'' \42\ Another commenter similarly states that it 
has ``significant concerns regarding whether the consolidated feeds 
meet the purposes set out by Congress and by the Commission . . . '' 
\43\ And a third commenter asserts that the SIPs are ``facially 
inadequate for investors' or brokers' trading strategies--or for 
operating a competitive trading venue.'' \44\
---------------------------------------------------------------------------

    \41\ See Proposed Order, supra note 4, 85 FR at 2169-70.
    \42\ SIFMA Letter, supra note 13, at 2.
    \43\ Clearpool Letter, supra note 40, at 2.
    \44\ Healthy Markets Letter, supra note 40, at 5.
---------------------------------------------------------------------------

    Certain commenters, however, challenge the need for the 
Commission's Proposed Order. One commenter states that the Commission's 
assertions that the exchanges have failed to invest in improvements to 
the dissemination of data through the Equity Data Plans, and that the 
Equity Data Plans have not kept pace with the exchanges' proprietary 
data products, are ``unsubstantiated,'' ``demonstrably false,'' and 
``cannot provide a basis for agency action under the APA 
[Administrative Procedure Act].'' \45\ This commenter states that SIP 
performance is defined by three factors--availability, latency, and 
message throughput--and provides statistics that, it contends, 
demonstrate that investments by the Equity Data Plans have 
``significantly increased'' the performance of the SIPs with respect to 
these three factors.\46\ This commenter further asserts that the 
Commission has implied that the exchanges have intentionally slowed 
progress on employing a ``distributed SIP'' model, which would reduce 
geographic latency, ``to make their own proprietary data products look 
better by comparison,'' \47\ and that such an allegation is 
``unwarranted'' and reflects a ``failure to grasp the complexity of the 
proposal.'' \48\ Another commenter also highlights efforts that have 
already been undertaken to increase the speed with which subscribers 
can access SIP data.\49\
---------------------------------------------------------------------------

    \45\ Letter from Joan C. Conley, Senior Vice President and 
Corporate Secretary, Nasdaq (Feb. 28, 2020), at 9 (``Nasdaq 
Letter''); see also Nasdaq Letter at 10 (``The Commission must take 
these facts into account when analyzing the performance of the SIP 
processors, and base the proposal on grounds other than the 
verifiably false assertion that the SIP processors have under-
invested in technology.''). On February 28, 2020, Nasdaq filed a (i) 
petition for clarification and extension of comment period and (ii) 
comment letter in response to the Proposed Order, which restated 
portions of the petition. Throughout this Order, the Commission is 
citing to the latter.
    \46\ Nasdaq Letter, supra note 45, at 9.
    \47\ Id. at 10.
    \48\ Id. at 11.
    \49\ See Letter from Elizabeth K. King, Chief Regulatory 
Officer, ICE, and General Counsel and Corporate Secretary, NYSE 
(Feb. 5, 2020), at 6-7 (``NYSE Letter'').

---------------------------------------------------------------------------

[[Page 28705]]

    The Commission disagrees that recent improvements in SIP 
performance obviate the need for the governance changes outlined in 
this Order. While we recognize recent efforts by the Equity Data Plans 
to improve the performance of the SIPs,\50\ those actions have not 
fully mitigated our concerns with SIP performance.\51\ Congress charged 
the Commission with ensuring 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.'' \52\ In furtherance of this responsibility, the 
Commission seeks through its rules and regulations to help ensure that 
certain ``core data'' \53\ is widely available for reasonable fees.\54\ 
The Commission has recognized that investors must have this core data 
``to participate in the U.S. equity markets.'' \55\ And 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.'' \56\
---------------------------------------------------------------------------

    \50\ See Proposed Order, supra note 4, 85 FR at 2172.
    \51\ The Commission also notes that some of the recent 
improvements made to the SIPs have been responses to significant SIP 
outages. For example, in 2013, after a significant SIP outage that 
caused operations to cease and a market-wide halt in the trading of 
Nasdaq-listed securities (``UTP SIP Outage''), the then-Chair of the 
Commission met with the heads of the equities and options exchanges 
to address the reliability of market systems. See SEC Chair White 
Statement on Meeting With Leaders of Exchanges, September 12, 2013, 
available at https://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539804861. In response, the exchanges implemented 
some enhancements to the reliability of the SIPs and backup systems. 
See Joint Press Release by the Participants, available at https://ir.theice.com/press/news-details/2013/Self-Regulatory-Organizations-Response-to-SEC-for-Strengthening-Critical-Market-Infrastructure/default.aspx. After the UTP SIP Outage, however, several market 
participants continued to raise concerns about the adequacy of the 
SIP infrastructure. SIFMA, for example, argued that the UTP SIP 
Outage was a symptom of the outdated system by which critical market 
data is controlled and distributed and stated that the current 
system suffers from a lack of transparency and competition, 
questions of underfunding, and insulated governance. See Letter from 
Theodore R. Lazo, Managing Director and Associate General Counsel, 
SIFMA, to Mary Jo White, Chair, Commission (Dec. 5, 2013), available 
at https://www.sifma.org/wp-content/uploads/2017/05/sifma-submits-comments-to-the-sec-on-securities-information-processors-and-operational-resiliency.pdf.
    \52\ 15 U.S.C. 78k-1(c)(1)(B).
    \53\ See supra note 31 for definition of core data.
    \54\ See 17 CFR 242.603; see also, e.g., Regulation NMS Release, 
supra note 7, 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.'').
    \55\ Id. at 37560.
    \56\ Equity Market Structure Concept Release, supra note 6, 75 
FR at 3600.
---------------------------------------------------------------------------

    Despite recent efforts to improve SIP performance, disparities 
between SIP data and proprietary DOB data feeds with respect to both 
speed and content continue to affect the ability of many market 
participants to use core data to be competitive in today's markets and 
thereby call into question whether the SIPs continue to adequately 
serve their regulatory purposes. Moreover, the relevant measure of SIP 
performance under Section 11A of the Act is not limited to the three 
factors discussed by one commenter--availability, latency, and message 
throughput.\57\ The Commission must evaluate whether the collection, 
processing, distribution, and publication of equity market data is 
``prompt, accurate, reliable, and fair''-- and also, crucially, the 
``usefulness of the form and content of such information,'' \58\ which 
recent efforts have not sufficiently addressed.
---------------------------------------------------------------------------

    \57\ Nasdaq Letter, supra note 45, at 9.
    \58\ 15 U.S.C. 78k-1(c)(1)(B).
---------------------------------------------------------------------------

    Nor is the basis of the Commission's action that the Participants 
have failed to make any improvements to the SIPs. Rather, changes in 
the market, combined with the current governance structure of the 
Equity Data Plans, have ``exacerbated the exchanges' lack of incentives 
to improve the SIPs.'' \59\ As the Commission explained in the Proposed 
Order, addressing these governance concerns is a ``key step'' in 
responding to the broader concerns about whether the consolidated data 
feeds continue to serve their regulatory purpose.\60\ While the 
Commission understands that substantial changes to the SIPs are 
complicated undertakings, the Commission believes that the current 
governance model of the Equity Data Plans--with its concentration of 
voting power in a small number of exchange groups, its lack of voting 
power for non-SRO representatives, and the requirement for unanimity in 
support of any substantial change to the SIPs--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.
---------------------------------------------------------------------------

    \59\ Proposed Order, supra note 4, 85 FR 2173.
    \60\ Proposed Order, supra note 4, 85 FR at 2173.
---------------------------------------------------------------------------

    Finally, one commenter argues that the Commission has relied on 
``cherry-picked opinions of self-interested market participants to 
justify the Proposed Order--without any of its own independent 
analysis'' and that this ``further underscores the arbitrary and 
capricious nature of its decision-making.'' \61\ The Commission has 
studied market data issues over the course of many years and has 
devoted considerable resources to this study and to the analysis of 
these issues.\62\ Moreover, the Commission published the Proposed Order 
expressly to provide the opportunity for public comment on this 
proposal by all interested parties, including the Participants, for the 
Commission to consider in its analysis.\63\ Indeed, the Proposed Order 
specifically solicited any ``additional insights into the concerns and 
issues discussed in the Proposed Order'' from the Participants and 
stated that the Commission ``will consider such information and 
suggestions, as well as any other comment on the Proposed Order.'' \64\ 
In addition, the New Consolidated Data Plan submitted in response to 
this Order will itself be published for public comment prior to any 
Commission decision to disapprove or to approve the plan with any 
changes or subject to any conditions the Commission deems necessary or 
appropriate after considering public comment.
---------------------------------------------------------------------------

    \61\ NYSE Letter, supra note 49, at 16.
    \62\ See Regulation of Market Information Fees and Revenues, 
Securities Exchange Act Release No. 42208 (Dec. 9, 1999), 64 FR 
70613 (Dec. 17, 1999); Equity Market Structure Concept Release, 
supra note 6; Securities and Exchange Commission, ``SEC Announces 
Members of New Equity Market Structure Advisory Committee'' (Jan. 
13, 2015), available at https://www.sec.gov/news/pressrelease/2015-5.html; and Securities and Exchange Commission, Equity Market 
Structure Roundtables, https://www.sec.gov/spotlight/equity-market-structure-roundtables (last visited Apr. 17, 2020).
    \63\ The Commission also notes that the Proposed Order itself 
included a summary of comments raised in the past by this commenter 
and others who were opposed to central aspects of the Commission's 
proposal, including the limitation on exchange-group voting, see 
Proposed Order, supra note 4, 85 FR at 2175-76, and the provision of 
votes to non-SROs. See Proposed Order, supra note 4, 85 FR at 2178-
81.
    \64\ Proposed Order, supra note 4, 85 FR at 2165.
---------------------------------------------------------------------------

2. The Efficacy of the Proposed Order
(a) The Proposed Order Reasonably Addresses the Concerns Identified by 
the Commission
    One commenter argues that, ``[r]ather than improving the SIPs, the 
Proposed Order will instead undermine the SROs' ability to efficiently 
improve them for the benefit of investors and the market,'' and that, 
therefore, ``[b]ecause the Commission's approach is not reasonably 
calculated to address the disparate data feed problem identified by the 
Commission, it is arbitrary and

[[Page 28706]]

capricious.'' \65\ This commenter also argues that the Proposed Order 
relies on the ``unfounded assumption'' that granting non-SROs authority 
in the New Consolidated Data Plan would reduce conflicts of 
interest,\66\ and that the Commission's ``decision to ignore the likely 
impact of the non-SRO's own conflicted interests is a critical 
oversight.'' \67\ This commenter further argues that, ``[w]hile failing 
to establish how the Proposed Order will reduce the influence of 
alleged conflicted interests, the Commission has also failed to 
demonstrate how the Proposed Order will otherwise improve SIP 
functionality.'' \68\ This commenter concludes that the Proposed Order 
will not advance the Commission's stated purpose and therefore ``lacks 
the necessary `rational connection' between regulatory means and ends 
mandated by the APA [Administrative Procedure Act].'' \69\
---------------------------------------------------------------------------

    \65\ See NYSE Letter, supra note 49, at 12.
    \66\ Id. at 16.
    \67\ Id.
    \68\ Id.
    \69\ Id. at 16-17.
---------------------------------------------------------------------------

    Other commenters assert that the Proposed Order does not go far 
enough. One commenter argues that the Proposed Order uses an ``overly 
elaborate and conflicted process to potentially implement piecemeal 
changes that will not fix the fundamental conflict of interest at the 
heart of SIP governance,'' \70\ because the Proposed Order would direct 
the for-profit exchanges to draft the terms of the New Consolidated 
Data Plan.\71\ The commenter concludes that the Commission should 
instead ``exercise its authority to directly assume control over the 
equity data plans, and appoint the SROs to . . . an advisory committee 
for the provision of the public market data stream,'' \72\ ensure that 
filings by the Equity Data Plans meet the applicable regulatory 
standards, and adopt its proposed rule to rescind effective-on-filing 
procedures for NMS plan amendments.\73\ Another commenter similarly 
asserts that the Proposed Order does not directly address the issues 
presented by the coexistence of SIPs and proprietary data feeds and 
that the Proposed Order would not sufficiently improve the governance 
of the Equity Data Plans.\74\ This commenter suggests that the 
Commission itself should appoint the members of the SIPs' operating 
committees and include a majority of non-SRO members.\75\
---------------------------------------------------------------------------

    \70\ Healthy Markets Letter, supra note 40, at 14; see also 
Letter from Dan Jamieson (Mar. 29, 2020) (generally concurring with 
the comment letters submitted by Healthy Markets and Council of 
Institutional Investors (``CII''), infra note 74).
    \71\ See id. at 8-9, 14; see also id. at 15 (``While we 
appreciate the intent of the Proposed Order, it simply doesn't do 
enough, and in our view further entrenches the deeply flawed system 
for years to come.'').
    \72\ Id. at 14-15.
    \73\ See Effective-Upon-Filing Proposing Release, supra note 31.
    \74\ See Letter from Jeffrey P. Mahoney, General Counsel, CII, 
(Feb. 20, 2020), at 2 (``CII Letter''). See also Letters from 
Jeffrey T. Brown. Senior Vice President, Legislative and Regulatory 
Affairs, Charles Schwab & Company, Inc. (Feb. 28, 2020), at 5 
(``Schwab Letter'') (expressing concern that ``the proposed changes 
to the voting structure of the operating committees may still yield 
only the status quo''); Joseph Kinahan, Managing Director, Client 
Advocacy and Market Structure, TD Ameritrade, Inc. (Feb. 24, 2020), 
at 5 (``TD Ameritrade Letter'') (asserting that allowing the SROs to 
propose amendments to the New Consolidated Data Plan without buy-in 
from non-SROs ``may lead to substantially similar circumstances 
which exist currently''); Kelvin To, Founder and President, Data 
Boiler Technologies, LLC (Feb. 4, 2020), at 2, 4 (asserting that 
``spinning off'' the SIPs from the exchanges would be better than 
prescribing a particular governance structure).
    \75\ See CII Letter, supra note 74, at 6.
---------------------------------------------------------------------------

    Other commenters, however, support the Commission's view that 
improving the governance structure of the SIPs would likely improve the 
SIPs. One commenter offers support for the Commission's belief that the 
evolution of the exchanges into publicly held companies has created a 
conflict with their regulatory objectives in operating the SIPs.\76\ 
One commenter states that it agrees that ``broader industry 
participation in the governance of the NMS Plans would be an effective 
tool to address these conflicts of interest and ensure that core data 
provided by the SIP[s] continues to improve.'' \77\ Another commenter 
states that it believes that the Proposed Order would ``substantially 
improve the governance of the SIP, which should enhance both the 
operations of the SIP and the quality of SIP data.'' \78\ And another 
commenter agrees that ``[i]mproving the governance structure should 
help ensure that the SIPs keep up with market data innovations in the 
future.'' \79\ Several other commenters also express the view that the 
Commission's proposed changes to SIP governance would facilitate 
improvements to the SIPs.\80\ One of these commenters states, ``the 
decision to give non-SROs voting rights and recognizing exchange 
operators as a single entity for purposes of voting is a positive step 
in helping to promote useful upgrades of the SIP.'' \81\ Another 
commenter observes, ``[w]e anticipate that the proposed changes will 
help mitigate the conflicts of interest that are inherent to the 
current structure and will establish a solid, new foundation through 
which future enhancements to the SIPs, as necessary, can be more 
efficiently and fairly made.'' \82\ One commenter agrees that ``reform 
of the current governance structure of the Equity Data Plans can better 
serve the needs of investors and other market participants.'' \83\ 
Another commenter anticipates that ``reducing the concentration of 
power in large exchange groups makes SIP enhancements more likely.'' 
\84\ Additionally, one commenter states that, as long as the 
Commission's final order ``explicitly directs [the] exchanges to take 
specific actions in the new Plan, without allowing them optionality to 
craft a different alternative--the current process ought to be 
sufficient to ensure substantial progress in this area.'' \85\
---------------------------------------------------------------------------

    \76\ See Letter from Nathaniel N. Evarts, Managing Director, 
Head of Trading, Americas, et al., State Street Global Advisors 
(Feb. 28, 2020), at 2 (``State Street Letter'').
    \77\ Letter from Lisa Mahon Lynch, Associate Director, Global 
Trading, Wellington Management Company LLP (Feb. 28, 2020), at 1 
(``Wellington Letter'').
    \78\ Letter from Dorothy Donohue, Deputy General Counsel, 
Securities Regulation, Investment Company Institute (Feb. 28, 2020), 
at 6 (``ICI Letter'').
    \79\ SIFMA Letter, supra note 13, at 3; see also id. at 2 (``We 
support the Commission mandating these governance changes and 
recommend finalizing the order as quickly as possible . . . .'').
    \80\ See Letters from Michael Blasi, SVP, Enterprise 
Infrastructure, and Krista Ryan, VP, Associate General Counsel, 
Fidelity Investments (Feb. 28, 2020), at 2 (``Fidelity Letter''); 
Clearpool Letter, supra note 40, at 2; Allison Bishop, President, 
Proof Services LLC (Feb. 27, 2020), at 7 (``Proof Letter''); Anders 
Franzon, General Counsel, MEMX LLC (Feb. 28, 2020), at 3 (``MEMX 
Letter''); see also Letters from Sherry Madera, Chief Industry & 
Government Affairs Officer, Refinitiv (Feb. 27, 2020), at 3 
(``Refinitiv Letter'') (asserting that the Proposed Order ``will 
significantly improve the health of our industry and all the market 
to take concrete, reasonable action to improve administrative, 
operational and fee-setting processes associated with market data 
and market access''); Thomas M. Merritt, Deputy General Counsel, 
Virtu Financial, Inc. (Feb. 25, 2020), at 1 (``Virtu Letter'') 
(asserting that the Proposed Order ``represents an important step 
forward in enhancing the transparency and efficiency of the NMS 
[p]lan structure, and in eliminating potential conflicts of interest 
associated with the dissemination of consolidated equity market 
data''); Schwab Letter, supra note 74, at 4 (``The SEC's proposal to 
both consolidate equity market data plans and provide for non-SRO 
representation on the operating committees is both a welcome 
development and a substantial departure from the status quo of 
exchange-run market data plans.'').
    \81\ Clearpool Letter, supra note 40, at 2.
    \82\ Fidelity Letter, supra note 80, at 2.
    \83\ MEMX Letter, supra note 80, at 3.
    \84\ Proof Letter, supra note 80, at 7.
    \85\ Letter from Daniel Keegan, Head of North America Market 
Securities Services, Co-Head of Global Equities & Securities 
Services, Citigroup Global Markets Inc. (Mar. 2, 2020), at 4 (``Citi 
Letter'').
---------------------------------------------------------------------------

    The Commission believes, as it stated in the Proposed Order, that 
addressing issues with the current governance structure of the Equity 
Data Plans is ``an

[[Page 28707]]

important first step in responding to concerns about the consolidated 
data feed.'' \86\ And, as the Proposed Order explained, the Commission 
believes that the current governance structure of the Equity Data Plans 
is inadequate to respond to recent changes in the market and to the 
evolving needs of investors and other market participants,\87\ and 
that, under the current governance structure, sufficient improvements 
to the consolidated market data feeds have not occurred.\88\ Further, 
the Commission recognizes that the inadequacies in the governance model 
of the Equity Data Plans that it has identified may not be the sole 
cause of broader concerns about the consolidated feed. But, based on 
its extensive experience overseeing the Equity Data Plans and the 
national market system, as well as input received from market 
participants through numerous Commission initiatives,\89\ the 
Commission believes that the governance structure of the Equity Data 
Plans contributes significantly to the broader concerns about the 
consolidated data feed.\90\ Thus, the Commission believes that changes 
to the governance structure of the SIPs are appropriate to create a 
governance structure that will reduce obstacles to ongoing improvement 
of the consolidated market data feeds in ways that the current 
governance structure of the Equity Data Plans has not. The Commission 
recognizes that additional operational changes may also be appropriate 
in order to improve SIP functionality, and believes that making these 
governance changes will facilitate decision-making regarding 
operational changes.\91\
---------------------------------------------------------------------------

    \86\ Proposed Order, supra note 4, 85 FR at 2173.
    \87\ See Proposed Order, supra note 4, 85 FR at 2168.
    \88\ See Proposed Order, supra note 4, 85 FR at 2168.
    \89\ See supra note 62 and accompanying text.
    \90\ See Proposed Order, supra note 4, 85 FR at 2169-73 
(discussing the Commission's concerns regarding the Equity Data 
Plans' provision of equity market data).
    \91\ Separately, the Commission has proposed to make specific 
changes to the operations of the SIPs through the Commission's 
market data infrastructure proposal. See Infrastructure Proposal, 
supra note 36.
---------------------------------------------------------------------------

    As noted above, certain commenters question whether the 
Commission's proposed changes to SIP governance will, in fact, improve 
the governance of the SIPs, either because the Commission has not, in 
their view, appropriately considered the conflicted interests of the 
non-SRO members of the operating committee of the proposed New 
Consolidated Data Plan,\92\ or because the Commission has not removed 
the conflicted SROs from the process of creating the New Consolidated 
Data Plan.\93\ Regarding the conflicts of interests of non-SROs, the 
Commission recognizes that each representative of a buyer of market 
data would also have an inherent conflict of interest in serving on the 
operating committee of the Plans.
---------------------------------------------------------------------------

    \92\ See NYSE Letter, supra note 49.
    \93\ See Healthy Markets Letter, supra note 40; CII Letter, 
supra note 74.
---------------------------------------------------------------------------

    With respect to both SROs and non-SRO representatives, it is not 
possible to completely eliminate conflicts from the governance 
structure of the existing Equity Data Plans or the New Consolidated 
Data Plan. But the Commission is attempting to balance the views of the 
exchanges, which are subject to inherent conflicts of interest and 
which also have dominant voting power on the Equity Data Plans (as well 
as on the New Consolidated Data Plan), with the views of non-SROs, 
which would also be subject to conflicts of interest.\94\ The 
Commission believes that a more diverse set of perspectives from full 
voting members of the operating committee of the New Consolidated Data 
Plan would improve the governance structure of the SIPs and would help 
to ensure that the operating committee benefits from these views before 
it takes action or files proposed plan amendments with the Commission.
---------------------------------------------------------------------------

    \94\ See infra Section II.E. The Commission also believes that 
many non-SROs, as subscribers to SIP data, would have incentives to 
improve the usefulness of SIP offerings.
---------------------------------------------------------------------------

    In addition, the Commission believes that broadening the 
perspectives represented on the operating committee by including non-
SROs would be beneficial in providing more meaningful inclusion of key 
stakeholders' views in New Consolidated Data Plan decision-making. As 
the Plans play an important role in the national market system, and 
because the Plans' decisions frequently place financial and operational 
burdens on non-SRO market participants, the non-SROs' representation as 
voting members, combined with a reallocation of voting power, would 
support the goals of the New Consolidated Data Plan by ensuring that a 
broader range of relevant opinions and perspectives have voting 
representation on the operating committee, which the Commission 
believes will help to facilitate enhanced decision-making and 
innovation in the provision of equity market data.
    Moreover, the Proposed Order specifically acknowledged that the New 
Consolidated Data Plan should also include provisions to address 
conflicts of interest of non-SRO representatives on the operating 
committee.\95\ As discussed in more detail below, a conflicts-of-
interest policy would apply to non-SRO representatives and would 
require disclosures similar to those of SRO representatives.\96\
---------------------------------------------------------------------------

    \95\ Proposed Order, supra note 4, 85 FR at 2185; see also infra 
Section II.E.1.
    \96\ See infra Section II.E.1.
---------------------------------------------------------------------------

(b) The Relationship Between the Proposed Order and the Commission's 
Infrastructure Proposal
    Two commenters argue that significant unexplained inconsistencies 
exist between the Proposed Order and the Commission's Infrastructure 
Proposal.\97\ The commenters assert that the Proposed Order would 
create a single consolidator for equity market data, while the 
Infrastructure Proposal would replace this system with a system of 
multiple competing consolidators.\98\ One of the commenters also argues 
that the Proposed Order advocates changes in the governance model 
because these changes would lead to a distributed SIP model and an 
expansion of the categories of data disseminated, and that the 
Infrastructure Proposal instead does not mandate distributed data 
dissemination by any consolidator and replaces voluntary consideration 
of expanded data content with ``government mandated depth-of-book and 
auction data.'' \99\ That commenter further argues that the 
Infrastructure Proposal would make ``extensive changes in the scope of 
authority vested in the operating committee of the New Consolidated 
Data Plan''; that the Infrastructure Proposal ``would apparently 
nullify, or at least undermine, the authority of the New Consolidated 
Data Plan to continue to act as a data consolidator''; and that the 
Infrastructure Proposal would ``vest the operating committee with 
unprecedented new authority to regulate SRO fees far beyond what is 
included in the consolidated feed operated by the New Consolidated Data 
Plan.'' \100\ And the commenter states that, while the Proposed Order 
does not directly address market structure, the Infrastructure Proposal 
would ``significantly impact substantive provisions of Regulation 
NMS,'' but that the Commission has not provided an analysis of how 
these market structure

[[Page 28708]]

changes may affect aspects of the Proposed Order.\101\
---------------------------------------------------------------------------

    \97\ See Nasdaq Letter, supra note 45, at 2-3, 5; Letter from 
Elizabeth K. King, Chief Regulatory Officer, ICE, and General 
Counsel and Corporate Secretary, NYSE (Apr. 23, 2020), at 3-4 
(``NYSE Letter 2'').
    \98\ Nasdaq Letter, supra note 45, at 2; NYSE Letter 2, supra 
note 97, at 3.
    \99\ Nasdaq Letter, supra note 45, at 2.
    \100\ Id. at 2; see also id. at 11-12.
    \101\ Id. at 2.
---------------------------------------------------------------------------

    The commenters argue that the alleged inconsistencies between the 
Proposed Order and the Infrastructure Proposal work to deny commenters 
a meaningful opportunity to comment on either proposal, and that 
commenters will therefore be denied procedural rights guaranteed by the 
Administrative Procedure Act (``APA'').\102\ One of the commenters 
further urges the Commission to extend the comment period for both the 
Proposed Order and the Infrastructure Proposal,\103\ and to issue a 
statement that articulates how the Proposed Order and the Commission's 
Infrastructure Proposal are intended to work together and that 
reconciles the conflicts between the two proposals.\104\ The other 
commenter argues that the Commission has offered no explanation for why 
the Proposed Order remains necessary in light of the Infrastructure 
Proposal,\105\ and asks that the Commission withdraw both proposals and 
propose a ``single, unified, and well-reasoned rule'' to address the 
issues.\106\
---------------------------------------------------------------------------

    \102\ See Nasdaq Letter, supra note 45, at 3-5; NYSE Letter 2, 
supra note 97, at 4-5.
    \103\ See Nasdaq Letter, supra note 45, at 3. The Commission 
extended the comment period for the Proposed Order from February 28, 
2020, to March 20, 2020. See Securities Exchange Act Release No. 
88340 (Mar. 6, 2020), 85 FR 14987 (Mar. 16, 2020).
    \104\ See id. at 2-3; see also id. at 2 (asserting that the 
Commission has not provided an analysis of how the market structure 
changes of the Infrastructure Proposal might affect aspects of the 
Proposed Order, such as the mandate to create a single SIP).
    \105\ NYSE Letter 2, supra note 97, at 4.
    \106\ NYSE Letter 2, supra note 97, at 2, 5.
---------------------------------------------------------------------------

    The Commission disagrees with the view that there are 
inconsistencies between the Proposed Order and the Infrastructure 
Proposal. The two proposals address distinct aspects of the SIPs. The 
Proposed Order, as discussed above, addressed only the governance 
structure of the Plans that oversee the SIPs, and it did not address 
the core operational structure of the SIPs--including the content of 
SIP data products and the method by which such NMS stock information is 
collected, consolidated, and disseminated--or whether there would 
continue to be multiple SIPs for equity market data. Contrary to the 
commenter's assertion, the Commission did not propose governance 
changes in order to bring about specific operational changes to the 
SIPs, such as a distributed SIP model or specified expansion of data 
content. Rather, the governance changes are designed to address the 
Plans' inefficiencies and the inherent conflicts of interest of the 
SROs, which have affected the provision of core data. The Commission 
believes that an improved governance structure should foster 
improvements to the SIPs; however, in the Proposed Order, it did not 
specify what those improvements might be. In contrast, specific 
operational changes that the Commission has proposed to the SIPs are 
contained within the Infrastructure Proposal.
    Moreover, while the Proposed Order would require that the three 
existing Equity Data Plans be replaced by the single New Consolidated 
Data Plan, it clearly contemplated that processors--plural--could 
continue to exist.\107\ Accordingly, the Commission disagrees with the 
argument that the Proposed Order would require the Plans to retain a 
processor, but that the Infrastructure Proposal would subsequently 
``nullify, or at least undermine the authority of the New Consolidated 
Data Plan to continue to act as a data consolidator.'' \108\ For the 
same reason, although one commenter argues that the Proposed Order 
seeks to mitigate a problem that the Infrastructure Proposal hopes to 
eliminate,\109\ this Order addresses governance issues that are not 
addressed in the Infrastructure Proposal. Should the Commission adopt 
the operational changes contemplated by the Infrastructure Proposal, 
the governance structure of the operating committee of the New 
Consolidated Data Plan would be applicable to the new operational 
structure for the equity market's data collection, consolidation, and 
dissemination and any changes would be subject to the augmented 
majority voting structure of the new plan, as discussed below.
---------------------------------------------------------------------------

    \107\ See, e.g., Proposed Order, supra note 4, 85 FR at 2182 
(``[t]he 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 . . . plan processors''), 2185 (``the 
operating committee of the New Consolidated Data Plan would need to, 
among other things, select plan processors'').
    \108\ Nasdaq Letter, supra note 45, at 2.
    \109\ NYSE Letter 2, supra note 97, at 4.
---------------------------------------------------------------------------

    Further, the Commission disagrees with one commenter's view that, 
through the Proposed Order and the Infrastructure Proposal, the 
Commission proposes to create a ``government-sponsored pricing 
consortium.'' \110\ This commenter argues that--because the Proposed 
Order requires the operating committee to assess the marketplace for 
equity market data and ensure that SIP data is priced in a manner that 
is fair and reasonable and not unreasonably discriminatory, and because 
the Infrastructure Proposal mandates inclusion of DOB and exchange 
auction data--these proposals, taken together, would promote a 
framework where fees would be set by a committee of data providers and 
consumers. But under the Proposed Order--as under the current Equity 
Data Plans--the operating committee of the New Consolidated Data Plan 
would file with the Commission proposals to create and set prices for 
SIP data products, which would be reviewed consistent with the 
requirements of Rule 608 of Regulation NMS. And exchanges would be 
able, as they are now, to file with the Commission proposals to create 
and set prices for proprietary data products, which would be reviewed 
consistent with the requirements of Section 19(b) of the Act and Rule 
19b-4 thereunder.\111\ The Commission therefore disagrees that the 
changes contemplated in the Proposed Order, even if combined with the 
changes contemplated in the Infrastructure Proposal, would create a 
pricing consortium.
---------------------------------------------------------------------------

    \110\ Nasdaq Letter, supra note 45, at 11-12.
    \111\ 15 U.S.C. 78s(b); 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    Other commenters also addressed the relationship between the 
Commission's Proposed Order and the Commission's Infrastructure 
Proposal. One commenter encourages the Commission to combine governance 
and infrastructure into a single package of reforms.\112\ Another 
commenter states that the Commission should coordinate changes in 
governance with changes to the system for disseminating consolidated 
data.\113\ And other commenters express the view that changes to market 
data infrastructure are necessary in addition to changes to SIP 
governance.\114\ As

[[Page 28709]]

discussed above, the Commission has proposed to address its concerns 
with two aspects of consolidated equity market data--the governance of 
the SIPs and the operation of the SIPs--with different remedies. And 
while the Commission has proposed to modify the governance and 
operations of the SIPs separately with different remedies, each of 
these efforts has been undertaken in furtherance of the same, broader 
goal: 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,'' 
consistent with Section 11A of the Act.\115\
---------------------------------------------------------------------------

    \112\ See CII Letter, supra note 74, at 3; see also MEMX Letter, 
supra note 80, at 3 (recommending that the Commission consider the 
Proposed Order and the Infrastructure Proposal together to ensure 
that issues around the content of the SIP and market data in general 
are appropriately considered).
    \113\ See Letter from John Ramsay, Chief Market Policy Officer, 
Investors Exchange LLC (Mar. 4, 2020), at 1-2 (``IEX Letter'') (``We 
believe that progress on both fronts--governance and changing the 
system for distributing consolidated data--is critical to addressing 
broker, fiduciary, and investor concerns about market data.'').
    \114\ See, e.g., Letter from Hubert De Jesus, Managing Director, 
and Joanne Medero, Managing Director, BlackRock, Inc. (Feb. 28, 
2020) at 1 (``BlackRock Letter'') (supporting the Commission's 
Proposed Order, but noting that ``effective governance only 
addresses one dimension of market data regulations'' and that ``more 
comprehensive reforms are warranted''); Virtu Letter, supra note 80, 
at 4 (``While we strongly support the efforts of the agency to make 
enhancements to the NMS [p]lans governing SIP data, we urge the 
Commission to take even bolder steps to introduce needed reforms in 
the regulatory construct governing market data and market 
access.''); Bloomberg Letter, supra note 40, at 1 (encouraging the 
Commission to move forward on plan governance issues, as well as 
continue the Commission's broader efforts, including the 
Infrastructure Proposal). One commenter also expressed support for 
enhancements both to the governance structure of the Equity Data 
Plans and the content and delivery of market data through the 
consolidated tape. See Letter from Patrick Sexton, EVP, General 
Counsel & Corporate Secretary, Cboe Global Markets, Inc. (Feb. 28, 
2020), at 2 (``Cboe Letter'').
    \115\ 15 U.S.C. 78k-1(c)(1)(B).
---------------------------------------------------------------------------

3. The Commission's Proposals Are Consistent With the Act and Will 
Benefit Investors and Support the Regulatory Structure of Regulation 
NMS
    One commenter argues that the Proposed Order, combined with the 
Infrastructure Proposal, would ``reflect a fundamentally anti-
competitive transformation that will harm investors, particularly Main 
Street investors, stifle innovation, and undermine the regulatory 
structure established by Regulation NMS.'' \116\ This commenter further 
asserts that ``there is no doubt that expanding the breadth and scope 
of products offered under the SIP would fundamentally change the 
balance between competition and regulation established by Regulation 
NMS in 2005,'' which, the commenter argues, ``sought to avoid creation 
of a `totally centralized system that loses the benefits of vigorous 
competition and innovation among individual markets,' and therefore 
`allow[ed] market forces, rather than regulatory requirements, to 
determine what, if any, additional quotations outside the NBBO are 
displayed to investors.' '' \117\ This commenter argues that, instead 
of requiring the SROs to file the New Consolidated Data Plan, the 
Commission should review the SIPs to ensure that they only include the 
data needed to meet regulatory mandates, which in turn must match the 
needs of investors.\118\
---------------------------------------------------------------------------

    \116\ Nasdaq Letter, supra note 45, at 5, 8, 11-12.
    \117\ Id. at 12 (quoting Securities Exchange Act Release No. 
51808 (June 9, 2005), 70 FR 37495, 37499 (June 29, 2005)).
    \118\ See id. at 12.
---------------------------------------------------------------------------

    As the Commission stated in the Proposed Order, it believes that 
changes to the current SIP governance model are appropriate precisely 
because the Equity Data Plans, under the current governance structure, 
have not taken sufficient measures to update the SIPs to reflect 
innovations in market data in response to evolving markets and the 
changing needs of investors.\119\ Given the Congressional mandate that 
the Commission 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\--and the Commission's ongoing monitoring and 
evaluation of Equity Data Plan developments \121\--the Commission 
believes that the structure governing the provision of SIP data should 
be improved to better meet the needs of market participants in light of 
changes in the markets since the adoption of Regulation NMS. And the 
Commission believes that the governance changes addressed in this Order 
will facilitate those improvements.
---------------------------------------------------------------------------

    \119\ See, e.g., Proposed Order, supra note 4, 85 FR at 2168.
    \120\ 15 U.S.C. 78k-1(c)(1)(B).
    \121\ See supra note 10 and accompanying text.
---------------------------------------------------------------------------

4. The Need for a Single New Consolidated Data Plan
    Several commenters oppose the proposed creation of a single New 
Consolidated Data Plan.\122\ These commenters assert that the 
Commission failed to adequately consider the cost implications of 
consolidating the three separate Equity Data Plans.\123\ One of these 
commenters states that the Commission both overestimates the costs of 
the Equity Data Plans and underestimates the implementation cost 
associated with the New Consolidated Data Plan.\124\ This commenter 
believes that the Commission is required under Section 3(f) of the Act 
to consider ``whether the [proposed rulemaking] will promote 
efficiency, competition, and capital formation.'' \125\ To meet this 
requirement, this commenter states, ``the Commission must consider the 
economic effects of a proposed rule, including the costs of 
implementation.'' \126\ This commenter further states that the 
Commission ``asserts without support that the current administrative 
structure of the [Equity Data Plans] creates `redundancies, 
inefficiencies, and inconsistancies' [sic] that necessitates 
consolidating the Plans under a single Plan with one [a]dministrator.'' 
\127\ This commenter argues that, as recognized in the Proposed Order, 
the Equity Data Plans ``already largely function as one plan today'' 
with ``the same distribution formula, legal representation, and other 
professional services,'' and that the Participants and advisory 
committee ``do not incur additional costs for the three Plans to meet 
at the same time, compared to one plan.'' \128\ The commenter also 
states that the SIP operating committees and advisory committees each 
have identical membership, and their quarterly meetings are held 
concurrently.\129\
---------------------------------------------------------------------------

    \122\ See, e.g., Cboe Letter, supra note 114, at 12; Nasdaq 
Letter, supra note 45, at 4, n.11; NYSE Letter, supra note 49, at 
18-19.
    \123\ See, e.g., Cboe Letter, supra note 114, at 12; Nasdaq 
Letter, supra note 45, at 4, n.11; NYSE Letter, supra note 49, at 
18-19.
    \124\ See NYSE Letter, supra note 49, at 18.
    \125\ See id.; 15 U.S.C. 78c(f). Another commenter states that 
it agrees with the commenter above ``to the extent that they focus 
on the Commission's clear obligations to assess the economic effects 
of its proposed action.'' See Nasdaq Letter, supra note 45, at 4, 
n.11.
    \126\ See NYSE Letter, supra note 49, at 18.
    \127\ See id. at 19.
    \128\ See id.
    \129\ See id.
---------------------------------------------------------------------------

    This commenter further asserts that the SROs would need to expend 
significant resources hiring outside counsel to assist with tasks 
related to the creation and adoption of the New Consolidated Data Plan, 
including ``negotiating and drafting the New [Consolidated Data] Plan, 
drafting contracts with the SIP processors, replacing current contracts 
with data recipients, and filing to obtain Commission approval of the 
draft new Plan.'' \130\ Additionally, this commenter asserts that 
``only the SROs would face the financial burden in Plan consolidation 
development'' despite being ``forced to abdicate decision-making to 
non-SROs'' under the New Consolidated Data Plan.\131\ Moreover, the 
commenter states that the New Consolidated Data Plan would ``not reduce 
the costs of the Participants to produce--nor the costs of the 
processors to aggregate and distribute--consolidated market data for 
Tapes A, B, and C.'' \132\ This commenter concludes that creating a 
single New Consolidated Data Plan would not ``provide meaningful cost-
savings that would

[[Page 28710]]

support lowering the fees charged for market data products.'' \133\
---------------------------------------------------------------------------

    \130\ See id. at 19.
    \131\ See id.
    \132\ See id.
    \133\ See id.
---------------------------------------------------------------------------

    The Commission disagrees with this commenter's position for several 
reasons. By its terms, Section 3(f) of the Act does not apply to the 
Commission's issuance of an order such as this one requiring the 
Participants to file a new NMS plan.\134\ Moreover, the particular 
costs of implementing the New Consolidated Data Plan will depend on the 
specific choices made by the Participants as they consider how to 
implement this Order. And when the Participants file the New 
Consolidated Data Plan, it will be considered by the Commission under 
Rule 608 of Regulation NMS. Among other things, Rule 608 requires every 
national market system plan to be accompanied by an analysis of the 
impact on competition,\135\ which is then published for comment and 
evaluated by the Commission.\136\ In this Order, the Commission 
considers the overall scope of the implementation costs as well as the 
costs of developing the New Consolidated Data Plan.
---------------------------------------------------------------------------

    \134\ ``Whenever pursuant to this chapter the Commission is 
engaged in rulemaking, or in the review of a rule of a self-
regulatory organization, and is required to consider or determine 
whether an action is necessary or appropriate in the public 
interest, the Commission shall also consider, in addition to the 
protection of investors, whether the action will promote efficiency, 
competition, and capital formation.'' Section 3(f) of the Act, 15 
U.S.C. 78c(f).
    \135\ 17 CFR 242.608(a)(4)(ii)(C).
    \136\ 17 CFR 242.608(b).
---------------------------------------------------------------------------

    In publishing the Proposed Order for comment, the Commission asked 
interested parties to ``submit written presentations of views, data, 
and arguments concerning the Proposed Order,'' including comments on 
``the likely economic consequences'' of issuing a final order to the 
SROs containing the provisions in the Proposed Order.\137\ While 
commenters did not provide quantitative data on development or 
implementation costs for creating a single New Consolidated Data Plan, 
the Commission has considered those costs qualitatively by leveraging 
its oversight experience of the Equity Data Plans and examining the 
qualitative factors raised by a broad range of market participants.
---------------------------------------------------------------------------

    \137\ See Proposed Order, supra note 4, 85 FR at 2165.
---------------------------------------------------------------------------

    The Commission acknowledges certain efforts of the Equity Data 
Plans to operate jointly regarding certain administrative 
elements.\138\ But the Commission believes that redundancies, 
inefficiencies, and inconsistencies remain under the current 
administrative structure of the Equity Data Plans that can be 
significantly reduced under a single New Consolidated Data Plan. Some 
commenters agree with the Commission's view and state 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.\139\ As one commenter states, 
the ``historical reasons that resulted in the three plans for NYSE-
listed, Nasdaq-listed and other exchange-listed stocks no longer exist 
today in a post-Regulation NMS world.'' And this commenter opines that 
``consolidation is a good first step to reforming the current market 
data infrastructure.'' \140\
---------------------------------------------------------------------------

    \138\ See id. at 2182. The Commission believes that the current 
examples of joint operation of the Plans demonstrates that there are 
certain areas of operation for which creating a single New 
Consolidated Data Plan would be expected to give rise to minimal, if 
any, additional implementation costs.
    \139\ See, e.g., Fidelity Letter, supra note 80, at 3; IEX 
Letter, supra note 113, at 3; MEMX Letter, supra note 80, at 2; 
Schwab Letter, supra note 74, at 5; SIFMA Letter, supra note 13, at 
3; Wellington Letter, supra note 77, at 2. While one commenter 
agrees with the Commission's view that creating a single New 
Consolidated Data Plan is ``likely to promote efficiency and cost-
savings,'' this commenter believes that ``those efficiencies may be 
considerably undermined'' by the Infrastructure Proposal. See Nasdaq 
Letter, supra note 45, at 4. See supra Section II.B.2 for a 
discussion on the relationship between this Order and the 
Infrastructure Proposal.
    \140\ See SIFMA Letter, supra note 13, at 3.
---------------------------------------------------------------------------

    One commenter states that a single New Consolidated Data Plan 
``will promote efficiencies, especially in terms of streamlining the 
operation of the SIP feeds.'' \141\ Another commenter states that 
consolidating the Plans would ``lead to greater efficiency in meeting 
the purposes of Section 11A of the Act'' and ``reduce confusion for 
investors.'' \142\ Another commenter states that the differences 
between the Equity Data Plans are ``substantial and create unnecessary 
compliance complexity for SIP data users'' in the areas of ``audit 
practices and requirements[,] entitlement controls, administrative 
usage policies, free trial policy, non-professional usage, [and] 
qualifications as non-professional users.'' \143\ Another commenter 
states that the needless duplication under the current framework 
results in ``two different sets of staff to deal with, two sets of 
contracts, two sets of reporting requirements, and two separate audit 
teams to manage.'' \144\ The same commenter states that ``there is no 
reason for the three distinctive plans to exist,'' and believes that 
combining the two administrators along with their policies and staffs 
under a single New Consolidated Data Plan would ``significantly 
decrease the administrative burden'' that SIP consumers 
experience.\145\
---------------------------------------------------------------------------

    \141\ See State Street Letter, supra note 76, at 2.
    \142\ See Letter from Jennifer W. Han, Associate General 
Counsel, Managed Funds Association, and Adam Jacobs-Dean, Managing 
Director, Global Head of Markets Regulation, Alternative Investment 
Management Association (Feb. 28, 2020), at 2 (``MFA/AIMA Letter'').
    \143\ See Schwab Letter, supra note 74, at 5-6.
    \144\ See Refinitiv Letter, supra note 80, at 2.
    \145\ See id.
---------------------------------------------------------------------------

    The Commission agrees with these commenters' statements for the 
reasons discussed below and believes that creating a single New 
Consolidated Data Plan with the governance structure discussed below 
would simplify the administration of the Equity Data Plans' operations 
to facilitate functional improvements to the provision of equity market 
data, and would further efforts to ensure that core data meets on a 
continuing basis the needs of market participants and furthers the 
objectives of Section 11A of the Act.\146\
---------------------------------------------------------------------------

    \146\ See 15 U.S.C. 78k-1(c)(1)(B).
---------------------------------------------------------------------------

    The Commission believes that a single New Consolidated Data Plan 
would simplify the Plans' billing structure to require only one 
inventory reporting system, one billing method, one reporting 
obligation for data subscribers, and one plan administrator payment for 
the Participants. The Commission believes that the simplified billing 
structure would provide the Plans with a single standardized and 
comprehensive view of SIP data costs for subscribers. Additionally, the 
Commission expects that, instead of two auditing teams under the Equity 
Data Plans, only one auditing team would be necessary for SIP data 
usage under the New Consolidated Data Plan. Finally, the Commission 
anticipates that the Plans would no longer need to maintain separate 
books and records for the Equity Data Plans' businesses (including 
separate plan websites and secure web portals for Participants), to 
file with the Commission separate (and often duplicative) plan 
amendments regarding some aspects of the Equity Data Plans,\147\ or to 
devote additional

[[Page 28711]]

personnel resources to coordinate and facilitate three separate Equity 
Data Plans.\148\
---------------------------------------------------------------------------

    \147\ One commenter suggests as an alternative consideration to 
the New Consolidated Data Plan that the Commission amend its rules 
to allow filings made by the Equity Data Plans to be filed with the 
Commission as a single filing for all three Equity Data Plans. See 
Cboe Letter, supra note 114, at 12-13. The Commission agrees with 
the commenter that the Equity Data Plans' filing process is one 
aspect of the many inefficiencies that need to be addressed under 
the New Consolidated Data Plan. This commenter also highlights the 
inefficiencies of the SRO rule filing process under Section 19(b) of 
the Act and Rule 19b-4 thereunder. See Cboe Letter, supra note 114, 
at 13, n.24. While the Commission appreciates the views shared by 
the commenter on the SRO rule filing process, more generally, we do 
not believe that such arguments support keeping three separate 
Equity Data Plans, which is the issue addressed in this Order. 
Indeed, consolidating NMS plan filings would be facilitated by 
creating a single New Consolidated Data Plan.
    \148\ See, e.g., Refinitiv Letter, supra note 80, at 2; Schwab 
Letter, supra note 74, at 5-6.
---------------------------------------------------------------------------

    The Commission believes that reducing the existing redundancies, 
inefficiencies, and inconsistencies through a single New Consolidated 
Data Plan should further the goals of Section 11A of the Act and 
provide meaningful cost savings in the long term for SROs and for other 
market participants by consolidating the operational costs incurred by 
the administration of three separate Equity Data Plans. Whereas market 
participants today must navigate their obligations under three separate 
Plans, a single New Consolidated Data Plan would remove impediments to 
the efficient operation of the national market system by providing the 
foundation for the application of consistent policies,\149\ procedures, 
terms,\150\ and conditions. This should provide for a more streamlined 
approach to the administration and provision of consolidated equity 
market data and thereby reduce the costs imposed on other market 
participants, including SIP data subscribers.\151\
---------------------------------------------------------------------------

    \149\ For example, the Commission understands that there are 
currently differences among the Equity Data Plans in the policies 
related to, among other things, the following: Consolidated volume, 
audit look-back period, entitlement review, entitlement control, 
disaster recovery, non-display usage, service facilitator, 
administrative usage, quote meter, and controlled versus 
uncontrolled products.
    \150\ See supra note 143 (commenter stating that differences 
among the qualifications as non-professional users create compliance 
complexity for SIP data users). Additionally, exchanges have 
acknowledged the administrative burden associated with determining 
the professional and non-professional status of broker-dealers' 
customers. See, e.g., 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 Apr. 20, 2020) (``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: A Blueprint for a Better Tomorrow (Apr. 2019), at 4, 
available at https://www.nasdaq.com/docs/Nasdaq_TotalMarkets_2019_2.pdf (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.'').
    \151\ See State Street Letter, supra note 76, at 2; TD 
Ameritrade Letter, supra note 74, at 2; Virtu Letter, supra note 80, 
at 2.
---------------------------------------------------------------------------

    In addition, the Commission believes that the economic effects of 
creating a single New Consolidated Data Plan are likely to provide 
long-term cost-savings for the SROs in the administration of the Plans, 
as well. The Commission acknowledges that SROs would incur costs in the 
process of creating the New Consolidated Data Plan. One commenter 
asserts that, given the significant resources that would need to be 
diverted to drafting the New Consolidated Data Plan, the effort would 
likely increase rather than decrease inefficiencies.\152\ Three 
commenters highlight prior experience in the joint development of an 
NMS plan as instructive for the significant amount of time and 
resources devoted to the creation a new NMS plan.\153\
---------------------------------------------------------------------------

    \152\ See Cboe Letter, supra note 114, at 12.
    \153\ See Cboe Letter, supra note 114, at 12, n.22; Nasdaq 
Letter, supra note 45, at 15; NYSE Letter, supra note 49, at 19, 
n.46. As discussed below, the Commission acknowledges that there 
will be a transition period with additional costs to onboard a new 
independent Plan administrator pursuant to this Order. See infra 
Section II.D.
---------------------------------------------------------------------------

    However, while it is likely that initially, the implementation cost 
of combining the Equity Data Plans may exceed the short-term cost 
savings from the reduction of existing redundancies, inefficiencies, 
and inconsistencies described above, the Commission anticipates that 
ongoing cost savings would continue to accrue over the period that the 
New Consolidated Data Plan is likely to remain in effect, thereby 
providing long-term cost savings. In addition, with respect to the 
costs of creating the New Consolidated Data Plan, we note that SROs, as 
the parties that have been operating the NMS plans, can provide unique 
insight in formulating the specific terms and provisions of the New 
Consolidated Data Plan. The Commission also believes that the plan 
development costs will differ significantly from those incurred in the 
development of prior NMS plans. Specifically, the Equity Data Plans 
have been in existence for over 30 years. This should provide the 
Participants with the requisite experience to limit the scope of the 
costs to create the New Consolidated Data Plan.\154\ In addition, the 
Participants may incorporate some or all of the current operational 
provisions of the existing Equity Data Plans into the New Consolidated 
Data Plan.\155\ Furthermore, as contemplated in the Proposed 
Order,\156\ the New Consolidated Data Plan could retain the same SIP 
processors under the same terms and conditions, thereby eliminating 
what otherwise would be a significant burden for the development of the 
New Consolidated Data Plan.\157\ Thus, the Commission anticipates that, 
at least initially, most of the detailed provisions relating to the 
operation of the existing Equity Data Plans could be imported into the 
New Consolidated Data Plan without substantial effort or great 
cost.\158\
---------------------------------------------------------------------------

    \154\ For example, the Commission believes that the 
Participants' and the advisory committee members' longstanding 
experience in the Plans would reduce the costs for identifying Plan 
provisions that could be harmonized or combined under a New 
Consolidated Data Plan. In fact, based on information the Commission 
obtained through its oversight of the Plans, the Commission is aware 
that the Participants and the advisory committee members of the 
Equity Data Plans have already engaged in some recent efforts to 
facilitate standardization of the policies of the Equity Data Plans.
    \155\ The Commission believes that the New Consolidated Data 
Plan submitted by the SROs under this Order should 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. See Proposed Order, supra note 4, 85 
FR at 2186. The Commission believes that this exercise would be 
incorporated into the process of creating a single New Consolidated 
Data Plan and provide the administrative benefits described above.
    \156\ See supra note 107 (quoting statements from the Proposed 
Order that the existing SIP processors could continue to exist under 
the New Consolidated Data Plan).
    \157\ The Commission's requirement to create the New 
Consolidated Data Plan does not contemplate changes to the 
production, aggregation, or distribution of consolidated market 
data. Thus, the Commission does not anticipate that any costs 
associated with the production of market data would be affected. 
Instead, the direct cost savings envisioned by the Commission are 
likely to result from the reduction of existing redundancies, 
inefficiencies, and inconsistencies related to the operation of 
three separate Equity Data Plans.
    \158\ The Commission does not anticipate that substantial 
revisions or re-negotiations of existing SIP subscriber contracts 
would be necessary to transition to the New Consolidated Data Plan. 
For example, the Commission understands that the SIP contracting 
process is automated (i.e., an online form that uses conditional 
logic to determine the data licensing requirements of a subscriber), 
which should ease the electronic transfer of existing SIP subscriber 
requirements to the New Consolidated Data Plan. The Commission did 
not receive comments on the level of burden to replace current 
contracts with the New Consolidated Data Plan.
---------------------------------------------------------------------------

C. Voting Rights on the New Consolidated Data Plan Operating Committee

    In its Proposed Order, the Commission set forth specific governance 
provisions and the voting structure to be included in the New 
Consolidated Data Plan to help to address certain concerns it 
identified relating to the provision of consolidated equity market data 
under the existing Equity Data Plans. The proposed

[[Page 28712]]

governance provisions include: (i) An allocation of voting rights to 
unaffiliated exchanges and exchange groups, along with the possibility 
of additional voting power based on market share, (ii) the inclusion of 
non-SRO voting members on the operating committee of the New 
Consolidated Data Plan, specifying the categories to be represented and 
a nomination and selection process, and (iii) the voting requirements 
for action under the New Consolidated Data Plan.
1. Voting Rights for SROs
(a) The Need for the Allocation of Voting Power by Exchange Group and 
Market Share
    As it stated in the Proposed Order, the Commission believes that 
exchange consolidation has altered the relative voting power of SROs 
such that exchange groups under common management now have greater 
voting power with respect to plan governance. Exchanges that 
historically had only one vote on NMS plans have now been consolidated 
into exchange groups that can control blocks of four or five 
votes.\159\ Consequently, any two exchange groups can now command a 
majority of votes,\160\ and the relative voting power of unaffiliated 
SROs has been diluted over time. Accordingly, the Commission continues 
to believe that changing the current voting structure would be 
beneficial and would promote the goals of Section 11A of the Act \161\ 
with respect to equity market data.
---------------------------------------------------------------------------

    \159\ 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 percent of the 
trading volume in NYSE-listed securities. Today, the NYSE group of 
SROs as a whole has approximately 30 percent 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 Apr. 17, 2020) (month-to-date 
volume summary as of Apr. 17, 2020).
    \160\ Specifically, the three exchange groups currently 
represent 14 of the 17 votes on the operating committees of the 
Equity Data Plans, and any two exchange groups together command a 
minimum of 9 votes.
    \161\ 15 U.S.C. 78k-1.
---------------------------------------------------------------------------

    To address the disproportionate influence that the exchange groups 
have had on the operation of the existing Equity Data Plans, in its 
Proposed Order, the Commission proposed that voting rights in the New 
Consolidated Data Plan should be allocated so that each unaffiliated 
SRO \162\ 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 15 percent of 
consolidated equity market share \163\ for four of the six consecutive 
months preceding a vote of the operating committee.
---------------------------------------------------------------------------

    \162\ 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, LTSE, 
and MEMX.
    \163\ As defined in the Proposed Order, and for purposes of this 
Order, the term ``consolidated equity market share'' means 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 or the New Consolidated Data Plan. See Proposed Order, supra 
note 4, 85 FR at 2175, n.141.
---------------------------------------------------------------------------

    A number of commenters share the Commission's concern about the 
concentration of voting power in exchange groups and support the 
Commission's proposal to rebalance the relative voting power on the New 
Consolidated Data Plan's operating committee.\164\ One commenter argues 
that the current voting structure of the Equity Data Plans reduces 
incentives for SROs to ``agree on changes that could impact the 
proprietary interests of one or two exchange groups.'' \165\ Another 
commenter ``strongly supports reducing the emphasis on voting based on 
individual exchange medallions,'' stating, ``this aspect of the 
proposed order is key to addressing the inherent conflicts of interest 
that exist relating to SIP governance.'' \166\ A third commenter 
supports the proposed voting allocation structure by noting that the 
proposal ``would modernize the voting structure . . . while 
facilitating the fair representation of all participants on the 
operating committee.'' \167\ One commenter agrees, stating that the 
proposal ``importantly removes some of the perverse incentives for 
exchange groups to acquire or `light up' new exchange medallions.'' 
\168\ Another commenter adds that the proposal would ``reward exchanges 
with market share while balancing potential fluctuations in market 
share and preventing further consolidation of voting power.'' \169\
---------------------------------------------------------------------------

    \164\ See, e.g., Citi Letter, supra note 85, at 3; Clearpool 
Letter, supra note 40, at 3-4; Fidelity Letter, supra note 80, at 4; 
ICI Letter, supra note 78, at 4-5; IEX Letter, supra note 113, at 2; 
MFA/AIMA Letter, supra note 142, at 3; Letter from Christopher 
Solgan, VP, Senior Counsel, MIAX Exchange Group (Mar. 3, 2020), at 2 
(``MIAX Letter''); MEMX Letter, supra note 80, at 3; SIFMA Letter, 
supra note 13, at 4; Refinitiv Letter, supra note 80, at 2; Letter 
from Mehmet Kinak, Vice President & Global Head of Systematic 
Trading & Market Structure, and Jonathan D. Siegel, Vice President & 
Senior Legal Counsel, T. Rowe Price Associates, Inc. (Feb. 24, 
2020), at 2 (``T. Rowe Price Letter''); Virtu Letter, supra note 80, 
at 2.
    \165\ IEX Letter, supra note 113, at 2.
    \166\ MEMX Letter, supra note 80, at 4.
    \167\ MIAX Letter, supra note 164, at 2.
    \168\ Citi Letter, supra note 85, at 3.
    \169\ SIFMA Letter, supra note 13, at 4.
---------------------------------------------------------------------------

    Several commenters, however, oppose the Commission's proposal.\170\ 
Specifically, these commenters argue that the Commission's proposal is 
inconsistent with the APA \171\ and with the Commission's historical 
treatment of the exchanges, in which affiliated exchanges have been 
treated individually for regulatory purposes.\172\ One of these 
commenters states that the Commission's proposal ``disenfranchises 
individual exchanges,'' arguing that, ``[t]he concept of `exchange 
group' is found nowhere in the statute or SEC rules, but operates to 
deprive SROs of the votes that they would otherwise have.'' \173\ This 
commenter further asserts that ``one can easily see a scenario in which 
a proposal could be adopted even though a majority of SEC licensed SROs 
disapproved of the proposal.'' \174\ Another commenter states that the 
Commission ``fails . . . to explain why the unified votes of multiple, 
independent SROs are less deserving or meaningful than the votes of 
unaffiliated SROs.'' \175\ This commenter similarly argues that, 
``[e]ach SRO participating in the proposed New [Consolidated Data] Plan 
would have independent obligations under the Exchange Act and the Plan 
with respect to administering SIPs, irrespective of whether the SRO is 
affiliated with an exchange group. Yet the impact of the Proposed Order 
would be to curtail the independence of affiliated SROs by, in effect, 
requiring that they vote as a bloc.'' \176\ This commenter further 
states that the proposal would result in ``otherwise equal and 
independent SROs . . . [having] unequal voting power based on their 
corporate affiliations. And it assumes that the degree of voting power 
inequity should increase or decrease based on the SRO-affiliate group 
sizes.'' \177\
---------------------------------------------------------------------------

    \170\ See, e.g., Cboe Letter, supra note 114; Nasdaq Letter, 
supra note 45; NYSE Letter, supra note 49.
    \171\ See NYSE Letter, supra note 49, at 17-18 (arguing that the 
Commission's proposal lacks a reasonable basis and is therefore 
arbitrary and capricious).
    \172\ See Cboe Letter, supra note 114, at 9-10; Nasdaq Letter, 
supra note 45, at 6-7; NYSE Letter, supra note 49, at 17-18; but see 
ICI Letter, supra note 78, at 4.
    \173\ Nasdaq Letter, supra note 45, at 7.
    \174\ Id. (providing as an example, ``a proposal supported by 
four unaffiliated SROs and one exchange group would garner a 
majority of the permitted SROs votes (six to four in favor) but 
would not be supported by a majority of SROs (nine to seven 
against).'').
    \175\ NYSE Letter, supra note 49, at 17.
    \176\ Id.
    \177\ Id. at 18.

---------------------------------------------------------------------------

[[Page 28713]]

    The Commission disagrees. The Commission continues to believe that 
there is a need to rebalance voting power in Plan governance to address 
the disproportionate influence of affiliated exchange groups.\178\ The 
Proposed Order described in detail the effects on Plan governance of 
the exchange groups' conflicts of interest arising from their sale of 
proprietary data products. The current governance structure provides 
voting power based on each exchange license and thereby concentrates 
voting power in a small number of exchange group stakeholders, which 
also have inherent conflicts of interest with respect to the operation 
of the Plans. The Commission believes that this has perpetuated 
disincentives for the Equity Data Plans to make improvements to the SIP 
data products. The Commission continues to believe that modernizing 
plan governance by reallocating votes by exchange group should help 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.
---------------------------------------------------------------------------

    \178\ One commenter noted the relatively recent acquisition by 
NYSE's parent company of two exchanges that typically account for 
less than 3 percent of trading volume, yet represent 12 percent of 
voting power on the Equity Data Plans, allowing the NYSE to 
``command 29% of the operating committees vote . . . [rather than] 
the 18% voting power they had prior to acquiring these exchanges.'' 
ICI Letter, supra note 78, at 5.
---------------------------------------------------------------------------

    As the exchange group commenters accurately point out, however, the 
Commission has treated affiliated exchanges as separate entities for 
regulatory purposes in the past. The Commission believes, nonetheless, 
that a meaningful legal distinction exists between, on one hand, each 
SRO's individual responsibility pursuant to Sections 6, 15A, 17, and 19 
of the Act \179\ to comply with the statutory and regulatory 
requirements that apply to its operation and self-regulation of its 
market center, including the requirement that its rules ``not impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of [the Act]'' \180\--and, on the other hand, the 
responsibility of the SROs to jointly operate the NMS plans pursuant to 
Section 11A of the Act \181\ and to disseminate consolidated market 
data to which different SROs may contribute in varying degrees. The 
Commission believes that this legal distinction justifies treating 
affiliated exchanges under common management and control as one 
exchange group limited to one, or at most two, vote(s) in the context 
of NMS plan governance. And, as a practical matter, the Commission, in 
its oversight of the Equity Data Plans, is unaware of an individual 
affiliated exchange member of an exchange group having cast its vote 
differently than the votes cast by its affiliated exchanges. The 
Commission further believes that its authority under Section 11A of the 
Act \182\ is broad and is not limited with respect to a determination 
as to the allocation of voting power to exchanges, either individually 
or in groups, based on common management or control.
---------------------------------------------------------------------------

    \179\ 15 U.S.C. 78f, 15 U.S.C. 78o-3, 15 U.S.C. 78q, and 15. 
U.S.C. 78s.
    \180\ Section 6(b)(8) and Section 15A(b)(9) of the Act, 15 
U.S.C. 78f(b)(8) and 15 U.S.C. 78o-3(b)(9).
    \181\ 15 U.S.C. 78k-1.
    \182\ Section 11A of the Act, 15 U.S.C. 78k-1 (``having due 
regard for the public interest, the protection of investors, and the 
maintenance of fair and orderly markets, to use its authority under 
this [Act] to facilitate . . . a national market system for 
securities . . . in accordance with the findings and to carry out 
the objectives set forth in paragraph (1) of [Section 11A(a)].'').
---------------------------------------------------------------------------

    Moreover, the Commission believes that treating affiliated SROs 
differently from non-affiliated SROs is justified in this context from 
a policy perspective because of the disproportionate influence 
affiliated exchange groups currently exercise in Plan matters by voting 
as a block and diluting the voting power of other Participants. Indeed, 
the Commission agrees with the commenter that points out that the 
augmented majority vote could result in a scenario in which a proposal 
is adopted with the support of a supermajority of votes on the 
operating committee and a majority of SRO votes, but without the 
support of a majority of the individual exchanges.\183\ This is 
precisely the outcome that this Order is intended to achieve--plan 
action supported by a supermajority of the New Consolidated Data Plan's 
operating committee, which would include a majority of SRO votes along 
with sufficient non-SRO votes to achieve the supermajority, that is not 
constrained by the votes of one or two exchange groups under common 
management and control that currently command a majority of the votes 
on the Equity Data Plans. Similarly, while one commenter argues that 
the Commission's proposal would ``curtail the ability of independent 
SROs to act independently in service of their own obligations,'' \184\ 
another commenter questions the independence of the affiliated 
exchanges, noting the lack of evidence that affiliated exchanges vote 
separately and observing that an exchange group commented in a unified 
voice on behalf of all affiliated exchanges.\185\ Similarly, one 
commenter asserts that the Proposed Order assumes that ``the degree of 
voting power inequity should increase or decrease based on the SRO-
affiliate group sizes.'' \186\ In the Commission's view, this assertion 
is incorrect, in that a second vote would be granted only on the basis 
of the exchange group's consolidated equity market share, not the size 
or number of exchange licenses of the affiliate group.
---------------------------------------------------------------------------

    \183\ See Nasdaq Letter, supra note 45 and accompanying text.
    \184\ NYSE Letter, supra note 49, at 17.
    \185\ ICI Letter, supra note 78, at 4 (emphasis in original).
    \186\ NYSE Letter, supra note 49, at 18.
---------------------------------------------------------------------------

    In addition, the fact that, as one commenter argues, the concept of 
an exchange group is not created by statute or rule does not, in the 
Commission's view, preclude the Commission from recognizing that 
affiliated exchanges act in some contexts as a collective organization. 
Instead, the Commission notes that, unlike the SROs' individual 
regulatory obligations, the one-vote-per-exchange governance model for 
NMS plans is not compelled by statute or regulation. Further, because 
of the inherent conflicts of interest that certain exchanges face in 
their operation of the existing Equity Data Plans, as detailed in the 
Proposed Order and discussed above, the Commission does not believe 
that permitting exchange SROs under common ownership to exercise 
disproportionate influence through block voting over New Consolidated 
Data Plan decisions, including fees and technology updates, supports 
the reliability and affordability of consolidated market data.
    Two commenters state that the Commission provides no adequate 
rationale for the decision to cap at two votes the number of votes that 
affiliated SROs would be granted.\187\ One of these commenters 
questions why there could not be a third vote and advocates adding 
tiers so that the proposal would ``align the number of votes allocated 
to exchange groups or unaffiliated SROs with meaningful market share to 
their overall significance in the market.'' \188\ Several other 
commenters argue to the contrary that currently each exchange license 
obtained by an exchange group provides another vote on the Equity Data 
Plan's operating committee with ``little incremental overhead expenses. 
Capping the number of SRO votes at two per exchange group removes this

[[Page 28714]]

incentive.'' \189\ Another commenter that generally supports the 
proposed voting structure suggests that the threshold for a second vote 
should be 10 percent of consolidated equity market share, as 
recommended by the Commission's Equity Market Structure Advisory 
Committee, rather than the 15 percent threshold proposed by the 
Commission.\190\ This commenter argues that, ``in the current 
fragmented market structure, 10 percent represents a very significant 
threshold that we believe would justify a slightly stronger voice in 
governance.'' \191\
---------------------------------------------------------------------------

    \187\ Id.; Cboe Letter, supra note 114, at 10.
    \188\ Cboe Letter, supra note 114, at 10 (advocating that 
instead there should be one vote for up to 5 percent consolidated 
market share, two votes for 5 percent to 15 percent consolidated 
market share, and three votes for more than 15 percent consolidated 
market share).
    \189\ Citi Letter, supra note 85, at 3; see also IEX Letter, 
supra note 113, at 2; ICI Letter, supra note 78, at 5; Letter from 
RBC Capital Markets, LLC, Rich Steiner, Head of Client Advocacy and 
Market Innovation (Feb. 28, 2020), at 2 (``Royal Bank of Canada 
Letter''); T. Rowe Price Letter, supra note 164, at 2.
    \190\ See IEX Letter, supra note 113, at 2.
    \191\ Id.; but see MEMX Letter, supra note 80, at 4; Clearpool 
Letter, supra note 40, at 4 (stating it would not support lowering 
the 15 percent threshold).
---------------------------------------------------------------------------

    The Commission continues to believe that it is appropriate to limit 
an SRO or affiliated exchange group to no more than two votes because 
providing more than two votes to any one SRO or affiliated exchange 
group would perpetuate the ability of two exchange groups to command a 
majority of votes on the operating committee, which would perpetuate 
the status quo. The Commission believes that this outcome would not 
address the disproportionate influence that the exchange groups have on 
the governance of the Equity Data Plans. Moreover, the Commission 
agrees with another commenter's assertion that the two-vote cap would 
serve to deter actions, such as establishing a new exchange or further 
consolidation of existing exchanges into groups, taken for the sole 
purpose of gaining additional voting power on the operating 
committee.\192\
---------------------------------------------------------------------------

    \192\ See ICI Letter, supra note 78, at 5.
---------------------------------------------------------------------------

    In addition, the Commission continues to believe that the voting 
allocation set forth in the Proposed Order, which would provide a 
second vote only where an unaffiliated SRO or exchange group has a 
consolidated equity market share of more than 15 percent over a 
specified period of time, is appropriate. A 15 percent threshold 
signifies the importance to the national market system of those 
exchanges that, in their roles as SROs, therefore oversee trading 
activity that generates a significant amount of equity market data and, 
as noted below, each exchange group would have an additional vote. 
While one commenter argues instead for a 10 percent threshold and 
another advocates for a tiered approach, with the possibility of a 
third vote, the Commission, as discussed below, continues to believe 
that the 15 percent threshold is appropriate.
    The Commission disagrees that 10 percent consolidated equity market 
share is sufficiently significant to warrant a second vote, 
particularly given the trend toward exchange consolidation. The 
consolidated equity market share of the largest exchange groups is 
already well above 10 percent and continues to range from 17 percent to 
22 percent.\193\ Setting the threshold for a second vote at 10 percent 
consolidated equity market share would create the expectation that 
exchange groups should receive a third vote at the same interval 
threshold above 10 percent (e.g., 20 percent). However, the Commission 
is not permitting the exchange groups, regardless of their consolidated 
equity market share, to have a third vote as this would lead to a 
continuing concentration of voting power. For the same reason, the 
Commission is concerned that a 10 percent threshold may be too easy to 
achieve through consolidation, which would result in too low a 
threshold for obtaining an additional vote and could lead to a 
continuing concentration of voting power. Conversely, as discussed 
above, the Commission believes that it is appropriate to provide an 
extra vote for exchanges or exchange groups with a greater consolidated 
equity market share.
---------------------------------------------------------------------------

    \193\ See Cboe U.S. Equities Volume Data, available at https://markets.cboe.com/us/equities/market_share/ (last accessed Apr. 20, 
2020) (month-to-date volume summary as of Apr. 20, 2020). 
Specifically, the consolidated market shares for the Cboe, Nasdaq, 
and NYSE exchange groups were 16.63 percent, 17.84 percent, and 
22.65 percent, respectively. Id.
---------------------------------------------------------------------------

    With respect to the proposed ``look-back period'' of four of the 
six consecutive months preceding a vote of the operating committee, the 
Commission notes that several commenters expressly supported the 
specified period, while none objected to it.\194\ 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 potential 
fluctuations in trading volume among exchanges, while avoiding frequent 
changes in vote allocations resulting from short-term changes in 
trading activity.
---------------------------------------------------------------------------

    \194\ See, e.g., SIFMA Letter, supra note 13, at 4; Clearpool 
Letter, supra note 40, at 4; MEMX Letter, supra note 80, at 4.
---------------------------------------------------------------------------

(b) Prohibiting Voting by Nonoperational Equity Trading Venues
    The Commission proposed 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.\195\ The 
Commission proposed this provision 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, and several commenters expressed 
their support for the Commission's view.\196\ The Commission continues 
to believe that exchanges should have voting rights for New 
Consolidated Data Plan matters only if those exchanges actively operate 
equity market trading venues, and no commenters disagreed with this 
view. Accordingly, this Order requires that the New Consolidated Data 
Plan provide that if an exchange ceases operation as an equity trading 
venue, or has yet to commence operation as an equity trading 
venue,\197\ that exchange will not be permitted to have a vote on Plan 
matters.
---------------------------------------------------------------------------

    \195\ 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).
    \196\ See Clearpool Letter, supra note 40, at 4; ICI Letter, 
supra note 78, at 5; MEMX Letter, supra note 80, at 4.
    \197\ For purposes of this Order, operating a trading venue 
means trading NMS stocks on the venue as opposed to maintaining 
status as a national securities exchange without actually trading.
---------------------------------------------------------------------------

2. The Need for Non-SRO Participation in Plan Governance
    A key provision in the Proposed Order was providing voting 
representation to non-SROs on the New Consolidated Data Plan's 
operating committee. Commenters express opinions on a range of issues 
relating to non-SRO voting, including the Commission's statutory 
authority, the categories of non-SROs proposed to have representation 
on the operating committee, the process for selecting non-SRO members, 
as well as the number of terms and term length each non-SRO member 
should be permitted to serve.

[[Page 28715]]

(a) The Commission Has Statutory Authority to Require Non-SRO Voting 
Power on the Operating Committee
    The Commission believes that an operating committee that takes into 
account views from non-SRO members that are charged with carrying out 
the objectives of the New Consolidated Data Plan will have an overall 
improved governance structure that better supports 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,'' \198\ because it will reflect a 
more diverse set of perspectives from a range of market participants, 
including significant subscribers of SIP core data products.
---------------------------------------------------------------------------

    \198\ 15 U.S.C. 78k-1(c)(1)(B).
---------------------------------------------------------------------------

    Some commenters, however, question the Commission's statutory 
authority to require an NMS plan to provide voting power to non-
SROs.\199\ These commenters state that Section 11A of the Act does not 
authorize the Commission to require the SROs to work with non-SROs in 
developing or administering NMS plans, and instead obligates SROs only 
to ``act jointly'' with other SROs to operate the national market 
system.\200\ These exchange group commenters state that, because the 
statute does not directly provide for non-SRO participation, the 
Commission does not have the authority to require the SROs to 
coordinate with them in developing and maintaining an NMS plan.\201\ 
One of these commenters argues that ``because Congress only granted the 
Commission authority to empower SROs to develop and maintain the 
operation of the national market system, the Commission could not grant 
non-SROs voting authority over the SIPs under Section 11A even if the 
SROs wish the Commission to do so.'' \202\ Another commenter states, 
``[w]here a statute or regulation contains express language limited 
only to a particular group, the negative implication is that other 
groups are not covered by the provision.'' \203\ Thus, while it 
supports voting rights for non-SROs on the New Consolidated Data Plan's 
operating committee, this commenter believes that Section 11A of the 
Act \204\ and Rule 608 of Regulation NMS \205\ currently do not allow 
for non-SRO voting power on an NMS plan and this statute and regulation 
would need to be amended to permit such voting power on an NMS 
plan.\206\
---------------------------------------------------------------------------

    \199\ See NYSE Letter, supra note 49, at 14-15; Nasdaq Letter, 
supra note 45, at 5-6.
    \200\ See NYSE Letter, supra note 49, at 14; Nasdaq Letter, 
supra note 45, at 5-6; see also Cboe Letter, supra note 114, at 7, 
n.13 (stating that it supports greater participation for non-SROs, 
but that the Commission should ``ensure that any steps it takes to 
further this participation are within its statutory authority''). 
This commenter also suggests that non-SRO members of the operating 
committee be entities regulated by the Commission, rather than 
individual employees of the entities, and therefore, subject to the 
same obligations and responsibilities as SRO members. Id. at 7. For 
a full discussion of this comment, see infra Section II.E.1.
    \201\ See NYSE Letter, supra note 49, at 14-15; Nasdaq Letter, 
supra note 45, at 5-6.
    \202\ NYSE Letter, supra note 49, at 14 (emphasis in original).
    \203\ Nasdaq Letter, supra note 45, at 6.
    \204\ 15 U.S.C. 78k-1.
    \205\ 17 CFR 242.608.
    \206\ See Nasdaq Letter, supra note 45, at 5-6.
---------------------------------------------------------------------------

    The Commission disagrees. Section 11A of the Act \207\ directs the 
Commission to ``use its authority under this title''--including all of 
our authority over SROs --to facilitate the establishment of the 
national market system and further the objectives set forth in that 
section.\208\ And Section 11A(a)(3)(B) of the Act provides the 
Commission the authority to require the SROs ``to act jointly . . . in 
planning, developing, operating, or regulating a national market system 
(or a subsystem thereof).'' \209\ Thus, while Section 11A affirmatively 
authorizes the Commission to allow or require the SROs to act jointly, 
it does not prohibit non-SRO participation in developing and 
administering NMS plans. Rather, it is silent on this issue. And, as 
explained by the Commission in the Proposed Order, permitting non-SRO 
views to be more directly heard regarding Plan matters (while 
preserving joint SRO control of the New Consolidated Data Plan provided 
for by the plan voting structure discussed below) \210\ would neither 
impede the SROs' ability to act jointly nor interfere with their 
ability to operate the national market system. Thus, pursuant to its 
authority over the national market system, the Commission is ordering 
the Participants to the New Consolidated Data Plan, as they act 
jointly, to include in the Plan voting rights for non-SROs.
---------------------------------------------------------------------------

    \207\ 15 U.S.C. 78k-1.
    \208\ 15 U.S.C. 78k-1(a)(2).
    \209\ 15 U.S.C. 78k-1(a)(3)(B).
    \210\ See infra Section II.C.2.
---------------------------------------------------------------------------

    The Commission disagrees with the commenter that believes that 
because the language of a statute or regulation expressly refers to a 
particular group, the negative implication is that other groups are not 
covered by the provision. To the contrary, in the context of a statute 
delegating rulemaking to an agency, statutory silence leaves discretion 
with the agency.\211\ In this instance, the Commission believes it is 
appropriate to exercise that discretion to give non-SROs a vote on the 
New Consolidated Data Plan's operating committee.
---------------------------------------------------------------------------

    \211\ See NAM v. SEC, 748 F.3d 359, 368 (D.C. Cir. 2014); 
Catawba Cty, N.C. v. EPA, 571 F.3d 20, 36 (D.C. Cir. 2009).
---------------------------------------------------------------------------

    While two commenters argue that the plain language of the statute 
provides that the Commission may do no more than authorize the non-SROs 
to act as advisory committees to the Equity Data Plans,\212\ these 
arguments misconstrue the statutory language. The statute is silent on 
the use of advisory committees with respect to the planning, 
developing, operating, or regulating of a national market system.\213\ 
Even though the language of Section 11A(a)(3)(A) of the Act does not 
expressly address the creation of advisory committees to an NMS plan or 
the participation of non-SROs in Plan matters, the Commission has 
previously exercised its authority to provide non-SROs a role on the 
Equity Data Plans as advisors.\214\ With this Order, the Commission is 
similarly exercising its statutory authority to require that the role 
of the non-SROs be expanded to include voting power on the operating 
committee of the New Consolidated Data Plan.\215\ Notably, however, as 
discussed in greater detail below, the Commission is not granting the 
non-SRO members sufficient voting power to compel plan action or to 
block action agreed upon by a supermajority of the operating committee 
that includes a majority of the SROs.\216\
---------------------------------------------------------------------------

    \212\ See Nasdaq Letter, supra note 45, at 5-6; NYSE Letter, 
supra note 49, at 13-14.
    \213\ While Section 11A(a)(3)(A) of the Act does refer to 
advisory committees, that provision provides for the creation by the 
Commission of committees pursuant to the Federal Advisory Committee 
Act to advise the Commission itself on the development of the 
national market system. See 15 U.S.C. 78k-1(a)(3)(A).
    \214\ See Regulation NMS Release, supra note 7, 70 FR at 37561.
    \215\ As discussed above, the Commission believes that changes 
in the markets over the last two decades (e.g., conversion from 
member-owned exchanges to for-profit exchanges, consolidation of 
exchange voting power, and exchanges offering for sale proprietary 
data products) have heightened these inherent conflict of interests 
between certain exchanges' commercial interests and their regulatory 
obligations under the Act and rules, as well as pursuant to the 
effective Equity Data Plans to produce and provide equity market 
data. The Commission believes that providing voting power on the New 
Consolidated Data Plan to non-SROs, including to individuals 
representing entities that have previously served in an advisory 
capacity to the operating committees of the Equity Data Plans, will 
serve to mitigate these conflicts and will result in improved 
governance over equity market data matters.
    \216\ See infra Section II.C.3.
---------------------------------------------------------------------------

    Moreover, several commenters agree that the Commission has the 
authority

[[Page 28716]]

under Section 11A of the Act to provide for non-SRO participation on 
the New Consolidated Data Plan's operating committee as voting 
members.\217\ One commenter, for example, states that an interpretation 
of Section 11A that concludes the SEC lacks authority under Section 11A 
to force the SROs to act jointly with non-SROs in the operation of NMS 
plans is too narrow. The commenter states that Congress granted the SEC 
authority in Section 11A(c)(1) to prescribe rules and regulations as 
necessary or appropriate in the public interest 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.\218\
---------------------------------------------------------------------------

    \217\ See Royal Bank of Canada Letter, supra note 189, at 3 
(``One of the SROs has already provided comments arguing that this 
voting construct violates Section 11A because it would afford voting 
rights to entities not expressly identified in the law. We do not 
believe they are correct in this argument, and that the law is so 
limiting.''); ICI Letter, supra note 78, at 2-4; Fidelity Letter, 
supra note 80, at 5-6 (stating, ``[t]he Commission has plenary 
authority to prescribe rules governing the collection and 
dissemination of equity market data.''); Schwab Letter, supra note 
74, at 4-5; SIFMA Letter, supra note 13, at 5 (``SIFMA believes that 
the SEC has the broad authority to instruct the SROs to take action 
to consolidate the existing Plans into a single new Plan and to 
incorporate its non-SRO representation and voting structure.'').
    \218\ Schwab Letter, supra note 74, at 4-5.
---------------------------------------------------------------------------

    Some commenters also question the wisdom of granting votes to non-
SROs, citing the conflicts of interests that non-SROs would bring to 
the operation of the New Consolidated Data Plan, as well as potential 
inefficiencies.\219\ One commenter states that the non-SRO and SRO 
members of the New Consolidated Data Plan's operating committee may 
face challenges in working together for the benefit of the SIP 
data.\220\ This commenter further opines that it does not believe there 
would be ``many areas of likely agreement, and there may also be areas 
wherein there is agreement--but that agreement may be in a direction 
that is contrary to the timely provision of essential market data at a 
reasonable cost through the public market data stream.'' \221\ The 
Commission does not share these concerns.
---------------------------------------------------------------------------

    \219\ See NYSE Letter, supra note 49, at 16-17; Cboe Letter, 
supra note 114, at 7-9; Nasdaq Letter, supra note 45, at 9; Healthy 
Markets Letter, supra note 40, at 11-13.
    \220\ See Healthy Markets Letter, supra note 40, at 12-13.
    \221\ Id.
---------------------------------------------------------------------------

    Broader representation on the New Consolidated Data Plan's 
operating committee, along with the Commission's continued oversight 
and supervision and the strengthened conflict of interest and 
confidentiality policies,\222\ should help to ensure that plan 
governance facilitates the provision of consolidated market data 
consistent with Congressional goals. The Commission believes that 
including representatives from non-SROs alongside the SROs on the 
operating committee will enhance the ability of all relevant 
constituencies to work together to facilitate the goals of Section 11A 
of the Act. Although non-SROs members of the operating committee will 
themselves have conflicts of interests based on the type of business 
and constituency they represent, the Commission believes that the views 
of the non-SRO members, as data customers, will provide some balance 
with respect to the views of the exchanges, as data providers.\223\ 
Further, the non-SRO members of the New Consolidated Data Plan's 
operating committee will be subject to the same conflict of interest 
policy as the SROs, which, as discussed below, will require disclosure 
of all material facts necessary for market participants and the public 
to understand any potential conflicts of interest and will require 
recusal in certain defined instances.\224\ In addition, the New 
Consolidated Data Plan will include a confidentiality policy applicable 
to the non-SRO members that addresses sharing of information and data, 
which will also serve to manage conflicts of interest.\225\
---------------------------------------------------------------------------

    \222\ See Conflicts of Interest Approval Orders, infra note 325, 
and Confidentiality Policy Approval Order, infra note 340 (both 
stating that the policies, as modified, further the goals set forth 
by Congress).
    \223\ See infra Section II.C.3 regarding the augmented voting 
requirement. See also Royal Bank of Canada Letter, supra note 189, 
at 2 (stating, ``This conflict can be mitigated by granting voting 
rights to other market participants, rather than exclusively to the 
exchanges . . . .).
    \224\ See infra Section II.E.1 and Conflicts of Interest 
Approval Orders, infra note 326.
    \225\ See infra Section II.E.2
---------------------------------------------------------------------------

    One commenter suggests that any non-SRO member on the operating 
committee should be a Commission-regulated entity and subject to the 
same obligations and responsibilities as SRO members.\226\ This 
commenter believes that having a Commission-regulated entity 
participate on the operating committee would reduce individual 
conflicts of interests, treat non-SRO members similarly to SROs, and 
facilitate the Commission's ability to exercise its oversight of the 
operating committee.\227\
---------------------------------------------------------------------------

    \226\ See Cboe Letter, supra note 114, at 8-9.
    \227\ See id. at 7-9.
---------------------------------------------------------------------------

    The Commission is now requiring a broader representation of market 
participants in the governance of the New Consolidated Data Plan by 
including non-SROs as voting members on the operating committee of the 
New Consolidated Data Plan. The Commission does not believe that it is 
necessary to require that non-SRO members of the operating committee be 
associated with a regulated entity in order for the Commission to be 
able to exercise its oversight of the operating committee.\228\ As 
discussed below,\229\ the Commission believes that the SROs should, by 
themselves, maintain sufficient voting power at all times to act 
jointly on behalf of the New Consolidated Data Plan, thus providing 
them with the ability to ensure that the New Consolidated Data Plan 
meets the requirements of Section 11A of the Act \230\ and Rule 608 of 
Regulation NMS.\231\ Further, any substantive amendment of the New 
Consolidated Data Plan would require Commission approval, and the 
Commission would be able, if it deemed it appropriate, to amend the 
terms of the New Consolidated Data Plan pursuant to Rule 608 of 
Regulation NMS.\232\ Thus, the Commission does not believe that the 
inclusion of non-SRO members on the operating committee, with 
insufficient votes to block plan action by themselves, would interfere 
with the Commission's ability to exercise its oversight over the New 
Consolidated Data Plan.
---------------------------------------------------------------------------

    \228\ Non-SRO members will be individuals that hold positions 
with firms or entities that satisfy a category of non-SRO members 
(e.g., a broker-dealer with a predominantly retail customer base).
    \229\ See infra Section II.C.3 (describing the voting structure 
of the New Consolidated Data Plan).
    \230\ 15 U.S.C. 78k-1.
    \231\ 17 CFR 242.608.
    \232\ 17 CFR 242.608.
---------------------------------------------------------------------------

    Nor does the Commission believe that potential disagreements 
between these members and the SROs will result in overall 
inefficiencies. The existence of different perspectives that result in 
additional discussion does not equate to inefficiency, but rather helps 
to ensure that more options for addressing an issue are considered by 
the operating committee. Adding non-SRO views to the discussions of the 
operating committee could therefore add to the range of solutions 
presented on issues and could, in fact, result in an ultimate 
resolution that is more beneficial to the market. In addition, as 
described below, the voting structure for the New Consolidated Data 
Plan will not require a unanimous vote for plan action. Therefore, even 
if all members of the operating committee do not agree on a matter, the 
operating committee can

[[Page 28717]]

move forward with an augmented majority vote in favor of an 
action.\233\
---------------------------------------------------------------------------

    \233\ See infra Section II.C.3. An augmented majority vote is a 
supermajority vote of the New Consolidated Data Plan's operating 
committee, along with a majority vote of the SRO members of the 
operating committee. Id.
---------------------------------------------------------------------------

(b) Categories of Non-SRO Members
    As noted above, in the Proposed Order, the Commission proposed to 
require a broader representation of market participants in the 
governance of the New Consolidated Data Plan by including as voting 
members on the operating committee of the New Consolidated Data Plan a 
number of non-SRO market participants. The categories of non-SRO 
representatives proposed by the Commission included 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, provided 
that the representatives of the securities market vendor, the issuer, 
and the retail investor, respectively, may not be affiliated with an 
SRO, a broker-dealer, or an institutional investor.
    A number of commenters suggest modifications to the Commission's 
proposed categories of non-SRO voting representatives to the New 
Consolidated Data Plan's operating committee. Two commenters recommend 
the addition of a broker-dealer with a substantial wholesale customer 
base.\234\ One of these commenters states that the vast majority of 
retail orders are routed to wholesale broker-dealers, and therefore 
these broker-dealers play a role in protecting investors through price 
and liquidity enhancement. The commenter believes that these firms have 
knowledge regarding market structure that would benefit the New 
Consolidated Data Plan.\235\ Another commenter suggests that either a 
wholesale broker-dealer or a market-making broker-dealer would be a 
better representative of issues facing the industry than an issuer 
representative.\236\
---------------------------------------------------------------------------

    \234\ See Schwab Letter, supra note 74, at 5; TD Ameritrade 
Letter, supra note 74, at 4.
    \235\ See TD Ameritrade Letter, supra note 74, at 4.
    \236\ See Schwab Letter, supra note 74, at 5. This commenter 
argues that issuer representatives have a strong interest in how 
well their securities trade, but ``lack the operational knowledge 
relevant to operating committee discussions.'' Id.
---------------------------------------------------------------------------

    The Commission disagrees with these commenters' suggestion. The 
Commission believes that the perspective and knowledge base of such a 
broker-dealer sufficiently overlaps with a broker-dealer that has a 
predominantly retail customer business as both have familiarity with 
the price and liquidity issues associated with retail trading. Further, 
the Commission believes that the interests of the constituencies that 
would be served by these representatives would be aligned, as 
ultimately they are both servicing the same end-user base, retail 
customers. Therefore, the Commission does not believe it is necessary 
to add a broker-dealer with a substantial wholesale customer base to 
the operating committee. The Commission believes that the same is true 
for a market-making broker-dealer. The Commission believes that the 
interests specifically of market-making broker-dealers are sufficiently 
aligned with those of retail broker-dealers that adding a separate 
representative to the operating committee is warranted.
    One commenter recommends including a representative of an 
alternative trading system (``ATS'') as a voting member of the 
operating committee.\237\ This commenter acknowledges that the views of 
ATSs could be represented by a broker-dealer with a predominantly 
institutional customer base, but notes that not all institutional 
broker-dealers operate an ATS and some ATSs exist that are not 
affiliated with large institutional broker-dealers, and therefore the 
commenter argues that ATSs should have separate representation on the 
operating committee.\238\
---------------------------------------------------------------------------

    \237\ See SIFMA Letter, supra note 13, at 4.
    \238\ Id.
---------------------------------------------------------------------------

    The Commission disagrees with this commenter. In the Proposed 
Order, the Commission stated that ``ATSs and institutional broker-
dealers serve similar roles in the markets, as both operate as over-
the-counter trading venues'' and concluded that ``the New Consolidated 
Data Plan operating committee should not include a designated ATS 
representative.'' \239\ The Commission continues to hold this view. The 
Commission does not believe that it is necessary for an ATS to be 
operated by an institutional broker-dealer in order for these two 
market participants to share opinions and perspectives on market data 
issues. Regardless of whether an institutional broker-dealer operates 
an ATS or an ATS is an affiliate of institutional broker-dealer, their 
business models are sufficiently aligned with respect to market data 
issues that the Commission continues to believe that an institutional 
broker-dealer representative on the operating committee is adequate to 
represent the interests of ATSs.
---------------------------------------------------------------------------

    \239\ Proposed Order, supra note 4, 85 FR at 2179-80.
---------------------------------------------------------------------------

    The Commission also disagrees with the commenter's suggestion to 
add an investment technology provider supporting the buy-side as a 
representative on the operating committee. While the Commission 
believes that input from technology providers on matters the operating 
committee will consider with respect to market data and its collection, 
consolidation, and dissemination will be valuable, there will be a 
market data vendor representative on the operating committee who should 
be able to provide input and guidance for New Consolidated Data Plan 
decision-making from a technological perspective.
    The Proposed Order also provided for one representative of an 
institutional investor (e.g., an asset management firm) on the 
operating committee. One commenter argues that there should be at least 
two representatives from institutional investors, including at least 
one representative from a public pension plan.\240\ However, because 
adding additional non-SRO members to the operating committee would 
dilute the votes of the other non-SROs members, and because the 
operating committee of the New Consolidated Data Plan would already 
include a representative for institutional investors, the Commission 
does not believe it is necessary to provide an additional slot on the 
operating committee exclusively for the representative of an 
institutional investor.
---------------------------------------------------------------------------

    \240\ See CII Letter, supra note 74, at 6.
---------------------------------------------------------------------------

    In the Proposed Order, the Commission also included a retail 
investor among the non-SRO members on the operating committee of the 
New Consolidated Data Plan to ensure that the interests of Main Street 
investors were represented in discussions regarding the equity data 
feeds. The interests of retail investors are central to the 
Commission's mission, and the Commission believes it is important that 
the operating committee of the New Consolidated Data Plan have a non-
SRO member who can effectively represent the interests of individual 
investors with regard to the issues considered by the operating 
committee of the New Consolidated Data Plan. In particular, the 
Commission is ordering that the member of the operating committee 
representing retail investors shall have experience working with or on 
behalf of retail investors and have the requisite background and 
professional experience to understand the interests of retail 
investors, the work of the operating

[[Page 28718]]

committee of the New Consolidated Data Plan, and the role of market 
data in the U.S. equity market. The Commission believes it is less 
important that this person simply be a ``retail investor'' and more 
important that this position be filled by a person with a combination 
of the background and experience described above so that he or she can 
effectively represent the interests of retail investors as a ``retail 
representative.'' Accordingly, the Commission is modifying the language 
in the proposal to replace ``retail investor'' with ``a person who 
represents the interests of retail investors (`retail 
representative').''
    As proposed, the retail investor representative could not be 
affiliated with an SRO, broker-dealer, or institutional investor. 
However, as discussed above, the Commission is expanding the available 
group from which the ``retail representative'' could be chosen to a 
``person who represents the interests of retail investors.'' Because 
many retail investors gain exposure to the equities markets through 
various types of institutional investors, the Commission believes it is 
appropriate to permit (but not require) the ``retail representative'' 
to be associated with an institutional investor, provided that this 
person otherwise meets the requirements as set forth in this Order. The 
retail representative may not be affiliated with an SRO or broker-
dealer, however, because, in the Commission's view, both SROs and 
broker-dealers will have adequate representation on the New 
Consolidated Data Plan's operating committee, including a broker-dealer 
with a predominantly retail customer base. Thus, the Commission 
believes that prohibiting duplicative representation in this regard 
will help ensure that the non-SRO members reflect a diversity of 
perspectives.
    Another commenter proposes adding voting representatives of a 
custodial bank, arguing that such a representative has unique insights 
into the needs of large institutional broker-dealers and has an 
interest in ensuring cost-effective access to market data.\241\ This 
commenter also recommends adding an agency broker-dealer focused on 
institutional investors, and an investment technology provider 
supporting the buy-side to serve as additional voices representative of 
the ``financial markets ecosystem.'' \242\ The Commission disagrees 
with adding to the operating committee these additional non-SRO members 
that purport to represent the views or needs of institutional broker-
dealers. The Order currently provides for an operating committee member 
that represents a broker-dealer with a predominantly institutional 
investor customer base. The Commission believes that the views of 
institutional broker-dealers will be adequately represented without the 
addition of a custodial bank or a designated agency broker.
---------------------------------------------------------------------------

    \241\ See State Street Letter, supra note 76, at 3.
    \242\ Id. at 5.
---------------------------------------------------------------------------

    Two commenters question the usefulness of an issuer as a voting 
member of the operating committee.\243\ One of these commenters asserts 
that an issuer representative should not be eligible to serve under 
another non-SRO category,\244\ while another commenter suggests that 
the Commission provide ``certain objective requirements'' to make sure 
that such representatives understand the technical aspects of equity 
market structure.\245\ In addition, one commenter argues that the 
Commission's final order should specify that non-SRO members, to 
maintain their neutrality, should not be permitted to be 
representatives of an entity that ``has an ownership interest in an SRO 
or its holding company beyond a specified level.'' \246\
---------------------------------------------------------------------------

    \243\ See Schwab Letter, supra note 74, at 5; TD Ameritrade 
Letter, supra note 74, at 4.
    \244\ See TD Ameritrade Letter, supra note 74, at 4. The 
Commission notes that this Order is not intended to dictate all of 
the specific terms of the New Consolidated Data Plan, which the 
Commission will notice for public comment and consider when 
submitted by the SROs.
    \245\ See SIFMA Letter, supra note 13, at 4.
    \246\ IEX Letter, supra note 113, at 3.
---------------------------------------------------------------------------

    The Commission disagrees with the commenters that believe a 
representative of an issuer should not have a vote on the operating 
committee. The Commission believes that an issuer representative has 
unique knowledge about a segment of the industry--the corporations that 
issue the stocks traded--that is not represented by the other 
representatives and should have a voice on matters relating to market 
data. However, the Commission agrees with a commenter that it is 
appropriate that the issuer representative should not also be eligible 
to serve as a representative of another category on the operating 
committee.\247\ The Commission believes the representative who will 
serve as the issuer representative on the operating committee should 
serve to represent primarily the point of view of issuers, as views 
that support other categories of non-SRO members will have their own 
dedicated representative. If an issuer representative were also 
eligible to serve as another category of representative, questions 
could be raised as to whether the issuer representative is solely 
wearing his or her issuer ``hat'' in operating committee discussions or 
if he or she is actually advocating for views that are more aligned 
with another category on the operating committee. The Commission 
believes that it is important to ensure that the representative for the 
issuer constituency does not have business interests that significantly 
overlap with the interests of other non-SRO members on the operating 
committee such that the issuer representative's interests would be 
duplicative of other non-SRO members. To address these concerns, the 
Commission is ordering that the representative for the issuer category 
not be affiliated or associated with an SRO, a broker-dealer, or an 
investment adviser with third-party clients.
---------------------------------------------------------------------------

    \247\ See TD Ameritrade Letter, supra note 74, at 4.
---------------------------------------------------------------------------

    Another commenter objects to the restriction in the Proposed Order 
that vendors, issuers, and retail investors \248\ may not be affiliated 
with an SRO, a broker-dealer, or an institutional investor. This 
commenter argues that the restriction could prevent otherwise qualified 
candidates with relevant industry experience or knowledge from serving 
on the operating committee.\249\ The Commission anticipates that--
notwithstanding the Order's restriction on affiliations for securities 
market data vendors and issuers with SROs, broker-dealers, and 
institutional investors, and the Order's restriction on a retail 
representative's affiliations with SROs and broker-dealers--the 
operating committee of the New Consolidated Data Plan will be able to 
attract knowledgeable representatives of securities market data vendors 
and issuers as the New Consolidated Data Plan will address issues and 
make important decisions that will impact these constituencies. The 
Commission believes that the opportunity to have a voice on the 
operating committee of a Plan responsible for issues related to market 
data will be highly coveted and there will be qualified nominees 
willing to serve as representatives from organizations that are not 
affiliated with SROs, broker-dealers, or institutional investors.
---------------------------------------------------------------------------

    \248\ As discussed above, the Commission has modified the 
requirements relating to the retail investor category of non-SRO 
member.
    \249\ See BlackRock Letter, supra note 114, at 2.
---------------------------------------------------------------------------

(c) Process for Selecting Non-SRO Members and Term Limits
    The Commission proposed that the non-SRO members of the New 
Consolidated Data Plan's operating committee should be selected solely 
by

[[Page 28719]]

non-SROs and 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 Proposed Order would require that the 
initial non-SRO operating committee members be selected by the current 
members of the Equity Data Plans' advisory committees, excluding 
advisory committee members selected by a Participant to be its 
representative, and that subsequent non-SRO members be selected 
collectively by the then-serving non-SRO members of the New 
Consolidated Data Plan's operating committee. In addition, to 
facilitate continuity of membership of the Equity Data Plan's advisory 
committees (excluding exchange representatives) through the transition 
to the New Consolidated Data Plan, the Commission proposed, to the 
extent possible, that the SROs should renew the expiring terms of all 
members of the Equity Data Plans' advisory committees (other than those 
selected to represent an SRO) who remain willing to serve in that role.
    A number of commenters support the Commission's proposal to have 
the current advisory committee members, excluding exchange 
representatives, select the initial non-SRO members of the New 
Consolidated Data Plan's operating committee.\250\ One commenter 
states, ``[t]o help promote independence of views, we agree that the 
Plan Participants should not select non-SRO members of the [o]perating 
[c]ommittee.'' \251\ Several of these commenters also emphasize the 
importance of an independent and transparent nomination and selection 
process for non-SRO members of the New Consolidated Data Plan's 
operating committee.\252\ These commenters agree that the operating 
committee should provide for a process to publicly solicit, and make 
available for public comment, nominations for non-SRO members.\253\ 
Additionally, as discussed above, one commenter suggests that the 
Commission appoint the members of the operating committee.\254\
---------------------------------------------------------------------------

    \250\ See Fidelity Letter, supra note 80, at 5; IEX Letter, 
supra note 113, at 3; Royal Bank of Canada Letter, supra note 189, 
at 3; SIFMA Letter, supra note 13, at 4.
    \251\ Fidelity Letter, supra note 80, at 5.
    \252\ See Fidelity Letter, supra note 80, at 5; IEX Letter, 
supra note 113, at 3; SIFMA Letter, supra note 13, at 4.
    \253\ See Fidelity Letter, supra note 80, at 5; IEX Letter, 
supra note 113, at 3; SIFMA Letter, supra note 13, at 4.
    \254\ See CII Letter, supra note 74, at 6.
---------------------------------------------------------------------------

    One commenter objects to the proposed mechanism by which the non-
SRO representatives would be selected for service on the Plan stating 
that is clearly inconsistent with Section 11A of the Act and Rule 608 
of Regulation NMS, as it would bar SROs from having any role in the 
selection of those representatives.\255\ This commenter argues that 
such restriction cannot be reconciled with the clear requirement of the 
statute and rule that NMS plans be governed by the joint action of 
SROs.\256\
---------------------------------------------------------------------------

    \255\ See Nasdaq Letter, supra note 45, at 7-8.
    \256\ Id. at 8 (stating, ``[q]uite simply, an NMS plan in which 
SROs play no part at all in important aspects of plan governance is 
not an NMS plan at all.'').
---------------------------------------------------------------------------

    The Commission disagrees with this commenter's position. As 
discussed above, Section 11A of the Act \257\ affirmatively authorizes 
the Commission to allow or require the SROs to act jointly to further 
the statutory objectives of a national market system, but it does not 
prohibit non-SRO participation in developing and administering NMS 
plans. Pursuant to its statutory authority ``to facilitate the 
establishment of a national market system,'' \258\ the Commission 
believes that permitting non-SROs solely to select the non-SRO members 
of the New Consolidated Data Plan's operating committee will facilitate 
the governance of this Plan in that it will help ensure the 
independence of these members.
---------------------------------------------------------------------------

    \257\ 15 U.S.C. 78k-1.
    \258\ 15 U.S.C. 78k-1(a)(2).
---------------------------------------------------------------------------

    As the Commission discussed in the Proposed Order, the SROs 
currently select the members of the advisory committee, including both 
members representing specific categories of market participants and 
members chosen by individual exchanges to serve on the committee. The 
Commission believes that this may deter advisory committee members from 
expressing views that might contradict the views of the exchanges. The 
Commission's decision to prohibit the SROs from having a role in 
selecting the non-SRO members who will serve on the operating committee 
is designed to address this concern. Non-SRO members must be wholly 
independent from the SROs in order to represent their constituency free 
from interference. The ability of SROs to fully participate in, and 
ultimately act jointly to control decisions made by the operating 
committee,\259\ will not be compromised simply because they are not 
involved in the selection of certain other members of the operating 
committee. The Commission therefore continues to believes that, as 
proposed, the existing advisory committee members of the Equity Data 
Plans (excluding the exchange-selected representatives), rather than 
the SROs or the Commission, should select the initial group of non-SRO 
members of the New Consolidated Data Plan's operating committee and 
subsequent non-SRO members should be selected solely by the then-
serving non-SRO members of the New Consolidated Data Plan's operating 
committee in order to help ensure the independence of the non-SRO 
members.
---------------------------------------------------------------------------

    \259\ See infra Section II.C.3.
---------------------------------------------------------------------------

    The Commission further believes that the current Equity Data Plans' 
advisory committee members' experience with the operation of the Equity 
Data Plans will assist in the selection of the initial non-SRO 
operating committee members 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 it is important to maintain the current 
membership of the Equity Data Plans' advisory committees, to the extent 
possible when excluding exchange-selected representatives, through the 
transition to the New Consolidated Data Plan. Accordingly, to 
facilitate continuity, the Commission is ordering the SROs to renew the 
expiring terms of all members of the Equity Data Plans' advisory 
committees (other than those members selected by an individual SRO) who 
remain willing to serve in that role.
    In the Proposed Order, the Commission also proposed that non-SRO 
members of the operating committee would serve for a term of two years 
and that the New Consolidated Data Plan should establish reasonable 
term limits. The Commission noted that advisory committee members of 
the Equity Data Plan currently serve two-year terms and stated its 
belief that a two-year term would 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.
    Several commenters, expressing concern about individual members 
becoming ``de facto permanent members'' of the operating committee, 
specifically recommend term limits as an antidote to non-SRO member 
inertia.\260\ Other commenters agree, stating that the benefits of 
limiting the number of terms a non-SRO representative could serve on 
the operating committee would include

[[Page 28720]]

obtaining diverse perspectives.\261\ Two commenters support a two-year 
term for non-SRO members, as proposed by the Commission, and these 
commenters recommend a two-term limit for representation on the 
operating committee.\262\
---------------------------------------------------------------------------

    \260\ See Fidelity Letter, supra note 80, at 5; IEX Letter, 
supra note 113, at 3; SIFMA Letter, supra note 13, at 4.
    \261\ See Royal Bank of Canada Letter, supra note 189, at 3; T. 
Rowe Price Letter, supra note 164, at 2.
    \262\ See MFA/AIMA Letter, supra note 142, at 2; SIFMA Letter, 
supra note 13, at 3.
---------------------------------------------------------------------------

    Certain other commenters, however, suggest alternative terms and 
term limits for non-SRO members' tenure on the New Consolidated Data 
Plan's operating committee. For example, a number of commenters 
recommend that the non-SRO members serve on the operating committee for 
a three-year term with a two-term limit.\263\ Another commenter 
suggests one four-year term, but argues that ``the need for 
institutional knowledge specific to the New Plan and the need for new 
perspectives . . . can be accomplished by rotating out one half of the 
members every two years.'' \264\ Finally, one commenter argues that the 
Commission should have the opportunity to object to the slate of 
nominees.\265\
---------------------------------------------------------------------------

    \263\ See Fidelity Letter, supra note 80, at 5; Schwab Letter, 
supra note 74, at 5; State Street Letter, supra note 76, at 3; T. 
Rowe Price Letter, supra note 164, at 2.
    \264\ TD Ameritrade Letter, supra note 74, at 5; see also Royal 
Bank of Canada Letter, supra note 189, at 3.
    \265\ See Royal Bank of Canada Letter, supra note 189, at 3.
---------------------------------------------------------------------------

    With respect to terms of service and term limits for non-SRO 
members, the Commission believes that it is appropriate that the New 
Consolidated Data Plan balance the advantages of institutional 
knowledge with the potential benefits to be derived from new 
perspectives on Plan governance. Moreover, the Commission notes that 
the commenters' varied suggestions highlight the diversity of views 
with respect to the appropriate term and term limits to achieve this 
goal. The Commission believes a term of two years will provide non-SRO 
members with sufficient time to become familiar with the operations and 
issues affecting the New Consolidated Data Plan and to make informed 
contributions. The Commission believes that a term less than two years 
could result in a member being removed from the operating committee 
before he or she had an adequate opportunity to get familiar with the 
issues before the operating committee at that time and could result in 
a significant amount of disruptive turnover, resulting in 
inefficiencies on the operating committee. However, the Commission 
believes that a term of two years, with the potential for additional 
terms to be determined in the New Consolidated Data Plan, would provide 
sufficient time for a member to become familiar with the issues dealt 
with by the operating committee.\266\
---------------------------------------------------------------------------

    \266\ See supra note 262.
---------------------------------------------------------------------------

    The Commission further believes that the New Consolidated Data Plan 
should provide a maximum term limit for non-SRO members to ensure that 
new and diverse viewpoints are reflected among the non-SRO members of 
the operating committee. The Commission is not dictating in this Order 
what the maximum term limit must be. The Commission believes that the 
SROs, as current members of numerous NMS plan operating committees, may 
have useful insights into balancing the value of having long-standing 
members on an operating committee with the potential detriment of 
allowing a membership to become stale and no longer useful or engaged 
and are thus well positioned to propose what the maximum term limit 
should be in the first instance. Accordingly, as proposed, the 
Commission is ordering that the New Consolidated Data Plan provide that 
non-SRO members of the operating committee serve for a term of two 
years and that the New Consolidated Data Plan set forth a maximum term 
limit for non-SRO members.
    One commenter raises concerns that the non-SRO members on the New 
Consolidated Data Plan's operating committee would not ``adequately and 
fairly'' represent the views of the constituencies that the member was 
selected to represent.\267\ This commenter further asserts that the 
nomination process outlined by the Commission is inadequate to address 
these concerns.\268\
---------------------------------------------------------------------------

    \267\ See Healthy Markets Letter, supra note 40, at 13.
    \268\ Id.
---------------------------------------------------------------------------

    To the contrary, the Commission believes that the requirement that 
the non-SRO members of the operating committee will collectively select 
replacement non-SRO members will help to ensure that the individuals 
selected will represent their constituencies' views on important market 
data issues, and will help to ensure that the most effective and 
knowledgeable advocates for their views serve on the operating 
committee. Further, because the then-serving non-SRO members, and not 
the SROs, will select non-SRO members, the Commission does not believe 
that individuals may be blocked from serving on the New Consolidated 
Data Plan's operating committee because they are perceived by the 
Participants as ``anti-exchange,'' \269\ as the commenter suggests.
---------------------------------------------------------------------------

    \269\ Id.
---------------------------------------------------------------------------

    In addition, the New Consolidated Data Plan will require that the 
process for soliciting nominations for non-SRO members to serve on the 
operating committee be transparent. The Commission is requiring in this 
Order that the New Consolidated Data Plan must specifically include a 
process for publicly soliciting and making available for public comment 
nominations for non-SRO members and the public will be permitted to 
submit nominees for consideration and to provide comment on the pool of 
nominees.\270\ Therefore, if the non-SRO members select a new member to 
serve on the operating committee who is less qualified than other 
nominees to represent a particular constituency, the decision will face 
public scrutiny.
---------------------------------------------------------------------------

    \270\ See Proposed Order, supra note 4, 85 FR at 2180 (``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.'').
---------------------------------------------------------------------------

    Finally, the Commission also disagrees that providing some 
discretion to the SROs to propose a transparent nomination process and 
reasonable term limits for non-SRO member service renders its proposal 
``facially inadequate.'' Instead, the Commission believes that the 
requirements set forth in this Order, coupled with the Rule 608 process 
under which the New Consolidated Data Plan will be considered by the 
Commission, which includes public notice and comment, should help to 
assure that the nomination and selection process is fair, transparent, 
and public.
3. Voting Structure Under the New Consolidated Data Plan
    In its Proposed Order, the Commission proposed that the New 
Consolidated Data Plan 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 at all times. 
Further, the Commission proposed that action by the operating committee 
of the New Consolidated Data Plan on all matters, including amendments 
to 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

[[Page 28721]]

votes. The requirement for an augmented majority vote was intended to 
ensure that at all times the SROs have sufficient voting power to act 
jointly on behalf of the plan pursuant to the requirements of Section 
11A of the Act \271\ and Rule 608 of Regulation NMS.\272\
---------------------------------------------------------------------------

    \271\ 15 U.S.C. 78k-1.
    \272\ 17 CFR 242.608.
---------------------------------------------------------------------------

    Commenters express opinions on several aspects of the Proposed 
Order's voting structure. Notably, several commenters support that the 
Proposed Order does not permit a requirement for a unanimous vote for 
plan action, as is currently required for certain actions of the Equity 
Data Plans.\273\ As one commenter points out, unanimous voting is not a 
requirement for NMS plans and, in fact, the most-recently approved NMS 
plan required by Rule 613 of Regulation NMS (``CAT NMS Plan'') requires 
the affirmative vote of a two-thirds supermajority of all members of 
the operating committee for plan amendments.\274\ Another commenter, 
however, states that unanimous voting ``can help protect individual SRO 
participants that may have divergent structures or interests from 
otherwise dominant SROs.'' \275\ This commenter recommends that, if 
unanimous voting requirements in the SIP plan governance structure are 
eliminated, plan participants should be ``permitted and encouraged'' by 
the Commission to communicate dissenting views and concerns to the 
Commission about New Consolidated Data Plan actions that they believe 
may be ``discriminatory, contrary to the public interest or improperly 
influenced by commercial interests.'' \276\
---------------------------------------------------------------------------

    \273\ See NYSE Letter, supra note 49, at 10 (``Adopting such a 
structure here would eliminate the ability of any single SRO to 
impose roadblocks to innovation, and would further encourage 
collaboration among the participants to the Plans.''); SIFMA Letter, 
supra note 13, at 4-5; IEX Letter, supra note 113, at 4; MEMX 
Letter, supra note 80, at 4; Royal Bank of Canada Letter, supra note 
189, at 2-3; Clearpool Letter, supra note 40, at 4; Fidelity Letter, 
supra note 80, at 5; Virtu Letter, supra note 80, at 2; Refinitiv 
Letter, supra note 80, at 2.
    \274\ See NYSE Letter, supra note 49, at 10.
    \275\ Letter from Robert Colby, Executive Vice-President & Chief 
Legal Officer, FINRA (May 1, 2020) (``FINRA Letter'').
    \276\ Id.
---------------------------------------------------------------------------

    The Commission agrees with commenters who support not including a 
unanimous voting requirement in the new plan and believes that the New 
Consolidated Data Plan should provide that plan action, including 
amendments to the plan, will be approved by less than a unanimous vote. 
Further, the Commission believes that expanding the voting membership 
of the operating committee of the New Consolidated Data Plan, limiting 
the voting power of exchange groups, and providing for augmented 
majority voting--coupled with the existing requirement that NMS plan 
amendments must be published for comment and (except those put into 
effect upon filing) subject to approval by the Commission to become 
effective--should help to address concerns that the views of individual 
SRO participants will not be given adequate consideration. 
Additionally, consistent with its decision to expand the membership of 
the operating committee governing the SIPs, the Commission encourages 
open debate of issues within the operating committee and the 
communication of dissenting views to the Commission.
    A number of commenters express support for the Commission's 
proposal to require an augmented majority vote for action of the New 
Consolidated Data Plan.\277\ Other commenters, however, suggest 
variations on the voting requirements. One commenter suggests imposing 
a supermajority requirement for plan amendments and a majority vote for 
all other actions, similar to the requirements of the CAT NMS 
Plan.\278\ Another commenter expresses concern that the augmented 
majority vote proposal would require that ``a majority of SROs must 
support any proposal before it can be adopted.'' \279\ This commenter 
suggests that the Commission's proposal for the augmented majority 
vote, designed to address the SROs' statutory and regulatory 
obligations under the Act, should be limited to apply only to ``those 
decisions tied to statutory SRO responsibilities.'' \280\ Another 
commenter argues that the definition of augmented majority vote should 
be ``expanded to include, at a minimum, a required one-third total vote 
of the non-SRO members in support of any amendment,'' noting that this 
would recognize the needs of those subject to regulatory requirements 
to display consolidated market data.\281\ A number of commenters state 
that non-SRO members of the New Consolidated Data Plan's operating 
committee should have greater voting power than that proposed by the 
Commission.\282\ Some commenters advocate for an even distribution of 
voting power between SROs and non-SROs,\283\ while one argues for non-
SRO members of the operating committee to have majority voting power, 
noting that independent directors outnumber other directors on SRO 
boards today.\284\
---------------------------------------------------------------------------

    \277\ See, e.g., SIFMA Letter, supra note 13, at 4-5; IEX 
Letter, supra note 113, at 4; MEMX Letter, supra note 80, at 4; 
Royal Bank of Canada Letter, supra note 189, at 2-3; Clearpool 
Letter, supra note 40, at 4; Fidelity Letter, supra note 80, at 5; 
Virtu Letter, supra note 80 at 2; Refinitiv Letter, supra note 80, 
at 2.
    \278\ See NYSE Letter, supra note 49, at 10.
    \279\ Royal Bank of Canada Letter, supra note 189, at 3.
    \280\ Id.
    \281\ TD Ameritrade Letter, supra note 74, at 6.
    \282\ See, e.g., IEX Letter, supra note 113, at 3; CII Letter, 
supra note 74, at 6; State Street Letter, supra note 76, at 3; SIFMA 
Letter, supra note 13, at 4; BlackRock Letter, supra note 114, at 2.
    \283\ See IEX Letter, supra note 113, at 3; Schwab Letter, supra 
note 74, at 5; SIFMA Letter, supra note 13, at 4; State Street 
Letter, supra note 76, at 3.
    \284\ See CII Letter, supra note 74, at 6. In addition, CII 
advocates that all actions of the New Consolidated Data Plan be 
approved by a simple majority vote. Id.
---------------------------------------------------------------------------

    The Commission disagrees with these variations on the voting 
requirements. First, rather than adopting, as one commenter suggests, 
the particular voting requirements established in the CAT NMS Plan, the 
Commission has elected to require an ``augmented majority vote,'' which 
requires a supermajority vote of the operating committee, as well as a 
majority vote of the SRO members of the operating committee.\285\ The 
Commission notes that, among other distinctions between the two 
plans,\286\ here the Commission has determined that it is appropriate 
to include non-SRO members on the New Consolidated Data Plan's 
operating committee. Because all votes on the CAT NMS Plan are 
allocated to SROs, the concern about whether SROs retain sufficient 
voting power is not present for the CAT NMS Plan.
---------------------------------------------------------------------------

    \285\ All plan action, including amendments to the New 
Consolidated Data Plan, will require an augmented majority vote, 
with two exceptions. First, the selection of non-SRO members will 
require a majority vote of non-SROs. Second, the decision to enter 
into an executive session, discussed below, will require a majority 
vote of the SRO members.
    \286\ Other differences between the two plans include, among 
other things, their distinct purposes and different impact on market 
participants.
---------------------------------------------------------------------------

    Second, the Commission disagrees with the commenter's suggestion 
that the augmented majority vote should apply only to decisions of the 
New Consolidated Data Plan relating to the SROs' statutory 
responsibilities. While the Commission acknowledges the commenter's 
concern about requiring a majority of SRO votes, the Commission 
believes that any attempt to identify and separate statutory-related 
items to come before the operating committee would likely require more 
of the operating committee's time and attention than the potential 
benefits could justify. In addition, the Commission believes non-SRO 
members would offer informed views on statutory-related matters given 
their expertise.

[[Page 28722]]

    Finally, the Commission does not agree that the proposed definition 
of augmented majority should be modified to require, in addition to the 
two-thirds majority of the operating committee and the majority of SRO 
votes, the vote of one-third of all non-SRO members eligible to vote, 
as suggested by a commenter. While this approach would further help to 
ensure that no proposed amendments to the New Consolidated Data Plan 
could be filed with the Commission without some level of non-SRO member 
concurrence, the Commission believes that creating a governance 
structure that would not, at a minimum, provide the SROs alone with the 
voting power necessary to effectuate action by the New Consolidated 
Data Plan \287\ does not appropriately recognize the SROs' regulatory 
responsibilities to act jointly to operate the Plan.
---------------------------------------------------------------------------

    \287\ The augmented majority vote would allow a measure to pass 
with support of only the SRO votes on the operating committee, which 
would satisfy the requirements of a supermajority vote of the 
operating committee and a majority of the SRO votes.
---------------------------------------------------------------------------

    For the same reason, the Commission does not agree that non-SRO 
members should have greater voting power than that proposed by the 
Commission. The Commission continues to believe that broader 
representation than currently exists on the Equity Data Plans would 
help to ensure that decisions relating to operations facilitate the 
regulatory goals of the New Consolidated Data Plan, and the Commission 
believes that providing non-SROs a vote for the first time furthers 
this goal. Increased representation, however, must be balanced against 
the SROs' statutory regulatory responsibilities under the Act and Rule 
608 of Regulation NMS with respect to operation of the Plans. The 
Commission believes that the distribution of voting power, as proposed, 
appropriately strikes this balance 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 their regulatory responsibilities.\288\ Therefore, the 
Commission disagrees with the commenters' calls for greater non-SRO 
voting power than that proposed.
---------------------------------------------------------------------------

    \288\ 15 U.S.C. 78k-1 and 17 CFR 242.608.
---------------------------------------------------------------------------

    Nonetheless, the Commission believes that permitting non-SRO 
stakeholders to have voting power on the New Consolidated Data Plan 
should facilitate discussion and encourage the SROs to more carefully 
consider the anticipated effects of plan action. Moreover, in the 
Commission's view, this approach represents a logical step in the 
evolution of NMS plan governance.\289\ As noted in the Proposed Order, 
the Commission explained in Regulation NMS that the creation of 
advisory committees to the Equity Data Plans was ``a useful first step 
toward improving the responsiveness of Plan participants and the 
efficiency of Plan operations.''\290\ And in adopting Regulation NMS, 
the Commission stated that it would ``continue to monitor and evaluate 
Plan developments to determine whether any further action is 
warranted.'' \291\ The Commission believes that further action, in the 
form of the governance measures discussed in this Order, including the 
exchange group voting allocation, the provision of voting power to non-
SROs, and the augmented majority voting requirement, is warranted at 
this time and should help to ensure that New Consolidated Data Plan 
decisions and action relating to consolidated market data result in 
improved governance that will benefit the equity markets as a whole.
---------------------------------------------------------------------------

    \289\ See Regulation NMS Release, supra note 7.
    \290\ Id., 70 FR at 37561.
    \291\ Id.
---------------------------------------------------------------------------

D. The Need for an Independent Plan Administrator

    In the Proposed Order, the Commission included a requirement that 
the New Consolidated Data Plan use an independent plan administrator 
that could 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.\292\ Commenters reflecting a broad range of 
market participants (including one exchange) express support for the 
Commission's requirement of an independent plan administrator.\293\ In 
contrast, two commenters question the rationale for requiring an 
independent plan administrator and express concern with the potential 
burdens imposed by changing the existing framework, in which plan 
administrators are SRO-affiliated.\294\ One commenter states that the 
Proposed Order failed to identify ``any shortcomings or problems'' in 
the current approach and highlights the existence of information 
control policies and procedures that are designed to safeguard the 
confidential information handled by the plan administrator.\295\ 
Another commenter requests clarification on the scope of activity that 
would disqualify an entity from acting as the independent plan 
administrator.\296\ This commenter believes that the prohibition on an 
entity offering its own proprietary market data products should be 
``expressly limited to data products that compete with the SIP--in 
other words, data with content that includes NMS stock quotations or 
transactions.'' \297\
---------------------------------------------------------------------------

    \292\ See Proposed Order, supra note 4, 85 FR at 2187. NYSE and 
Nasdaq currently act as administrators of the Equity Data Plans. 
Under the independence provision, NYSE and Nasdaq would be excluded 
from operating as plan administrators, although they would not be 
excluded from continuing to act as SIPs.
    \293\ See, e.g., T. Rowe Price Letter, supra note 164, at 2; 
Refinitiv Letter, supra note 80, at 2; ICI Letter, supra note 78, at 
5; Wellington Letter, supra note 77, at 2; MFA/AIMA Letter, supra 
note 142, at 5; Bloomberg Letter, supra note 40, at 2; State Street 
Letter, supra note 76, at 2; Fidelity Letter, supra note 80, at 3; 
Schwab Letter, supra note 74 at 6; Royal Bank of Canada Letter, 
supra note 189, at 4; MEMX Letter, supra note 80, at 5; Clearpool 
Letter, supra note 40, at 5; Citi Letter, supra note 85, at 4; IEX 
Letter, supra note 113, at 3. One commenter recommends that the 
independence requirement also apply to the SIP processors for all 
the same reasons. See Schwab Letter, supra note 74, at 6. The 
Commission acknowledges that independence of the plan processors may 
mitigate some concerns regarding conflicts of interest. In this 
regard, the Proposed Order, as recognized by this commenter, 
requires the operating committee to review the performance of the 
plan processors and ensure the public reporting of plan processor's 
performance and other metrics and information about the plan 
processors. Furthermore, as discussed above, the Commission has 
proposed rule amendments related to the SIP processors in the 
Infrastructure Proposal. See supra Section II.B.2(b).
    \294\ See Nasdaq Letter, supra note 45, at 13; NYSE Letter, 
supra note 49, at 20. Nasdaq also expresses support for a single 
administrator and processor for the SIPs. See Nasdaq Letter, supra 
note 45, at 13. Nasdaq believes that the Commission should consider 
a single consolidated tape for all exchange-listed equities. See id. 
As discussed above, this Order is taking an incremental approach to 
the governance issues related to the Equity Data Plans and is at 
this time not addressing the production, aggregation, or 
distribution of consolidated market data.
    \295\ See NYSE Letter, supra note 49, at 20. Similarly, Nasdaq 
states that the Commission cited ``no actual evidence as 
justification for impairing the functioning of the administrator, 
only `concerns.''' See Nasdaq Letter, supra note 45, at 13.
    \296\ See FINRA Letter, supra note 275.
    \297\ Id.
---------------------------------------------------------------------------

    The Commission continues to believe that, as stated in the Proposed 
Order, an entity that acts as the administrator while also offering for 
sale its own proprietary data products faces a substantial, inherent 
conflict of interest, because it would have access to sensitive SIP 
customer information of significant commercial value.\298\ As discussed 
further below, the Commission has separately approved amendments to the 
Equity Data Plans establishing policies, as modified by the Commission, 
designed to address conflicts of interest and protect confidential 
information from misuse.\299\ The Commission continues

[[Page 28723]]

to believe that the conflicts of interest faced by a non-independent 
administrator are so great that these conflicts cannot be sufficiently 
mitigated. Unlike the exchanges, an independent plan administrator 
would not have as a competing objective maximizing the profitability of 
its own proprietary data products.\300\ The Commission agrees that, as 
one commenter states, ``[t]rue separation or independence is necessary 
to mitigate the conflicts of controlling the SIP data products while 
selling proprietary products.'' \301\ Similarly, another commenter 
states that an independent administrator ``would eliminate any 
potential conflict of interest and allow the administrator to focus 
efforts on improved technology and reduced latency.'' \302\ The 
Commission agrees, as the independence requirement would separate the 
independent administrator from an exchange's commercial interests and 
allow it to focus on the regulatory objectives of Section 11A of the 
Act. Additionally, because the relevant conflict of interest for an 
administrator would arise from administration of the SIPs while selling 
overlapping proprietary data products, the Commission believes that the 
independence requirement for the administrator must prohibit an entity 
from serving as administrator of the New Consolidated Data Plan if it 
is owned or controlled by a corporate entity that, either directly or 
via another subsidiary, offers for sale its own proprietary market data 
products for NMS stocks.
---------------------------------------------------------------------------

    \298\ See Proposed Order, supra note 4, 85 FR at 2183.
    \299\ See infra Section II.E.1 and 2. The new conflicts of 
interest policy will require the administrators of the Equity Data 
Plans to disclose any employment or affiliation with an SRO and a 
narrative description of functions performed. See Conflicts of 
Interest Approval Orders, infra note 326. After the Participants 
have transitioned to the New Consolidated Data Plan and adopted a 
conflicts of interest policy as outlined in the Conflicts of 
Interest Approval Orders, the Commission believes that the 
administrator's disclosure requirements would continue to provide 
transparency with respect to the independence of the plan 
administrator.
    \300\ See, e.g., Clearpool Letter, supra note 40, at 5; ICI 
Letter, supra note 78, at 5; IEX Letter, supra note 113, at 5; 
Fidelity Letter, supra note 80, at 3; MFA/AIMA Letter, supra note 
142, at 5; Schwab Letter, supra note 74, at 6; State Street Letter, 
supra note 76, at 2; T. Rowe Price Letter, supra note 164, at 2.
    \301\ Schwab Letter, supra note 74, at 6.
    \302\ Refinitiv Letter, supra note 80, at 2.
---------------------------------------------------------------------------

    As stated in the Proposed Order, Participants and Participant 
representatives have been privy to confidential 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.\303\ A particular 
area of heightened sensitivity with an exchange-affiliated 
administrator relates to the audit function. As one commenter points 
out, ``the audit function creates special conflicts when it is managed 
by an affiliate of a Participant (which is presently the case for all 
the [Equity Data] Plans) because it is directly involved in raising 
revenue for the [P]lans, which benefits the affiliated Participants 
directly through distributions of Plan revenue (almost all revenue 
collected is distributed to Participants).'' \304\ This commenter 
further states that ``there is the potential for the audit function to 
be used to advance the business objectives of one or more Participants, 
in cases where they compete in one or more businesses with an entity 
that is the subject of an audit.'' \305\ The Commission believes that 
the proposed independent plan administrator requirement would address 
concerns regarding the potential use of SIP subscriber audit data to 
pursue commercial interests outside of the New Consolidated Data Plan.
---------------------------------------------------------------------------

    \303\ See Proposed Order, supra note 4, 85 FR at 2185.
    \304\ IEX Letter, supra note 113, at 4-5.
    \305\ IEX Letter, supra note 113, at 5. This commenter 
recommends that the Commission specify that the New Consolidated 
Data Plan ``require strict independence of the audit function.'' See 
id. Under the terms of the proposal, the independent plan 
administrator would help to ensure that the audit process is fair 
and reasonable. Another commenter states that confidential 
information received by exchanges under the Equity Data Plans may 
have been used to further the exchanges' commercial interests. See 
Healthy Markets Letter, supra note 40, at 20.
---------------------------------------------------------------------------

    However, two commenters state that employing an independent 
administrator would disrupt the administration of the Plans.\306\ One 
commenter states that the independence requirement ``may impair the 
eventual functioning of the administrator as having separate firms 
responsible for administration and processing may slow coordination and 
response time during a possible market event. ''\307\ Another commenter 
emphasizes that the current SRO-affiliated administrators have 
specialized experience, established relationships with SIP customers, 
and familiarity with the practices and systems of the SIP.\308\ This 
commenter states that the SROs would incur costs in the process of 
identifying, negotiating with, and hiring a new administrator.\309\ 
This commenter also states that ``[a]ll of that experience and shared 
institutional knowledge would be lost in a transition to an 
unaffiliated [a]dministrator, and SIP customers would have to shoulder 
the burden of familiarizing the new Administrator with their practices 
and systems.'' \310\ The commenter further states that the Proposed 
Order ``failed to consider substantial benefits enjoyed by SIP 
customers as a result of the Administrators' affiliation with SROs [and 
that] . . . [c]ustomers generally appreciate that administrators can 
concurrently audit the customer's use of the SRO's proprietary data 
feeds when auditing the customer's SIP usage . . . . '' \311\ Finally, 
this commenter asserts that under the independent plan administrator 
framework, each SIP customer that is also a customer of NYSE and Nasdaq 
proprietary data feeds would be audited three times--by the new 
independent plan administrator, by NYSE, and Nasdaq--instead of only by 
NYSE and Nasdaq.\312\
---------------------------------------------------------------------------

    \306\ See Nasdaq Letter, supra note 45, at 13; NYSE Letter, 
supra note 49, at 20. One commenter states that the Commission 
failed to consider in the Proposed Order the potential disruption to 
the administration of the Equity Data Plans by switching to an 
independent administrator. See NYSE Letter, supra note 49, at 20.
    \307\ Nasdaq Letter, supra note 45, at 13.
    \308\ See NYSE Letter, supra note 49, at 20.
    \309\ See id. at 19.
    \310\ Id. at 20.
    \311\ Id.
    \312\ See id.
---------------------------------------------------------------------------

    The Commission acknowledges that the current plan administrators' 
significant experience and familiarity with the SIPs' practices and 
systems facilitate the continuity of the administration of the SIPs, 
and that there will be a transition period with additional costs to 
onboard the new independent plan administrator, including system 
infrastructure (e.g., network connectivity to exchanges, hosting, and 
database upgrades) and human capital (e.g., contract management, hiring 
personnel, service support, and consolidating policies). In addition, 
depending on the level of experience and knowledge in the operation of 
the SIPs, the Commission anticipates that there will be a transition 
period for the new independent administrator, as would be anticipated 
in any new role involving the New Consolidated Data Plan. On balance, 
however, the Commission believes that eliminating the conflict of 
interest justifies the requirement. Other NMS plans, moreover, have the 
roles of administrator and processor performed by different 
entities.\313\ The Commission also disagrees with one commenter's 
statement that employing separate firms responsible for administration 
and processing would slow coordination and response time to market 
events

[[Page 28724]]

because the roles of administrator and processor are functionally 
different, as prescribed by the Plans, and operate independently of one 
another (e.g., do not share the same personnel, shared systems, 
monitoring systems or databases).
---------------------------------------------------------------------------

    \313\ Under the OPRA Plan, for example, Cboe Exchange, Inc. 
serves as the plan administrator and the Securities Industry 
Automation Corporation (``SIAC''), an NYSE affiliate, serves as the 
processor.
---------------------------------------------------------------------------

    The Commission acknowledges commenters' concerns regarding the 
transition to an independent administrator, including the burden of 
familiarizing the new administrator with subscriber practices and 
systems. With respect to one commenter's statement regarding the 
benefits of established relationships and familiarity with SIP 
customers and their systems, the Commission understands that 
administrators receive confidential and competitively sensitive 
information from broker-dealers about their products, systems, and 
operations, when engaging in the contracting process. This access to 
information and familiarity of SIP customers is the exact concern 
raised by commenters, some representing those same SIP customers, 
regarding conflicts of interest in the current administrator 
framework.\314\ For example, the Commission understands that the 
administrators have significant latitude with respect to the 
information they may request during contract approval process for use 
of SIP market data, some of which may be highly sensitive.
---------------------------------------------------------------------------

    \314\ See supra notes 304-305 and accompanying discussion.
---------------------------------------------------------------------------

    With respect to concerns regarding loss of expertise and shared 
institutional knowledge, the Commission believes this expertise would 
be leveraged in a different manner under the New Consolidated Data Plan 
because the Participants currently acting as administrators would 
continue to be active members of the operating committee and could 
advise and facilitate the onboarding process of the new administrator. 
As stated in the Proposed Order, the New Consolidated Data Plan shall 
provide for the orderly transition of functions and responsibilities 
from the three existing Equity Data Plans, which generally would 
include administrator functions, thereby helping to ameliorate the risk 
for disruption to the SIP administration process. Furthermore, the 
Commission highlights that any industry experience loss would be 
specific to the previous administrative policies and procedures under 
the Equity Data Plans instead of the New Consolidated Data Plan (e.g., 
two auditing teams under the Equity Data Plans instead of only one team 
under the New Consolidated Data Plan).
    The Commission disagrees with the commenter's assertion that SIP 
customers generally appreciate that administrators can concurrently 
audit the customer's use of the SRO's proprietary data feeds when 
auditing the customer's SIP usage. In 2018, during the Commission's 
Division of Trading and Markets Roundtable on Market Data and Market 
Access (``Market Data Roundtable''), panelists stated there are 
substantial burdens associated with the Equity Data Plans' audits of 
their firms' subscriber data usage and fee payment.\315\ The Commission 
also understands that firms must engage in a burdensome approval 
process with the administrators each time the firms add a new market 
data product and also upon the request of an administrator at any 
time.\316\ The Commission believes that such burdens identified by 
these commenters reflect the sort of concerns about the fairness and 
reasonableness of the audit and contract administration process that 
the new independent plan administrator is intended to address by 
completely separating the New Consolidated Data Plan's audit function 
from the commercial interests of members of the operating committee and 
their employers and affiliates. Additionally, as discussed above, a 
single New Consolidated Data Plan would provide the foundation for the 
application of consistent policies and procedures, which generally 
would include the audit function.\317\ Furthermore, the Commission 
acknowledges the commenter's example that a joint SIP and NYSE/Nasdaq 
proprietary data feed customer would be audited three times under the 
proposal; however, the Commission believes that a consolidated SIP 
audit under one independent administrator would promote independence of 
the audit staff of the New Consolidated Data Plan from exchange 
personnel and directly address concerns related to cross-selling 
exchange proprietary data products for NMS stocks to the same market 
participants that are SIP subscribers.
---------------------------------------------------------------------------

    \315\ See, e.g., Transcript of Day One, Market Data Roundtable, 
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.''); Transcript of 
Day Two, Market Data Roundtable, 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. . . .'').
    \316\ For example, an administrator may view something on a 
firm's website and seek further explanation from the firm.
    \317\ See supra Section II.B.4 (describing the need for a single 
New Consolidated Data Plan).
---------------------------------------------------------------------------

    The Commission believes that, despite the implementation costs of 
selecting an independent administrator, it is a necessary step to 
ensure that the Plans further the objectives of Section 11A. Further, 
based on its oversight experience and as described by commenters, the 
Commission believes that these costs are justified because the inherent 
conflicts of interest identified by the Commission, whereby an entity 
acts as a plan administrator while also offering its own competing 
products to the SIPs, either directly or via a subsidiary, raises 
significant concerns regarding access to confidential subscriber 
information. Access to such confidential subscriber information and its 
use for purposes outside the scope of the Plans by an SRO-affiliated 
administrator undermines the fair administration of equity market data 
in the public interest.
    Additionally, two commenters argue that the independent plan 
administrator requirement would constrain the administrator selection 
process.\318\ One of these commenters asserts that the independence 
requirement would eliminate all firms that have experience in managing 
a SIP and ``necessarily diminish the quality of the competition among 
potential administrators.'' \319\ Rather than adopt the independence 
requirement, this commenter states that the operating committee tasked 
with selecting an administrator is in the best position to weigh the 
conflicts of interest issues against the risk of hiring an 
administrator without experience.\320\
---------------------------------------------------------------------------

    \318\ See Nasdaq Letter, supra note 45, at 13; NYSE Letter, 
supra note 49, at 20.
    \319\ Nasdaq Letter, supra note 45, at 13.
    \320\ See id.
---------------------------------------------------------------------------

    The Commission disagrees with commenters' concerns that the 
independence requirement will prevent the New Consolidated Data Plan 
from employing an administrator capable of managing the SIPs and 
inappropriately constrain the selection process.\321\ The Commission 
believes that there is a broad range of financial service firms, 
unaffiliated with an SRO, with specialized capabilities to oversee 
market data administrative functions, such as licensing, billing, 
contract administration and client relationship management, and record 
keeping. Finally, the Commission disagrees with

[[Page 28725]]

one commenter's statement that the operating committee is currently in 
the best position to weigh administrator conflicts of interest issues 
in selecting an administrator because members of the operating 
committee would face their own conflict of interest concerns related to 
any affiliated bidders. Rather, the Commission believes that the 
independence requirement will ameliorate the burden on the operating 
committee of deliberating over administrator's conflicts of interest 
concerns by eliminating conflicted parties at the outset.
---------------------------------------------------------------------------

    \321\ See Nasdaq Letter, supra note 45, at 13; NYSE Letter, 
supra note 49, at 20.
---------------------------------------------------------------------------

    One commenter also argues that the termination of contracts of the 
existing Equity Data Plans' administrators as a result of the 
transition to a single New Consolidated Data Plan would result in an 
unconstitutional taking in violation of the Fifth Amendment of the U.S. 
Constitution.\322\ This commenter believes that the Commission should 
mandate in the Proposed Order that ``no action may be taken that alters 
the administrators' or processors' rights under current contractual 
provisions.'' \323\
---------------------------------------------------------------------------

    \322\ See Nasdaq Letter, supra note 45, at 13-14.
    \323\ Id. at 14.
---------------------------------------------------------------------------

    The Commission disagrees with the commenter's argument that the 
Commission's proposal would constitute a Fifth Amendment ``taking.'' As 
discussed in the Proposed Order, 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 commenter fails to explain how that 
legally authorized transition in this highly regulated field could 
upset a protected property interest for purposes of the Fifth 
Amendment's takings clause. Moreover, the operation of the Equity Data 
Plans is a fundamental component of the national market system, and 
Congress has given the Commission broad authority to regulate that 
system. Indeed, the role of administrator exists solely in response to 
the regulatory requirements of Section 11A of the Act and Regulation 
NMS. Here, the Commission has determined that it is appropriate, in 
response to changes in the market, to alter the existing regulatory 
structure pursuant to this authority. In a highly regulated industry 
such as the national market system for securities, the Commission does 
not believe that such a change impermissibly interferes with an 
administrator's reasonable investment-backed expectations.\324\
---------------------------------------------------------------------------

    \324\ See, e.g., Ruckleshaus v. Monsanto Co., 467 U.S. 986, 1005 
(1984); District Intown Properties Ltd. P'ship v. District of 
Columbia, 198 F.3d 874, 884 (D.C. Cir. 1999).
---------------------------------------------------------------------------

E. New Consolidated Data Plan Policies and Procedures

1. Conflicts of Interest Policy
    The Proposed Order provided that the New Consolidated Data Plan 
shall include provisions designed to address the conflicts of interest 
of SRO members and non-SRO members. On January 8, 2020, the Commission 
issued for notice and comment the Participants' proposal to amend the 
Equity Data Plans to make mandatory the current voluntary conflicts-of-
interest disclosure regime.\325\ Simultaneously with this Order, the 
Commission is approving the Conflicts of Interest Amendments to the 
Plans, as modified by the Commission.\326\
---------------------------------------------------------------------------

    \325\ See Securities Exchange Act Release Nos. 87907 (Jan. 8, 
2020), 85 FR 2193 (Jan. 14, 2020) and 87908 (Jan. 8, 2020), 85 FR 
2202 (Jan. 14, 2020) (together, the ``Conflicts of Interest 
Amendments'').
    \326\ See Securities Exchange Act Release Nos. 88823, 88824 (May 
6, 2020) (``Conflicts of Interest Approval Orders'').
---------------------------------------------------------------------------

    The Commission received a number of comments in response to the 
Proposed Order that address the appropriate scope of conflicts-of-
interest policies for the New Consolidated Data Plan, including some 
comments directly referring to the Conflicts of Interest Amendments. 
Most commenters acknowledge the conflicts that exchanges face between 
their regulatory obligations to produce and provide core data and their 
commercial interests, and support including a robust conflicts-of-
interest policy in the New Consolidated Data Plan.\327\ However, one 
commenter states that it believes that the Conflicts of Interest 
Amendments reduce or eliminate many of the concerns that the Commission 
raised in the Proposed Order about the governance of the Equity Data 
Plans, and, in particular, potential conflicts of interests.\328\
---------------------------------------------------------------------------

    \327\ See CII Letter, supra note 74, at 6; T. Rowe Price Letter, 
supra note 164, at 2; Refinitiv Letter, supra note 80, at 3; MEMX 
Letter, supra note 80, at 6; MFA/AIMA Letter, supra note 142, at 5; 
SIFMA Letter, supra note, 13 at 6; Citi Letter, supra note 85, at 4; 
Clearpool Letter, supra note 40, at 5; IEX Letter, supra note 113, 
at 4-5.
    \328\ See NYSE Letter, supra note 49, at 10. See also Cboe 
Letter, supra note 114, at 4 (stating that the Conflicts of Interest 
Amendments would constitute meaningful improvements to Equity Data 
Plan governance).
---------------------------------------------------------------------------

    The Commission agrees with the commenters that the Conflicts of 
Interest Amendments, as proposed, attempt to address some of the 
conflicts inherent in the current market data structure where exchanges 
can offer proprietary market data products while also sharing 
responsibility for the public SIP data stream. In fact, the Commission 
believes that full disclosure of all material facts necessary for 
market participants and the public to understand the potential 
conflicts of interest is one important approach to dealing with those 
potential conflicts. As the Commission states today in its separate 
approval order, detailed, clear, and meaningful disclosures that 
provide insight into otherwise non-transparent structures and 
operations can raise awareness of potential conflicts of interest 
inherent in the current equity market data structure and increased 
access to information can facilitate public confidence in Plan 
operations.\329\ However, the Commission believes that broader market 
developments, such as exchanges converting from being mutually owned to 
demutualized entities that serve their shareholders, and the emergence 
of exchange groups, have heightened the potential for competing 
interests to affect the governance of the Equity Data Plans to a degree 
that simply cannot be addressed solely by enhanced disclosures.\330\ As 
such, the Commission believes that the Conflicts of Interest Amendments 
are by themselves insufficient to address these issues.
---------------------------------------------------------------------------

    \329\ See Conflicts of Interest Approval Orders, supra note 326, 
at 6.
    \330\ See Proposed Order, supra note 4, 85 FR at 2173-75.
---------------------------------------------------------------------------

    Some of the exchange groups raise concerns that non-SRO members of 
the New Consolidated Data Plan's operating committee would favor their 
own business interests, and that the Proposed Order included neither 
obligations on non-SRO members nor a mechanism to enforce compliance 
with the terms of the New Consolidated Data Plan.\331\ Another 
commenter states it would not object to a provision in the New 
Consolidated Data Plan explicitly providing that non-SRO members have a 
duty to act in good faith and in the public interest in furtherance of 
the purposes of Section 11A of the Act.\332\
---------------------------------------------------------------------------

    \331\ See NYSE Letter, supra note 49, at 15; Nasdaq Letter, 
supra note 45, at 8-9 (arguing that the Proposed Order does not 
impose any obligations on non-SRO members of the New Consolidated 
Data Plan, nor even a clear means to enforce their compliance with 
the terms of the New Consolidated Data Plan); Cboe Letter, supra 
note 114, at 7-9 (stating that it is critical that the Commission 
take steps to ensure that it can exercise appropriate oversight over 
any non-SRO members).
    \332\ See ICI Letter, supra note 78, at 4.
---------------------------------------------------------------------------

    The Commission recognizes that non-SRO members also face conflicts 
of interest as both voting members of the operating committee and 
employees of

[[Page 28726]]

businesses that utilize core data or proprietary data feeds. Thus, the 
Commission believes that the New Consolidated Data Plan should include 
conflicts-of-interest provisions for both SRO and non-SRO 
representatives of the operating committee, and as approved, the 
Conflicts of Interest Amendments will apply equally to SRO and non-SRO 
representatives. The Commission believes that each of the disclosing 
parties will be required to disclose conflicts of interest, and will be 
guided by the goals of the New Consolidated Data Plan 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.'' \333\ Additionally, 
because the recusal process outlined in the Conflicts of Interest 
Amendments as approved is applicable not only to non-SRO members, but 
to all disclosing parties, it is designed to address these conflicts-
of-interest concerns as well.
---------------------------------------------------------------------------

    \333\ 15 U.S.C. 78k-1.
---------------------------------------------------------------------------

    As stated in the Conflicts of Interest Approval Orders, the 
Commission believes that those policies, as approved, will enhance the 
governance of the existing Equity Data Plans and would similarly help 
the New Consolidated Data Plan address the conflicts of interest that 
its expanded set of operating committee members would face. The 
Commission therefore orders the SROs to incorporate into the New 
Consolidated Data Plan provisions consistent with the Conflicts of 
Interest Amendments as modified by the Commission.
2. Confidentiality Policy
    The Proposed Order provided that the New Consolidated Data Plan 
shall include provisions designed to protect confidential and 
proprietary information from misuse. On January 8, 2020, the Commission 
issued the notice of the Equity Data Plans' proposal to adopt a 
confidentiality policy to provide guidelines for the operating 
committee and the advisory committee of the Plans, and all 
subcommittees thereof, regarding the confidentiality of any data or 
information generated, accessed, or transmitted to the operating 
committee, as well as discussions occurring at a meeting of the 
operating committee or any subcommittee.\334\
---------------------------------------------------------------------------

    \334\ See Securities Exchange Act Release Nos. 87909 (Jan. 8, 
2020), 85 FR 2207 (Jan. 14, 2020) and 87910 (Jan. 8, 2020), 85 FR 
2212 (Jan. 14, 2020) (together, the ``Confidentiality Policy 
Amendments'').
---------------------------------------------------------------------------

    The Commission received a number of comments in response to the 
Proposed Order that address the appropriate confidentiality policy for 
the New Consolidated Data Plan, including comments that addressed the 
Confidentiality Policy Amendments submitted by the Participants to the 
Equity Data Plans. Most commenters support a robust confidentiality 
policy in the New Consolidated Data Plan that would apply to both SRO 
and non-SRO members of the operating committee.\335\ One commenter 
believes that the Confidentiality Policy Amendments reduced or 
eliminated many of the concerns expressed in the Proposed Order.\336\ 
Another commenter states that the proposed Confidentiality Policy 
Amendments would improve the handling of confidential information and 
are designed to both protect confidential information from misuse and 
facilitate the sharing of confidential information with the advisory 
committee.\337\
---------------------------------------------------------------------------

    \335\ See Refinitiv Letter, supra note 80, at 3; Wellington 
Management Letter, supra note 77, at 2; MEMX Letter, supra note 80, 
at 6; MFA/AIMA Letter, supra note 142 at 5; SIFMA Letter, supra note 
13, at 6; Royal Bank of Canada Letter, supra note 189, at 4; 
Clearpool Letter, supra note 40, at 5; Citi Letter, supra note 85, 
at 4.
    \336\ See NYSE Letter, supra note 49, at 10.
    \337\ See Cboe Letter, supra note 114, at 5.
---------------------------------------------------------------------------

    In the Proposed Order, the Commission stated its concerns about the 
possibility of an exchange or its representative obtaining confidential 
data subscriber information of potentially significant commercial 
value, as they are privy to information about core data usage, the 
SIPs' customer lists, financial information, and subscriber audit 
results via their position on the operating committee.\338\ The 
conflicts resulting from such access could influence decisions as to 
the Equity Data Plans' operations and thereby impede their ability to 
achieve the goals of the Plans 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.'' Thus, the Commission agrees with the commenters 
that the Confidentiality Policy Amendments, as initially proposed, are 
a necessary first step towards implementing a policy to address the 
commercial use of confidential or proprietary information.
---------------------------------------------------------------------------

    \338\ See Proposed Order, supra note 4, 85 FR at 2185.
---------------------------------------------------------------------------

    Another commenter recommends that any adopted confidentiality 
policy included in the New Consolidated Data Plan be sufficiently 
robust and implemented in a manner to ensure that topics in any 
executive session are appropriately handled in a secure manner by SRO 
members, so that non-SRO members may participate in executive 
sessions.\339\
---------------------------------------------------------------------------

    \339\ See TD Ameritrade Letter, supra note 74, at 7-8.
---------------------------------------------------------------------------

    Simultaneously with the issuance of this Order, the Commission is 
approving the Confidentiality Policy Amendments to the Equity Data 
Plans, as modified by the Commission.\340\ In approving the 
Confidentiality Policy Amendments, the Commission modified a provision 
so that classification of information would be based on the content and 
sensitivity of the information, rather than on whether it is shared in 
an executive session, resulting in a more vigorous confidentiality 
policy.\341\
---------------------------------------------------------------------------

    \340\ See Securities Exchange Act Release Nos. 88825, 88826 (May 
6, 2020) (``Confidentiality Policy Approval Orders'').
    \341\ See Confidentiality Policy Approval Order, supra note 340.
---------------------------------------------------------------------------

    The Commission believes that the Confidentiality Policy Amendments, 
as approved by the Commission, will enhance the governance of the 
existing Equity Data Plans and would similarly help the New 
Consolidated Data Plan appropriately identify and treat confidential 
information. The Commission therefore orders the SROs to incorporate 
into the New Consolidated Data Plan, provisions consistent with the 
Confidentiality Policy Amendments as modified by the Commission.
3. Executive Session Policy
    The Proposed Order provided 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 
exclude non-SRO members.\342\ The Commission further proposed 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 subsequently approved by a majority vote of the SRO 
members of the operating committee.\343\
---------------------------------------------------------------------------

    \342\ See Proposed Order, supra note 4, 85 FR at 2184-85.
    \343\ See id. at 2185.
---------------------------------------------------------------------------

    The Commission received several comments regarding the proposed 
executive session policy.\344\ Most

[[Page 28727]]

commenters were supportive of the Commission's proposal, reiterating 
that executive sessions should be severely limited to certain 
circumstances.\345\ However, one commenter believes that the executive 
session policy should be limited to ``necessary'' circumstances, and 
not merely ``appropriate'' as proposed by the Commission, and states 
that coupled with the Confidentiality Policy Amendments, the need for 
executive sessions should be minimal.\346\ The exchange groups contend 
that the Equity Data Plans' operating committee had already limited the 
use of executive sessions and implemented a process of disclosing 
potential topics for executive sessions in advance and voting on them 
in the presence of the advisory committee.\347\
---------------------------------------------------------------------------

    \344\ See NYSE Letter, supra note 49; TD Ameritrade Letter, 
supra note 74; Virtu Letter, supra note 80; Refinitiv Letter, supra 
note 80; MEMX Letter, supra note 80; Cboe Letter, supra note 114; 
Royal Bank of Canada Letter, supra note 189; Clearpool Letter, supra 
note 40.
    \345\ See TD Ameritrade Letter, supra note 74, at 7; Virtu 
Letter, supra note 80, at 2; MEMX Letter, supra note 80, at 7; 
Clearpool Letter, supra note 40, at 5; Refintiv Letter, supra note 
80, at 3.
    \346\ See Royal Bank of Canada Letter, supra note 189, at 3.
    \347\ See NYSE Letter, supra note 49, at 8; Cboe Letter, supra 
note 114, at 5.
---------------------------------------------------------------------------

    One commenter suggests that, instead of approving an executive 
session by a majority vote of the SRO members, an executive session 
request should be approved by the augmented majority voting procedures 
(as discussed above) and the votes should be reflected in the meeting 
minutes.\348\ Specifically, the commenter is concerned that limiting 
non-SRO members' voting rights, in determining whether to move into 
executive session or not, could potentially cause topics outside the 
stated policy to be approved for executive session. The commenter 
further recommends that the policy should provide a process by which 
decisions to close meetings can be challenged by any operating 
committee member with cause.\349\ Another commenter proposes that non-
SRO members should be able to participate, but not vote, in executive 
sessions, arguing that non-SRO participation would still allow SROs to 
effect solely SRO business, while providing non-SRO members with the 
necessary context to inform their positions.\350\ Regarding non-SRO 
member participation in executive sessions, the commenter further 
suggests that one non-SRO member voted on by peers be permitted to 
participate without a vote in the executive session, or, alternatively, 
that a non-conflicted legal counsel be in attendance.\351\
---------------------------------------------------------------------------

    \348\ See TD Ameritrade Letter, supra note 74, at 7.
    \349\ See id. at 8.
    \350\ See TD Ameritrade Letter, supra note 74, at 8.
    \351\ Id.
---------------------------------------------------------------------------

    As reflected in the Proposed Order,\352\ the Commission recognizes 
that there may be circumstances in which deliberations by the SROs 
alone may be appropriate. Because this Order provides that the New 
Consolidated Data Plan shall confine executive sessions 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 Commission believes that it is 
appropriate that the request to enter into an executive session require 
a majority vote of the SRO members of the operating committee. The 
Commission further believes that requiring only a majority vote of the 
SROs is balanced by the requirement that a request to enter into an 
executive session be included on a written agenda, along with a clearly 
stated rationale for each matter to be discussed.\353\ Non-SROs, as 
voting members of the operating committee, would have access to this 
agenda and be present for the vote to enter into executive session, 
providing an opportunity to discuss or inquire about the basis for the 
requested session.
---------------------------------------------------------------------------

    \352\ See Proposed Order, supra note 4, 85 FR at 2184-85.
    \353\ See id. at 2185.
---------------------------------------------------------------------------

4. Responsibilities of the Operating Committee
    The Proposed Order set forth several responsibilities of the 
operating committee under the New Consolidated Data Plan.\354\ The 
Commission received several comments regarding the role of the 
operating committee, with most commenters supporting the enunciated 
functions.\355\ One commenter agrees that the New Consolidated Data 
Plan should make explicit that the operating committee is responsible 
for taking action to meet the statutory goals of assuring the ``prompt, 
accurate, reliable, and fair collection, processing, distribution, 
publication of information with respect to quotations for and 
transactions in NMS stock and the fairness and usefulness of the form 
and content of that information.'' \356\
---------------------------------------------------------------------------

    \354\ See id. at 2186-87.
    \355\ See Clearpool Letter, supra note 40, at 5; Letter from 
John L. Thornton, Co-Chair, Hal S. Scott, President, and R. Glenn 
Hubbard, Co-Chair, Committee on Capital Markets Regulation (Feb. 28, 
2020), at 6 (``Capital Markets Letter''); IEX Letter, supra note 
113, at 3-4; Virtu Letter, supra note 80, at 2; MEMX Letter, supra 
note 80, at 5-6; TD Ameritrade Letter, supra note 74, at 6-7; 
Bloomberg Letter, supra note 40, at 3-5; MFA/AIMA Letter, supra note 
142, at 4-5.
    \356\ See IEX Letter, supra note 113, at 3. See also Virtu 
Letter, supra note 80, at 2 (supporting implementation of governance 
reforms and mandating new policies and procedures to ensure 
transparency and accountability for actions taken by the operating 
committee); TD Ameritrade Letter, supra note 74, at 8 (supporting 
adoption and inclusion of all other provisions of the Equity Data 
Plans necessary for the operation and oversight of the SIPs under 
the New Consolidated Data Plan).
---------------------------------------------------------------------------

    Several commenters support the operating committee's responsibility 
to select, oversee, specify the role and responsibilities of, and 
evaluate the performance of, an independent plan administrator, plan 
processors, and auditor, and other professional service providers.\357\ 
Commenters also express support for the operating committee's role to 
review the performance of the plan processors, and ensure the public 
reporting of plan processors' performance and other metrics and 
information about the plan processors and believed it would allow 
industry participants to provide meaningful input to the operating 
committee and the Commission.\358\
---------------------------------------------------------------------------

    \357\ See Clearpool Letter, supra note 40, at 5; MEMX Letter, 
supra note 80, at 5-6.
    \358\ See Capital Markets Letter, supra note 355, at 6; 
Clearpool Letter, supra note 40, at 5; MEMX Letter, supra note 80, 
at 6.
---------------------------------------------------------------------------

    However, one commenter contends that the Equity Data Plan 
administrators and processors operate pursuant to service contracts and 
that terminating the contracts without regard to the administrators' or 
processors' rights would violate the Fifth Amendment prohibition 
against takings without just compensation. The commenter asserts that 
the Commission should mandate that the operating committee not take any 
action that would alter the administrators' or processors' rights under 
their current contractual provisions.\359\
---------------------------------------------------------------------------

    \359\ See Nasdaq Letter, supra note 45, at 14.
---------------------------------------------------------------------------

    The Commission does not agree that the Proposed Order would mandate 
the termination of the current contract with the processors, because 
the Proposed Order contemplated that the New Consolidated Data Plan may 
incorporate the current operational provisions of the Equity Data Plans 
and that therefore the existing processors for the Equity Data Plans 
would become the processors for the New Consolidated Data Plan. Thus, 
the Proposed Order would not impermissibly interfere with a protected 
property interest and does not represent a ``taking'' within the 
meaning of the Fifth Amendment. Indeed, the Proposed Order should not 
result in any economic harm to the processors. Currently under the 
Equity Data Plans, the SIAC is the

[[Page 28728]]

exclusive processor for Tapes A and B and Nasdaq is the exclusive 
processor for Tape C. While the Commission is ordering a single New 
Consolidated Data Plan, it is not imposing requirements or taking a 
position as to whether the three Tapes will continue to exist. Upon 
commencement of the New Consolidated Data Plan, the operating committee 
may determine to select new processors, however, such selection will be 
subject to the augmented voting structure and subsequent review, 
pursuant to Rule 608, by the Commission.
    In any event, even if contractual arrangements with processors 
would have to be altered, no commenter has presented any identifiable 
and protected property interest. Nor has any commenter explained how 
such arrangements would alter any reasonable investment-backed 
expectations in this highly regulated field.
    The Commission also received comments regarding the proposed 
requirement about terms and fees for the distribution, transmission, 
and aggregation of core data.\360\ Some commenters recommend that the 
operating committee clarify the terms ``fair and reasonable.'' \361\ 
Commenters alternatively suggest that the Commission use its rulemaking 
authority to codify its ``Staff Guidance on SRO Rule Filings Relating 
to Fees'' to assist in the review of prices or that the Commission 
introduce additional rulemaking to include clear and specific cost-
based requirements to support SIP data fees.\362\ One commenter argues 
that the current SIP fees have already gone through the required 
regulatory review process and as such, should remain in place unless 
the new operating committee determines to change them.\363\
---------------------------------------------------------------------------

    \360\ See Capital Markets Letter, supra note 355, at 6 (stating 
that cost transparency is crucial to ensuring that consolidated 
market data fees are ``not unreasonably discriminatory'' and ``fair 
and reasonable''); MFA/AIMA Letter, supra note 142, at 4 (stating 
that the New Consolidated Data Plan should make clear that fees 
should be related to the cost of production, aggregation and 
distribution, rather than to user value).
    \361\ See TD Ameritrade Letter, supra note 74, at 6; Bloomberg 
Letter, supra note 40, at 4-5; NYSE Letter, supra note 49, at 11.
    \362\ See TD Ameritrade Letter, supra note 74, at 6-7; NYSE 
Letter, supra note 49, at 11.
    \363\ See Cboe Letter, supra note 114, at 11.
---------------------------------------------------------------------------

    As the Commission stated in the Proposed Order, the existing Equity 
Data Plans will continue to be responsible for the consolidation and 
dissemination of SIP data and the 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 become effective.\364\ Thus, the Equity Data Plans will continue 
to function, with their existing fees, until those Plans are 
decommissioned and are no longer responsible for the consolidation and 
dissemination of equity market data. This Order creates a new NMS plan 
for equity market data, and the Commission believes that any new SIP 
data fees, including consideration of what would be ``fair and 
reasonable,'' should be discussed among and developed by the new 
operating committee and would need to be voted and approved by an 
augmented vote pursuant to the terms of the New Consolidated Data Plan. 
Consistent with the requirements of Rule 608, all of the terms of the 
New Consolidated Data Plan, both those filed as part of the initial 
plan itself, or those submitted as later amendments to address products 
or fees, would be subject to public notice and comment and Commission 
review.
---------------------------------------------------------------------------

    \364\ See Proposed Order, supra note 4, 85 FR at 2186.
---------------------------------------------------------------------------

    The Commission also received comments regarding the operating 
committee's responsibility to design 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.\365\ One commenter recommends that the 
Commission revisit the current revenue allocation formula now, with the 
goal of arriving at a new formula that better rewards displayed 
liquidity resulting in price discovery.\366\ Another commenter concurs, 
stating that the revenue allocation formula should be modified to 
reward displayed quotes where investors receive an execution.\367\
---------------------------------------------------------------------------

    \365\ See NYSE Letter, supra note 49, at 11; MEMX Letter, supra 
note 80, at 6.
    \366\ See NYSE Letter, supra note 49, at 11.
    \367\ See Nasdaq Letter, supra note 45, at 4-5.
---------------------------------------------------------------------------

    The Commission believes that the SROs as operators of the SIPs are 
well suited to determine how the revenues are distributed among the 
SROs. Consistent with any other plan actions, once the operating 
committee determines a fair and reasonable allocation and files a 
proposed amendment with the Commission, the Commission will publish 
such an amendment for notice and comment pursuant to Rule 608, and will 
have an opportunity to review the provisions, consider the operating 
committee's rationale, and at that time make a determination as to 
whether the proposal is fair and reasonable.

F. Transition From Equity Data Plans to New Consolidated Data Plan

    The Proposed Order stated that 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 the 
dissemination of, and fees for, SIP data 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 has been approved.\368\ 
The Commission received several comments on the proposed transition to 
the New Consolidated Data Plan.\369\
---------------------------------------------------------------------------

    \368\ See Proposed Order, supra note 4, 85 FR at 2186.
    \369\ See ICI Letter, supra note 78; Nasdaq Letter, supra note 
45; TD Ameritrade Letter, supra note 74; Royal Bank of Canada 
Letter, supra note 189; Fidelity Letter, supra note 80; SIMFA 
Letter, supra note 13; State Street Letter, supra note 76; IEX 
Letter, supra note 113.
---------------------------------------------------------------------------

    One commenter argues that the proposed allocation of 90 days for 
the SROs to file the New Consolidated Data Plan with the Commission was 
unreasonable, stating that the current operating committee would have 
to resolve numerous issues, such as (1) developing comprehensive 
conflicts-of-interest provisions for both SRO and non-SRO 
representatives of the operating committee, (2) reconciling 
inconsistencies between the Equity Data Plans, (3) designing processes 
for selection and evaluation of an independent plan administrator, 
auditor, and other professional service providers, and (4) setting 
parameters for a revision to the revenue allocation formula.\370\ 
Alternatively, this commenter suggests a 180-day deadline for an 
initial progress report, followed by progress reports every 90 days 
until completion.\371\
---------------------------------------------------------------------------

    \370\ See Nasdaq Letter, supra note 45, at 14-15.
    \371\ See id. at 15.
---------------------------------------------------------------------------

    Conversely, another commenter asserts that a shorter period of 
time, for example 45 days after the Order is issued, would be 
sufficient for the SROs to file the New Consolidated Data Plan with the 
Commission, and suggests that the Commission be more prescriptive in 
providing the terms for the New Consolidated Data Plan to avoid 
implementation delay.\372\
---------------------------------------------------------------------------

    \372\ See IEX Letter, supra note 113, at 2.
---------------------------------------------------------------------------

    The Commission continues to believe that it is appropriate and in 
the public

[[Page 28729]]

interest for the Participants to submit the New Consolidated Data Plan 
to the Commission within 90 days to ensure timely implementation of the 
enhanced governance structure. As discussed above, the Participants 
have significant experience to draw upon in developing the New 
Consolidated Data Plan. And the Commission anticipates that the 
Participants may incorporate many, if not most, of the operational 
provisions of the Equity Data Plans into the New Consolidated Data Plan 
filed with the Commission, substantially reducing the work required to 
prepare and file the New Consolidated Data Plan. Further, through this 
Order, the Commission is prescribing, in substantial detail, most of 
the governance provisions that would differ between the Equity Data 
Plans and the New Consolidated Data Plan, further reducing the work 
required of the Participants to prepare the new plan. In addition, as 
stated above, the Commission is simultaneously issuing the Conflicts of 
Interest Approval Orders and the Confidentiality Policy Approval 
Orders, and the conflicts of interest and confidentiality policies, as 
approved by the Commission, can be incorporated into the New 
Consolidated Data Plan.
    Notwithstanding the above, the Commission understands the 
challenges associated with the current global pandemic. As the impact 
of the pandemic unfolds, the Commission continues to monitor market 
developments, including as they may relate to this initiative.
    Commenters also express concerns that SROs may unnecessarily delay 
implementing the New Consolidated Data Plan and recommend that the 
Commission prescribe specific milestones, and establish timetables for 
the completion of such milestones to compel an expedient transition to 
the New Consolidated Data Plan.\373\ Specifically, one commenter 
suggests that the New Consolidated Data Plan be implemented and the new 
independent administrator be selected within 180 days of the date of 
the Order, with the ability for the Commission to grant an 
extension.\374\ Another commenter recommends that the Order either 
impose immediate reforms on the SROs or alternatively require that the 
New Consolidated Data Plan have a rolling implementation schedule 
specifying that some reforms take effect immediately, such as including 
non-SRO members on the operating committee, implementing the augmented 
voting structure, and adopting the Conflicts of Interest and 
Confidentiality Amendments.\375\ Separately, several commenters suggest 
penalizing the SROs for any unwarranted delays or failures to meet a 
milestone deadline.\376\ Commenters also recommend that the Commission 
impose a fine on SROs for delays or prohibit the SROs from receiving 
market data revenues from the SIP data fees for a certain period of 
time to incentivize timely implementation.\377\
---------------------------------------------------------------------------

    \373\ See ICI Letter, supra note 78, at 6; Fidelity Letter, 
supra note 80, at 6; TD Ameritrade Letter, supra note 74, at 8; 
Royal Bank of Canada Letter, supra note 189, at 2; SIFMA Letter, 
supra note 13, at 5-6; State Street Letter, supra note 76, at 4.
    \374\ See TD Ameritrade Letter, supra note 74, at 8.
    \375\ See Royal Bank of Canada Letter, supra note 189, at 2.
    \376\ See ICI Letter, supra note 78, at 6; Fidelity Letter, 
supra note 80, at 6; SIFMA Letter, supra note 13, at 5-6.
    \377\ See ICI Letter, supra note 78, at 6; Fidelity Letter, 
supra note 80, at 6.
---------------------------------------------------------------------------

    For the reasons discussed above, the Commission continues to 
believe that 90 days is an appropriate amount of time for the SROs to 
file the New Consolidated Data Plan. The Commission is not imposing, 
beyond the 90-day requirement to file the New Consolidated Data Plan, 
specific timetables, milestones or implementation schedules because the 
Commission expects that the SROs will be able to act expeditiously 
based on their experience as operators of the SIP, coupled with their 
statutory requirement 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.'' \378\
---------------------------------------------------------------------------

    \378\ 15 U.S.C. 78k-1(c)(b).
---------------------------------------------------------------------------

G. Other Comments

    Comment letters also addressed financial disclosures regarding New 
Consolidated Data Plan operations,\379\ the calculation of SIP 
fees,\380\ the timing of financial disclosures,\381\ the information 
such disclosures should include,\382\ and concerns raised by high speed 
trading.\383\ Ultimately, however, this Order focuses on certain 
critical aspects of the governance structure of the Plans. These 
additional topics fall outside the scope of this Order.
---------------------------------------------------------------------------

    \379\ See Bloomberg Letter, supra note 40, at 3-4; Capital 
Markets Letter, supra note 355, at 6; IEX Letter, supra note 113, at 
5; Schwab Letter, supra note 74, at 6-7; Virtu Letter, supra note 
80, at 5; TD Ameritrade Letter, supra note 74, at 6 (suggesting that 
the Commission codify explicit requirements regarding what is ``fair 
and reasonable.'').
    \380\ See MFA/AIMA Letter, supra note 142, at 4.
    \381\ See Bloomberg Letter, supra note 40, at 3-4; Schwab 
Letter, supra note 74, at 6-7; IEX Letter, supra note 113, at 5; 
Virtu Letter, supra note 80, at 5.
    \382\ See Bloomberg Letter, supra note 40, at 3-4; IEX Letter, 
supra note 113, at 5; Virtu Letter, supra note 80, at 5; Schwab 
Letter, supra note 74, at 6-7.
    \383\ See Letter from Kermit R. Kubitz, Individual Consumer, San 
Francisco, CA (Mar. 20, 2020).
---------------------------------------------------------------------------

* * * * *
    As noted above, Section 11A(a)(2) of the Act \384\ 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) of the Act 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).'' \385\
---------------------------------------------------------------------------

    \384\ 15 U.S.C. 78k-1(a)(2).
    \385\ 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.\386\
---------------------------------------------------------------------------

    \386\ 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,\387\ a single New 
Consolidated Data Plan that replaces the three current Equity Data 
Plans and that includes, at a minimum, the following terms and 
conditions:
---------------------------------------------------------------------------

    \387\ 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 become effective.
     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

[[Page 28730]]

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 
percent 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, 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 person who represents the interests of 
retail investors (``retail representative'') (collectively, ``Non-SRO 
Members''), provided that the representatives of the securities market 
data vendor and the issuer are not permitted to be affiliated or 
associated with an SRO, a broker-dealer, or an investment adviser with 
third-party clients. The retail representative shall have experience 
working with or on behalf of retail investors and have the requisite 
background and professional experience to understand the interests of 
retail investors, the work of the operating committee of the New 
Consolidated Data Plan, and the role of market data in the U.S. equity 
market. The retail representative shall not be affiliated with an SRO 
or a broker-dealer.
     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 that subsequent Non-SRO Members be 
selected solely by the then-serving Non-SRO Members of the New 
Consolidated Data Plan's operating committee, 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, 
transparent, and public nomination process for Non-SRO Members and 
shall specify a process for publicly soliciting and making available 
for public comment nominations 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 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, i.e., a supermajority vote of the New Consolidated Data 
Plan's operating committee, along with a majority vote of the SRO 
members of the operating committee.
     The New Consolidated Data Plan shall provide that the 
responsibilities of the operating committee will include:
    [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 the operating 
committee;
    [cir] developing and maintaining fair and reasonable fees and 
consistent terms 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, either directly or via another subsidiary, 
offers for sale its own proprietary market data product for NMS stocks.
     The New Consolidated Data Plan shall include provisions 
designed to address the conflicts of interest of SRO members and Non-
SRO Members as outlined in the Conflicts of Interest Approval Orders.
     The New Consolidated Data Plan shall include provisions 
designed to protect confidential and proprietary information from 
misuse as outlined in the Confidentiality Policy Approval Orders.
     The New Consolidated Data Plan shall identify the 
circumstances in which SRO members may meet in executive session and 
shall confine executive sessions 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 must be included on a 
written agenda, along with a clearly stated rationale for each matter 
to be discussed, and that each such request 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

[[Page 28731]]

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,\388\ that the Participants act jointly in developing and filing 
with the Commission, as an NMS plan pursuant to Rule 608(a) of 
Regulation NMS,\389\ 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 August 11, 2020.
---------------------------------------------------------------------------

    \388\ 15 U.S.C. 78k-1(a)(3)(B).
    \389\ 17 CFR 242.608(a).

    By the Commission.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-10041 Filed 5-12-20; 8:45 am]
BILLING CODE 8011-01-P

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