While there might not be agreement on the pilot's final design, let alone the outcome, Brett Redfearn, the SEC's trading and markets director, said in an April speech that "it is one of the few areas where there is significant consensus among market participants that something needs to be done."
Investors are also encouraged because of a just-announced Oct. 25-26 roundtable discussion by Mr. Redfearn's division on market data and market access. "The number of voices the commission is inviting to the conversation is the right approach. We want to ensure that alignment to the investor experience is what is driving that concern," Mr. Evarts of SSGA said.
Another promising sign for investors is the SEC's rejection in recent months of two fee changes for consolidated data sold jointly by the exchanges, and suspension of connectivity fee hikes by three options exchanges. The SEC's Mr. Jackson sees those actions as a welcome change from what he considers a pattern of rubber-stamping requests from exchanges.
An August 2017 decision by the U.S. Circuit Court of Appeals for the District of Columbia also could potentially slow approvals of those requests. Instead of relying on the exchanges' arguments, the SEC has an obligation to do its own analysis, the court said.
"For now, the most important issue is that the SEC needs to issue a moratorium on fee applications," said J.W. Verret, a securities law professor at the George Mason University Antonin Scalia Law School in Arlington, Va. The free-market advocate became frustrated with the current market structure as he watched lower-cost provider IEX Group overcome opposition from Nasdaq and NYSE Group to win SEC approval in 2016 to transform from a private trading venue into a public stock exchange.
A fuller diagnosis of the problems will have to wait for the pilot results. "Before we can do anything, we need more data," said Mr. Verret.
The SEC's Mr. Jackson is also pressing fellow commissioners to address other exchange practices, including raising or removing legal limits on exchange liability when investors are harmed, the ability of exchanges to run a public data feed while simultaneously selling private data feeds, and potential conflicts of interest from self-regulation.
Congress would have to address the conflict-of-interest issue, but the SEC could make other changes, industry sources say. SEC officials could direct the SROs to include buy side and sell side market participants in their governance process and revisit low liability caps; both are moves supported by the Council of Institutional Investors and others.
Kenneth E. Bentsen Jr., SIFMA president and CEO, supports Mr. Jackson's recommendations on market data, legal liability, regulatory immunity for commercial activities and the role of exchanges as self-regulatory organizations, which his group has sought for years. "The concerns Commissioner Jackson raises are critical for the industry," he said.
Mike Williams, executive director of the Equity Market Association representing the NYSE and Nasdaq, countered that U.S. exchanges "are the most heavily regulated, transparent and trusted participants" in equity trading today, providing "more valuable, efficient and resilient trading and data services, at the lowest relative cost to investors, than at any time in history."