Some market data fee increases by Nasdaq and the New York Stock Exchange were not justified, the Securities and Exchange Commission said late Tuesday in a ruling that exchange critics welcomed as a first step in closer scrutiny of exchange pricing and practices.
Deciding a 2013 challenge brought by the Securities Industry and Financial Markets Association, the SEC said NYSE Arca and Nasdaq Stock Market must provide more justification to continue charging the rates it imposed for depth-of-book data that is used for gauging market demand. The decision affects hundreds of similar price-increase requests that were on hold pending the decision.
"To be clear, the commission's decision does not mean the fees were too high; rather it means that the exchanges have not provided sufficient factual and legal support to continue to charge those fees," SEC Chairman Jay Clayton said in a statement, noting that the type of fees at issue have been the subject of various commission and court proceedings over the past decade. Given technological and other changes in markets, Mr. Clayton said, the SEC's actions "are in the best interests of our markets and our Main Street investors."
Democratic Commissioner Robert J. Jackson Jr. welcomed the decision, saying that SEC officials "have leapt off the sidelines with a clear and compelling message for American stock exchanges." By remanding similar price-increase requests, "the exchanges will now have the opportunity to review those requests under the standards articulated in today's landmark opinion — which requires exchanges to be prepared to show us that any price increases are justified by competition rather than the exchanges' market power," Mr. Jackson said.
Republican commissioners Hester Peirce and Elad Roisman concurred with the unanimous decision, saying "the exchanges' failure begins with the fact that customers are described as one undifferentiated group, despite the fact that market data products are typically priced with particular customers in mind." They noted that since SIFMA's 2013 challenge, there have been more than 400 challenges to exchanges' rule changes, as well as to plan amendments in National Market System plans. The NMS governs exchange-based trading.
One of the most recent challenges to exchange fees came in August, in an SEC petition from the Managed Funds Association and the Alternative Investment Management Association.
Brad Katsuyama, CEO of lower-cost exchange provider IEX Group, called the ruling "a huge win for the industry and investors who have long suffered the consequences of price gouging by NYSE and Nasdaq."
In a statement, Nasdaq said it intends to appeal the decision. "We are extremely disappointed by the SEC's decision given the strength of our evidence, convincing record of facts and our track record in the courts. This decision represents the latest in a 20-year-long series of attempts to overregulate the best capital markets in the world in order to benefit the largest financial institutions," the statement said.
