A federal appeals court in Washington on Tuesday sided with the Securities and Exchange Commission in a challenge brought by U.S. stock exchanges that sought to halt SEC rules to revamp the collection and distribution of market data.
In December 2020, the SEC finalized rules requiring exchanges to provide expanded public access to market data for national market system stocks that they list. The Regulation National Market System rules were aimed at improving data quality and data access for all market participants. The market data infrastructure has not been significantly updated in more than 40 years and lagged behind technologies and other data content offered by exchanges, SEC officials said at the time.
Then in February 2021, Nasdaq, the New York Stock Exchange and Cboe Global Markets sued in the U.S. Court of Appeals for the District of Columbia Circuit to stop the rules so they can be reviewed. The exchanges sought to have the SEC permanently barred from implementing or enforcing them, on the grounds that they are "arbitrary, capricious" and do not "promote efficiency, competition, and capital formation," according to the initial court petition.
But on Tuesday, a three-judge panel sided with the SEC.
"All in all, the commission acted well within its authority when it evaluated the rule's anticipated benefits against the possibility of harm to petitioners' respective bottom lines," the judges wrote in their conclusion. "This court declines to re-weigh the technically complex trade-offs the commission carefully considered."
A spokesman for the SEC and a spokeswoman for Nasdaq each declined comment.
Kenneth E. Bentsen, president and CEO of the Securities Industry and Financial Markets Association, welcomed the court's ruling in a statement. "The decision will allow the SEC to move forward with implementation of the rule, which will effect long-needed updates to increase the content of equity market data provided to investors and introduce competition into the dissemination that data," he said.