How exchanges produce public consolidated equity market data may soon change, following the SEC's vote Wednesday to solicit comments on revamping the governance of national market system plans.
The three proposed orders would direct equity exchanges and the Financial Industry Regulatory Authority to file with the SEC a new NMS plan designed to increase transparency and address conflicts of interest and other issues that exist under the current governance structure for the existing NMS plans. The orders were approved in a 3-2 vote — Commissioners Robert J. Jackson Jr. and Allison Herren Lee, both Democrats, dissented.
Currently, "core data" — the best quoted prices and most recent trades in NMS stocks — are collected, processed and disseminated to the public by three separate equity data plans, SEC Chairman Jay Clayton noted at Wednesday's meeting. Self-regulatory organizations, such as exchanges, currently have governance authority and related control over the equity data plans, Mr. Clayton added.
Under the proposed orders, the exchanges would be required to propose a new single equity data plan.
Mr. Clayton called the proposal an important step in the SEC's ongoing efforts to modernize the national market system. "Today's proposed order is designed to address issues regarding the dissemination of market data that affect the efficiency and fairness of our markets," he said in a state following Wednesday's vote. "In particular, we welcome public input on the specific proposed governance provisions."
Jim Toes, president and CEO of the Security Traders Association, said the proposal will increase transparency and that it makes sense to have one set of rules instead of three. "For anyone who's been following this topic for the past 10 years, today was a pinnacle moment," Mr. Toes said.
The structure of the equity markets and the corporate structure of exchanges have changed dramatically since the adoption of Regulation NMS in 2005, according to an SEC news release. The speed and dispersion of trading activity have increased substantially, most exchanges have converted from entities mutually owned by their members to demutualized entities that are owned by shareholders and also offer proprietary market data products, and "exchange groups" have emerged, consolidating much of the voting power and control of the equity data plans, the SEC said.
But while the two commissioners who dissented Wednesday said the proposal takes steps in the right direction, it does not go far enough.
"Rather than give investors a real say over the data that drives our markets, today's release merely invites for-profit exchanges to draft their own rules on these questions," Mr. Jackson said. "Because that approach has failed investors before, and there's no reason to expect it to succeed now, I respectfully dissent."
Once it's published in the Federal Register, the order concerning NMS governance will have a 45-day comment period. The two additional orders — amendments to the existing equity data plans that would make current disclosure policies with respect to conflicts of interest mandatory, and another to establish a policy regarding the confidential treatment of any data or information generated, accessed, transmitted to, or discussed by the NMS operating committee — have 21-day comment periods, respectively.
