An SEC challenge to some exchanges' market data fee increases has been overturned by a federal appeals court in Washington.
Noting the "long-running dispute" between the Securities and Exchange Commission and national exchanges over fees charged for access to "depth-of-book" market data, the U.S. Court of Appeals for the District of Columbia said June 5 that the agency did not have the authority to challenge fees already in effect.
The case started in October 2018, when the SEC rejected what it considered unreasonable fee increases by Nasdaq and NYSE Arca, after the increases were challenged by the Securities Industry and Financial Markets Association. The SEC also remanded more than 400 market data fee and other filings for the exchanges to revisit under the standards cited in the SEC's order, which called for the exchanges to provide more support to justify those fees. The appeals court also remanded that order for the SEC to reconsider in light of the Nasdaq and NYSE ruling.
The exchanges immediately appealed the SEC's 2018 decision, asking the appeals court to vacate the commission's order and to dismiss SIFMA's challenge on the grounds that the SEC did not follow proper legal procedures for such fee challenges, and that SIFMA lacked standing.
The appeals court agreed on the question of procedure, ruling that the legal standard used by the SEC "is not available as a means to challenge the reasonableness of generally applicable fee rules."
An SEC spokeswoman stressed in a statement that the court's decision was narrowly focused on the question of whether a particular statutory provision authorized a challenge by a third party to generally applicable fees. "The decision does not affect the SEC's longstanding authority to supervise exchanges, including through the review of exchange fee filings. We will continue to carefully review fee filings to ensure that they are consistent with the requirements set forth in Exchange Act, and we will take action where necessary," the spokeswoman said..
The Equity Markets Association, the exchanges' trade group, said in a statement that it was pleased with the court's ruling that the SEC "overreached its powers when it followed a financial lobby in taking up this case. This ruling is a victory for the rule of law and free and fair competition."
In a separate statement, a Cboe spokeswoman said that the underlying issue in both the fee challenge and the SEC's remand order "relates to an attempted misapplication of the regulatory process to unduly control exchange fees, which are already subjected to stringent and transparent filing requirements, as well as SEC review and public comment. Today's rulings are a win for the importance of due process."
