Today, the Commission considers steps to change the governance of equity market data plans under Regulation National Market System (“NMS”) (the “Proposed Order”). The Proposed Order seeks to modernize governance of the Securities Information Processors, or “SIPs,” by providing a proposed framework for how the Commission preliminarily believes governance should be conducted in a new consolidated equity market data NMS plan.
I would like to thank Director Brett Redfearn of the Division Trading and Markets and all the staff who worked on this recommendation. I also thank Robert Stebbins and the staff of Office of General Counsel and our Chief Economist S.P. Kothari and the staff of our Division of Economic and Risk Analysis.
I also appreciate Chairman Clayton’s and Director Redfearn’s continued focus on tackling difficult equity market structure issues. It is clear that they will leave no stone unturned with respect to exploring possible improvements to our equity market structure regime. And, this agency has covered a lot of ground in this area under their leadership.
With that in mind, it is only fitting that our first open meeting of this new year—in fact, this new decade—is to consider changes to an area of our markets that has remained static for a long time: the regulation of quote and transaction data dissemination. In recent years, many market participants and other commenters have called for this agency to take action in this area. But consensus has not been reached on the best form, direction, or degree of action we should take, rendering this a very challenging task. Several competing interests are at stake here, making this all the more difficult.
Exacerbating the challenge is the extreme evolution that has taken place in the ways market participants receive, consume, and ultimately pay for market data. For a long time, Rule 11Aa3-1 (the predecessor to Rule 601 of Regulation NMS), prohibited exchanges and their members from disseminating their trade reports independently. Regulation NMS removed that prohibition. Today, these proprietary feeds are available in parallel with consolidated feeds from the SIPs and held in high demand by many market data consumers. We have heard from some that advances in technology, richer content, and other developments (such as co-location and fiber and wireless connectivity) have entrenched these proprietary feeds as the preferred—and some would even say, essential—means of receiving market data, in comparison to the SIPs.
Many market participants have said that the current governance of the NMS data plans has contributed to this outcome. As one example, most of the voting power in these plans is now consolidated and held by “exchange groups” (multiple exchanges operating under one corporate umbrella). The result is that it takes only one of these groups to block a change to a plan. Conversely, certain votes require unanimity, which can be prevented by the vote of only one exchange, even where that exchange represents a modest slice of overall market volume. Another example relates to conflicts of interest amongst those who govern the plans. The exchanges are the plan participants and hold voting power over the plans, but at the same time many also sell their proprietary data feeds that compete with SIP data feeds in certain aspects. I have also heard that the current governance structures of the plans may impede the ability for the advisory committees to meaningfully fulfill their role. For example, it is said that key decisions are made in “executive” sessions, during which the advisory committee is excluded.
These are serious concerns, and it is imperative that the SEC acknowledges them and seeks ways to improve the means by which market participants can access important market data. The Proposed Order offers a first step toward a constructive solution. I say first step, because the Proposed Order is just that—a proposal. Do we have it right as it stands now? I have enough humility to admit that I am not certain. Are we close? Yes—I think we are close enough to issue the Proposed Order. I am confident that public feedback will benefit the development of a future final order. Public feedback should shed light on aspects or nuances that we may have not contemplated in the Proposed Order as well as unintended consequences.
But, I would like to share a few of my thoughts as I have considered the Proposed Order. First, we need to be realistic about the steps we are proposing. Proprietary exchange feeds are not going away. Unless something changes, it is very likely that proprietary feeds will always be more attractive, and perhaps even “necessary” from a business standpoint, to a large swath of the marketplace. There’s nothing wrong with such a supply and demand dynamic. In fact, I think it’s only natural that individual organizations—each exchange group, for example—may decide to differentiate and innovate differently, and frankly more quickly, than a group of several organizations—the plan participants—that are required to work together to promote the statutory and regulatory purpose of the SIPs. But, I do see a role for the SEC to address the potential for the proprietary feeds to be the supply that meets that demand to the detriment of the purpose of the SIPs and under a governance structure where conflicts of interest exist.
Second, the Proposed Order contains only one possible set of solutions to the concerns market participants have raised. Others have offered different solutions that merit consideration. For example, the plan participants themselves have recognized their importance to the market and have independently filed two proposed changes to the equity data plans relating to confidentiality and conflicts of interest. Those proposals are separate from our own Proposed Order, and we are publishing them today for comment. I commend the plan participants for putting forward constructive ideas to address these issues, and I look forward to seeing comments from market participants on all of these proposals.
Finally, we must all remember that there is no silver bullet that will solve this or any other equity market structure issue. Our equity markets are incredibly complex and interconnected, and one lesson regulators should have learned repeatedly by now is that every “solution” creates unintended consequences, such as creating new costs, driving up old ones, pushing order flow to new venues, or decreasing transparency in ways that undermine accountability in our markets. Acknowledging this should not incapacitate us, as regulators. But, it should motivate us to consider a wide array of viewpoints and keep our eyes open to other areas of the market that affect the dynamics we are trying to address. For example, as I have said before, I believe we should reexamine other factors related to the supply and demand of proprietary data feeds, such as broker best execution obligations.
With these thoughts in mind, I am supportive of the staff’s recommendation today and ask that you please share your thoughts with us on the Proposed Order. As I often say, my door is open if you would like to come in and discuss these issues in person.
 I emphasize business requirement because I believe, in general, there should be a difference between what regulation requires and what businesses do for commercial reasons. Our regulations set a baseline that should apply across a variety of market niches and throughout different market conditions. Commercial demand, on the other hand, varies across different customer types and cycles of the economy. I believe regulation should set a baseline and allow for market participants to go further than what is required to satisfy our requirements, when they choose to do so for commercial purposes.
 Elad L. Roisman, Remarks at the SIFMA Equity Market Structure Conference: The Dynamics of our Markets and the Changing Structure on which they are Built (Sept. 19, 2019), available at https://www.sec.gov/news/speech/roisman-remarks-sifma-equity-market-structure-conference-091919.
This statement was issued by Elad L. Roisman, commissioner of the U.S. Securities and Exchange Commission, on January 8, 2020, at an open meeting of the SEC.