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From Securities Regulation Daily, October 16, 2018

Commission sharpens focus on market data and access fees

By Mark S. Nelson, J.D.

The Commission unanimously decided to set aside certain data fees charged by NYSE Arca, Inc. and Nasdaq Stock Market LLC to market participants because the exchanges failed to demonstrate that the fees were fair, reasonable, and not unreasonably discriminatory, as required by the Exchange Act. The Commission also remanded 400 pending fee challenges to various exchanges but without setting aside those fees or otherwise opining on their propriety (In the Matter of the Application of Securities Industry and Financial Markets Association For Review of Action taken by NYSE Arca, Inc., and Nasdaq Stock Market LLCRelease No. 34-84432, October 16, 2018).

Although the Commission set aside NYSE’s and Nasdaq’s data fees, the commissioners suggested that the decision was somewhat limited in scope. In the penultimate paragraph at the end of the opinion, the Commission said: "[W]e emphasize that in finding that the exchanges have not met their burden of proof with respect to the competitiveness of the market, we are not finding that the market is not competitive. Our findings are limited to the record developed by the parties, and the arguments based on that record. We express no views on what conclusions might be reached on a different record."

SEC Chairman Jay Clayton also issued a public statement on the Commission’s opinion in which he sought to put the decision and the related remand order into a larger context: "The matters addressed in today's orders have been before the Commission for a substantial period of time. I believe that as we move forward, today's actions will enable the Commission and market participants to more efficiently and effectively ensure that market data fees are set, reviewed and regulated in the best interest of our markets and our Main Street investors. More generally, I believe these actions, taken together with other initiatives of the Commission and our dedicated staff, will improve our regulation of market structure as it exists today and will inevitably continue to evolve."

The Commission’s opinion is, at least partially, an outgrowth of the long-running NetCoaltion litigation in the D.C. Circuit that over a period of years has examined data fees and related jurisdictional issues, which are discussed at length in the opinion. The SEC has in recent years heard many complaints about fees for access to market data and will soon host a roundtable on the topic. Technological evolution and the advent of high speed trading make access to current market data a lucrative business and essential tool for many investors.

The Commission’s order also comes soon after developments in a similar matter in which BOX Exchange LLC asked the Commission to review a decision by the Division of Trading and Markets to temporarily suspend and institute proceedings regarding a BOX proposed rule change that would impose fees on those who physically connect to the exchange while also reclassifying fees charged to high speed data feed users. The BOX order is one of the few times the SEC has taken such action, and also suggests a heightened interest by the agency in reviewing market data fees.

The release is No. 34- 84432.

Attorneys: Michael Warden (Sidley Austin LLP) and Benjamin Beaton (Squire Patton Boggs [US] LLP) for Securities Industry and Financial Markets Association. Douglas W. Henkin (Baker Botts LLP) for NYSE Arca, Inc. Daniel G. Swanson (Gibson, Dunn & Crutcher LLP, and Stephen D. Susman (Susman Godfrey LLP) for the Nasdaq Stock Market LLC.

Companies: NYSE Arca, Inc.; Nasdaq Stock Market LLC

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