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Federal Register / Vol. 85, No. 57 / Tuesday, March 24, 2020 / Proposed Rules
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 240, 242, and 249
[Release No. 34–88216; File No. S7–03–20]
RIN 3235–AM61
Market Data Infrastructure
Securities and Exchange
Commission.
ACTION: Proposed rule.
AGENCY:
The Securities and Exchange
Commission (‘‘Commission’’ or ‘‘SEC’’)
is proposing to amend 17 CFR 242,
Rules 600 and 603 and to adopt new
Rule 614 of Regulation National Market
System (‘‘Regulation NMS’’) under the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) to update the national
market system for the collection,
consolidation, and dissemination of
information with respect to quotations
for and transactions in national market
system (‘‘NMS’’) stocks (‘‘NMS
information’’). Specifically, the
Commission proposes to expand the
content of NMS information that is
required to be collected, consolidated,
and disseminated as part of the national
market system under Regulation NMS
and proposes to amend the method by
which such NMS information is
collected, calculated, and disseminated
by introducing a decentralized
consolidation model where competing
consolidators replace the exclusive
securities information processors.
DATES: Comments should be received on
or before May 26, 2020.
ADDRESSES: Comments may be
submitted by any of the following
methods:
SUMMARY:
Electronic Comments
• Use the Commission’s internet
comment form (http://www.sec.gov/
rules/proposed.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number S7–
03–20 on the subject line.
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Paper Comments
• Send paper comments to Vanessa
A. Countryman, Secretary, Securities
and Exchange Commission, 100 F Street
NE, Washington, DC 20549–1090.
All submissions should refer to File
Number S7–03–20. This file number
should be included on the subject line
if email is used. To help us process and
review your comments more efficiently,
please use only one method. The
Commission will post all comments on
the Commission’s internet website
(http://www.sec.gov/rules/
proposed.shtml). Comments are also
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available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549–1090 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. All comments
received will be posted without change;
we do not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly.
Studies, memoranda, or other
substantive items may be added by the
Commission or staff to the comment file
during this rulemaking. A notification of
the inclusion in the comment file of any
materials will be made available on the
Commission’s website. To ensure direct
electronic receipt of such notifications,
sign up through the ‘‘Stay Connected’’
option at www.sec.gov to receive
notifications by email.
FOR FURTHER INFORMATION CONTACT:
Kelly Riley, Senior Special Counsel, at
(202) 551–6772; Ted Uliassi, Senior
Special Counsel, at (202) 551–6095;
Elizabeth C. Badawy, Senior
Accountant, at (202) 551–5612; Leigh
Duffy, Special Counsel, at (202) 551–
5928; Yvonne Fraticelli, Special
Counsel, at (202) 551–5654; Steve Kuan,
Special Counsel, at (202) 551–5624; or
Joshua Nimmo, Attorney-Advisor, at
(202) 551–5452, Division of Trading and
Markets, Commission, 100 F Street NE,
Washington, DC 20549.
SUPPLEMENTARY INFORMATION: The
Commission is proposing to expand the
content of NMS information that is
required to be collected, consolidated,
and disseminated as part of the national
market system under Regulation NMS
by proposing several new defined terms
under Rule 600 of Regulation NMS,
including ‘‘consolidated market data,’’
‘‘core data,’’ ‘‘regulatory data,’’
‘‘administrative data,’’ and ‘‘exchangespecific program data.’’ To implement
the decentralized consolidation model,
the Commission is proposing to amend
Rule 603 under Regulation NMS to
remove the requirement that all
consolidated information for individual
NMS stocks be disseminated through a
single plan processor and to require
each national securities exchange and
national securities association to make
available its NMS information in the
same manner and using the same
methods, including all methods of
access and the same format, as the
exchange or association makes available
any quotation or transaction information
for NMS stocks to any person. In
addition, the Commission is proposing
to add new Rule 614 and a new Form
CC to govern the registration and
responsibilities of competing
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consolidators. Further, the Commission
is proposing that the effective national
market system plan(s) for NMS stocks be
amended to reflect the decentralized
consolidation model. Finally, the
Commission is proposing to amend
Regulation SCI to expand the definition
of ‘‘SCI entities’’ to include competing
consolidators.
In particular, the Commission is
proposing: (1) Amendments to Rule 600
[17 CFR 242.600] to add new definitions
of ‘‘administrative data,’’ ‘‘auction
information,’’ ‘‘competing
consolidator,’’ ‘‘consolidated market
data,’’ ‘‘core data,’’ ‘‘depth of book
data,’’ ‘‘exchange-specific program
data,’’ ‘‘primary listing exchange,’’
‘‘regulatory data,’’ ‘‘round lot,’’ and
‘‘self-aggregator;’’ (2) amendments to
Rule 603 [17 CFR 242.603] to require
national securities exchanges and
national securities associations to make
available NMS information to
competing consolidators and selfaggregators and to remove the
requirement that all consolidated
information for individual NMS stocks
be disseminated through a single plan
processor; (3) adoption of Rule 614 [17
CFR 242.614] and Form CC to require
registration of competing consolidators;
(4) that the participants to the effective
national market system plan(s) relating
to NMS stocks amend such plan(s) to
reflect the definition of ‘‘consolidated
market data’’ and the implementation of
a decentralized consolidation model; (5)
amendments to Rule 1000 [17 CFR
242.1000] to include competing
consolidators in the definition of ‘‘SCI
entities;’’ and (6) conforming changes
and updating cross-references in Rule
201(a)(3) [17 CFR 242.201(a)(3)], Rule
201(b)(1)(ii) [17 CFR 242.201(b)(1)(ii)],
Rule 201(b)(3) [17 CFR 242.201(b)(3)],
Rule 600(b)(43) [17 CFR 242.600(b)(43)],
Rule 600(b)(61) [17 CFR 242.600(b)(61)],
and Rule 602 [17 CFR 242.602].
Table of Contents
I. Introduction
II. Current Market Data Infrastructure under
Regulation NMS and the Equity Data
Plans
A. Consolidated Market Data and
Proprietary Data
B. NMS Regulatory Framework
C. Other Regulatory Data
1. Regulation SHO
2. Limit-Up Limit-Down Plan
3. Market-Wide Circuit Breakers
4. Odd-Lot Transaction Reports and
Aggregated Odd-Lot Orders
III. Proposed Enhancements to NMS
Information
A. Introduction
B. Proposed Definition of ‘‘Consolidated
Market Data’’
C. Proposed Definition of ‘‘Core Data’’
1. Round Lot Size
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2. Depth of Book Data
3. Auction Information
D. Proposed Definition of ‘‘Regulatory
Data’’
1. Regulation SHO
2. Limit Up-Limit Down Plan
3. Market-Wide Circuit Breakers
4. Other Regulatory Data
E. Proposed Definition of ‘‘Administrative
Data’’
F. Proposed Definition of ‘‘ExchangeSpecific Program Data’’
IV. Need for and Proposed Enhancements to
Provision of Consolidated Market Data
A. Existing Centralized Consolidation
Model
B. Proposed Decentralized Consolidation
Model
1. Access to Data
2. Competing Consolidators
3. Self-Aggregators
4. Amendment to the Effective National
Market System Plan(s) for NMS Stocks
5. Effects on the National Market System
Plan Governing the Consolidated Audit
Trail
6. Transition Period
C. Alternatives to the Centralized
Consolidation Model
1. Distributed SIP Alternative
2. Single SIP Alternative
V. Paperwork Reduction Act
A. Summary of Collection of Information
1. Registration Requirements and Form CC
2. Competing Consolidator Duties and Data
Collection
3. Recordkeeping
4. Reports and Reviews
5. Amendment to the Effective National
Market System Plan(s) for NMS Stocks
6. Collection and Dissemination of
Information by National Securities
Exchanges and National Securities
Associations
B. Proposed Use of Information
1. Registration Requirements and Form CC
2. Competing Consolidator Duties and Data
Collection
3. Recordkeeping
4. Reports and Reviews
5. Amendment to the Effective National
Market System Plan(s) for NMS Stocks
6. Collection and Dissemination of
Information by National Securities
Exchanges and National Securities
Associations
C. Respondents
D. Total Annual Reporting and
Recordkeeping Burden
1. Registration Requirements and Form CC
2. Competing Consolidator Duties and Data
Collection
3. Recordkeeping
4. Reports and Reviews
5. Amendment to the Effective National
Market System Plan(s) for NMS Stocks
6. Collection and Dissemination of
Information by National Securities
Exchanges and National Securities
Associations
E. Collection of Information is Mandatory
F. Confidentiality
1. Registration Requirements and Form CC
2. Competing Consolidator Duties and Data
Collection and Maintenance
3. Recordkeeping
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4. Reports and Reviews
5. Amendment to the Effective National
Market System Plan(s) for NMS Stocks
6. Collection and Dissemination of
Information by National Securities
Exchanges and National Securities
Associations
G. Revisions to Current Regulation SCI
Burden Estimates
H. Request for Comments
VI. Economic Analysis
A. Introduction and Market Failures
1. Introduction
2. Market Failures
B. Baseline
1. Current Regulatory Process for Equity
Data Plans and SIP Data
2. Current Process for Collecting,
Consolidating, and Disseminating Market
Data
3. Competition Baseline
4. Request for Comments on Baseline
C. Economic Effects of the Rule
1. Core Data and Consolidated Market Data
2. Decentralized Consolidation Model
3. Economic Effects of Form CC
4. Economic Effects From the Interaction of
Changes to Core Data and the
Decentralized Consolidation Model
5. Request for Comments on the Economic
Effects of the Proposed Rule
D. Impact on Efficiency, Competition, and
Capital Formation
1. Efficiency
2. Competition
3. Capital Formation
4. Request for Comments on Impact on
Efficiency, Competition, and Capital
Formation
E. Alternatives
1. Introduce Decentralized Consolidation
Model With Additional Changes in Core
Data Definition
2. Introduce Changes in Core Data and
Introduce a Distributed SIP Model
3. Require Competing Consolidators’ Fees
be Subject to the Commission’s Approval
4. Do Not Extend Regulation SCI to Include
Competing Consolidators
5. Require Competing Consolidators to
Submit Form CC in the EDGAR System
Using the Inline XBRL Format
6. Require Competing Consolidators to
Submit Monthly Disclosures in the
EDGAR System Using the Inline XBRL
Format
7. Prescribing the Format of NMS
Information
8. Request for Comments on Alternatives
F. Request for Comments on the Economic
Analysis
VII. Consideration of Impact on the Economy
VIII. Regulatory Flexibility Certification
IX. Statutory Authority
I. Introduction
The widespread availability of NMS
information 1 has been an essential
element in the success of the U.S.
securities markets. Congress recognized
the importance of market information to
the U.S. securities markets with the
1 See infra Section II.A for a discussion of the
NMS information that is consolidated and
disseminated in the U.S. securities markets.
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enactment of Section 11A of the
Exchange Act. Section 11A(a)(2) of the
Exchange Act 2 directs the Commission,
having due regard for the public
interest, the protection of investors, and
the maintenance of fair and orderly
markets, to use its authority under the
Exchange Act to facilitate the
establishment of a national market
system for securities in accordance with
the Congressional findings and
objectives set forth in Section 11A(a)(1)
of the Exchange Act.3 Among the
findings and objectives in Section
11A(a)(1) are that ‘‘[n]ew data
processing and communications
techniques create the opportunity for
more efficient and effective market
operations’’ 4 and ‘‘[i]t is in the public
interest and appropriate for the
protection of investors and the
maintenance of fair and orderly markets
to assure . . . the availability to brokers,
dealers, and investors of information
with respect to quotations for and
transactions in securities . . . ’’ 5
As discussed below, the Commission
exercised its authority under Section
11A of the Exchange Act through the
adoption of a series of rules that have
been incorporated into Regulation NMS.
Those rules address both the content of,
and the means by which, NMS
information is collected, consolidated,
and disseminated.6 In particular,
Section 11A(c)(1)(B) of the Exchange
Act authorizes the Commission to
prescribe rules, as necessary or
appropriate in the public interest, for
the protection of investors, or otherwise
in furtherance of the purposes of the
Exchange Act, that ‘‘assure the prompt,
accurate, reliable, and fair collection,
processing, distribution, and
publication of information with respect
to quotations for and transactions in
such securities and the fairness and
usefulness of the form and content of
such information.’’ 7 Among other
2 15
U.S.C. 78k–1(a)(2).
U.S.C. 78k–1(a)(1).
4 15 U.S.C. 78k–1(a)(1)(B).
5 15 U.S.C. 78k–1(a)(1)(C). The Senate Report for
the enactment of Section 11A stated that ‘‘it is
critical for those who trade to have access to
accurate, up-to-the-second information as to the
prices at which transactions in particular securities
are taking place (i.e., last sale reports) and the prices
at which other traders have expressed their
willingness to buy or sell (i.e., quotations).’’ S. Rep.
No. 94–75 at 8 (1975) (‘‘Senate Report’’). The Senate
Report continued that ‘‘[f]or this reason,
communications systems designed to provide
automated dissemination of last sale and quotation
information with respect to securities will form the
heart of the national market system.’’ Id. at 6.
6 See 17 CFR 242.601–603; infra Section II.B.
7 See 15 U.S.C. 78k–1(c)(1)(B); Senate Report,
supra note 5, at 189 (‘‘Examples of the types of
subjects as to which the SEC would have the
3 15
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things, the Commission required the
self-regulatory organizations (‘‘SROs’’)
to act jointly pursuant to NMS plans 8 to
disseminate, through a single plan
processor, a consolidated national best
bid and national best offer, along with
last sale data, for each NMS stock.9
While the Commission has periodically
revised certain of its NMS rules with the
goal of ensuring that the regulatory
framework continues to fulfill the goals
of Section 11A of the Exchange Act,10
the Commission has not significantly
updated the rules that govern the
content and distribution of NMS
authority to promulgate rules under these
provisions include: The hours of operation of any
type or quotation system, trading halts, what and
how information is displayed and qualifications for
the securities to be included on any tape or within
any quotation system.’’).
8 On January 8, 2020, the Commission issued a
notice of proposed order directing the SROs to
submit a new, single NMS plan for NMS stocks
(‘‘New Consolidated Data Plan’’). See Securities
Exchange Act Release No. 87906 (Jan. 8, 2020), 85
FR 2164 (Jan. 14, 2020) (‘‘Proposed Governance
Order’’). The existing NMS plans for NMS stocks
are: (1) The Consolidated Trade Association
(‘‘CTA’’) Plan; (2) the Consolidated Quotation
(‘‘CQ’’) Plan; and (3) the Nasdaq Unlisted Trading
Privileges (‘‘Nasdaq UTP’’) Plan (collectively the
‘‘Equity Data Plans’’). See infra note 13 and Section
II.A. The Commission is proposing provisions in
new Rule 614 that would require the participants
to amend the effective national market system
plan(s) for NMS stocks. See infra Section IV.B.4. If
adopted, the proposed amendments would apply to
any effective national market system plan for NMS
stocks. In response to the Proposed Governance
Order, the NYSE submitted a comment letter that
also discussed a number of market structure issues
that are addressed in this release (e.g., expanding
SIP data content and modernizing SIP data delivery
such as through a potential competing consolidator
model). See Letter from Elizabeth K. King, Chief
Regulatory Officer, ICE, and General Counsel and
Corporate Secretary, NYSE, to Vanessa
Countryman, Secretary, Commission, 5 (Feb. 5,
2020) (‘‘NYSE Governance Letter’’). As with various
other comments referenced herein, including,
without limitation, comments received in
connection with the Roundtable on Market Data
and Market Access, see infra note 17, the NYSE
Governance Letter was not provided with reference
to the specific proposals discussed in this release.
To the extent that the NYSE or other commenters
wish to modify or supplement their prior comments
to reflect the particulars of the proposals discussed
herein, the Commission welcomes such comments.
9 See Exchange Act Rule 11Aa3–1 (renumbered
and renamed as Exchange Act Rule 601,
Dissemination of transaction reports and last sale
data with respect to transactions in NMS stocks);
Exchange Act Rule 11Ac1–1 (renumbered and
renamed as Exchange Act Rule 602, Dissemination
of quotations in NMS securities); Exchange Act
Rule 11Ac1–2 (renumbered and renamed as
Exchange Act Rule 603, Distribution, consolidation,
and display of information with respect to
quotations for and transactions in NMS stocks.).
10 See, e.g., Securities Exchange Act Release Nos.
51808 (June 9, 2005), 70 FR 37496 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’); 84528 (Nov.
2, 2018), 83 FR 58338 (Nov. 19, 2018) (adopting
amendments to Rule 606 to require additional
disclosures by broker-dealers to customers
regarding the handling of their orders).
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information since their initial
implementation in the late 1970s.
The widespread availability of timely
market information promotes fair and
efficient markets and facilitates the
ability of brokers and dealers to provide
best execution to their customers.11 The
structure of the equity markets has
changed dramatically since the
Commission adopted the rules now
known as Regulation NMS in 2005 and
approved the three existing Equity Data
Plans under Rule 608 12 of Regulation
NMS.13 In 2005, a substantial amount of
trading was conducted on relatively
slow manual markets, and for any given
stock, concentrated on its listing
exchange. Today, the U.S. equity
markets have evolved into high-speed,
latency-sensitive electronic markets
where trading is dispersed among a
wide range of competing market
centers 14 and even small degrees of
latency affect trading strategies.15
11 Section 11A(a)(1) of the Exchange Act, 15
U.S.C. 78k–1(a)(1). See also Senate Report supra
note 5, at 8; Securities Exchange Act Release No.
42208 (Dec. 9, 1999), 64 FR 70613, 70614 (Dec. 17,
1999) (‘‘Market Information Concept Release’’);
Concept Release on Equity Market Structure,
Securities Exchange Act Release No. 61358 (Jan. 14,
2010), 75 FR 3593, 3600 (Jan. 21, 2010) (‘‘Equity
Market Structure Concept Release’’).
12 17 CFR 242.608.
13 The Equity Data Plans are effective national
market system plans as defined in Rule 600(b)(22)
for NMS stocks. See Second Restatement of the Plan
Submitted to the Securities and Exchange
Commission Pursuant to Rule 11Aa3–1 under the
Securities Exchange Act of 1934, composite as of
Dec. 6, 2019, available at https://www.ctaplan.com/
publicdocs/ctaplan/notifications/trader-update/
CTA_Plan_Composite_as_of_December_6_2019.pdf;
Restatement of Plan Submitted to the Securities and
Exchange Commission Pursuant to Rule 11Ac1–1
under the Securities Exchange Act of 1934,
composite as of Dec. 6, 2019, available at https://
www.ctaplan.com/publicdocs/ctaplan/
notifications/trader-update/CQ_Plan_Composite_
as_of_December_6_2019.pdf; Joint Self-Regulatory
Organization Plan Governing the Collection,
Consolidation and Dissemination of Quotation and
Transaction Information for Nasdaq-listed
Securities Traded on Exchanges on an Unlisted
Trading Privilege Basis, available at http://
www.utpplan.com/DOC/Nasdaq-UTPPlan_after_
46th_Amendment-Excluding_21st_36th_38th_
42nd_44th_45th_Amendments.pdf; Proposed
Governance Order, supra note 8.
14 Rule 600(b)(38) defines a market center as ‘‘any
exchange market maker, OTC market maker,
alternative trading system, national securities
exchange, or national securities association.’’ 17
CFR 242.600(b)(38).
15 See Eric Budish, et al., Will the Market Fix the
Market? A Theory of Stock Exchange Competition
and Innovation, University of Chicago, Becker
Friedman Institute for Economics Working Paper
No. 2019–72 (May 2019), available at SSRN: https://
ssrn.com/abstract=3391461; Andriy Shkilko and
Konstantin Sokolov, Every Cloud Has a Silver
Lining: Fast Trading, Microwave Connectivity and
Trading Costs (Apr. 2019), available at https://
ssrn.com/abstract=2848562; Equity Market
Structure Concept Release, supra note 11 (‘‘NYSElisted stocks were traded primarily on the floor of
the NYSE in a manual fashion until October 2006.
At that time, NYSE began to offer fully automated
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Sophisticated order routing algorithms
dependent on low-latency, high-quality
market information are widely used to
execute securities transactions.16
Despite the evolution of latencysensitive markets, the provision of NMS
information that is centrally
consolidated and disseminated by the
Equity Data Plans is meaningfully
slower than certain proprietary market
data products distributed by the
exchanges.17 Today, the exchanges sell
access to its displayed quotations.’’). In contrast to
NYSE, stocks on the Nasdaq Stock Market LLC
(‘‘Nasdaq’’) traded in a highly automated fashion at
many different trading centers following the
introduction of SuperMontage in 2002. See
Securities Exchange Act Release No. 46429 (Aug.
29, 2002), 67 FR 56862 (Sept. 5, 2002); Steven
Quirk, Senior Vice President, Trader Group, TD
Ameritrade, Testimony before the U.S. Senate
Committee on Homeland Security and
Governmental Affairs, Permanent Subcommittee on
Investigations, Hearing on ‘‘Conflicts of Interest,
Investor Loss of Confidence, and High Speed
Trading in U.S. Stock Markets’’ (June 17, 2014),
available at https://www.hsgac.senate.gov/imo/
media/doc/STMT%20-%20Quirk%20%20TD%20Ameritrade%20(June%2017%202014)
.pdf%20 (citing statistics that average execution
speed has improved by 90% since 2004—from 7
seconds to 0.7 seconds in 2014). Today, trading
speed is measured in microseconds and is moving
towards nanoseconds. See, e.g., Vera Sprothen,
Trading Tech Accelerates Toward Speed of Light,
Wall Street Journal (Aug. 8, 2016), available at
https://www.wsj.com/articles/trading-techaccelerates-toward-speed-of-light-1470559173;
Alexander Osipovich, NYSE Aims to Speed Up
Trading With Core Tech Upgrade, Wall Street
Journal (Aug. 5, 2019), available at https://
www.wsj.com/articles/nyse-aims-to-speed-uptrading-with-core-tech-upgrade-11565002800.
16 See, e.g., Equity Market Structure Concept
Release, supra note 11; Eric Budish, et al., supra
note 15; Andrew Morgan, The impact of high
frequency trading on algorithms and smart order
routing, Algorithmic Trading & Smart Order
Routing, 3d. ed. (2009), available at https://
pdfs.semanticscholar.org/ba0b/
5e952b27cc48513825cb7e4f6d15803e6973.pdf.
17 See infra Section II.A. In addition, as discussed
more fully below, on October 25–26, 2018, the
Division of Trading and Markets hosted roundtables
to gather information on market data and market
access. See generally Equity Market Structure
Roundtables, Oct. 25–26, 2018: Roundtable on
Market Data and Market Access, https://
www.sec.gov/spotlight/equity-market-structureroundtables (‘‘Roundtable’’). Transcripts for both
days of the Roundtable are available at https://
www.sec.gov/spotlight/equity-market-structureroundtables/roundtable-market-data-marketaccess-102518-transcript.pdf (‘‘Roundtable Day One
Transcript’’) and https://www.sec.gov/spotlight/
equity-market-structure-roundtables/roundtablemarket-data-market-access-102618-transcript.pdf
(‘‘Roundtable Day Two Transcript’’). Panelists at the
Roundtable noted that the geographical delays
inherent in the nature of a centralized processor
results in significant latencies between the Equity
Data Plans’ feeds and proprietary data feeds that
cannot be eliminated in the current infrastructure.
Roundtable Day One Transcript at 145 (Simon
Emrich, Norges Bank Investment Management)
(‘‘And part of that, the most interesting part of the
delay for me is really the location of the
consolidator, the geographical delay that’s
introduced, and the data connection element to the
consolidator. Right? So from our perspective, the
latency of the consolidator itself, the consolidation
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proprietary data products that are fast,
low-latency products designed for
automated trading systems and include
content, such as depth of book 18 and
order imbalance information for
opening and closing auctions
(‘‘proprietary DOB products’’) that are
not provided under the Equity Data
Plans.19 The Commission believes that
engine, the improvements that we’ve made are
remarkable over the years. But it just doesn’t
measure the physical reality of the brokers that
we’re using.’’); 148 (Michael Blaugrund, NYSE)
(‘‘[T]he method of transmission of that information
and the timing of the aggregation of that
information into a consolidated feed plays a role.
As I think we all acknowledge, the aggregation time
has improved dramatically. As we’ve seen that
decline, it highlights the fact that the geographic
latency becomes a more meaningful portion of the
overall time line.’’). See also Ivy Schmerken,
Speeding Up the SIP Isn’t Enough, Say Market Pros
at Baruch Conference, InformationWeek: Wall
Street & Technology (Oct. 17, 2014), available at
http://www.wallstreetandtech.com/infrastructure/
speeding-up-the-sip-isnt-enough-say-market-prosat-baruch-conference/d/d-id/1316724.html (‘‘Since
the SIP is slower than proprietary data feeds that
firms can obtain directly from exchanges, critics
have said that the SIP enables ‘latency arbitrage’
between high-speed traders using fast data and
those trading off of stale quotes from the
consolidated feed.’’).
18 ‘‘Depth of book,’’ or ‘‘DOB,’’ refers to open buy
and sell orders resting on a limit order book at
prices away from the top of book (i.e., orders to buy
at prices that are below the best bid and orders to
sell that are higher than the best offer).
19 See, e.g., Nasdaq, Data Products, available at
http://www.nasdaqtrader.com/
Trader.aspx?id=DPSpecs (last accessed Jan. 7, 2020)
(describing low-latency DOB data products); NYSE,
Real-Time Data, available at https://www.nyse.com/
market-data/real-time (last accessed Jan. 7, 2020)
(describing low-latency DOB data products); Cboe,
Market Data Services: U.S. Equities, available at
https://markets.cboe.com/us/equities/market_data_
services/ (last accessed Jan. 7, 2020) (describing
low-latency DOB data products). Particularly when
aggregated, proprietary DOB market data products
provide a consolidated view of the market with
greater content and lower latency. The exchanges
also sell other data products that are limited in
content, such as an exchange’s top of book (‘‘TOB’’)
quotation information and transaction information,
that are designed largely for the non-automated
segment of the market (e.g., retail investors and
wealth managers) that is less sensitive to latency
(‘‘proprietary TOB products’’). Examples of such
proprietary TOB products include NYSE BBO
(https://www.nyse.com/market-data/real-time/bbo),
NASDAQ Basic (https://business.nasdaq.com/intel/
GIS/nasdaq-basic.html), and Cboe One Feed
(https://markets.cboe.com/us/equities/market_
data_services/cboe_one). NYSE BBO provides TOB
data. Nasdaq Basic and Cboe One’s Summary Feed
provide TOB and last sale information. Nasdaq
Basic also provides Nasdaq Opening and Closing
Prices and other information, including Emergency
Market Condition event messages, System Status,
and trading halt information. Cboe One, however,
also offers a Premium Feed that includes DOB data.
Each of these products is sold separately by the
relevant exchange group. See Letter from Matthew
J. Billings, Managing Director, Market Data Strategy,
TD Ameritrade, 5–8 (Oct. 24, 2018) (‘‘TD
Ameritrade Letter’’), available at https://
www.sec.gov/comments/4-729/4729-4560068176205.pdf (stating that the lower cost of exchange
TOB products, coupled with costs associated with
the process to differentiate between retail
professionals and non-professionals imposed by the
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the content and operating model under
which NMS information is collected,
consolidated, and disseminated have
not kept pace with technological and
market developments and are no longer
satisfying the needs of many investors.
Today, the dissemination of NMS
information relies upon a centralized
consolidation model, where the SROs
provide certain NMS information for
each NMS stock to an exclusive
processor (‘‘exclusive SIP’’).20 The
exclusive SIP then consolidates this
NMS information and makes it available
to market participants.21 Market
participants also may independently
consolidate NMS information by
purchasing individual exchange
proprietary market data products 22 and
consolidating that information for their
own use, or obtain NMS information
that has been consolidated by a vendor
that provides a data aggregation service.
As discussed further below, proprietary
DOB products collected through this
decentralized consolidation model
typically contain enhanced information
compared to the market information
provided through the Equity Data Plans,
such as information about all orders on
an individual exchange’s order book.23
Equity Data Plans, and associated audit risk, favors
retail broker-dealer use of exchange TOB products).
20 An ‘‘exclusive processor’’ is defined in Section
3(a)(22)(B) of the Exchange Act as ‘‘any [SIP] or
[SRO] which, directly or indirectly, engages on an
exclusive basis on behalf of any national securities
exchange or registered securities association, or any
national securities exchange or registered securities
association which engages on an exclusive basis on
its own behalf, in collecting, processing, or
preparing for distribution or publication any
information with respect to (i) transactions or
quotations on or effected or made by means of any
facility of such exchange or (ii) quotations
distributed or published by means of any electronic
system operated or controlled by such association.’’
15 U.S.C. 78c(a)(22)(B). A securities information
processor (‘‘SIP’’) is defined in Section 3(a)(22)(A)
of the Exchange Act as ‘‘any person engaged in the
business of (i) collecting, processing, or preparing
for distribution or publication, or assisting,
participating in, or coordinating the distribution or
publication of, information with respect to
transactions in or quotations for any security (other
than an exempted security) or (ii) distributing or
publishing (whether by means of a ticker tape, a
communications network, a terminal display
device, or otherwise) on a current and continuing
basis, information with respect to such transactions
or quotations.’’ 15 U.S.C. 78c(a)(22)(A). See infra
note 42 and accompanying text.
21 See Rule 603(b) of Regulation NMS. Rule 603(b)
provides that all information for an individual NMS
stock must be disseminated through a single plan
processor. 17 CFR 242.603(b). See Rule 600(b)(59),
which defines a plan processor as ‘‘any selfregulatory organization or securities information
processor acting as an exclusive processor in
connection with the development, implementation
and/or operation of any facility contemplated by an
effective national market system plan.’’ 17 CFR
242.600(b)(59).
22 See infra Section II.A (discussing proprietary
DOB and proprietary TOB).
23 See supra note 19.
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Market participants also are able to
consolidate and use the data obtained in
this manner more quickly than market
participants relying on NMS
information provided through the
Equity Data Plans.
As noted above, Section 11A of the
Exchange Act specifically highlights the
importance of making information with
respect to quotations for and
transactions in securities available to
brokers, dealers, and investors in a
prompt, accurate, reliable, and fair
manner and directs the Commission to
act in accordance with this finding.
Accordingly, the Commission proposes
to amend Regulation NMS to better
achieve the goal of assuring ‘‘the
availability to brokers, dealers and
investors of information with respect to
quotations for and transactions in
securities’’ 24 that is prompt, accurate,
reliable, and fair.25 The Commission
preliminarily believes that the proposals
described herein would promote fair
and efficient markets and would
facilitate the best execution of investor
orders, and reduce information
asymmetries between market
participants who currently rely on
market data provided through the
exclusive SIPs and those who purchase
the proprietary market data products
offered by the national securities
exchanges.26
The proposed amendments include
two key parts, and the Commission
preliminarily believes that the proposals
are complementary, but can be
independently justified. First, the
amendments would update the content
of the information with respect to
quotations for and transactions in NMS
stocks that must be made available
under Regulation NMS. In particular,
the Commission proposes to expand the
NMS information that is required to be
collected, consolidated, and
24 Section 11A(a)(1)(C)(iii), 15 U.S.C. 78k–
1(a)(1)(C)(iii).
25 Section 11A(c)(1)(B), 15 U.S.C. 78k–1(c)(1)(B).
Section 11A(c)(1)(B) provides the Commission with
the authority to prescribe rules and regulations as
necessary or appropriate in the public interest, for
the protection of investors or otherwise in
furtherance of the purposes of the Exchange Act to
‘‘assure the prompt, accurate, reliable, and fair
collection, processing, distribution, and publication
of information with respect to quotations for and
transactions in such securities and the fairness and
usefulness of the form and content of such
information.’’ Id.
26 See Section 11A(a)(1)(C), 15 U.S.C. 78k–
1(a)(1)(C) (stating that it is in the public interest and
appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure
‘‘fair competition among brokers and dealers,’’ ‘‘the
availability to brokers, dealers, and investors of
information with respect to quotations for and
transactions in securities,’’ and ‘‘the practicability
of brokers executing investors’ orders in the best
market’’).
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disseminated under Regulation NMS to
include: (1) Information about orders in
sizes smaller than the current round lot
size for certain higher priced stocks; 27
(2) information about certain orders that
are outside of the best bid and best offer
(i.e., certain depth of book data); and (3)
information about orders that are
participating in opening, closing, and
other auctions. The Commission
preliminarily believes that enhancing
the content of NMS information in this
manner should help ensure that all
market participants have ready access to
that market information in order to
facilitate participation in today’s
markets.
Second, the amendments introduce a
decentralized consolidation model
whereby competing consolidators
would assume responsibility for the
collection, consolidation, and
dissemination functions currently
performed by the exclusive SIPs.28 To
facilitate this decentralized
consolidation model, the Commission
proposes that each SRO would be
required to make all of its market data
that is necessary to generate
consolidated market data (as proposed
to be defined) directly available to two
new categories of entities: (1) Competing
consolidators and (2) self-aggregators.
Competing consolidators would be
either SROs or SIPs registered with the
Commission pursuant to proposed Rule
614, and would be responsible for
collecting, consolidating, and
disseminating consolidated market data
to the public. Self-aggregators would be
brokers or dealers that elect to collect
and generate consolidated market data
for their own internal use.
Non-SRO competing consolidators
would be required to register with the
Commission.29 All competing
consolidators, SRO and non-SRO,
would be subject to appropriate
standards with respect to the
27 See proposed Rule 600(b)(81) (defining ‘‘round
lot’’ as 100 shares, 20 shares, 10 shares, 2 shares,
or 1 share depending upon the prior calendar
month’s average closing price for each NMS stock).
28 The Commission is proposing to include
competing consolidators in the definition of ‘‘SCI
entities;’’ therefore, competing consolidators would
be subject to the requirements of Regulation SCI.
See Rule 1000(a) of Regulation SCI, 17 CFR
242.1000(a). See Securities Exchange Act Release
No. 73639 (Nov. 19, 2014), 79 FR 72252 (Dec. 5,
2014) (‘‘Regulation SCI Adopting Release’’). See
also infra Section IV.B.2(f).
29 As discussed further below, only those entities
that are SIPs would be required to register with the
Commission pursuant to proposed Rule 614 and
proposed Form CC. SROs that wish to act as
competing consolidators would not be required to
register pursuant to proposed Rule 614 and
proposed Form CC but would be required to comply
with the competing consolidator obligations set
forth in proposed Rule 614(d). See infra Section
IV.B.
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promptness, accuracy, reliability, and
fairness of their consolidated market
data distribution. While self-aggregators
would not be subject to a separate
registration requirement, as registered
broker-dealers, they would be subject to
the full broker-dealer regulatory
regime.30 To support this proposed
decentralized consolidation model, each
SRO would be required to make all of
its own data that is necessary to
generate consolidated market data
available to competing consolidators
and self-aggregators directly from its
data center, and in the same manner and
using the same methods, including all
methods of access and the same format,
as it makes its proprietary market data
products available to any market
participant.
Under the proposed structure, the
effective national market system plan(s)
would continue to serve an important
role in the national market system by,
among other things, governing the
SROs’ provision of the data necessary to
generate consolidated market data,
including setting fees for the provision
of such SRO data to competing
consolidators and self-aggregators.31
The Commission preliminarily believes
that, by introducing competition and
market forces into the collection,
consolidation, and dissemination
process, the decentralized consolidation
model would help ensure that
consolidated market data is delivered to
market participants in a more timely,
efficient, and cost-effective manner than
the current centralized consolidation
model.32
II. Current Market Data Infrastructure
Under Regulation NMS and the Equity
Data Plans
A. Consolidated Market Data and
Proprietary Data
Today, in accordance with the
centralized consolidation model, the
SROs act jointly pursuant to the three
Equity Data Plans to collect,
consolidate, and publicly disseminate
real-time, NMS information.33 For each
NMS stock, the SROs are required,
pursuant to Regulation NMS and the
Equity Data Plans, to provide certain
quotation 34 and transaction 35 data to
the designated exclusive SIP for each
Equity Data Plan.36 Each exclusive SIP
30 See
infra Section IV.B.3.
Proposed Governance Order, supra note 8.
32 See infra Section IV.B.
33 See supra note 13.
34 See Rule 602 of Regulation NMS, 17 CFR
242.602.
35 See Rule 601 of Regulation NMS, 17 CFR
242.601.
36 Rule 603(b) of Regulation NMS provides that
‘‘the dissemination of all consolidated information
31 See
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collects, consolidates, and disseminates
NMS information to the public on the
consolidated tape, described below. The
NMS information that is consolidated
and made available under the Equity
Data Plans generally includes: ‘‘(1) The
price, size, and exchange of the last sale;
(2) each exchange’s current highest bid
and lowest offer, and the shares
available at those prices; and (3) the
national best bid and offer (i.e., the
highest bid and lowest offer currently
available on any exchange).’’ 37 In
general, these data elements form what
historically has commonly been referred
to as ‘‘core data.’’
In addition to disseminating core
data, the exclusive SIPs collect,
calculate, and disseminate certain
regulatory data, including information
required by the NMS Plan to Address
Extraordinary Market Volatility (‘‘LULD
Plan’’),38 information relating to
regulatory halts and market-wide circuit
breakers (‘‘MWCBs’’),39 and information
regarding short sale circuit breakers
pursuant to Rule 201.40 The exclusive
SIPs also collect and disseminate other
NMS stock data and disseminate certain
administrative messages.41 For purposes
for an individual NMS stock’’ shall be through a
single plan processor (i.e., exclusive SIP). 17 CFR
242.603(b).
37 See In the Matter of the Application of
Bloomberg L.P., Securities Exchange Act Release
No. 83755 at 3 (July 31, 2018) (‘‘Bloomberg
Decision’’), available at https://www.sec.gov/
litigation/opinions/2018/34-83755.pdf; accord In
the Matter of the Application of Sec. Indus. & Fin.
Markets Ass’n for Review of Action Taken by Nyse
Arca, Inc., & Nasdaq Stock Mkt. LLC, Securities
Exchange Act Release No. 84432 (Oct. 16, 2018)
(‘‘In the Matter of the Application of SIFMA’’)
(citing NetCoalition v. SEC., 615 F.3d 525, 529 (DC
Cir. 2010)); Securities Exchange Act Release No.
87193 (Oct. 1, 2019), 84 FR 54794, 54795 (Oct. 11,
2019) (‘‘Effective on Filing Proposal’’).
38 See Securities Exchange Act Release Nos.
85623 (Apr. 11, 2019), 84 FR 16086 (Apr. 17, 2019)
(approving LULD Plan on a permanent basis); 67091
(May 31, 2012), 77 FR 33498 (June 6, 2012)
(approving LULD Plan, as modified by Amendment
No. 1, on a pilot basis); Limit Up Limit Down Plan:
Overview, available at http://www.luldplan.com/
index.html (last accessed Dec. 16, 2019).
39 See Securities Exchange Act Release No. 67090
(May 31, 2012), 77 FR 33531 (June 6, 2012) (SR–
BATS–2011–038; SR–BYX–2011–025; SR–BX–
2011–068; SR–CBOE–2011–087; SR–C2–2011–024;
SR–CHX–2011–30; SR–EDGA–2011–31; SR–EDGX–
2011–30; SR–FINRA–2011–054; SR–ISE–2011–61;
SR–NASDAQ–2011–131; SR–NSX–2011–11; SR–
NYSE–2011–48; SR–NYSEAmex–2011–73; SR–
NYSEArca–2011–68; SR–Phlx–2011–129).
40 See Rule 201(b)(3) of Regulation SHO, 17 CFR
242.201(b)(3).
41 The exclusive SIPs also provide other data
regarding NMS stocks pursuant to SRO rules that
are described in the Equity Data Plans’ technical
specifications, such as data relating to retail
liquidity programs, market and settlement
conditions, and the financial condition of the
issuer. In addition, the Nasdaq UTP SIP separately
provides Over-the-Counter Bulletin Board
(‘‘OTCBB’’) data, and the CTA Plan allows
participants to use the CTA/CQ SIP to disseminate
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of this release, these existing market
data elements, together with the
historical ‘‘core data’’ described above,
are referred to as ‘‘SIP data.’’
The Equity Data Plans set the terms
for the operation of the exclusive SIPs.42
There are two exclusive SIPs, each of
which is physically located in a
different data center. The exclusive SIP
for the CTA and CQ Plans, which covers
Tape A (i.e., securities listed on the New
York Stock Exchange (‘‘NYSE’’)) and
Tape B (i.e., securities listed on
exchanges other than NYSE or
Nasdaq),43 is located in Mahwah, New
Jersey (‘‘CTA/CQ SIP’’), while the
Nasdaq UTP Plan exclusive SIP, which
covers Tape C (i.e., Nasdaq-listed
securities), is located in Carteret, New
Jersey (‘‘Nasdaq UTP SIP’’). Tapes A, B,
and C are commonly referred to as the
‘‘consolidated tapes.’’
The exchanges’ primary data centers
are in four different physical locations,
namely Mahwah, Carteret, Secaucus,
and Weehawken, New Jersey, and they
all have back-up data centers in
Chicago.44 Broker-dealers may report
transactions effected otherwise than on
an exchange (i.e., ‘‘over-the-counter’’ or
‘‘OTC’’) to trade reporting facilities
(‘‘TRFs’’), which are facilities of FINRA.
There are currently three active TRFs:
FINRA/Nasdaq TRF in Carteret, FINRA/
Nasdaq TRF in Chicago, and FINRA/
NYSE TRF in Mahwah.45
last sale prices for corporate bonds and information
about indices.
42 See supra note 20. The exclusive SIPs are the
plan processors for the Equity Data Plans. The
Securities Industry Automation Corporation
(‘‘SIAC’’), a wholly owned, indirect subsidiary of
Intercontinental Exchange (‘‘ICE’’), of which the
NYSE is also a subsidiary, is the plan processor for
Tapes A and B; Nasdaq is the plan processor for
Tape C.
43 Tape B includes securities listed on exchanges
other than NYSE or Nasdaq, including Cboe, NYSE
Arca, and NYSE American.
44 See NYSE Trader Update: NYSE and NYSE
MKT Equity Emergency Procedures and New DR
Plans (Sept. 9, 2016), available at https://
www.nyse.com/publicdocs/nyse/markets/nyse/
NYSE_and_NYSE_MKT_DR_Trader_Update_
Final.pdf; UTP Plan Administration Data Policies
(Oct. 2018), available at http://www.utpplan.com/
DOC/Datapolicies.pdf; NYSE Chicago Disaster
Recovery FAQs (July 2019), available at https://
www.nyse.com/publicdocs/nyse/markets/nysechicago/NYSE_Chicago_Disaster_Recovery_
FAQs.pdf; Cboe: US Equities/Options Connectivity
Manual, Version 10.0.0 (Oct. 7, 2019), available at
https://cdn.cboe.com/resources/membership/US_
Equities_Options_Connectivity_Manual.pdf;
Securities Exchange Act Release No. 78101 (June
17, 2016), 81 FR 41142, 41154 (June 23, 2016).
45 See FINRA, Trade Reporting Facility (TRF),
available at https://www.finra.org/filing-reporting/
trade-reporting-facility-trf (last accessed Jan. 22,
2020). As of October 2019, the FINRA/Nasdaq TRF
in Carteret handled approximately 30% of the share
volume in OTC reported transactions. See Cboe
Global Markets, U.S. Equities Market Volume
Summary (month-to-date), available at https://
markets.cboe.com/us/equities/market_share/ (last
accessed Oct. 21, 2019).
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With this centralized consolidation
model, each exchange and FINRA must
first transmit its quotation and
transaction information 46 from its own
data center to the appropriate exclusive
SIP’s data center for consolidation, at
which point SIP data is then further
transmitted to market data end-users,
which are often located in other data
centers. The SROs today typically
transmit their market data through fiber
optic cables to the exclusive SIPs and,
in the case of the CTA/CQ SIP, through
infrastructure owned and mandated by
the NYSE.47
In addition to the provision of SIP
data pursuant to the Equity Data Plans,
the national securities exchanges
separately sell their individual
proprietary market data products, which
include the SIP data elements as well as
a variety of additional data elements.48
As noted above, the proprietary DOB
products are generally characterized as
fast, low-latency products designed for
automated trading systems that include
additional content.49 In addition to SIP
46 See
supra notes 34–35 and accompanying text.
NYSE operates the CTA/CQ SIP and has
required that access to the CTA/CQ SIP be through
the use of the NYSE’s IP local area network. The
NYSE represents that this access requirement was
mandated due to the IP network’s security,
resiliency, and redundancy. See Securities
Exchange Act Release No. 86865 (Sept. 4, 2019), 84
FR 47592, 47594, n.12 (Sept. 10, 2019) (‘‘NYSE
Low-Latency SIP Filing’’). See also Consolidated
Tape System (CTS) Participant Input Binary
Specification, 60, available at https://
www.ctaplan.com/publicdocs/ctaplan/
notifications/trader-update/CTS_BINARY_INPUT_
SPECIFICATION.pdf, and Consolidated Quotation
System (CQS) Participant Input Binary
Specification, 42, available at https://
www.ctaplan.com/publicdocs/ctaplan/
notifications/trader-update/CQS_BINARY_INPUT_
SPECIFICATION.pdf (both depicting that the
participants of those plans use ICE Data Services’
Secure Financial Transaction Infrastructure
(‘‘SFTI’’) network to transmit data to those
exclusive SIPs). SFTI provides connectivity to the
individual ICE and NYSE Group markets including
NYSE and NYSE Arca equities. SFTI also provides
connectivity to the data center for the CTA and CQ
Plans in Mahwah.
48 In adopting Regulation NMS in 2005, the
Commission determined not to require that DOB
information be included in core data, reasoning that
investors who needed DOB information would be
able to obtain such information from markets or
third-party vendors. See Regulation NMS Adopting
Release, supra note 10, at 37567. In making that
determination, the Commission stated that this
would be ‘‘a competition-driven outcome [that]
would benefit investors and the markets in
general.’’ See id. at 37530.
49 In contrast, proprietary TOB products are
generally limited in content, such as the exchange’s
top of book quotation information and transaction
information and are designed largely for the nonautomated segment of the market (e.g., retail or nonprofessional investors and wealth managers that
access market data visually). But see CBOE One
Feed Specification, CBOE, available at https://
cdn.cboe.com/resources/membership/Cboe_US_
Equities_Cboe_One_Feed_Specification.pdf
(highlighting that CBOE offers a non-automated
product with a five-level depth of book option).
47 The
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data, proprietary DOB products
typically include odd-lot quotations;
orders at prices above and below the
best prices (i.e., depth of book data); and
information about orders participating
in auctions, including auction order
imbalances.50
In addition to proprietary DOB
products, the exchanges offer a variety
of connectivity options, such as colocation at primary data centers, fiber
optic connectivity, wireless
connectivity, and point-of-presence
connectivity at third-party data
centers.51 Typically, the data for
proprietary DOB products is transmitted
directly from each exchange to the data
center of the subscriber, where the
subscriber’s broker-dealer or vendor (or
the subscriber itself) privately may
consolidate such data with the
proprietary data of the other exchanges.
Furthermore, for many market
participants, proprietary data is
transmitted using wireless connectivity
(often provided by the exchanges), such
as microwave or laser technology,52 that
allows faster data transmission than the
fiber optic cables that are typically used
by the exclusive SIPs for the purposes
of transmitting SIP data. The exchanges
charge fees for these proprietary data
products,53 as well as for each of their
connectivity options for co-location
(e.g., physical ports, cross-connects, and
field programmable gate array (‘‘FPGA’’)
services) and for communications
services providing connectivity between
data centers (e.g., microwave and fiber
optics). In the context of the Division of
Trading and Markets’ Roundtable on
Market Data and Market Access in
October 2018, some market participants
commented that, in their view, they
need the more content-rich proprietary
data feeds and low latency connectivity
to provide best execution to their clients
50 See, e.g., Nasdaq TotalView and NYSE
Integrated.
51 The exchanges have an inherent competitive
advantage in the provision of connectivity services
within exchange facilities, while connectivity
options made available elsewhere, such as point-ofpresence connectivity at third-party data centers,
are fully competitive.
52 See, e.g., Nasdaq, Trade Management Services:
Wireless Connectivity Suite, available at http://
n.nasdaq.com/WirelessConnectivitySuite (last
accessed Dec. 16, 2019); ICE Global Network, New
Jersey Metro, available at https://www.theice.com/
market-data/connectivity-and-feeds/wireless/newjersey-metro (last accessed Dec. 16, 2019).
53 See, e.g., Letter to Vanessa Countryman,
Secretary, Commission, from Robert Toomey,
Managing Director and Associate General Counsel,
SIFMA, 1–2 (Jan. 13, 2020) (stating that exchange
market data products are ‘‘complementary’’ and
result in ‘‘not only supra-competitive prices, but
supra-monopoly prices’’).
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B. NMS Regulatory Framework
The Commission exercised its
authority under Section 11A of the
Exchange Act to facilitate the collection,
consolidation, and dissemination of
NMS information primarily by adopting
five rules under Regulation NMS.55
Rule 601 of Regulation NMS governs
the dissemination of transaction
reports 56 and last sale data 57 with
respect to transactions in NMS stocks.
In particular, Rule 601 requires each
national securities exchange and
association to file a transaction
reporting plan with the Commission
that, among other things, must specify
the manner of collecting, processing,
sequencing, making available, and
disseminating transaction reports and
last sale data.58
Rule 602 of Regulation NMS governs
the dissemination of quotations in NMS
securities. Specifically, under Rule 602
each national securities exchange and
association is required to collect,
process, and make available certain
quotation data to vendors,59 including
the best bid, best offer,60 quotation
sizes,61 and aggregate quotation sizes.62
54 See, e.g., Roundtable Day One Transcript at 27
(Doug Cifu, Virtu Financial). See also Sections
III.C.1(c), III.C.2(c), and III.C.3(b).
55 See also supra Section I (discussing Section
11A of the Exchange Act).
56 Rule 600(b)(84) defines a transaction report as
‘‘a report containing the price and volume
associated with a transaction involving the
purchase or sale of one or more round lots of a
security.’’ 17 CFR 242.600(b)(84).
57 Rule 600(b)(34) defines last sale data as ‘‘any
price or volume data associated with a transaction.’’
17 CFR 242.600(b)(34).
58 17 CFR 242.601(a)(2).
59 Rule 600(b)(87) defines a vendor as ‘‘any
securities information processor engaged in the
business of disseminating transaction reports, last
sale data, or quotations with respect to NMS
securities to brokers, dealers, or investors on a realtime or other current and continuing basis, whether
through an electronic communications network,
moving ticker, or interrogation device.’’ 17 CFR
242.600(b)(87).
60 Rule 600(b)(8) defines best bid and best offer
as ‘‘the highest priced bid and the lowest priced
offer.’’ 17 CFR 242.600(b)(8).
61 Under Rule 600(b)(67), quotation size, ‘‘when
used with respect to a responsible broker’s or
dealer’s bid or offer for an NMS security, means: (i)
[T]he number of shares (or units of trading) of that
security which such responsible broker or dealer
has specified, for purposes of dissemination to
vendors, that it is willing to buy at the bid price
or sell at the offer price comprising its bid or offer,
as either principle or agent; or (ii) [i]n the event
such responsible broker or dealer has not so
specified, a normal unit of trading for that NMS
security.’’ 17 CFR 242.600(b)(67).
62 Rule 600(b)(2) defines aggregate quotation size
as ‘‘the sum of the quotation sizes of all responsible
brokers or dealers who have communicated on any
national securities exchange bids or offers for an
NMS security at the same price.’’ 17 CFR
242.600(b)(2).
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Rule 603 of Regulation NMS governs
the distribution, consolidation, and
display of information with respect to
quotations for and transactions in NMS
stocks. Specifically, Rule 603(a)(1)
requires any exclusive processor,63 or
any broker or dealer with respect to
information for which it is the exclusive
source, that distributes information with
respect to quotations for or transactions
in an NMS stock to a securities
information processor 64 to do so on
terms that are fair and reasonable. Rule
603(a)(2) requires any national
securities exchange, national securities
association, broker, or dealer that
distributes information with respect to
quotations for or transactions in an NMS
stock to a securities information
processor, broker, dealer, or other
persons to do so on terms that are not
unreasonably discriminatory.65
Rule 603(b) requires each national
securities exchange and association to
act jointly pursuant to one or more NMS
plans to disseminate consolidated
information, including an NBBO,66 on
quotations for and transactions in NMS
stocks.67 Further, the rule states that
such plan or plans shall provide for the
dissemination of all consolidated
information for an individual NMS
stock through a single plan processor.
Rule 608 of Regulation NMS governs
the procedures for the filing and
Commission approval of NMS plans and
plan amendments. The Commission
approved the Equity Data Plans under
Rule 608. Finally, Rule 609 of
Regulation NMS governs the registration
of exclusive SIPs.
C. Other Regulatory Data
As noted above, certain regulatory
data is required—pursuant to
Commission and exchange rules and
NMS plans—to be generated by primary
listing exchanges and the exclusive SIPs
and included in the current SIP data.
The availability of this data is critical to
63 See
supra note 20.
64 Id.
65 See 17 CFR 242.603(a)(2). Proprietary data
cannot be made available sooner than current core
data is transmitted to the exclusive SIPs. See
Regulation NMS Adopting Release, supra note 10,
at 37567 (‘‘[I]ndependently distributed data could
not be made available on a more timely basis than
core data is made available to a Network processor.
Stated another way, adopted Rule 603(a) prohibits
an SRO or broker-dealer from transmitting data to
a vendor or user any sooner than it transmits the
data to a Network processor.’’).
66 Rule 600(b)(43) defines national best bid and
national best offer (‘‘NBBO’’) as ‘‘with respect to
quotations for an NMS security, the best bid and
best offer for such security that are calculated and
disseminated on a current and continuing basis by
a plan processor pursuant to an effective national
market system plan . . .’’ 17 CFR 242.600(b)(43).
67 17 CFR 242.603(b).
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allowing market participants to
understand when and where
permissible trading may occur.
1. Regulation SHO
Rule 201(b)(1)(i) of Regulation SHO 68
requires a trading center 69 to establish,
maintain, and enforce written policies
and procedures reasonably designed to
prevent the execution or display of a
short sale order of a covered security 70
at a price that is less than or equal to
the current national best bid,71 if the
price of that covered security decreases
by 10% or more from the covered
security’s closing price, as determined
by the listing market 72 for the covered
security as of the end of regular trading
hours 73 on the prior day (the ‘‘Short
Sale Circuit Breaker’’). The rule requires
that the trading center impose the Short
Sale Circuit Breaker for the remainder of
the day and the following day when a
national best bid for the covered
security is calculated and disseminated
on a current and continuing basis by a
‘‘plan processor’’ 74 pursuant to an
effective national market system plan.75
68 17
CFR 242.201(b)(1)(i).
201(a)(9) states the term trading center
shall have the same meaning as in 242.600(b)(82).
17 CFR 242.201(a)(9).
70 Rule 201(a)(1) states the term covered security
shall mean any NMS stock as defined in
242.600(b)(48). 17 CFR 242.201(a)(1).
71 Rule 201(a)(4) states the term national best bid
shall have the same meaning as in 242.600(b)(43).
17 CFR 242.201(a)(4).
72 Rule 201(a)(3) states the term listing market
shall have the same meaning as the term ‘‘listing
market’’ as defined in the effective transaction
reporting plan for the covered security. Rule
201(a)(2) states the term effective transaction
reporting plan for a covered security shall have the
same meaning as in 242.600(b)(23). 17 CFR
242.201(a)(2)–(3).
73 Rule 201(a)(7) states the term regular trading
hours shall have the same meaning as in
242.600(b)(68). 17 CFR 242.201(a)(7).
74 Rule 201(a)(6) states the term plan processor
shall have the same meaning as in 242.600(b)(59).
17 CFR 242.201(a)(6).
75 Rule 201(c) provides an exception for a brokerdealer that has adopted and enforces its own such
policies and procedures. More specifically, if such
broker-dealer identifies a short sale order as being
at a price above the current national best bid at the
time of submission, such broker-dealer may mark
the order as ‘‘short exempt.’’ However, such brokerdealer must establish, maintain, and enforce written
policies and procedures reasonably designed to
prevent incorrect identification of orders for
purposes of the ‘‘short exempt’’ exception. Policies
and procedures designed to create the appearance
of technical compliance with Rule 201 but which
otherwise are designed to circumvent, or assist
others in circumventing, the Rule, would not be
compliant. For example, any arrangement between
market participants in which the execution price
appears to be compliant with the Short Sale Circuit
Breaker, but also includes a post-trade payment
(i.e., fee, commission, or other payment) that
effectively renders the execution price noncompliant with the Short Sale Circuit Breaker,
would not be consistent with the Rule’s
requirements. Further, in the Adopting Release for
Rule 201, the Commission stated that, ‘‘any conduct
69 Rule
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Rule 201(b)(3) of Regulation SHO
provides that the determination
regarding whether the Short Sale Circuit
Breaker has been triggered shall be
made by the listing market for the
covered security, and, if the Short Sale
Circuit Breaker has been triggered, the
listing market shall immediately notify
the ‘‘single plan processor’’ (i.e., the
exclusive SIP responsible for
consolidation of information for the
covered security pursuant to Section
242.603(b)). The exclusive SIP must
then disseminate this information.
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2. Limit-Up Limit-Down Plan
The LULD Plan 76 sets forth
procedures that provide for market-wide
limit up-limit down (‘‘LULD’’)
requirements to prevent trades in
individual NMS stocks from occurring
outside of specified price bands and
reduce the negative impacts of
extraordinary volatility in NMS stocks
caused by momentary gaps in liquidity
or erroneous trades. These price bands
are coupled with the provision of
trading pauses to accommodate more
fundamental price moves.
Under the LULD Plan, the applicable
exclusive SIP for an NMS stock is
required to perform certain key
functions, including: (1) Calculating the
applicable price bands,77 (2)
disseminating flags identifying quotes
that are not executable,78 (3)
by trading centers, or other market participants, that
facilitates short sales in violation of Rule 201 could
also lead to liability for aiding and abetting or
causing a violation of Regulation SHO, as well as
potential liability under the anti-fraud and antimanipulation provisions of the Federal securities
laws, including Sections 9(a), 10(b), and 15(c) of the
Exchange Act, and Rule 10b–5 thereunder.’’
Securities Exchange Act Release No. 61595 (Feb. 26,
2010), 75 FR 11232, 11260 (Mar. 10, 2010).
76 See Securities Exchange Act Release Nos.
85623, supra note 38; 67091, supra note 38.
77 During regular trading hours for an NMS stock,
the exclusive SIP for that stock uses a reference
price, which it also calculates, to calculate and
disseminate to the public a lower and upper price
band. The reference price for each NMS stock
equals the arithmetic mean price of eligible
reported transactions for the NMS stock over the
immediately preceding five-minute period (see
LULD Plan Section V(A)(1)) and must remain in
effect for at least 30 seconds. See LULD Plan
Section V(A)(2). The exclusive SIP calculates a proforma reference price on a continuous basis during
regular trading hours, and when that price has
moved by 1% or more from the reference price
currently in effect, the pro-forma reference price
becomes the reference price, and the plan processor
disseminates new price bands based on the new
reference price. See LULD Plan Section V(A)(2).
The price bands for an NMS stock are calculated by
applying the appropriate percentage parameter for
the stock, specified by the LULD Plan, to the stock’s
reference price, with the lower price band as a
percentage parameter below the reference price and
the upper price band as a percentage parameter
above the reference price. See LULD Plan Section
V(A)(1).
78 When a national best bid is below the lower
price band or a national best offer is above the
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disseminating flags identifying quotes
that are in a ‘‘limit state,’’ 79 (4)
disseminating trading pause messages
received from the primary listing
exchanges,80 and (5) disseminating
reopening auction information from the
primary listing exchanges.81
3. Market-Wide Circuit Breakers
All of the equity exchanges and
FINRA have adopted uniform rules, on
a pilot basis, relating to MWCBs.82 The
purpose of an MWCB is to address
extraordinary market-wide volatility by
halting trading across the markets when
price declines reach certain specified
levels.83 These levels are reached when
the S&P 500 Index declines a specified
percentage from the prior day’s closing
price. Currently, there are three
thresholds: 7% (Level 1), 13% (Level 2),
and 20% (Level 3). A Level 1 or Level
2 market decline after 9:30 a.m. ET and
before 3:25 p.m. ET would halt the
equity and options markets for 15
minutes, while Level 1 and 2 declines
at or after 3:25 p.m. ET would not halt
trading. A Level 3 market decline at any
time during the trading day would halt
equity and options trading until the
upper price band for an NMS stock, the exclusive
SIP is required to disseminate the national best bid
or national best offer with an appropriate flag
identifying it as non-executable. See LULD Plan
Section VI(A)(2).
79 When a national best bid is equal to the lower
price band or a national best offer is equal to the
upper price band for an NMS stock, the exclusive
SIP is required to distribute the national best bid
or national best offer with an appropriate flag
identifying it as a ‘‘Limit State Quotation.’’ See id.;
LULD Plan Section VI(B)(2).
80 If trading for an NMS stock does not exit a limit
state within 15 seconds of entry during regular
trading hours, then the primary listing exchange is
required to declare a trading pause in that NMS
stock and notify the exclusive SIP. See LULD Plan
Section VII(A)(1). The exclusive SIP is required to
disseminate trading pause information to the
public. See LULD Plan Section VII(A)(3).
81 Five minutes after declaring a trading pause for
an NMS stock, if the primary listing exchange has
not declared a regulatory halt, the primary listing
exchange is required to attempt to reopen trading
using its established reopening procedures. The
exclusive SIP publishes the following information
that the primary listing exchange provides to the
exclusive SIP in connection with such reopening:
Auction reference price; auction collars; and
number of extensions to the reopening auction. See
LULD Plan Section VII(B)(1). In addition, the
applicable exclusive SIP for an NMS stock is
required to receive and disseminate to the public
information from primary listing exchanges
regarding their inability to reopen trading due to a
systems or technology issue. Specifically, the
primary listing exchange is required to notify the
exclusive SIP if it is unable to reopen trading in an
NMS stock due to a systems or technology issue and
if it has not declared a regulatory halt. The
exclusive SIP is required to disseminate this
information to the public. See LULD Plan Section
VII(B)(2).
82 See supra note 39.
83 Id.
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16733
primary listing exchange opens the next
trading day.
The primary listing exchanges and the
exclusive SIPs work together to
implement the MWCB rules. The CTA/
CQ SIP monitors the S&P 500 Index
throughout the trading day and would
send a message to the primary listing
exchanges and the Nasdaq UTP SIP in
the event a Level 1, Level 2, or Level 3
circuit breaker was triggered. Upon
receipt of such a message, the applicable
primary listing exchange would impose
a regulatory halt by sending the
appropriate message to the applicable
exclusive SIP, which would then
disseminate the regulatory halt message
to market participants. Trade
resumption messages would be
generated at the appropriate time by the
primary listing exchange and similarly
disseminated to market participants
through the applicable exclusive SIP.
4. Odd-Lot Transaction Reports and
Aggregated Odd-Lot Orders
As discussed further below, while
Regulation NMS only requires NMS
stock quotation and transaction data in
round lots to be reported to the
exclusive SIPs, SRO rules and the
Equity Data Plans include some odd-lot
information in the SIP data.84 Pursuant
to exchange rules, odd-lot quotations
that, when aggregated, equal or exceed
a round lot are reported to the exclusive
SIPs as round lots.85 Moreover, the
Equity Data Plans were amended in
2013 to include odd-lot transaction
reports in the SIP data.86
III. Proposed Enhancements to NMS
Information
A. Introduction
The Commission is proposing to
expand the content of the NMS
information that would be required to
be collected, consolidated, and
disseminated under the rules of the
national market system to better meet
the needs of today’s investors and other
market participants. Specifically, the
Commission proposes to amend
Regulation NMS by introducing, in Rule
600, new defined terms for
‘‘consolidated market data,’’ ‘‘core
data,’’ ‘‘regulatory data,’’
‘‘administrative data,’’ ‘‘exchangespecific program data,’’ ‘‘round lot,’’
‘‘depth of book data,’’ and ‘‘auction
information’’ and by amending the
current definitions of ‘‘national best bid
and national best offer’’ and ‘‘protected
84 See
85 See
infra Section III.C.1.
infra notes 159–160 and accompanying
text.
86 See
infra notes 160–161 and accompanying
text.
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bid or protected offer.’’ The Commission
preliminarily believes that these
amendments will enhance the
availability and usefulness of the NMS
information that is required to be
provided under the rules of the national
market system for a wide variety of
market participants. The Commission
also preliminarily believes that
expanding the content of NMS
information would help to reduce
information asymmetries between
market participants who rely upon
current SIP data and those who
purchase proprietary data feeds from the
national securities exchanges.87
The Commission’s objectives in
expanding and modernizing the content
of NMS information that would be
collected, consolidated, and
disseminated under the rules of the
national market system reflect that
different market participants and
different trading applications have
different needs for NMS information.
For example, the needs of some retail
investors that visually consume NMS
information (e.g., humans looking at
quotes on a screen) differ from those of
institutional trading systems that
electronically consume NMS
information (e.g., algorithmic trading
systems or smart order routers
(‘‘SORs’’).88 This proposal to expand
and modernize the content of NMS
information is not intended solely to
meet the needs of a narrow segment of
the NMS information market; rather, the
proposal is intended to address the
needs of a broad cross-section of market
participants.89 The Commission intends
for the NMS information to promote
both fair and efficient markets, be useful
to a broad cross-section of market
participants, reduce information
asymmetries, and facilitate best
execution.90
B. Proposed Definition of ‘‘Consolidated
Market Data’’
The Commission is proposing to
amend Rule 600(b) to add a definition
87 See
supra note 26.
employ the use of algorithms (e.g., by
broker-dealers on behalf of a client) designed to
optimally send parts of an order (child orders) to
various market centers (e.g., exchange and ATSs) so
as to optimally access market liquidity while
minimizing execution costs.
89 This proposal is also not designed to expand
the content of NMS information to meet all needs
of all market participants; the proprietary data
market, which includes information that is not
included in the proposed definition of core data, is
expected to continue to fulfill additional needs
beyond those that are met by the proposed
definition of core data.
90 While this proposal is intended to facilitate
best execution, the Commission is not specifying
minimum data elements needed to achieve best
execution.
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of ‘‘consolidated market data’’ that
would include information that is
currently disseminated by the exclusive
SIPs as well as additional new
information. Specifically, under
proposed Rule 600(b)(19), consolidated
market data would be defined as the
following data, consolidated across all
national securities exchanges and
national securities associations: (1) Core
data; (2) regulatory data; (3)
administrative data; (4) exchangespecific program data; and (5) additional
regulatory, administrative, or exchangespecific program data elements defined
as such pursuant to the effective
national market system plan or plans
required under Rule 603(b).
As discussed below, the Commission
proposes to add definitions of the terms
‘‘core data,’’ ‘‘regulatory data,’’
‘‘administrative data,’’ and ‘‘exchangespecific program data.’’ The proposed
definition of core data would include
those data elements that are currently
considered core data 91 as well as reflect
additional information that would be
required to be collected, consolidated,
and disseminated under Regulation
NMS, including certain depth of book,
odd-lot, and auction information, which
would improve the usefulness of core
data for market participants. The
proposed definition of regulatory data
would specify certain regulatory
messages that must be provided under
Regulation NMS, which would facilitate
compliance with Commission, NMS
plan, or SRO requirements. The
proposed definition of administrative
data would refer to the administrative or
technical messages that are currently
required by the Equity Data Plans, or
their technical specifications, and
would facilitate the efficient utilization
of proposed consolidated market data.
The proposed definition of ‘‘exchangespecific program data’’ would include
information currently included in SIP
data related to retail liquidity programs
that certain exchanges have established,
as well as information related to new
programs that individual exchanges may
develop in the future,92 but only if the
effective national market system plan or
plans required under Rule 603(b) are
amended to include data elements
related to any such new programs in
consolidated market data.93
Finally, the Commission proposes to
include a provision that would allow for
additional regulatory, administrative, or
exchange-specific program data
91 See
supra note 37 and accompanying text.
new exchange programs would have to be
filed with the Commission pursuant to Section
19(b) of the Exchange Act, 15 U.S.C. 78s(b), and
Rule 19b–4 thereunder, 17 CFR 240.19b–4.
93 See infra Section III.F.
92 Any
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elements 94 to be included within
‘‘consolidated market data’’ pursuant to
amendments to the effective national
market system plan(s).95 The
Commission preliminarily believes that
this provision would help to ensure that
additional information in these specific
categories may be proposed to be
included in consolidated market data in
the future in response to market and
regulatory developments and that such
additional information would be
required to be made available by the
SROs to competing consolidators and
self-aggregators, and as a result,
competing consolidators would be
required to, among other things,
calculate and generate consolidated
market data that includes this additional
information. The Commission
preliminarily believes that new
administrative, regulatory, and
exchange-specific program data
elements may emerge from time to time,
and that the proposed definition of
consolidated market data should
provide flexibility for such data
elements to be included by NMS plan
amendment. This provision would also
maintain the current practice whereby
SIP data of this type can be expanded
through the NMS plan amendment
process.
National market system plans and
amendments thereto must be filed with,
and typically are not effective unless
they are approved by, the Commission
under Rule 608 of Regulation NMS.96
94 Amendments to the proposed definition of core
data would only be able to be made by the
Commission. To the extent that there are changes
in the national market system, such as, in the
provision of trading services, that suggest that the
definition of core data should be updated, the
Commission could exercise its authority to propose
amendments to the proposed definition. See, e.g.,
Section 11A(c)(1)(B) of the Exchange Act which
provides that the Commission shall prescribe rules
as necessary or appropriate in the public interest,
for the protection of investors or otherwise to assure
the prompt, accurate, reliable, and fair collection,
processing, distribution, and publication of
information with respect to NMS information and
the fairness and usefulness of the form and content
of such information.
95 Pursuant to Rule 608(a)(1), any two or more
SROs, acting jointly, may propose an amendment to
an NMS plan. 17 CFR 242.608(a)(1). The Equity
Data Plans also have provisions regarding the
proposal of amendments to the Plans, which
currently require a vote of the Plans’ operating
committee. See CTA Plan, supra note 13, at Section
IV(b)(i); CQ Plan supra note 13, at Section IV.(c)(i)
of the CQ Plan; Nasdaq UTP Plan, supra note 13,
at Sections IV.C.1.a. and XVI.
96 A proposed NMS plan amendment may be put
into effect upon filing if designated by the sponsors
as: ‘‘(i) Establishing or changing a fee or other
charge collected on behalf of all of the sponsors
and/or participants in connection with access to, or
use of, any facility contemplated by the plan or
amendment (including changes in any provision
with respect to distribution of any net proceeds
from such fees or other charges to the sponsors and/
or participants); (ii) Concerned solely with the
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Pursuant to Rule 608(b), the
Commission would publish for
comment an amendment to add new
consolidated market data elements, and
thereafter, the Commission would
evaluate any such proposed amendment
and approve it if the Commission finds
the amendment is ‘‘necessary or
appropriate in the public interest, for
the protection of investors and the
maintenance of fair and orderly markets,
to remove impediments to, and perfect
the mechanisms of, a national market
system, or otherwise in furtherance of
the purposes of the [Exchange] Act.’’ 97
The Commission preliminarily
believes that the proposed definition of
consolidated market data, as well as the
other definitions included therein,
would, by expanding the NMS
information that is required to be
provided under the rules of the national
market system, support more informed
trading and investment decisions by
market participants in today’s markets
and facilitate the best execution of
customer orders by the full range of
broker-dealers.98 In addition, the
proposed definition would be
referenced in the amendments to Rule
603(b) and proposed Rule 614, both of
which propose to implement the
decentralized consolidation model.99
The Commission requests comment
on the proposed definition of
consolidated market data under
proposed Rule 600(b)(19). Throughout
this release, we request comment from
the points of view of all interested
parties. With regard to any comments,
we note that such comments are of
greatest assistance to our rulemaking
initiative if accompanied by supporting
data and analysis of the issues
addressed in those comments.
In particular, the Commission solicits
comment on the following:
1. Do commenters believe that the
Commission should adopt a definition
of consolidated market data? Why or
administration of the plan, or involving the
governing or constituent documents relating to any
person (other than a self-regulatory organization)
authorized to implement or administer such plan
on behalf of its sponsors; or (iii) Involving solely
technical or ministerial matters.’’ 17 CFR
242.608(b)(3). As stated above, the Commission has
proposed amendments to this provision. Effective
on Filing Proposal, supra note 37 (proposing to
rescind the provision of Rule 608 that allows a
proposed amendment to an effective national
market system plan(s) to become effective upon
filing if the proposed amendment establishes or
changes a fee or other charge).
97 17 CFR 242.608(b)(2).
98 As discussed below, the Commission is not
requiring broker-dealers to subscribe to or utilize
every component of proposed consolidated market
data to meet their regulatory obligations. See infra
notes 306–309 and accompanying text.
99 See infra Sections IV.B.1 and IV.B.2(e)(ii).
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why not? Should the Commission take
an alternative approach? Why or why
not?
2. Does the proposed definition of
consolidated market data capture the
market data that would be useful to
market participants for trading and
regulatory compliance purposes? Please
explain. Does the proposed definition of
consolidated market data include any
market data that should not be
included? Please explain. The
Commission is seeking input from
commenters on whether the proposed
definition of consolidated market data
should include additional market data
or whether the definition should
otherwise be modified.
3. Should the definition of
consolidated market data be set forth in
an effective national market system
plan(s) instead of, or in addition to, Rule
600(b)? Please explain. Do commenters
have views on the most appropriate
process through which the content of
proposed consolidated market data
should be expanded or modified? Do
commenters believe that the proposed
definition of consolidated market data
should include a provision stating that
additional regulatory, administrative, or
exchange-specific program data
elements can be defined pursuant to the
effective national market system plan or
plans required under Section
242.603(b)? Please explain. Should the
proposed definition of core data be able
to be amended through the effective
national market system plan process (for
example, should the term ‘‘core data’’ be
included in proposed Rule
600(b)(19)(v))? Why or why not? Do
commenters believe that any data
elements should not require an
amendment to the effective national
market system plan(s) to be added to
consolidated market data? Please
explain and describe what process
would be appropriate for adding any
such data elements.
C. Proposed Definition of ‘‘Core Data’’
Regulation NMS does not currently
define core data. Rather, today, core
data generally refers to the price, size,
and exchange of the last sale; each
exchange’s highest bid and lowest offer
(‘‘BBO’’) and the number of shares
available at those prices; and the
NBBO.100
The core data that is provided today
by the exclusive SIPs is of considerable
utility to some market participants for
certain purposes.101 However, it is of
100 See
supra note 37 and accompanying text.
example, current core data includes the
NBBO, which is useful to market participants for
informational purposes and to inform trading and
101 For
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limited use to other market participants
for other purposes (e.g., as the primary
data source for automated trading
systems) because of its limited content.
The Commission preliminarily believes
that the content of current core data has
not kept pace with market
developments. For example,
decimalization in 2001 improved prices
and narrowed spreads but also reduced
the size of the top of book liquidity that
is displayed and disseminated as part of
current core data.102 Further, individual
odd-lot quotations, especially for stocks
with share prices that have risen
substantially,103 have become more
important to market participants as oddlot quotations can represent significant
amounts of liquidity that are not
reflected in current core data.104 Finally,
an increasing proportion of total trading
volume is executed during opening and
closing auctions, which are significant
liquidity events every trading day, but
important information about auctions is
not included within current core data
provided by the exclusive SIPs.105
Because the content of current core
data does not reflect these important
market developments,106 many market
participants state that they are unable to
rely solely on SIP data to trade
competitively and provide best
execution to customer orders in today’s
markets.107 The Commission
preliminarily believes that the data that
is required to be collected, consolidated,
and disseminated under the rules of the
national market system is no longer
fulfilling the goals of Section 11A of the
investment decisions. See, e.g., Roundtable Day
One Transcript at 57 (Doug Cifu, Virtu Financial)
(‘‘. . . the SIP is an eyeball product.’’); Roundtable
Day One Transcript at 65 (Mehmet Kinak, T. Rowe
Price) (‘‘So the SIP for us is kind of what we look
at. Obviously, investment decisions are probably
made by eyeballs and looking at the SIP itself from
either our Bloomberg or FactSet terminals.’’). It is
also used as a back-up for automated trading
systems that otherwise rely on proprietary data
feeds from the exchanges and to support less
sophisticated automated trading systems. See, e.g.,
Roundtable Day One Transcript at 140 (Mark
Skalabrin, Redline Trading Solutions) (‘‘the SIP
. . . has been relegated to a backup feed, really. It’s
a fail-over to the real feed you need to do the job.’’).
102 See infra notes 276–279.
103 See infra note 162.
104 As explained below, odd-lot quotations are
only reflected in SIP data to the extent that they are
aggregated into round lots pursuant to exchange
rules. See infra notes 157–158 and accompanying
text.
105 See infra notes 330–332.
106 As discussed below, the existing centralized
consolidation model for collecting, consolidating,
and disseminating SIP data also has not kept pace
with the needs of today’s investors and market
participants. See infra Section IV.A.
107 See several of the Roundtable comments
summarized below in Sections III.C.1, III.C.2, and
III.C.3.
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Exchange Act.108 The Commission is
proposing a definition of core data that
would incorporate the information that
is currently provided in SIP data as well
as additional information, including
quotation data for smaller-sized orders
for higher-priced stocks, certain depth
of book data, and additional auction
information.109 As explained below, the
Commission preliminarily believes that
each of the new elements of core data,
as proposed, would enhance the
usefulness of the content of the NMS
information that is collected,
consolidated, and disseminated under
the rules of the national market
system.110
The Commission is proposing to
define core data in Rule 600(b) to
include all of the elements that
currently are referred to as core data,111
as well as the following data elements
that are not currently provided by the
exclusive SIPs: (1) Quotation data for
smaller-sized orders for higher-priced
stocks (pursuant to a new definition of
‘‘round lot’’), (2) data on certain
quotations below the best bid or above
the best offer (pursuant to a new
definition of ‘‘depth of book data’’), and
(3) information about orders
participating in auctions (pursuant to a
new definition of ‘‘auction
information’’). As discussed below,
certain OTCBB and corporate bond and
index data that are currently provided
by the exclusive SIPs would not be
included in the proposed definition of
core data.112 Further, as noted above,
the proposed term core data is reflected
in the proposed definition of
consolidated market data, which is
referenced in proposed Rule 603(b) and
proposed Rule 614.113
Specifically, under proposed Rule
600(b)(20), core data would be defined
as the following information with
respect to quotations for and
transactions in NMS stocks: (1)
Quotation sizes; (2) aggregate quotation
sizes; (3) best bid and best offer; (4)
108 See
supra notes 2–5 and accompanying text.
infra Sections III.C.1–III.C.3 for detailed
discussions of the proposed definitions of ‘‘round
lot,’’ ‘‘depth of book data,’’ and ‘‘auction
information.’’
110 Section 11A(c)(1)(B) of the Exchange Act, 15
U.S.C. 78k–1(c)(1)(B).
111 See supra note 37 and accompanying text.
112 See infra notes 122–127 and accompanying
text.
113 As explained below, pursuant to Rule 603(b),
as proposed to be amended, national securities
exchanges and associations would be required to
make available to competing consolidators and selfaggregators, as proposed to be defined, all data
necessary to generate consolidated market data. See
infra Section IV.B.1. Competing consolidators
would be required to calculate and generate
consolidated market data and make it available to
subscribers. See proposed Rule 614(d).
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109 See
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national best bid and national best offer;
(5) protected bid and protected offer; (6)
transaction reports; (7) last sale data; (8)
odd-lot transaction data disseminated
pursuant to the effective national market
system plan or plans required under
Rule 603(b) as of [date of Commission
approval of this proposal]; (9) depth of
book data; and (10) auction information.
For purposes of the calculation and
dissemination of core data by competing
consolidators, and the calculation of
core data by self-aggregators, the best
bid and best offer, national best bid and
national best offer, and depth of book
data would include odd-lots that when
aggregated are equal to or greater than
a round lot, with such aggregation
occurring across multiple prices and
disseminated at the least aggressive
price.114 Protected quotations, however,
would only include odd-lots at a single
price that when aggregated are equal to
or greater than 100 shares.115
Some of the components of the
proposed definition of core data—
namely, quotation sizes, aggregate
quotation sizes, BBO, NBBO, protected
quotations, transaction reports, last sale
data, and odd-lot transaction data 116—
are already defined in Regulation NMS
or are currently included in SIP data.117
114 See infra notes 157–158 and accompanying
text (discussing odd-lot aggregation).
115 Id. A protected quotation is defined as ‘‘a
protected bid or a protected offer.’’ See Rule
600(b)(62) of Regulation NMS, 17 CFR
242.600(b)(62). A protected bid or protected offer is
defined as ‘‘a quotation in an NMS stock that: (i)
[i]s displayed by an automated trading center; (ii)
[i]s disseminated pursuant to an effective national
market system plan; and (iii) [i]s an automated
quotation that is the best bid or best offer of a
national securities exchange, the best bid or best
offer of The Nasdaq Stock Market, Inc., or the best
bid or best offer of a national securities association
other than the best bid or best offer of The Nasdaq
Stock Market, Inc.’’ See Rule 600(b)(61) of
Regulation NMS, 17 CFR 242.600(b)(61).
116 See infra notes 159–161 and accompanying
text (discussing the addition of odd-lot transaction
data to SIP data through NMS plan amendments
approved in 2013).
117 As discussed below, some of these proposed
data elements—namely, the BBO and NBBO—will
be derived from smaller sized quotations as a result
of the Commission’s proposed definition of round
lot, and the Commission is proposing amendments
to the definitions of protected bid and protected
offer and national best bid and offer to
accommodate its proposed amendments to expand
consolidated market data and implement a
decentralized consolidation model with competing
consolidators and self-aggregators.
In addition, today, the exclusive SIPs collect,
consolidate, and disseminate protected quotations,
which in almost all cases, are the best bid or best
offer of a trading center. Accordingly, the NBBO
today reflects protected quotations. As discussed
below, the Commission is proposing to amend the
definition of ‘‘protected bid or protected offer’’ to
require that protected bids and protected offers be
at least 100 shares. In addition, the Commission is
proposing a new round lot size definition, which
would be less than 100 shares for higher-priced
NMS stocks. See infra Section III.C.1(d)(i).
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The Commission preliminarily believes
that these data elements continue to be
necessary and useful for informed
market participation. This baseline
information about the best quotations
and recent transactions across the
national market system provides the
foundation of transparency and price
discovery in the U.S. securities markets,
and the Commission preliminarily
believes investors and other market
participants need it today to make
informed trading and investment
decisions.118 Therefore, the Commission
preliminarily believes that these data
elements should be included in the
definition of core data as proposed.
As discussed in detail below, the
Commission is proposing to include
certain depth of book data and auction
information in the proposed definition
of core data. Because of the dispersion
of liquidity to prices away from the best
bids and best offers 119 and the
increasing proportion of orders that are
executed during auctions,120 the
Commission preliminarily believes that
market participants need depth of book
data and auction information to fully
participate in the markets and the
information would facilitate best
execution.121 The Commission
preliminarily believes that the proposed
depth of book data and auction
information would enhance the
usefulness of proposed core data.
As discussed above, SIP data
currently includes certain data that
would not be included in the definition
of core data under the Commission’s
proposed definition.122 Currently,
Nasdaq UTP Plan Level 1 subscribers
can obtain OTCBB quotation and
transaction feeds for unlisted stocks.123
Similarly, the CTA Plan permits the
dissemination of ‘‘concurrent use’’ data
relating to corporate bonds and
indexes.124 This information would not
be included in the proposed definitions
of core data or consolidated market data.
OTCBB stocks, corporate bonds, and
Accordingly, if adopted, there would be an increase
in instances where the best bid or best offer and the
NBBO would not be protected quotations. See infra
Section III.C.1(d)(ii).
118 See supra note 101.
119 See infra notes 276–279 and accompanying
text.
120 See infra notes 330, 348 and accompanying
text.
121 See infra Sections III.C.2(d) and III.C.3(c).
122 In addition, because this data does not fall
under the proposed definitions of regulatory data or
administrative data, it would not be part of
proposed ‘‘consolidated market data’’ either.
123 See Nasdaq UTP DataFeed Approval Request,
available at http://www.utpplan.com/datafeed_
approval (last accessed Sept. 8, 2019); supra note
41.
124 See CTA Plan, supra note 13, at Section XIII;
supra note 41.
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indices are not NMS securities as
defined in Regulation NMS 125 and,
therefore, the Regulation NMS rules
related to the collection, consolidation,
and dissemination of information
regarding NMS securities, and the NMS
plan(s) required under Rule 603(b) for
NMS stocks,126 do not apply.
Accordingly, this information is not
included in the proposed definition of
core data.127
However, the Commission’s proposed
definitions of core data and
consolidated market data would not
prohibit the independent provision of
other types of market data by the SROs,
and, as discussed below, under the
decentralized consolidation model,
competing consolidators would be
permitted to collect data from the SROs
and offer data products to subscribers
that go beyond what is proposed to be
defined as core data or consolidated
market data. Therefore, the exclusion of
OTCBB and concurrent use data from
the proposed definitions of core data
and consolidated market data does not
preclude the provision of this data to
market participants who wish to receive
it.
Finally, the proposed definition of
core data requires that the BBO, NBBO,
and the proposed depth of book data
include odd-lots that when aggregated
are equal to or greater than a round lot,
and that such aggregation would occur
across multiple prices and be
disseminated at the least aggressive
price of all such aggregated odd-lots.
Several national securities exchanges
today have rules that provide for a
similar odd-lot aggregation procedure
for purposes of providing quotation data
to the exclusive SIPs.128 Although not
currently required by Regulation NMS,
125 ‘‘NMS security’’ is defined as ‘‘any security or
class of securities for which transaction reports are
collected, processed, and made available pursuant
to an effective transaction reporting plan, or an
effective national market system plan for reporting
transactions in listed options.’’ 17 CFR
242.600(b)(47). ‘‘Effective transaction reporting
plan’’ is defined as ‘‘any transaction reporting plan
approved by the Commission pursuant to
§ 242.601.’’ 17 CFR 242.600(b)(23). Rule 601
requires a transaction reporting plan to be filed and
approved pursuant to Rule 608 and to specify ‘‘[t]he
listed equity and Nasdaq securities or classes of
such securities for which transaction reports shall
be required by the plan.’’ 17 CFR 242.601(a)(2).
Therefore, OTCBB securities are not NMS
securities.
126 ‘‘NMS stock’’ is defined as ‘‘any NMS security
other than an option.’’ 17 CFR 242.600(b)(48). See
also 17 CFR 242.600(b)(47) (defining NMS security).
127 One commenter suggested that this
‘‘extraneous’’ data should be removed from the
exclusive SIPs. See Nasdaq, Total Markets: A
Blueprint for a Better Tomorrow, 18 (‘‘Nasdaq Total
Markets Report’’), available at https://
www.nasdaq.com/docs/Nasdaq_TotalMarkets_
2019_2.pdf.
128 See infra note 157 and accompanying text.
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odd-lot aggregation increases the
amount of quotation data that is
included in SIP data and provides
transparency into trading interest would
not otherwise have been represented in
such data. The Commission
preliminarily believes that this
information is important and should
uniformly be included in the proposed
core data disseminated to investors and
market participants.129 In addition, for
similar reasons, the Commission
proposes to include odd-lots that, when
aggregated, form a round lot for
purposes of the new proposed definition
of depth of book data.130
The Commission preliminarily
believes, however, that the proposed
definition of core data should require a
different procedure with respect to the
aggregation of odd-lots for purposes of
protected quotations.131 For the reasons
discussed below, the scope of Rule 611
would not be extended to protected
quotations of less than 100 shares.132
The Commission preliminarily believes
that aggregating odd-lots across multiple
price points for purposes of determining
protected quotations would effectively
extend trade-through protection to
quotes of less than 100 shares at
different prices.133 Therefore, the
proposed definition of core data
provides that, for purposes of the
129 As discussed below, SROs may make the data
necessary to generate consolidated market data
available to competing consolidators and selfaggregators through their existing proprietary data
products. See infra Section IV.B.1. Accordingly, any
odd-lot quotations that are aggregated in an SRO’s
existing proprietary data products would be
required to be aggregated in a manner consistent
with the method set forth in the proposed definition
of core data. See also proposed Rule 603(b).
However, self-aggregators would only be required to
aggregate odd-lots as prescribed in Rule 600(b)(20)
to the extent that generating a particular component
of proposed core data is necessary for that selfaggregator to comply with applicable regulatory
requirements. For example, to the extent that a selfaggregator’s activities require the self-aggregator to
generate the NBBO, the self-aggregator shall do so
as described in Rule 600(b)(20).
130 Today, odd-lots are only aggregated into round
lots for purposes of providing an exchange’s best
bids and offers to the exclusive SIPs. See infra note
157.
131 See supra note 115 for the definition of
‘‘protected quotation.’’ Odd-lot quotations are not
protected quotations under Rule 611. However, as
explained below, many exchanges, pursuant to their
own rules, aggregate odd-lots across multiple price
points into round lots for purposes of providing
protected quotations to the exclusive SIPs. See infra
notes 157–158 and accompanying text. Although
not required by Rule 611 or contemplated upon
adoption of Regulation NMS, this has become the
prevailing practice. The odd-lot aggregation
methodology set forth in the Commission’s
proposed definition of core data would modify this
practice. See infra Section VI.C.1(c)(i).
132 See infra Section III.C.1(d)(ii).
133 See infra Section III.C.1(d)(ii) for a discussion
of the proposed changes to protected bid and
protected offer.
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calculation and dissemination of
proposed core data by competing
consolidators, and the calculation of
proposed core data by self-aggregators,
protected quotations would only
include odd-lots at a single price that,
when aggregated, are equal to or greater
than 100 shares. However, the
Commission is seeking comment on
whether and how odd-lots should be
aggregated and the specific proposed
core data elements to which such
aggregation should apply.
The Commission requests comment
on the proposed amendment to Rule
600(b)(20) to introduce a definition of
core data. In particular, the Commission
solicits comment on the following:
4. Do commenters believe Rule 600
should be amended to include a
definition of core data? Why or why
not?
5. Do commenters believe that the
Commission’s proposed definition of
core data captures the key components
of information with respect to
quotations for and transactions in NMS
stocks that are useful for participating in
today’s markets? Are there any other
useful market data elements that should
be included in the proposed definition?
Does the proposed definition include
any elements that are not useful for
trading? Please explain.
6. Do commenters believe that there is
sufficient demand for OTCBB,
concurrent use, or other data currently
provided by the exclusive SIPs that
would not fall within the proposed
definition of core data such that an
independent market for the provision of
this data would develop? Why or why
not? Would the SROs or other entities
that currently disseminate this data
through the exclusive SIPs provide it
through other means (i.e., to competing
consolidators or directly to interested
market participants)? Please explain.
7. The Commission is proposing to
include protected quotations in the
proposed definition of core data. Do
commenters believe that there is a need
for a ‘‘national protected best bid or
offer’’ analogous to the NBBO that
would represent a snapshot of the single
best protected bid and single best
protected offer from among all the
protected bids and offers of each SRO?
Would this be a useful metric for
competing consolidators to calculate
and disseminate for market participants
for either routing or regulatory
compliance (e.g., the order execution
disclosures required under Rule 605)
purposes? Would firms that intend to
self-aggregate produce such a metric on
their own? Please explain.
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1. Round Lot Size
Today, SIP data includes quotation
information in round lots and
transaction information in both round
lots and odd-lots. Market participants
interested in quotation data for
individual odd-lot orders must purchase
it from exchange proprietary feeds. As
share prices for many widely-held
stocks have risen, individual odd-lot
orders now often represent
economically significant trading
opportunities at prices that are better
than the prices of displayed and
disseminated round lots.134
Accordingly, information about
individual odd-lot orders has gained
increased importance with investors
and market participants, and some have
suggested that odd-lot orders should be
included in SIP data.135
The Commission is proposing to
include certain information about
quotations that are currently defined as
odd-lots 136 in proposed core data by
introducing a tiered definition of the
term ‘‘round lot.’’ As proposed, the
definition of round lot would assign
different round lot sizes to individual
NMS stocks depending upon their stock
price. The Commission preliminarily
believes this would improve the
usefulness of proposed consolidated
market data, promote fair
competition,137 and, like the addition of
odd-lot transaction data to SIP data,
would provide important information to
investors and other market participants
that would enhance transparency and
price discovery.138 Moreover, since oddlot quotes often represent opportunities
to trade at prices that are superior to the
prices disseminated by the Equity Data
Plans,139 the inclusion of more of these
quotes in proposed core data would
facilitate the best execution analyses of
broker-dealers who do not subscribe to
proprietary data feeds that include all
odd-lot information.140 Further, it
134 See infra note 166 and accompanying text, and
infra text accompanying notes 166–170 for staff
analysis of odd-lot activity for the top 500 securities
by dollar volume.
135 See infra notes 170–177.
136 Rule 600(b)(51) defines odd-lot as ‘‘an order
for the purchase or sale of an NMS stock in an
amount less than a round lot.’’
137 See 15 U.S.C. 78k–1(a)(1)(C)(ii) (‘‘The
Congress finds that . . . [i]t is in the public interest
and appropriate for the protection of investors and
the maintenance of fair and orderly markets to
assure . . . fair competition among brokers and
dealers, among exchange markets, and between
exchange markets and markets other than exchange
markets.’’).
138 See infra notes 159–160 and accompanying
text.
139 See infra notes 166–170 and accompanying
text.
140 Statements made by market participants
suggest that a significant number of broker-dealers
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would facilitate the ability of investors
to use proposed core data to verify that
their broker-dealers are providing best
execution by providing investors with
additional information on the pricing of
smaller-sized orders.
(a) Regulatory Background
Round lot, though not defined in the
Exchange Act or Regulation NMS,
typically refers to orders or quotes for
100 shares or multiples thereof.
Exchange rules typically define a round
lot as 100 shares, but they also allow the
exchange discretion to define it
otherwise.141 The technical
specifications for the Equity Data Plans
provide similar definitions. For
example, the CTA Plan defines round
lot as ‘‘[t]ypically 100 shares of stock or
any number of shares that is a multiple
of 100 (i.e., 100, 600, 1,600, etc.).’’ 142
The exclusive SIP feeds also
disseminate quotation and transaction
information for stocks that have a round
lot size of 10 or 1.143
Regulation NMS defines ‘‘odd-lot’’ as
‘‘an order for the purchase or sale of an
NMS stock in an amount less than a
round lot.’’ 144 Exchange definitions of
odd-lot are similar, as is the definition
do not subscribe to all proprietary market data
products. See Roundtable Day One Transcript at
178 (James Brooks, ICE Data Services) (‘‘[R]oughly
half of the global investment banks take the most
comprehensive New York Stock Exchange order-byorder feed, the other half do not.’’); Roundtable Day
One Transcript at 181 (Michael Friedman, Trillium
Management) (‘‘[T]he big fish . . . are the major
consumers of depth-of-book data. I think there was
some evidence . . . that there were only 50 to 100
firms, period who buy all of the depth-of-book
feeds.’’).
141 See, e.g., NYSE Rule 55 (‘‘Securities traded on
the Exchange shall be quoted in round lots
(generally 100 shares), except that in the case of
certain stocks designated by the Exchange the
round lot shall be such lesser number of shares as
may be determined by the Exchange, with respect
to each stock so designated.’’); Nasdaq Rule
5005(a)(39) (‘‘‘Round Lot’ or ‘Normal Unit of
Trading’ means 100 shares of a security unless, with
respect to a particular security, Nasdaq determines
that a normal unit of trading shall constitute other
than 100 shares.’’). According to NYSE Trade and
Quote (‘‘TAQ’’) Data, as of August 2019, twelve
stocks, all of which are listed on NYSE or NYSE
American, had a round lot size other than 100. Ten
stocks had a round lot of ten and two stocks had
a round lot of one.
142 Consolidated Tape System, Multicast Output
Binary Specification, 85 (May 8, 2018), available at
https://www.ctaplan.com/publicdocs/ctaplan/
notifications/trader-update/CTS_BINARY_
OUTPUT_SPECIFICATION.pdf. The technical
specifications for the Nasdaq UTP Plan note that
‘‘[f]or most NASDAQ issues, the round lot size is
100 shares.’’ UTP Data Feed Services Specification,
22, available at http://www.utpplan.com/DOC/
UtpBinaryOutputSpec.pdf (last accessed Jan. 7,
2020).
143 See supra note 141.
144 17 CFR 242.600(b)(51).
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of odd-lot in the technical specifications
for the CTA Plan.145
Despite the absence of a round lot
definition, other key defined terms in
Regulation NMS—such as ‘‘bid or
offer,’’ ‘‘best bid and best offer,’’ and
‘‘quotation’’—refer, directly or
indirectly, to round lot. The effect of
these references to round lot is that oddlot quotation information is not
currently collected or disseminated
under Regulation NMS.146 For example,
Rule 601 refers to ‘‘transaction
reports,’’ 147 the definition of which
refers to round lot.148 Rule 602 refers to
‘‘bids’’ and ‘‘offers,’’ 149 the definition of
which also refer to round lot.150 Rule
603 refers to a ‘‘national best bid and
national best offer,’’ 151 which
ultimately refers back to round lot.152
Rules 610 (access to quotations) 153 and
611 (order protection rule) 154 do not
apply to odd-lot orders. Rule 604
(display of customer limit orders) also
refers to bids and offers 155 and
specifically excludes odd-lot orders.156
Several exchanges, however, pursuant
to their own rules, aggregate odd-lot
orders into round lots and report such
aggregated odd-lot orders as quotation
information to the exclusive SIPs.
Exchange rules specify how the
145 See, e.g., Cboe BZX Rule 11.10 (‘‘One hundred
(100) shares shall constitute a ‘round lot,’ any
amount less than 100 shares shall constitute an ‘odd
lot,’ and any amount greater than 100 shares that
is not a multiple of a round lot shall constitute a
‘mixed lot.’ ’’); Consolidated Tape System, Multicast
Output Binary Specification, 84 (May 8, 2018),
available at https://www.ctaplan.com/publicdocs/
ctaplan/notifications/trader-update/CTS_BINARY_
OUTPUT_SPECIFICATION.pdf (defining ‘‘odd lot’’
as ‘‘[a]n order amount for a security that is less than
the normal unit of trading for that particular asset.
Odd lots are considered to be anything less than the
standard units of trade of 1, 10 or 100 shares.’’).
146 The Commission’s proposal to add a definition
of round lot will result in the inclusion of
additional quotation data for smaller-sized orders in
proposed core data, and, as discussed below in
Section III.C.1(d)(i), will also affect the firm quote
requirements of Rule 602(b), the customer limit
order display requirements of Rule 604, the order
execution disclosures required under Rule 605, the
requirements under Rule 610(c) regarding fees for
accessing quotations, and the Short Sale Circuit
Breaker requirements of Rule 201. As discussed
below in Section III.C.1(d)(ii), the Commission is
also proposing certain amendments to the
definition of ‘‘protected bid or protected offer’’ so
that the scope of the order protection requirements
of Rule 611 and the locked and crossed market
prevention requirements of Rule 610(c) are not
extended to the proposed smaller round lot sizes.
147 See Rule 601, 17 CFR 242.601.
148 See Rule 600(b)(84), 17 CFR 242.600(b)(84).
149 See Rule 602, 17 CFR 242.602.
150 See Rule 600(b)(9), 17 CFR 242.600(b)(9).
151 See Rule 603, 17 CFR 242.603.
152 See Rule 600(b)(43), 17 CFR 242.600(b)(43);
Rule 600(b)(9), 17 CFR 242.600(b)(9).
153 See Rule 610, 17 CFR 242.610.
154 See Rule 611, 17 CFR 242.611.
155 See Rule 604, 17 CFR 242.604.
156 See Rule 604(b)(3), 17 CFR 242.604(b)(3).
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aggregation process works in different
terms and with different levels of
specificity,157 but many exchanges
aggregate odd-lots across multiple prices
and provide them to the exclusive SIPs
at the least aggressive price if the
combined odd-lot interest is equal to or
greater than a round lot.158
In 2013, the participants to the Equity
Data Plans filed proposed amendments
to the Plans to add odd-lot transactions
to SIP data.159 In support of the
proposed amendments, the participants
to the Equity Data Plans noted that
‘‘odd-lot transactions account for a not
insignificant percentage of trading
volume, [and] the Participants have
determined that including odd-lot
transactions on the consolidated tape
. . . would add post-trade transparency
to the marketplace.’’ 160 In approving the
157 See, e.g., NYSE Rule 7.36 (‘‘The best-ranked
non-marketable displayed Limit Order(s) to buy and
the best ranked non-marketable displayed Limit
Order(s) to sell in the Exchange Book and the
aggregate displayed size of such orders associated
with such prices will be collected and made
available to quotation vendors for dissemination
pursuant to the requirements of Rule 602 of
Regulation NMS under the Exchange Act. If nonmarketable odd-lot sized orders at multiple price
levels can be aggregated to equal at least a round
lot, such odd-lot sized orders will be displayed as
the best ranked displayed orders to sell (buy) at the
least aggressive price at which such odd-lot sized
orders can be aggregated to equal at least a round
lot.’’); Nasdaq Rule 4756 (‘‘Pursuant to Rule 602 of
Regulation NMS under the Exchange Act, Nasdaq
will transmit for display to the appropriate network
processor for each System Security: (i) The highest
price to buy wherein the aggregate size of all
displayed buy interest in the System greater than
or equal to that price is one round lot or greater;
(ii) the aggregate size of all displayed buy interest
in the System greater than or equal to the price in
(i), rounded down to the nearest round lot; (iii) the
lowest price to sell wherein the aggregate size of all
displayed sell interest in the System less than or
equal to that price is one round lot or greater; and
(iv) the aggregate size of all displayed sell interest
in the System less than or equal to the price in (iii),
rounded down to the nearest round lot.’’); Cboe
BZX Rule 11.9(c)(2) (‘‘Odd Lot Orders are only
eligible to be Protected Quotations if aggregated to
form a round lot.’’); supra Section III.C for a
discussion of odd-lot aggregation. As noted above,
the proposed definition of core data sets forth a
methodology for odd-lot aggregation for the
components of core data. Any odd-lot quotations
that are aggregated in an SRO’s existing proprietary
data products would be required to be aggregated
in a manner consistent with the method set forth
in the proposed definition of core data. See supra
note 129.
158 See id. For example, if there are three sell
orders on an exchange for a particular NMS stock—
30 shares at $10.08, 20 shares at $10.09, and 50
shares at $10.10—the exchange will post 100 shares
at $10.10 as a protected round lot quote to the
exclusive SIP. See infra Section VI.C.1(c)(i).
159 Odd-lot transaction data that is required to be
collected, consolidated, and disseminated pursuant
to the Equity Data Plans would be included in the
proposed definition of consolidated market data
pursuant to proposed Rule 600(b)(20)(viii).
160 Securities Exchange Act Release Nos. 70793
(Oct. 31, 2013), 78 FR 66788 (Nov. 6, 2013) (order
approving Amendment No. 30 to the UTP Plan to
require odd-lot transactions to be reported to
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amendments, the Commission agreed
that ‘‘odd-lot transactions comprise a
noteworthy percentage of total trading
volume,’’ and stated that ‘‘including
odd-lot transactions on the consolidated
tape will enhance post-trade
transparency, as well as price discovery,
and consequently would further the
goals of the [Exchange] Act,’’ and that
‘‘information about odd-lot transactions
would provide important information to
investors and other market participants
and therefore represents a positive
development in the provision of market
data.’’ 161
(b) Market Evolution
In recent years, the share prices of
some of the most widely-held stocks
have increased substantially.162 As a
result of higher share prices, odd-lot
orders in many securities have a high
dollar, or notional, value. Because SIP
data does not currently include odd-lot
quotation information except to the
extent that cumulative odd-lot interest
equals or exceeds a round lot, the best
quote reflected in proprietary data
products, especially for many highpriced stocks, may be an odd-lot order
that is at a price that is better than the
best bid or best offer that is
disseminated by the exclusive SIPs.
Indeed, as discussed below, an analysis
of odd-lot transaction data and
comments made in connection with the
Roundtable indicate that odd-lot orders
are frequently priced better than the
quotation prices that are disseminated
by the exclusive SIPs, yet these orders
are not seen by investors or market
participants that rely solely on SIP
data.163
The importance of increasing the
transparency of odd-lot quotation
information is supported by odd-lot
quotation and transaction data. First,
odd-lot transactions make up a
significant proportion of transaction
volume in NMS stocks, including
exchange-traded products (‘‘ETPs’’).
Based on data from the SEC’s MIDAS
consolidated tape); 70794 (Oct. 31, 2013), 78 FR
66789 (Nov. 6, 2013) (order approving Eighteenth
Substantive Amendment to the Second Restatement
of the CTA Plan to require odd-lot transactions to
be reported to consolidated tape).
161 Id. at 66789–66790.
162 For example, between 2004 and 2019, the
average price of a stock in the Dow Jones Industrial
Average nearly quadrupled.
163 See Roundtable Day Two Transcript at 66
(Paul O’Donnell, Morgan Stanley) (‘‘We all know
that, for high-price stocks, there is a market inside
the NBBO’’); Roundtable Day One Transcript at 116
(Michael Blaugrund, NYSE) (recommending the
inclusion in core data of odd-lots priced better than
the BBO); Healthy Markets Association Letter II;
staff odd-lot analysis, infra (observing that 43% of
odd-lot transactions in September of 2019 occurred
at prices better than the NBBO).
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analytics tool,164 the daily exchange
odd-lot rate (i.e., the number of
exchange odd-lot trades as a proportion
of the number of all exchange trades) for
all corporate stocks ranged from
approximately 29% to 42% of trades
and the daily exchange odd-lot rate for
all ETPs ranged from 14% to 20% of
trades in 2018. More recently, in June
2019, the daily exchange odd-lot rate for
all corporate stocks exceeded 50%
several times (and exceeded 65%
several times for the top decile by price)
and reached almost 30% for all ETPs in
the same period.165 Exchange odd-lot
volume as a proportion of total
exchange-traded volume also rose in
June 2019, reaching approximately 15%
for all corporate stocks (and over 30%
for the top decile by price) and
approximately 4% for all ETPs.166
Staff examined odd-lot trade and
message volume, duration on the
inside,167 order-book distribution, and
quoted spreads for the top 500 securities
by dollar volume during the week of
September 10–14, 2018, using the
exclusive SIP trades, exclusive SIP
quotes, off-exchange data from FINRA’s
TRFs, and all of the exchanges’
proprietary data feeds. Staff found that
a significant portion of quotation and
trading activity occurs in odd-lots,
particularly for frequently traded, highpriced securities.168
Staff compared the bid-ask spread
when using exclusive SIP quotation
information (which is in round lots) vs.
quotation information in the proprietary
feeds (which includes odd-lots). On
average, the measure of bid-ask spread,
an important metric in understanding
market liquidity and quote competition,
widens (i.e., degrades) significantly
when calculated using only round lots
relative to the odd-lot quotations
displayed on proprietary feeds. In
addition, as average stock share prices
164 Staff accessed consolidated data from the
Equity Data Plans and exchange depth of book data,
both of which staff receive through the SEC’s
MIDAS platform. See Market Data Analytics System
(‘‘MIDAS’’), available at https://www.sec.gov/
marketstructure/midas.html. This data is
commercially available.
165 Id. See also Alexander Osipovich, Tiny ‘OddLot’ Trades Reach Record Share of U.S. Stock
Market, Wall Street Journal (Oct. 23, 2019) (‘‘The
share of trades in odd-lot sizes hit a record 48.9%
on Oct. 7 and has stayed above 40% ever since,
according to the NYSE data, which cover all U.S.
equity trades, not just those on the Big Board.’’).
166 See supra note 164.
167 Duration on the inside is the percent of the
day the aggregate size at the best price (bid, offer,
or both) is less than 100 shares based on the
exchange proprietary data feeds.
168 For example, staff observed that over 86% of
the trades that occurred in the two largest securities
by market capitalization that have share prices
greater than $1,000 occurred in odd-lot share
amounts.
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rose, bid-ask spreads based only on
round lots generally widened by a
greater amount than did spreads based
on round lots and odd-lots. During the
period staff analyzed, for the 500 most
frequently traded securities by dollar
volume, the average bid-ask spread of
the 50 securities with the highest share
prices decreased (improved or
tightened) by $.05970 when calculated
using the proprietary feeds relative to
the exclusive SIP feed. Bid-ask spreads
for the 50 securities with the lowest
share prices showed less improvement
when using the proprietary feeds
relative to the exclusive SIP feed,
decreasing (or tightening) on average by
$.00017.
Staff also evaluated the frequency of
trades in odd-lot sizes for the top 500
securities by dollar volume and found
that frequently traded, high priced
securities are likely to have a substantial
portion of executions occur in odd-lot
sizes. More than 25 percent of the onexchange share volume of the 50
securities with the highest share prices
occurred in odd-lot sizes. In
comparison, less than 2% of the onexchange share volume of the 50
securities with the lowest share prices
occurred in odd-lot sizes.
In addition, as noted above,169
statements made by Roundtable
panelists and commenters suggest that
odd-lot orders can reflect prices that are
better than the quotation prices that are
disseminated by the exclusive SIPs.
These observations are consistent with
staff observations of odd-lot transaction
pricing reflected in recent trading data.
During the month of September 2019, a
substantial proportion of odd-lot trades
occurred at prices that are better than
the prevailing NBBO. Specifically,
approximately 51% of all trades
executed on exchange and
approximately 14% of all volume
executed on exchange in corporate
stocks (3,930 unique symbols) occurred
in odd-lot sizes (i.e., less than 100
shares), and 43% of those odd-lot
transactions (representing
approximately 39% of all odd-lot
volume) occurred at a price better than
the NBBO.
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(c) Roundtable Discussion, Comments,
and Alternative Proposals
In connection with the Roundtable,
one commenter presented data showing
increased odd-lot trading and quoting
rates over the last several years, as well
as the existence of quotes on proprietary
feeds that are at prices better than the
NBBO disseminated by the exclusive
169 See
supra note 163.
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SIPs.170 Several panelists at the
Roundtable were supportive of adding
odd-lot quotation information to SIP
data.171 One panelist who supported
adding odd-lot orders to SIP data noted
that the application of order protection
under Rule 611 to odd-lot quotes would
need to be considered and added that he
would likely be in favor of applying
Rule 611 to odd-lot quotes.172 Finally,
one panelist emphasized the importance
of odd-lot quotation data to market
participants, stating that content that
exists only in the proprietary feeds—
such as odd-lots—is needed to make
effective decisions in trading
applications and to fill client orders
effectively.173
In addition, several comment letters
submitted in connection with the
Roundtable supported adding odd-lot
quotation information to SIP data or
otherwise highlighted negative
consequences of its exclusion from SIP
data.174 One commenter stated that the
170 Letter to Brent J. Fields, Secretary,
Commission, from Tyler Gellasch, Executive
Director, Healthy Markets Association, 5–11 (Mar.
5, 2019) (‘‘Healthy Markets Association Letter II’’).
See also Letter to Brent J. Fields, Secretary,
Commission, from Rich Steiner, Head of Client
Advocacy and Market Innovation, RBC Capital
Markets, LLC (Oct. 25, 2019) (‘‘RBC Letter’’) (stating
that internal research suggested exclusive SIPs
should display odd-lot quotes).
171 See Roundtable Day One Transcript at 98–99
(Stacey Cunningham, NYSE); Roundtable Day One
Transcript at 116–17 (Michael Blaugrund, NYSE);
Roundtable Day Two Transcript at 72 (Michael
Blaugrund, NYSE) (recommending expanding
consolidated market data to include odd-lot orders
priced better than the BBO); Roundtable Day One
Transcript at 157–59 (Oliver Albers, Nasdaq)
(stating that over 50% of the notional value of
Nasdaq-listed names is in high priced stocks);
Roundtable Day One Transcript at 226–27 (Chris
Isaacson, Cboe); Roundtable Day Two Transcript at
73 (Prof. Robert Bartlett, UC Berkeley) (stating that
including odd-lots in the trade data has been
incredibly useful and including it in the quote data
would be also helpful).
172 See Roundtable Day One Transcript at 226–27
(Chris Isaacson, Cboe). In addition, another panelist
suggested that revisiting Rule 611 for odd-lots has
merit. See Roundtable Day One Transcript at 231–
32 (Vlad Khandros, UBS). See also Robert Battalio,
et al., Unrecognized Odd Lot Liquidity Supply: A
Hidden Trading Cost for High Priced Stocks, The
Journal of Trading (Winter 2017), available at
https://jot.pm-research.com/content/iijtrade/12/1/
35.full.pdf (‘‘[T]he exclusion of odd lot orders from
the protected NBBO quote produces cases in which
trades fill at prices worse than available oppositeside trading interests.’’).
173 See Roundtable Day One Transcript at 127–28
(Mark Skalabrin, Redline Trading Solutions).
174 See Letter to Brent J. Fields, Secretary,
Commission, from NYSE Group, 6, 13 (Oct. 24,
2018) (‘‘NYSE Group Letter’’) (stating that ‘‘[o]ddlot quoting, particularly in high-priced securities,
has become more prevalent in today’s markets and
its exclusion from SIP feeds seems anachronistic’’;
recommending that core data be expanded to
include ‘‘the best bid and offer of any quantity’’;
and stating that ‘‘Main Street would benefit if the
prices disseminated by the SIPs included odd-lot
quotes’’); Letter to Vanessa Countryman, Acting
Secretary, Commission, from Theodore R. Lazo,
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Commission should consider
rulemaking to expand SIP data to
include odd-lot information during
which the Commission could gather
data and determine whether odd-lots are
valuable for price discovery for all
securities.175 Commenters asserted that
having to purchase ‘‘relatively basic
data such as odd-lots’’ through exchange
proprietary offerings goes against one of
the main purposes of the national
market system: Enabling investors’
orders to be executed without the
participation of a dealer.176 Another
commenter provided data showing that
proprietary feeds that include odd-lot
quotes reflect superior pricing compared
to the SIP data disseminated by the
Equity Data Plans and indicated its
support for adding odd-lot quotes to SIP
data.177 Similarly, another commenter
stated that as stock prices overall have
risen and average trade sizes have
fallen, odd-lots are becoming more
important in the trading process, and
the commenter presented data showing
that stock price has a meaningful impact
on odd-lot frequency and trade size and
that high-priced stocks frequently trade
in smaller quantities.178
Some Roundtable panelists, however,
pointed out complications that might
arise from the addition of more odd-lot
information to the SIP data. One
panelist stated that an issue with adding
odd-lot quotations to the Equity Data
Plans is that they are not protected
quotations under Rule 611, so, in the
view of the panelist, there would be
uncertainty as to whether a brokerdealer has to access odd-lot quotations
to meet regulatory obligations. This
panelist added that there will need to be
clarity as to how odd-lots are reported
to the exclusive SIPs and represented in
the consolidated tapes (e.g., whether 50
shares at $10 and 100 shares at $10 will
be shown separately or as 150 shares at
$10).179 Another panelist stated that
caution should be exercised in adding
odd-lots to SIP data to avoid
Managing Director and Associate General Counsel,
SIFMA (Sept. 18, 2019) (‘‘SIFMA Letter II’’); Letter
to Brent J. Fields, Secretary, Commission, from
Richard H. Baker, President and CEO, Global Head
of Government Affairs Managed Funds Association
and Jirı´ Kro´l, Deputy CEO, Global Head of
Government Affairs, AIMA, 3–4 (Dec. 20, 2018)
(‘‘MFA and AIMA Letter’’); Healthy Markets
Association Letter II.
175 See SIFMA Letter II at 3.
176 See MFA and AIMA Letter at 3–4.
177 See Healthy Markets Association Letter II.
178 See RBC Letter at 1–2 (highlighting that
approximately 50% of all odd-lot trades in stocks
priced between $50 and $250 are in 20 shares or
less).
179 See Roundtable Day One Transcript at 159–60
(Adam Inzirillo, BAML) (stating that the different
display options could result in a change from
current practices).
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overwhelming market participants with
information. This panelist suggested
that a ‘‘price level metric,’’ such as
including odd-lot orders with a value in
excess of a specified price, might make
sense.180
On October 2, 2019, the Equity Data
Plans published an ‘‘initial proposal’’
for public comment regarding the
addition of odd-lot quotes to the Equity
Data Plans for dissemination by the
respective exclusive SIPs.181 Under this
proposal, the addition of odd-lot quotes
would not change how the NBBO is
calculated, nor would such quotes be
‘‘protected quotations’’ 182 under
Regulation NMS. Rather, the odd-lot
quote data would be ‘‘ancillary’’ data
available to exclusive SIP customers.183
Each exchange would send its top of
book odd-lot quotes to the exclusive
SIPs in the same form in which it
currently sends its top of book round lot
quotes.184 An ‘‘odd-lot best bid and
offer’’ would be calculated in the same
manner as the round lot NBBO, but
would not be disseminated when it is
worse than the NBBO.185
Additionally, on January 21, 2020,
Cboe Global Markets, Inc. (‘‘Cboe’’)
published a report detailing its
recommendations for U.S. equity market
structure.186 In the report, Cboe
recommended that top of book odd-lot
quotations be included in the exclusive
SIP feeds.187 Furthermore, Cboe
recommended redefining round lot with
180 See Roundtable Day One Transcript at 160–61
(Matt Billings, TD Ameritrade).
181 See CTA Plan and UTP Plan, Odd Lots Initial
Proposal (‘‘SIP Odd Lot Initial Proposals’’),
available at http://www.utpplan.com/DOC/Odd_
Lots_Proposal.pdf, https://ctaplan.com/publicdocs/
CTA_Odd_Lots_Proposal.pdf; CTA Plan and UTP
Plan Operating Committees, SIP Operating
Committees Seek Comment on Proposal to Add
Odd Lot Quotes to SIP Data Feeds (Oct. 2, 2019)
(‘‘SIP Odd Lots Proposal Press Release’’), available
at https://www.globenewswire.com/news-release/
2019/10/02/1924016/0/en/SIP-OperatingCommittees-Seek-Comment-on-Proposal-to-AddOdd-Lot-Quotes-to-SIP-Data-Feeds.html; Letter from
Robert Books, Chairman, UTP and CTA Operating
Committees, to industry members and investors, 1
(Jan. 6, 2020) (‘‘CTA and UTP Annual Letter’’),
available at https://forefrontcomms.com/wpcontent/uploads/2020/01/2020-Annual-Letter_
FINAL_.pdf. The SIP Odd Lot Initial Proposals are
the subject of continuing consideration by the
operating committees. Comments are available at
https://www.ctaplan.com/oddlots.
182 See supra note 115.
183 See SIP Odd Lot Initial Proposals, supra note
181, at 1.
184 See id.
185 See id.
186 Cboe, Cboe’s Vision: Equity Market Structure
Reform (Jan. 21, 2020) (‘‘Cboe Report’’), available at
http://www.cboe.com/aboutcboe/governmentrelations/pdf/cboes-vision-equity-market-structurereform-2020.pdf.
187 See id. at 3.
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lower numbers for higher priced
securities.188
(d) Commission Discussion and
Proposal
(i) Proposed Definition of Round Lot
Data on odd-lot trading and quoting
activity evaluated by staff,189 and the
remarks and comments of market
participants, suggest that SIP data omits
a substantial amount of economically
significant trading interest.
Furthermore, bid-ask spreads calculated
using round lot orders do not include
some odd-lot quotations that may be at
prices better than round lot orders,
particularly for higher priced
securities.190 The Commission is
concerned that information about
significant trading interest in odd-lot
orders is only available to market
participants who have purchased
proprietary market data products from
exchanges and remains unavailable to
those that rely solely on SIP data. This
creates a potentially significant
information asymmetry between SIP
data and proprietary data.191 Further,
the Commission is concerned about the
view expressed by some market
participants that achieving best
execution may be difficult for brokerdealers that rely solely on SIP data.
The Commission preliminarily
believes that, to address these and other
concerns, certain odd-lot quotation data
should be required to be disseminated
as part of proposed core data so that it
is made more readily available to
investors and market participants. The
Commission is proposing that this be
accomplished by defining the term
‘‘round lot’’ to include certain orders
that currently are defined as ‘‘odd-lots.’’
Given the prevalence of odd-lot quoting
and trading, particularly in higherpriced stocks, the absence of odd-lot
quotation data significantly reduces the
comprehensiveness and usefulness of
SIP data.
188 See
id. at 2–3.
supra Section III.C.1(b) (discussing staff
odd-lot analysis).
190 Id.
191 Specifically, larger or better resourced brokerdealers may be more capable of paying the fees for
multiple proprietary data feeds to obtain odd-lot
quotations from several markets and consolidating
these feeds to create a more complete picture of the
market. See infra Sections VI.B.2(c), VI.B.3(a), and
VI.B.3(b). In addition, the proposed definition of
round lot would help ensure that market
participants, including retail investors, would
receive information on smaller-sized orders in
higher-priced stocks in a context in which a trading
or order routing decision can be implemented and
would receive more informative order execution
quality information. See infra Section III.C.1(d)(i)
(discussing the effect of the proposed definition of
round lot on Rules 603(c) and 605).
189 See
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16741
The Commission preliminarily
believes that the inclusion of odd-lot
quotations in proposed core data should
be reasonably calibrated. The
Commission is preliminarily concerned
that including all odd-lot quotations
could, as some Roundtable commenters
suggested,192 burden systems, increase
complexity, and degrade the usefulness
of information in a manner that may not
be warranted by the relative benefits of
the additional information to investors
and market participants.193
Accordingly, under proposed Rule
600(b)(81) of Regulation NMS, a ‘‘round
lot’’ would be defined as: (1) For any
NMS stock for which the prior calendar
month’s average closing price on the
primary listing exchange 194 was $50.00
or less per share, an order for the
purchase or sale of an NMS stock of 100
shares; (2) for any NMS stock for which
the prior calendar month’s average
closing price on the primary listing
exchange was $50.01 to $100.00 per
share, an order for the purchase or sale
of an NMS stock of 20 shares; (3) for any
NMS stock for which the prior calendar
month’s average closing price on the
primary listing exchange was $100.01 to
$500.00 per share, an order for the
purchase or sale of an NMS stock of 10
shares; (4) for any NMS stock for which
the prior calendar month’s average
closing price on the primary listing
exchange was $500.01 to $1,000.00 per
share, an order for the purchase or sale
of an NMS stock of 2 shares; and (5) for
any NMS stock for which the prior
calendar month’s average closing price
on the primary listing exchange was
$1,000.01 or more per share, an order
192 See
supra note 180 and accompanying text.
infra note 195. Further, attempting to
access orders of insignificant notional value—the
share price multiplied by the number of shares in
the order—could result in a situation where the
benefit associated with accessing additional
liquidity may be offset by the cost associated with
signaling to other market participants the presence
of a large incoming order. See Securities Exchange
Act Release No. 78309 (July 13, 2016), 81 FR 49432,
49440 (July 27, 2016) (‘‘[S]ophisticated market
participants closely monitor order and execution
activity throughout the markets, looking for patterns
that signal the existence of a large institutional
order, so that they can use that information to their
trading advantage . . . Indeed, institutional
customers have expressed concern that excessive
routing of their orders may increase the risk of
information leakage without a commensurate
benefit to execution quality.’’). By limiting the
quotation information that is added to the proposed
core data to orders of $1,000 dollars notional value
or more, as explained below, the proposed
definition of round lot will increase transparency
into smaller-sized orders while reducing the
likelihood of information leakage.
194 The IPO price would be used in lieu of the
prior calendar month’s average closing price on the
primary listing exchange for newly issued stocks.
See proposed Rule 600(b)(81).
193 See
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for the purchase or sale of an NMS stock
of 1 share.
Table 1, below, shows the number of
NMS stocks that would be in each
proposed round lot tier based on
monthly average closing prices in
September of 2019, as well as the
percent of overall average daily volume
(‘‘ADV’’) and notional value (‘‘$ADV’’)
of each price group:
TABLE 1
Number of
stocks in
stock price
group
Stock price group
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$0.00–$50.00 ...............................................................................................................................
$50.01–$100.00 ...........................................................................................................................
$100.01–$500.00 .........................................................................................................................
$500.01–$1,000.00 ......................................................................................................................
$1,000.01 + ..................................................................................................................................
7,188
1,094
575
14
15
Percent of
ADV, by price
group
(%)
75.02
13.64
11.20
0.05
0.09
Percent of
$ADV, by
price group
(%)
31.70
21.06
43.40
0.64
3.19
The Commission’s proposed
definition of round lot attempts to
balance the benefits of adding more
quotation data regarding smaller-sized
orders to proposed core data against the
concerns raised by some Roundtable
panelists and commenters that adding
all odd-lot quotes to proposed core data
could increase its complexity and
undermine its usefulness.195 The
proposed definition, in effect, limits the
quotation data that would be added to
proposed core data to quotations that
represent a notional value of at least
$1,000, which the Commission
preliminarily believes to be meaningful
order size for today’s market
participants.196
A round lot is a standard unit of
trading that traditionally has reflected
an order of meaningful size to market
participants. Given the per share price
increases of certain securities, and the
large number of orders in sub-100 share
sizes in today’s market,197 the
Commission preliminarily believes that
the current round lot size of 100 shares
no longer captures many orders of
meaningful size. The number of shares
in an order, on its own, has become a
less accurate way of distinguishing
orders of meaningful size from those of
de minimis size. For example, a 100-
share order for an $11 stock and a 10
share order for a $110 stock both have
a notional value of $1,100, but, under
exchange rules and NMS plans, only the
former may be a round lot currently.
The Commission preliminarily believes
that defining round lots based on a
dollar value would better reflect orders
of meaningful size.198
Furthermore, higher odd-lot trading
rates are associated with higher-priced
stocks,199 and, according to data
provided in connection with the
Roundtable, odd-lot transaction sizes go
down as share price goes up.200 The
proposed tiered, price-based round lot
definition is intended to reflect these
market dynamics. More specifically, a
significant odd-lot transaction market—
measured by odd-lot trade frequency—
emerges at approximately a $50 share
price, and 50% of the odd-lots traded in
stocks priced between $50 and $250 are
20 shares or less.201 This corresponds,
approximately, with the proposed 20
share round lot category for stocks
priced between $50.01 and $100.00 per
share. Moreover, according to data
provided in connection with the
Roundtable, 20, 10, 2, and 1 share oddlot trade sizes are among the most
common, with approximately 2.8%,
5.1%, 5.3%, and 11.7%, of odd-lot
executions, respectively.202 The
proposed definition of round lot is
intended to broadly reflect these key
data points in the context of a relatively
simple, intuitive framework for
establishing round lot sizes and
associated price thresholds.
Moreover, a significant portion of the
odd-lot transactions that occur at a price
better than the NBBO 203 would be
captured by the proposed definition of
round lot. Specifically, of the odd-lot
transactions executing at a price better
than the NBBO during all of the trading
days in September 2019, approximately
38% of such transactions and 61% of
the odd-lot volume were in sizes that
would be round lots under proposed
Rule 600(b)(81). For example, for those
stocks with an average prior calendar
month’s closing price on the primary
listing exchange equal to or greater than
$500.01 and less than $1,000,
approximately 77% of all trades (99% of
volume) in sizes less than 100 shares
that occurred at a price better than the
prevailing NBBO had a transaction size
of 2 shares or more. Table 2 and Table
3, below, show the portion of odd-lot
trades and volume, respectively,
executed a price better than the
prevailing NBBO that would be defined
as round lots under the proposal:
195 The proposed definition of round lot only
includes a subset of all odd-lot quotation data,
namely, orders with a notional value of at least
$1,000. This would limit the number of data
messages that would be provided to market
participants when compared to providing all oddlot quotation data. The Commission preliminarily
believes that the proposed definition would address
concerns regarding additional complexity and
degradation of the usefulness of the data. See infra
Section VI.C.1(b)(i).
196 See infra Section VI.C.1.
197 See supra notes 163–169 and accompanying
text.
198 Commenters to the SIP Odd Lot Initial
Proposals have suggested defining round lots based
on share price. See Letter to SIP Operating
Committees from Hubert De Jesus, Managing
Director, Global Head of Market Structure and
Electronic Trading, Blackrock, and Joanne Medero,
Managing Director, Global Public Policy Group,
Blackrock, regarding Odd Lots Proposal, 2 (Dec. 3,
2019), available at https://www.theice.com/
publicdocs/BlackRock_Odd_Lot_Proposal_
December_3_2019.pdf (‘‘The sizing of round lots
provides an intuitive mechanism for expanding odd
lot coverage because its designation as the normal
unit of trading is embedded in exchange rulebooks
and market regulations. . . . BlackRock believes
that a data-driven redefinition of round lots to scale
lot size relative to security price would improve
transparency and promote fairer and more efficient
markets.’’); Letter from Benjamin Connault,
Economist, IEX Group, Inc., and Lucy Malcolm,
Associate General Counsel, IEX Group, Inc., to
Operating Committees, regarding Odd Lots Proposal
and Round Lot Proposal, 2 (Nov. 18, 2019),
available at https://www.theice.com/publicdocs/
IEX_Letter_re-CTA–UTP_Odd-Lots_Proposal_
20191118.pdf (‘‘IEX strongly supports reducing the
round lot size for higher-priced securities.’’).
199 See supra Section III.C.1(b) (stating that the
daily exchange odd-lot rate for the top decile of
corporate stocks by price exceeds the rate for all
corporate stocks).
200 See RBC Letter at 5.
201 Id.
202 Deutsche Bank, Global Equities, There’s More
to Odd Lots than High-Priced Stocks (June 25,
2019).
203 See supra Section III.C.1(b).
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TABLE 2
Portion of all trades less than 100
shares, at a price better than the
prevailing NBBO, occurring in a
quantity that would be defined as a
round lot under the proposal
(%)
Stock price group
Proposed round lot definition
$0.00–$50.00 ............................................................
$50.01–$100.00 ........................................................
$100.01–$500.00 ......................................................
$500.01–$1000.00 ....................................................
$1,000.01 or more ....................................................
100 shares ...............................................................
20 shares .................................................................
10 shares .................................................................
2 shares ...................................................................
1 share .....................................................................
0
46
59
77
100
TABLE 3
Stock price group
Proposed round lot definition
$0.00–$50.00 ............................................................
$50.01–$100.00 ........................................................
$100.01–$500.00 ......................................................
$500.01–$1000.00 ....................................................
$1,000.01 or more ....................................................
100 Shares ...............................................................
20 Shares .................................................................
10 Shares .................................................................
2 Shares ...................................................................
1 Share ....................................................................
The proposed definition of round lot
requires the round lot size of an NMS
stock to be based on the prior calendar
month’s average closing price on the
primary listing exchange for that stock
(or the IPO price if the prior calendar
month’s average closing price on the
primary listing exchange is not
available).204 The Commission
preliminarily believes that the prior
calendar month’s average closing price
on the primary listing exchange is a
reasonable metric to assess an NMS
stock’s share price for purposes of
determining the applicable round lot
size. The daily closing price is a widely
followed indicator of a stock’s value that
is often used to measure performance
over time.205 Moreover, using a monthly
average (rather than, e.g., each trading
day’s closing price or a weekly average),
would help ensure that round lot sizes
are based on current pricing
information, while preventing short-
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Portion of all volume transacted in a
quantity less than 100 shares, at a
price better than the prevailing
NBBO, occurring in a quantity that
would be defined as a round lot
under the proposal
(%)
204 Specifically, the prior calendar month’s
average closing price on the primary listing
exchange would be the mean of the daily closing
prices on the primary listing exchange for all
trading days in the prior calendar month. For each
NMS stock, the prior calendar month’s average
closing price on the primary listing exchange would
only need to be computed at the beginning of each
calendar month and would be in effect for the rest
of the month (i.e., it would not be a ‘‘rolling’’
average requiring computation more frequently than
once per calendar month).
205 See Christopher Ting, Which Daily Price Is
Less Noisy?, Financial Management 35, no. 3
(2006): 81–95 (describing daily closing price as a
popular reference price, including for fund
managers to compute net asset values).
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term price fluctuations from impacting
the round lot size, thereby avoiding
unnecessary complexity and cost.
The proposed definition of round lot
would impact other terms that are
currently defined in Regulation NMS, as
well as the proposed definition of core
data (and its included terms), so that
quotation information in the proposed
round lot sizes would be included in the
proposed definition of core data.
Specifically, the definition of ‘‘bid or
offer’’ 206 is based on round lots, and the
definition of ‘‘bid or offer’’ is reflected
in the definition of ‘‘best bid and best
offer.’’ 207 Similarly, the definition of
‘‘best bid and best offer’’ is reflected in
the definition of ‘‘national best bid and
national best offer.’’ 208 Therefore, the
addition of the proposed definition of
round lot would impact the calculation
of the NBBO by requiring that it be
calculated based upon the BBOs in the
new round lot sizes. In addition, the
proposed definition of depth of book
data refers to ‘‘quotation size,’’ which
refers to ‘‘bid or offer,’’ so the quotation
data at the price levels that are proposed
to be included in depth of book data
would include quotations in the new
proposed round lot sizes.209
206 See
17 CFR 242.600(b)(9).
17 CFR 242.600(b)(8).
208 See 17 CFR 242.600(b)(43).
209 Similarly, since ‘‘transaction report’’ is
defined as ‘‘a report containing the price and
volume associated with a transaction involving the
purchase or sale of one or more round lots of a
security,’’ core data, as proposed, would include
207 See
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0
89
95
99
100
The proposed definition of ‘‘round
lot’’ would also affect Rules 602, 603,
604, 605, 606, and 610 of Regulation
NMS. Rule 602 governs the
dissemination of quotations in NMS
securities. Specifically, Rule 602(a),
among other things, requires SROs to
have procedures to collect and make
available certain quotation information
from their members and make available
their best bids and offers to vendors. As
a result of the proposed definition of
‘‘round lot,’’ the SROs would be
required to collect and make available
quotations in the smaller round lot sizes
depending on the price of the NMS
stock. The Commission preliminarily
believes the bids and offers collected
and made available under Rule 602(a)
should be in the proposed round lot
sizes. As discussed above, the
Commission preliminarily believes that
the proposed round lot sizes represent
orders of meaningful size to market
participants and should be collected,
consolidated, and disseminated in
proposed core data. To effectively
implement this, exchanges must be
required to collect and make available
transaction reports based on the new proposed
round lot sizes. The Equity Data Plans already
collect and disseminate all odd-lot transaction
reports and last sale data. See supra notes 160–161
and accompanying text. Accordingly, under
proposed Rule 600(b)(19)(iv), which incorporates
data elements required by the NMS plan(s) into the
proposed consolidated market data, the SROs
would continue to be required to provide all oddlot transaction reports and last sale data as part of
the proposed consolidated market data.
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quotations in these sizes under Rule
602(a).
In addition, Rule 602(b) provides that
each ‘‘responsible broker or dealer’’
shall communicate to its SROs its best
bids and offers and quotation sizes for
a ‘‘subject security.’’ 210 Thereafter, each
responsible broker or dealer is obligated
to execute an order to buy or sell a
subject security, other than an odd-lot
order, that is presented to that
responsible broker or dealer at a price at
least as favorable to such buyer or seller
as the responsible broker’s or dealer’s
‘‘published bid or published offer.’’ 211
In other words, the responsible broker
or dealer must be firm for its ‘‘published
bid or published offer.’’ 212 As a result
of the proposed definition of round lot,
responsible brokers or dealers will be
required to communicate bids and offers
in the proposed round lot sizes and be
firm for such bids and offers. The
Commission preliminarily believes that
the proposed round lot definition
should apply to the obligations of
responsible brokers or dealers under
Rule 602(b). As explained above, the
Commission preliminarily believes that
the proposed round lot sizes better
reflect orders of meaningful size in
today’s markets. The Commission also
preliminarily believes that the
210 ‘‘Subject security’’ means ‘‘(i) With respect to
a national securities exchange: (A) Any exchangetraded security other than a security for which the
executed volume of such exchange, during the most
recent calendar quarter, comprised one percent or
less of the aggregate trading volume for such
security as reported pursuant to an effective
transaction reporting plan or effective national
market system plan; and (B) Any other NMS
security for which such exchange has in effect an
election, pursuant to 242.602(a)(5)(i), to collect,
process, and make available to a vendor bids, offers,
quotation sizes, and aggregate quotation sizes
communicated on such exchange; and (ii) With
respect to a member of a national securities
association: (A) Any exchange-traded security for
which such member acts in the capacity of an OTC
market maker unless the executed volume of such
member, during the most recent calendar quarter,
comprised one percent or less of the aggregate
trading volume for such security as reported
pursuant to an effective transaction reporting plan
or effective national market system plan; and (B)
Any other NMS security for which such member
acts in the capacity of an OTC market maker and
has in effect an election, pursuant to
242.602(a)(5)(ii), to communicate to its association
bids, offers, and quotation sizes for the purpose of
making such bids, offers, and quotation sizes
available to a vendor.’’ 17 CFR 242.600(b)(77).
211 See Rule 602(b)(2), 17 CFR 242.602(b)(2);
Regulation NMS Adopting Release, supra note 10,
at 37538. ‘‘Published bid and published offer means
the bid or offer of a responsible broker or dealer for
an NMS security communicated by it to its national
securities exchange or association pursuant to
§ 242.602 and displayed by a vendor on a terminal
or other display device at the time an order is
presented for execution to such responsible broker
or dealer.’’ 17 CFR 242.600(b)(64).
212 17 CFR 242.602(b)(2). See also Rule 600(b)(64)
which defines ‘‘published bid and published offer.’’
17 CFR 242.600(b)(64).
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objectives of Rule 602(b) of ensuring
that broker-dealers disseminate their
best quotes, and are firm for such
quotes, would be furthered by applying
the proposed definition of round lots
such that those obligations would apply
to quotes of meaningful size.
Rule 603(c) governs the display of
information with respect to quotations
for and transactions in NMS stocks.
Specifically, Rule 603(c)(1) states that
no securities information processor,
broker, or dealer shall provide, in a
context in which a trading or order
routing decision can be implemented, a
display of any information with respect
to quotations for or transactions in an
NMS stock without also providing, in an
equivalent manner, a consolidated
display—i.e., the NBBO and
consolidated last sale information 213—
for such stock.214 As a result of the
proposed definition of ‘‘round lot,’’ a
securities information processor, broker,
or dealer would be required to provide
a consolidated display that reflects
smaller-sized orders in higher-priced
stocks. As discussed above, the
Commission preliminarily believes that
the proposed round lot sizes represent
orders of meaningful size to market
participants. The Commission also
preliminarily believes that the objective
of Rule 603(c) of ensuring that market
participants receive basic quotation and
transaction information in a context in
which a trading or order routing
decision can be implemented would be
furthered to the extent that such
information is based on orders of
meaningful size such as round lots as
proposed to be defined in this proposal.
Rule 604, which governs the display
of customer limit orders for NMS stocks,
would also be affected by the proposed
definition of round lot. Rule 604(a)(1)
requires each member of a national
securities exchange that is registered
with that exchange as a specialist, or is
authorized by that exchange to perform
functions substantially similar to those
of a specialist, to publish immediately a
bid or offer that reflects: (i) The price
and the full size of each customer limit
order held by the specialist that is at a
price that would improve the bid or
offer of such specialist in such security;
213 Rule 600(b)(14) defines ‘‘consolidated
display’’ as ‘‘(i) The prices, sizes, and market
identifications of the national best bid and national
best offer for a security; and (ii) Consolidated last
sale information for a security.’’ 17 CFR
242.600(b)(14).
214 Rule 603(c)(2) further states that this provision
does not apply to a display of information on the
trading floor or through the facilities of a national
securities exchange or to a display in connection
with the operation of a market linkage system
implemented in accordance with an effective
national market system plan. 17 CFR 242.603(c)(2).
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and (ii) the full size of each customer
limit order held by the specialist that is
priced equal to the bid or offer of such
specialist for such security, is priced
equal to the national best bid or national
best offer, and represents more than a de
minimis change in relation to the size
associated with the specialist’s bid or
offer. Rule 604(a)(2) imposes similar
requirements on OTC market makers
with respect to their customer limit
orders. The requirements of Rule 604 do
not apply to customer limit orders that,
among other things, are odd-lots.215
Under the proposed definition of
round lot, a specialist or OTC market
maker would have to include customer
limit orders in the new round lot sizes
within its published bids and offers.
Rule 604 currently applies to round lots
and the Commission preliminarily
believes that Rule 604 should continue
to use round lots, as proposed to be
defined, as the measure for customer
limit orders that must be reflected in a
specialist or OTC market maker’s
published bid or offer. The Commission
preliminarily believes that the
objectives of Rule 604 of ensuring that
customers have the ability to effectively
seek price improvement through the
dissemination of their limit orders by
specialists or OTC market makers would
be furthered by applying the proposed
definition of round lot such that those
obligations would apply to customer
limit orders of meaningful size.
Therefore, the Commission
preliminarily believes that the customer
limit order display requirements of Rule
604 should apply to orders in the new
proposed round lot sizes.
Rule 605, which governs the
disclosure of order execution quality
information, would also be affected by
the proposed definition of round lot
because of the effect on the definition of
NBBO. Rule 605 requires market centers
to publish monthly reports containing
execution statistics 216 for certain NMS
stock orders, including, but not limited
to, the ‘‘average realized spread,’’ 217
215 See
17 CFR 242.604(b)(3).
other things, these reports must be
‘‘categorized by order size,’’ which means ‘‘dividing
orders into separate categories for sizes from 100 to
499 shares, from 500 to 1999 shares, from 2000 to
4999 shares, and 5000 or greater shares.’’ 17 CFR
242.600(b)(11).
217 Rule 600(b)(7) defines ‘‘average realized
spread’’ as ‘‘the share-weighted average of realized
spreads for order executions calculated, for buy
orders, as double the amount of difference between
the execution price and the midpoint of the
national best bid and national best offer five
minutes after the time of order execution and, for
sell orders, as double the amount of difference
between the midpoint of the national best bid and
national best offer five minutes after the time of
order execution and the execution price; provided,
however, that the midpoint of the final national best
216 Among
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‘‘average effective spread,’’ 218 data on
shares ‘‘executed with price
improvement,’’ 219 and data on shares
‘‘executed outside the quote.’’ 220 The
calculations of average realized spread
and average effective spread rely on the
mid-point of the NBBO. Similarly, the
benchmark for price improvement
statistics, as reflected in the definitions
of ‘‘executed at the quote,’’ 221
‘‘executed with price improvement,’’ 222
and ‘‘executed outside the quote,’’ 223 is
the NBBO. As discussed above, since
the NBBO will be based on the proposed
round lot sizes, any Rule 605 execution
quality statistics that rely on the NBBO
as a benchmark would be affected by the
proposed definition of round lot on the
NBBO.224 The Commission
preliminarily believes that order
execution disclosures required under
Rule 605 should be based on the NBBO
that reflects the new proposed round lot
sizes. The NBBO is currently based on
round lots, and the proposed definition
of round lot would allow additional
orders of meaningful size to determine
the NBBO. As a result, the execution
quality and price improvement statistics
required under Rule 605 would be based
upon an updated NBBO that the
bid and national best offer disseminated for regular
trading hours shall be used to calculate a realized
spread if it is disseminated less than five minutes
after the time of order execution.’’ 17 CFR
242.600(b)(7).
218 Rule 600(b)(6) defines ‘‘average effective
spread’’ as ‘‘the share-weighted average of effective
spreads for order executions calculated, for buy
orders, as double the amount of difference between
the execution price and the midpoint of the
national best bid and national best offer at the time
of order receipt and, for sell orders, as double the
amount of difference between the midpoint of the
national best bid and national best offer at the time
of order receipt and the execution price.’’ 17 CFR
242.600(b)(6).
219 Rule 600(b)(29) defines ‘‘executed with price
improvement’’ as ‘‘for buy orders, execution at a
price lower than the national best offer at the time
of order receipt and, for sell orders, execution at a
price higher than the national best bid at the time
of order receipt.’’ 17 CFR 242.600(b)(29).
220 Rule 600(b)(28) defines ‘‘executed outside the
quote’’ as ‘‘for buy orders, execution at a price
higher than the national best offer at the time of
order receipt and, for sell orders, execution at a
price lower than the national best bid at the time
of order receipt.’’ 17 CFR 242.600(b)(28).
221 Rule 600(b)(27) defines ‘‘executed at the
quote’’ as ‘‘for buy orders, execution at a price equal
to the national best offer at the time of order receipt
and, for sell orders, execution at a price equal to
the national best bid at the time of order receipt.’’
17 CFR 242.600(b)(27).
222 Supra note 219.
223 Supra note 220.
224 See supra Section III.C.1(d)(i) (discussing the
impact of the proposed definition of round lot on
other Regulation NMS defined terms, such as the
NBBO). As discussed above, the Commission
preliminarily believes that actual execution quality
for retail investors will be improved as a result of
the inclusion of odd-lot quotes in core data as a
result of the better pricing that is often reflected in
odd-lots.
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Commission preliminarily believes is a
more meaningful benchmark for these
statistics. Therefore, the Commission
preliminarily believes that the NBBO, as
modified by the proposed definition of
round lot, should continue to be used as
a basis for the statistics required under
Rule 605.225
Rule 606, which requires brokerdealers to provide disclosure of
information regarding the handling of
the broker-dealers’ customers’ orders,226
would also be affected by the proposed
definition of round lot because of the
effect on the definition of actionable
indication of interest.227 Specifically,
Rule 606(b)(3) requires every brokerdealer, upon a request of a customer
who places a not held order, to provide
the customer with a standardized set of
individualized disclosures concerning
the broker-dealer’s handling of the
orders. The disclosures include, among
other things, not held orders exposed by
the broker-dealer through actionable
indications of interest, and the venue(s)
to which the actionable indications of
interest were exposed, provided that the
identity of such venue(s) may be
anonymized if the venue is a customer
of the broker-dealer. Rule 600(b)(1)
defines an actionable indication of
interest as any indication of interest that
explicitly or implicitly conveys all of
the following information with respect
to any order available at the venue
sending the indication of interest: (i)
Symbol; (ii) side (buy or sell); (iii) a
price that is equal to or better than the
national best bid for buy orders and the
national best offer for sell orders; and
(iv) a size that is at least equal to one
round lot.228 As a result of the proposed
definition of round lot, there could be
more actionable indications of interest
in higher priced securities. The
Commission preliminarily believes that
225 The NBBO used for purposes of Rule 605
would be calculated by competing consolidators
and self-aggregators using the proposed round lot
sizes. See supra Section III.C.1(d)(i). Under the
proposal, each competing consolidator and selfaggregator would be required to calculate an NBBO
consistent with the requirements set forth in the
NBBO definition found in Rule 600(b)(50). See
proposed Rule 614(d)(2). Accordingly, even though
each competing consolidator and self-aggregator
would be calculating its own NBBO, the calculation
methodology for the NBBO would be consistent.
Because the NBBO would be calculated in a
consistent manner, Rule 605 reports should still
provide uniform comparisons of execution quality.
226 Broker-dealers who engage in outsourced
routing activity are exempt from the requirement to
comply with Rule 606(b)(3) until April 1, 2020. See
Securities Exchange Act Release No. 86874 (Sept.
4, 2019), 84 FR 47625 (Sept. 10, 2019).
227 See 17 CFR 242.600(b)(1). See also Securities
Exchange Act Release No. 84528 (Nov. 2, 2018), 83
FR 58338 (Nov. 19, 2018) (‘‘Rule 606 Adopting
Release’’).
228 See id.
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16745
applying the proposed round lot
definition to actionable indications of
interest would further the objectives of
Rule 606 regarding the disclosure of
order handling information—to make it
easier for investors to evaluate how their
brokers handle orders and make more
informed decisions about brokers, and
help investors to better understand how
broker-dealers route and handle orders
and assess the impact of broker-dealer
routing decisions on order execution
quality.
In addition, Rule 610, which governs
access to quotations, would be affected
by the proposed definition of round lot.
Specifically, Rule 610(c) prohibits
trading centers from imposing fees for
the execution of an order against a
protected quotation or any other
quotation that is the best bid or offer of
an SRO if the fees exceed certain limits
($0.003 per share for quotes of $1.00 or
more and 0.3% of the quotation price
per share for quotes less than $1.00). As
the Commission explained in adopting
Regulation NMS, ‘‘the purpose of the fee
limitation is to ensure the fairness and
accuracy of displayed quotations by
establishing an outer limit on the cost of
accessing such quotations,’’ and Rule
610 ‘‘thereby assures order routers that
displayed prices are, within a limited
range, true prices.’’ 229 As a result of the
proposed definition of round lot, these
fee limitations would apply to quotes in
the smaller round lot sizes because they
would apply to quotations that are the
‘‘best bid or offer’’ of an SRO. Rule
610(c) currently applies to quotations in
round lots and the Commission
preliminarily believes that Rule 610(c)
should apply to quotations in the new
proposed round lot sizes. The
Commission preliminarily believes that
applying the fee limitations of Rule
610(c) to orders of meaningful size, as
reflected in the proposed definition of
round lot, would further that rule’s
objectives of ensuring the accuracy of
displayed quotations by establishing an
outer limit on the cost of accessing
them.
Finally, Rule 201 of Regulation SHO
requires, among other things, that
trading centers have written policies
and procedures reasonably designed to
prevent the execution or display of a
short sale order of a covered security at
a price that is less than or equal to the
current national best bid if the price of
that covered security decreases by 10%
or more from the covered security’s
closing price as determined by the
listing market for the covered security as
of the end of regular trading hours on
229 See Regulation NMS Adopting Release, supra
note 10, at 37502.
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the prior day.230 As a result of the
proposed definition of round lot, the
national best bid would include orders
in the proposed round lot sizes. The
Commission preliminarily believes that
the objectives of Rule 201 of restricting
destabilizing short sale orders in rapidly
declining markets would be furthered
by applying the proposed definition of
round lot such that bids of meaningful
size would be included within this
restriction.231
The Commission requests comment
on the proposed definition of round lot
in proposed Rule 600(b)(81) and the
inclusion of additional quotation
information for higher priced shares in
proposed core data that would result
from this proposed definition. In
particular, the Commission solicits
comment on the following:
8. Should odd-lot quotation data that
is not currently reflected in SIP data be
incorporated into core data, as
proposed, and, if so, what is the best
way to do so?
9. Should core data, as proposed,
include quotation information for
smaller sized orders in higher priced
stocks? Why or why not? Does adding
this quotation information enhance the
usefulness of core data, as proposed?
Please explain. What kinds of market
participants would use this
information? For what purposes? Would
the inclusion of this information have
any negative or unintended
consequences, such as ‘‘information
overload’’ effects? Please explain.
10. Do commenters believe the
Commission’s proposed definition of
round lot is an effective way to
incorporate this additional quotation
information into core data, as proposed?
Why or why not? What effect would the
proposed definition have on systems
capacity? Please explain and provide
data. Would the proposed definition
affect market complexity? Please
explain. Do commenters believe that the
proposed definition of round lot
appropriately balances the benefits of
providing additional quotation data to
investors and other market participants
against potential costs such as
additional system burdens or increased
data complexity? If not, please explain
how this balance could be more
230 17
CFR 242.201(b)(1)(i).
Exchange Act Release No. 61595,
supra note 75. The Commission also preliminarily
believes that instituting a different round lot size for
purposes of Rule 201 would introduce unnecessary
complexity into the markets. In particular,
excessive order routing complexity may be
introduced if order routers are allowed to execute
a short sale order against certain bids (i.e., smaller
round lots that are priced better than the 100-share
national best bid) but not allowed to execute a short
sale order against other bids (i.e., a 100-share bid).
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231 Securities
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appropriately achieved. Specifically,
please provide details on the quantity of
additional data or the increase in
message traffic that would be
represented by the Commission’s
proposal and any alternative proposals.
11. Are there alternative approaches,
such as requiring all or a subset of oddlot quotations to be included in the
proposed definition of core data, or
directly requiring all quotes over a
certain notional value to be included in
the proposed definition of core data
(rather than indirectly as in the
proposed definition of ‘‘round lot’’)?
Please describe any alternative
approaches. What would be the
advantages and disadvantages of any
alternative approaches?
12. Would the Commission’s
proposed definition of round lot capture
a significant portion of the odd-lot
quotation activity that is currently not
included in SIP data? Is the definition
appropriately tailored to capture the
odd-lot quotation information that
would be useful to market participants?
If not, please identify and discuss
alternative approaches that might be
more appropriate. For example, do
commenters believe round lot sizes and
price intervals different from those in
the proposed definition would capture
more useful odd-lot quotation data?
Please include data to support any
suggested alternative sizes or price
intervals. Please also discuss any issues
related to increased order routing
complexity or compliance with
Commission rules that might result from
the proposed definition of ‘‘round lot.’’
13. Do commenters believe that oddlot quotes should be aggregated into the
new round lot sizes at multiple price
levels for the purposes of calculating
and disseminating the NBBO in the
proposed definition of core data? Why
or why not? What are commenters’
views on the specific odd-lot
aggregation methodology set forth in the
proposed definition of core data?
14. Do commenters agree with the
Commission’s proposal to require oddlot aggregation for purposes of protected
quotations only at a single price level?
Please explain. Should odd-lots be
aggregated only at a single price level
for purposes of determining the
protected bid and offer for stocks valued
at $50.00 or less based on the prior
calendar month’s average closing price
on the primary listing exchange even
though the round lot for this price tier
remains 100 shares (i.e., both the best
bid and offer and protected bid and offer
must be 100-shares in this price tier)?
Should a multiple price level
aggregation methodology for
determining protected quotations apply
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to stocks valued at $50.00 or less?
Would there be any costs or negative
effects of having different odd-lot
aggregation methodologies for stocks at
different price levels?
15. Is a price-based metric for
determining round lot size an
appropriate metric for determining the
proposed round lot tiers? Are the
proposed tiered round lot sizes
appropriate? Why or why not? Should
the tiers be set at different intervals?
Should there be more or fewer tiers? For
example, should the round lot size be
one share for any NMS stock for which
the prior calendar month’s average
closing price on the primary listing
exchange was $500.01 or greater? Why
or why not? Are the round lot sizes
appropriate for the share prices? If not,
what is the appropriate round lot size?
Please provide empirical support for
any suggested alternatives.
16. Do commenters believe that a
significant number of broker-dealers do
not currently subscribe to proprietary
market data products, including
proprietary market data products that
include odd-lot quotations? If so, how
many and what type of broker-dealers
(e.g., executing broker-dealers,
introducing broker-dealers, small
broker-dealers, large broker-dealers)?
Are there specific types of proprietary
market data products to which any such
broker-dealers do not subscribe? If so,
which types of proprietary market data
products? Do any such broker-dealers
subscribe to proprietary data products
from some exchanges but not others?
17. Do commenters have views on the
odd-lot proposal released by the
operating committees of the Equity Data
Plans? 232 What are the advantages and
disadvantages of the proposal by the
Equity Data Plans as compared to the
Commission’s proposed definition of
round lot?
18. Each of the proposed tiers
represent a notional value of over
$1,000. Is this an appropriate threshold?
Should it be higher or lower? Please
explain and submit data to support your
analysis.
19. Do commenters believe that the
prior calendar month’s average closing
price on the primary listing exchange
(or IPO price if the prior calendar
month’s average closing price is not
available) is an effective way to assess
the price of a stock for purposes of
determining its round lot size? Why or
why not? Do commenters believe it
would be costly, difficult, or
problematic for market participants to
adjust procedures and systems to take
into account new round lot sizes based
232 See
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on the prior calendar monthly average
closing price on the primary listing
exchange, or to account for a particular
stock’s potentially different round lot
size every month? Are there alternative
time periods over which a stock’s price
for purposes of assigning a round lot
size should be measured or alternative
methods for measuring a stock’s price
that the Commission should consider?
When should a stock whose price
changes from one tier to another be
assigned to a new round lot size and for
how long should it remain in that round
lot size? Would stocks priced near the
thresholds that differentiate the round
lot tiers be affected by frequent shifts
between round lot sizes? Please explain.
20. During the month following the
IPO of a newly listed stock, should a
minimum number of trading days be
required to elapse before the stock’s
round lot size is determined? If so,
should the average daily closing price
on the primary listing exchange (or
some other metric) over the course of
that number of trading days be used to
calculate the stock’s price for purposes
of determining its round lot size? If so,
how would the stock’s round lot size be
determined in the interim?
21. Do commenters have views on
how monthly average closing price
should be determined for stocks that are
not traded every day? Should the
closing price of the most recent trading
day on which there was a trade be used
each intervening day until the stock is
traded again?
22. Do commenters believe that the
impacts of the proposed definition of
round lot on the Commission rules
described above are appropriate? Why
or why not? Will any SRO rules be
affected? Please explain. Specifically,
please describe any effect of the
proposed definition of round lot on
market maker quoting obligations under
SRO rules.
23. Should the proposed definition of
round lot apply to Rules 602 and 604?
Do commenters believe the applicability
of the proposed smaller round lot sizes
to these rules will help foster more
displayed quotations of small orders?
Do commenters believe this will result
in a significant tightening of quoted
spreads?
24. Should the Commission amend
Rule 605 in light of the proposed round
lot definition? Specifically, since the
disclosures required by Rule 605 must
be ‘‘categorized by order size,’’ 233
which currently begins at 100 shares,
should the definition of ‘‘categorized by
order size’’ be amended to require the
relevant execution information to be
233 See
supra note 216.
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provided for sub-100 share orders, such
as orders in the proposed round lot
sizes? Do commenters believe this
would negatively or positively affect the
execution quality statistics provided
pursuant to Rule 605? More broadly, do
commenters believe the proposed
definition of round lot would improve
the actual prices provided to retail
investors (as distinct from the Rule 605
execution quality statistics)?
25. Should the proposed definition of
round lot apply to Rule 610(c)?
Specifically, should the fee limits under
Rule 610(c) apply to quotations in the
proposed new round lot sizes? Would
exchanges or other trading centers
increase access fees for the smaller
round lots if Rule 610(c) were limited to
100-share protected quotations? Why or
why not? Do commenters believe that
market forces would provide sufficient
control over access fees for quotations in
the smaller round lots? Why or why
not? Should Rule 610(c) be limited to
the Commission’s definition of
protected bid or protected offer, as
amended? What would be the benefits
and costs of each approach?
26. Should the proposed definition of
round lot apply to Rule 201 of
Regulation SHO? Would the scope of
Rule 201 be expanded as a result of the
proposed definition of round lot in a
way that would unnecessarily restrict
the ability of market participants to sell
short? Will additional or excessive order
routing complexity result from the
application of Rule 201 to quotations in
the proposed smaller round lot sizes?
Should ‘‘protected bid,’’ as proposed to
be amended, rather than the national
best bid be used as the reference price
for determining which short sales are
required to be prevented under Rule
201? What would be the benefits and
costs of each approach?
27. Do commenters believe that the
proposed definition of round lot would
have any effect on an exchange’s official
closing prices? Would the proposed
definition of round lot have any effect
on the pricing practices of mutual funds
and other investment companies,
including the calculation of net asset
value or trading in portfolio securities?
Please explain the potential costs and
benefits of any such effects.
28. Do commenters believe that the
proposed definition of round lot would
affect the proportion of on-exchange or
off-exchange liquidity? Please explain.
(ii) Proposed Amendments to the
Definition of Protected Bid or Protected
Offer
Rule 611 requires trading centers to
have policies and procedures that are
reasonably designed to prevent tradethroughs on that trading center of
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16747
protected bids or protected offers in
NMS stocks, subject to specified
exceptions.234 Rule 611 currently
applies only to round lots.235 If the
definition of protected bid or protected
offer were left unmodified, the
Commission’s proposed definition of
round lot would result in an expansion
of Rule 611 by requiring the protection
of quotations in the new smaller round
lot sizes.
Whether Rule 611 should be modified
or repealed has been the subject of
much debate in recent years.236 Rule
234 Rule 611(a)(1). See also supra notes 115, 182.
Rule 600(b)(81) defines ‘‘trade-through’’ as ‘‘the
purchase or sale of an NMS stock during regular
trading hours, either as principal or agent, at a price
that is lower than a protected bid or higher than a
protected offer.’’ 17 CFR 242.600(b)(81).
235 Specifically, Rule 611 applies to ‘‘protected
quotations’’ which means ‘‘protected bid[s] or
[]protected offer[s].’’ 17 CFR 242.600(b)(62).
‘‘Protected bid or protected offer,’’ as defined in
Rule 600(b)(61), refers to ‘‘a quotation,’’ defined in
Rule 600(b)(66), which in turn refers to ‘‘a bid or
an offer,’’ defined in Rule 600(b)(9), which, as noted
above, applies to round lots.
236 For example, in its April 2017 memorandum
discussing Rules 610 and 611 under the Exchange
Act, the Equity Market Structure Advisory
Committee (‘‘EMSAC’’) Regulation NMS
Subcommittee (‘‘Subcommittee’’) stated that the
industry largely remained divided in its view on
both the success and the continued need for the
trade-through and the locked and crossed markets
provisions of Regulation NMS. See Memorandum to
EMSAC from the Subcommittee (Apr. 3, 2017),
available at https://www.sec.gov/spotlight/emsac/
emaac-regulation-nms-subcommittee-discussionframework-040317.pdf. In the memorandum, the
Subcommittee recommended, among other things,
that the Commission consider repealing Rule 611
on a pilot basis, with the goals of reducing excess
complexity in the marketplace (as demonstrated by
venue fragmentation, order types, and routing
complexity); testing the hypothesis that Rule 611
has not created an incentive for posting visible
liquidity; and opening the markets to competition
and innovation over a longer time horizon, which
the Subcommittee believed is currently constrained
due to the proscriptive nature of Regulation NMS.
The Subcommittee noted several arguments
supporting the removal of Rule 611, including the
apparent failure of Regulation NMS to increase the
display of limit orders in the marketplace and the
increase in dark liquidity, smaller trade sizes, and
‘‘small’’ venues; the de minimis benefit from
decreased trade-through rates, coupled with a
relatively high cost of trade-through compliance
and the creation of new venues, complex order
types, and a need to focus on speed and other
market complexities as a requirement to manage
queue priority; the fact that competition among
market centers is largely based on price and speed;
and the difficulty of setting the NBBO in active
stocks without the use of sophisticated price-sliding
order types and intermarket sweep orders. The
Subcommittee also identified several arguments in
support of retaining Rule 611, including concerns,
especially among individual investors, of losing the
best execution backstop of the trade-through rule;
the concern that individual investors’ nonmarketable orders would lose trade-through
protection; and a concern regarding the amount of
effort that could be required to further monitor
order routing behavior by agents in the absence of
a trade-through rule. The Subcommittee also
expressed the view that Rule 611 is too prescriptive
as a best execution rule and that concerns about
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611 was controversial when adopted,237
with many commenters either opposing
the rule entirely or advocating for
exceptions, such as for block trades or
for those wishing to opt out of the Rule’s
protections.238 In the years since, Rule
611 has continued to be the subject of
much debate, with some arguing that
the rule has negatively impacted equity
market structure, others taking the
position that any benefits were achieved
early on when the Rule induced
widespread automated quotations and
connectivity, and yet others expressing
the view that the Rule continues to play
an important role in supporting best
execution and retail investor
confidence.239 Recently, a
Subcommittee of the Commission’s
Equity Market Structure Advisory
Committee advocated that the EMSAC
recommend that the Commission
consider repealing Rule 611 on a pilot
basis to test its impact.240
In light of the concerns about the
existing scope of Rule 611, the
Commission preliminarily believes that
Rule 611 should not be extended to
smaller-sized quotations reflected in the
proposed definition of round lot.
Moreover, the Commission
preliminarily believes that extending
Rule 611 to the proposed new round
lots is not necessary in light of market
developments since the adoption of
Regulation NMS in 2005. While a
substantial amount of trading in 2005
was conducted on relatively slow
manual markets,241 and was
best execution could be addressed more effectively
through enhanced guidance and procedures.
237 See Regulation NMS Adopting Release, supra
note 10, dissenting opinion.
238 See Regulation NMS Adopting Release, supra
note 10, at 37505–37506, 37516, 37524–37526.
239 See Memorandum to EMSAC from the
Subcommittee, supra note 236; Letter from
Theodore R. Lazo, Managing Director and Associate
General Counsel, SIFMA to Brent J. Fields,
Secretary, SEC, 5–7 (Mar. 29, 2017), available at
https://www.sec.gov/comments/s7-21-16/s721161674693-149275.pdf (recommending that the SEC
consider (1) eliminating Rule 611 and relying on the
duty of best execution to maintain intermarket price
protection, or (2) modifications to Rule 611 to add
volume thresholds for protected quote status and a
block exception); Letter from William R. Harts,
CEO, Modern Markets Initiative, to Brent J. Fields,
Secretary, SEC (Dec. 9, 2016), available at https://
www.sec.gov/comments/s7-21-16/s72116-9.pdf
(recommending that the SEC review Rule 611 to
assess whether it should be modified in light of the
costs of compliance).
240 See Memorandum to EMSAC from the
Subcommittee, supra note 236.
241 See Equity Market Structure Concept Release,
supra note 11, 75 FR at 3594 (‘‘NYSE-listed stocks
were traded primarily on the floor of the NYSE in
a manual fashion until October 2006. At that time,
NYSE began to offer fully automated access to its
displayed quotations.’’). In contrast to NYSE, stocks
listed on Nasdaq traded in a highly automated
fashion at many different trading centers following
the introduction of SuperMontage in 2002. See
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concentrated for any given stock on its
listing exchanges,242 nearly all trading
now occurs on fast, electronic markets
(where even small degrees of latency
affect trading strategies) and is
dispersed among a wide range of
competing market centers.243 In a
market environment characterized by
fast, electronic trading across multiple
venues, order routing and execution
strategies have become highly
automated and increasingly
sophisticated at obtaining the best
prices throughout the national market
system.244 In addition, best execution
obligations apply to odd-lot orders 245
and would apply to bids and offers in
the proposed round lot sizes. The
Commission preliminarily believes that
these market developments and
improvements in trading and order
routing technology, in combination with
their pursuit of best execution, would
Securities Exchange Act Release No. 46429, supra
note 15; Steven Quirk, Senior Vice President,
Trader Group, TD Ameritrade, Testimony before the
U.S. Senate Committee on Homeland Security and
Governmental Affairs, Permanent Subcommittee on
Investigations, Hearing on ‘‘Conflicts of Interest,
Investor Loss of Confidence, and High Speed
Trading in U.S. Stock Markets’’ (June 17, 2014),
available at https://www.hsgac.senate.gov/imo/
media/doc/STMT%20-%20Quirk%20%20TD%20Ameritrade%20(June%2017%202014)
.pdf%20 (citing statistics that average execution
speed has improved by 90% since 2004—from 7
seconds to 0.7 seconds in 2014). Today, trading
speed is measured in microseconds and is moving
towards nanoseconds. See, e.g., Vera Sprothen,
Trading Tech Accelerates Toward Speed of Light,
Wall Street Journal (Aug. 8, 2016), available at
https://www.wsj.com/articles/trading-techaccelerates-toward-speed-of-light-1470559173;
Alexander Osipovich, NYSE Aims to Speed Up
Trading With Core Tech Upgrade, Wall Street
Journal (Aug. 5, 2019), available at https://
www.wsj.com/articles/nyse-aims-to-speed-uptrading-with-core-tech-upgrade-11565002800.
242 See Securities Exchange Act Release No.
59039 (Dec. 2, 2008), 73 FR 74770, 74782 (Dec. 9,
2008) (File No. SR–NYSEArca–2006–21) (NYSE’s
reported market share of trading in NYSE-listed
stocks declined from 79.1% in January 2005 to
30.6% in June 2008.); Equity Market Structure
Concept Release, supra note 11.
243 See Equity Market Structure Concept Release,
supra note 11, 75 FR at 3598 (‘‘The registered
exchanges all have adopted highly automated
trading systems that can offer extremely high-speed,
or ‘low-latency,’ order responses and executions.’’).
244 See Equity Market Structure Concept Release,
supra note 11, at 3594, 3598; Paul G. Mahoney and
Gabriel Rauterberg, The Regulation of Trading
Markets: A Survey and Evaluation, University of
Virginia School of Law, Law and Economics
Research Paper Series 2017–07, at 6 (Apr. 2017)
(‘‘Brokers overwhelmingly place orders and trade
through [NYSE’s] electronic trading system . . . all
markets have come to rely more and more on using
software to match buy and sell orders
automatically.’’).
245 See Securities Exchange Act Release No.
37619A (Sept. 6, 1996) 61 FR 48290, 48305 and
48323 (Sept. 12, 1996) (‘‘Order Execution
Obligations Release’’) (‘‘The market maker still will
have best execution obligations with respect to the
remaining odd-lot portion of the customer limit
order.’’).
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provide sufficient incentives for market
participants to engage with
meaningfully sized orders 246 even in
the absence of an expanded order
protection mandate under Rule 611.247
Further, the additional pre-trade
transparency that would be provided to
these orders by their inclusion in
proposed core data should encourage
market participants to access this
liquidity, as many market participants
that access similar data through
proprietary feeds are already doing
today.248 Moreover, as discussed above,
the execution quality and price
improvement statistics required under
Rule 605 would be based upon an
NBBO that reflects the new proposed
round lot sizes, and would provide
investors, including retail investors,
with higher-quality information about
their order executions.
Thus, the Commission is proposing to
amend the definition of ‘‘protected bid
or protected offer’’ in Rule 600(b)(61) by
requiring automated quotations that are
the best bid or offer of a national
securities exchange or national
securities association to be ‘‘of at least
100 shares’’ in order to qualify as a
protected bid or protected offer. The
proposed addition of this language will
preserve the existing scope of Rule 611
for the vast majority of NMS stocks.249
246 See supra notes 196–198 and accompanying
text (explaining that the proposed definition of
round lot is intended to reflect orders of meaningful
size for today’s market participants).
247 Moreover, the Commission is aware that many
market participants today already utilize
proprietary data feeds that include odd-lots and,
therefore, already have visibility into odd-lot
quotations priced better than the NBBO.
Accordingly, since these market participants
already see and trade with quotations that are
priced better than protected quotations and have
best execution obligations, the greater transparency
into smaller-sized orders that the Commission is
proposing is not dissimilar from the trading
environment that exists today for many market
participants. See also supra note 90.
248 See supra Section III.C.1(b) (stating that,
during the month of September 2019,
approximately 51% of all trades executed on
exchange and approximately 14% of all volume
executed on exchange in corporate stocks occurred
in odd-lot sizes and 43% of those odd-lot
transactions (representing approximately 39% of all
odd-lot volume) occurred at a price better than the
NBBO); supra Tables 2 and 3 (showing the portion
of all trades and volume less than 100 shares, at a
price better than the prevailing NBBO, occurring in
a quantity that would be defined as a round lot
under the proposal).
249 But see infra notes 250–252 and
accompanying text (discussing stocks that currently
have non-100 share round lot sizes). In addition, the
proposed amendments to the definition of protected
bid or protected offer would also provide clarity to
market participants as to whether quotations in the
new round lot sizes are protected quotations for
purposes of Rule 611, which is responsive to
comments made by some Roundtable panelists
regarding uncertainty as to whether additional oddlot quotation information would be protected under
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As noted above, exchange rules
generally permit the exchange to assign
a round lot size other than 100
shares.250 As of market close on August
8, 2019, 12 stocks had a round lot size
other than 100 shares,251 and because
they are round lots, they are protected
quotations to the extent that they satisfy
the other requirements in the
definition.252 Therefore, Rule 611
currently applies to orders of those
stocks in their non-100 share round lot
sizes. The proposed amendment to the
definition of protected bid and
protected offer would mean that the
smaller round lot orders in these 12
stocks would no longer be protected
quotations, and therefore they would no
longer be subject to Rule 611. The
Commission preliminarily believes that
the rule should be consistently applied
to protected quotations of 100 shares or
more (or quotations of fewer than 100
shares that can be aggregated at a single
price into 100 shares or more). The
Commission preliminarily believes that
a single test for the applicability of the
protected quotation definition, without
special exceptions for certain stocks,
would be simpler, would facilitate
compliance with Rule 611, and would
set consistent expectations among
market participants. Further, the
Commission preliminarily believes that
competition among broker-dealers,
improvements in trading and order
Rule 611. See supra note 179 and accompanying
text.
250 See supra note 141.
251 Of the 12 stocks that had non-100 share round
lot sizes, ten had a round lot of ten, and two had
a round lot of one. Seven are common stocks, and
five are preferred stocks. Prices of these stocks
ranged from about $27 to over $300,000. See supra
note 141 and accompanying text. Currently, each of
these stocks is thinly-traded. For example, during
the third quarter of 2019, each of these stocks had:
An average daily share volume below 40,000, with
most trading only hundreds of shares a day; an
average trade count of less than 3,200, with some
trading only dozens of times per day; and an
average daily dollar volume of less than $130
million, with most trading on average less than $1
million per day.
252 A ‘‘protected bid or protected offer’’ is defined
as a ‘‘quotation in an NMS stock that (i) is displayed
by an automated trading center; (ii) is disseminated
pursuant to an effective NMS plan; and (iii) is an
automated quotation that is the best bid or best offer
of a national securities exchange . . . or national
securities association.’’ Rule 600(b)(61), 17 CFR
242.600(b)(61). ‘‘Protected quotation means a
protected bid or protected offer.’’ Rule 600(b)(62),
17 CFR 242.600(b)(62). As explained above,
‘‘protected quotations’’ must be round lots, and
exchange rules permit round lot sizes other than
100, so quotes in these stocks in their non-100
round lot sizes are ‘‘protected quotes.’’ See supra
notes 141, 235. Similarly, other rules in Regulation
NMS that apply to round lots as a result of
references to ‘‘bid or offer’’ or other defined terms
that directly or indirectly reference ‘‘round lot,’’
such as Rules 602, 603, 604, and 605, also apply
to 1 or 10 share round lot quotes of these stocks.
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routing technology,253 and the
continued applicability of best
execution requirements to sub-100 share
orders of these stocks would provide
sufficient incentives for the attainment
of high-quality executions of such
orders even in the absence of tradethrough protection pursuant to Rule
611.254
The Commission is also proposing to
delete the references to ‘‘The Nasdaq
Stock Market, Inc.’’ in the definition of
protected bid or protected offer. Since
the Nasdaq Stock Market is now a
national securities exchange, that
language is redundant.
Finally, the locked and crossed
markets restrictions of Rule 610 are
based on the term ‘‘protected
quotation.’’ Specifically, Rule 610(d)
requires each national securities
exchange and national securities
association to establish, maintain, and
enforce rules that, among other things,
require its members to reasonably avoid
displaying quotations that lock or cross
any protected quotation in an NMS
stock and that prohibit its members
from engaging in a pattern or practice of
displaying quotations that lock or cross
any protected quotation in an NMS
stock, absent an applicable exception.
Under the proposed amendments to the
definition of protected bid or protected
offer, ‘‘protected quotation’’ will refer to
displayed, automated quotations that
are the best bids or offers of at least 100
shares of a national securities exchange
or association. As a result, quotations in
the new, smaller proposed round lot
sizes would not be subject to Rule
610(d) and could be locked or
crossed.255
As with Rule 611, the locked and
crossed markets provisions of Rule 610
continue to be the subject of much
debate, with some arguing that they
create additional market complexity
without a clear benefit.256 Recently, a
253 See
supra notes 241–244 and accompanying
text.
254 See
supra note 245.
example, pursuant to the proposed
definitions of round lot and protected bid or offer,
a 20 share buy order for a stock that had an average
monthly closing price of between $50.01 and
$100.00 could be locked or crossed.
256 See Memorandum to EMSAC from the
Subcommittee, supra note 236; Letter from Joanna
Mallers, Secretary, FIA Principal Trading Group, to
Brent J. Fields, Secretary, SEC, 2–3 (Mar. 13, 2017),
available at https://www.sec.gov/comments/s7-2116/s72116-1686170-149597.pdf (recommending the
Commission review Rule 610(d) in light of
increased complexity associated with restrictions
on locking and crossing quotations); Letter from
William R. Harts, CEO, Modern Markets Initiative,
to Brent J. Fields, Secretary, SEC (Dec. 9, 2016),
available at https://www.sec.gov/comments/s7-2116/s72116-9.pdf (recommending the Commission
review the prohibition on locking or crossing
255 For
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16749
Subcommittee of the Commission’s
EMSAC advocated that the EMSAC
recommend that the Commission
consider repealing the locked and
crossed markets provisions of Rule 610
on a pilot basis to test its impact, in
conjunction with an access fee pilot.257
In light of the concerns about the
existing scope of the locked and crossed
markets provisions of Rule 610, the
Commission preliminarily believes that
such provisions should not be extended
to smaller sized quotations reflected in
the proposed definition of round lot. In
addition, the Commission preliminarily
believes that market forces, such as the
economic incentives of market
participants to obtain the best price and
resolve locked or crossed markets, as
well as improvements in trading and
order routing technology,258 are
sufficient to mitigate excessive locking
or crossing of quotations in the new
round lot sizes and to resolve such
locked or crossed markets efficiently.
The Commission requests comment
on the proposed amendments to the
definition of protected bid or protected
offer in proposed Rule 600(b)(69). In
particular, the Commission solicits
comment on the following:
29. Do commenters believe that the
Commission’s proposed amendments to
the definition of protected bid or
protected offer are an effective way to
continue to require order protection for
100 share orders but not for smaller
orders, or would an alternative be
better? Please explain.
30. Do commenters believe that the
definition of NBBO should reflect the
proposed round lot sizes or should it
remain consistent with the 100-share
protected quotation? Why or why not?
31. Do commenters believe that Rule
611 should be extended to orders in the
smaller round lot sizes set forth in the
proposed definition of round lot? Why
or why not? If Rule 611 were to be
extended to the proposed smaller round
lot sizes, would there be any negative or
unintended consequences? Please
explain in detail.
32. Do commenters believe it would
be costly for market participants to
adjust procedures and systems to
comply with Rule 611 and prevent
trade-throughs at the smaller round lot
sizes? Please describe the necessary
changes and any consequent costs in
detail.
33. Do commenters believe it would
be costly for market participants to
quotations in light of the unnecessary complexity
and investor confusion).
257 See Memorandum to EMSAC from the
Subcommittee, supra note 236.
258 See supra notes 241–244 and accompanying
text.
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adjust procedures and systems to
comply with Rule 611 and prevent
trade-throughs at 100 share order sizes
when the new round lot size may be
smaller? Please describe the necessary
changes and any consequent costs in
detail. Please also discuss how this
differs meaningfully from today, if at all,
for market participants that are
currently using proprietary data feeds
that include odd-lot information.
34. Do commenters believe that the
best execution obligation, combined
with the greater transparency that the
Commission is proposing for smallersized orders in higher-priced stocks, is
sufficient, in the absence of the order
protection rule, for market participants
to engage with the liquidity represented
by orders in the proposed round lot
sizes to obtain the best execution for
smaller-sized customer orders?
35. Should the Commission maintain
the applicability of Rule 611 to the
small number of stocks 259 that currently
have a round lot other than 100? Why
or why not?
36. Do commenters agree with the
proposal not to extend Rule 610’s
locking and crossing requirements to
orders with the proposed smaller-round
lot sizes? If not, why not? Do
commenters have views or data on the
frequency with which smaller-sized
orders would be locked or crossed?
Please explain. Would it be costly to
apply locking and crossing prevention
mechanisms to the new round lot sizes?
Please explain.
(iii) Proposed Amendments to the
Definition of National Best Bid and
National Best Offer
Today, the NBBO is calculated by the
exclusive SIPs and disseminated over
the consolidated tapes.260 The NBBO is
defined in Rule 600(b)(43) as the best
bid and best offer 261 for an NMS
security 262 that is calculated and
disseminated on a current and
continuous basis by the exclusive SIPs.
The definition further provides that if
two or more market centers transmit
259 See
supra note 141.
addition, market participants that purchase
exchange proprietary feeds may calculate their own
NBBOs for their internal purposes.
261 As discussed above, the best bid or best offer
for an NMS stock of an exchange may contain
multiple prices that are better than the best bid or
best offer to the extent that an exchange aggregates
better priced odd-lots and provides them to the
exclusive SIPs at the least aggressive price that
forms a round lot.
262 The definition of NMS security is broader than
NMS stock and includes ‘‘any security or class of
securities for which transaction reports are
collected, processed, and made available pursuant
to an effective transaction reporting plan, or an
effective national market system plan for reporting
transactions in listed options.’’ 17 CFR 242.600(47).
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260 In
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identical bids or offers for an NMS
security, the best bid or best offer shall
be determined by ranking all identical
bids or offers first by size (giving the
highest ranking to the bid or offer
associated with the largest size) and
then by time (giving the highest ranking
to the bid or offer received first in time).
Accordingly, the NBBO reflects one
market center that is the best bid and
one market center that is the best offer
across all market centers.
As noted above, the proposed round
lot definition would affect the
calculation of the NBBO by requiring
that the best bids and offers transmitted
by the SROs to be in the new round lot
sizes.263 Accordingly, the proposed
definition of round lot, if adopted,
would result in an NBBO that reflects
the smaller round lot sizes.
The proposed definition of round lot
does not necessitate changes to the
definition of NBBO. However, as
discussed further below, the
Commission is proposing a
decentralized consolidation model
where competing consolidators and selfaggregators would replace the exclusive
SIPs. Therefore, the Commission is
proposing amendments to the definition
of NBBO to reflect that competing
consolidators and self-aggregators,
rather than the exclusive SIPs, would be
calculating the NBBO in the proposed
decentralized consolidation model. In
addition, to accommodate this proposed
decentralized consolidation model, the
Commission is proposing to bifurcate
the NBBO definition between NMS
stocks and other NMS securities (i.e.,
listed options) to reflect that the
proposed decentralized consolidation
would apply only with regard to NMS
stocks, and therefore the exclusive SIP
for options would continue to be
responsible for calculating and
disseminating the NBBO in listed
options.264 The proposed changes to the
definition of NBBO would not impact
the manner in which the NBBO is
calculated for NMS stocks or listed
options.
Specifically, the NBBO for an NMS
stock would be the best bid and best
offer for such stock that is calculated
and disseminated on a current and
continuing basis by a competing
consolidator or calculated by a selfaggregator.265 The Commission is
proposing to remove references to a plan
processor for NMS stocks because under
263 See
supra Section III.C.1(d)(i).
competing consolidator model described
herein addresses the current market data
infrastructure for NMS stocks and not the exclusive
SIP for options. See infra note 417.
265 See infra notes 499–502 and accompanying
text.
264 The
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the proposed decentralized
consolidation model, there would not be
plan processors. Further, competing
consolidators and self-aggregators
would have to calculate the NBBO in
the same manner as it is calculated by
the exclusive SIPs today, including the
method currently set forth in the
definition of NBBO for determining the
best bid or offer in the event that two
or more market centers transmit
identical bid or offer prices.
The Commission requests comment
on the proposed amendments to the
definition of national best bid and
national best offer in proposed Rule
600(b)(50). In particular, the
Commission solicits comment on the
following:
37. What are commenters’ views on
the proposed amendments to the
definition of national best bid and
national best offer? Do the proposed
amendments make appropriate
adjustments to the definition to
accommodate the proposed introduction
of a consolidated market data
distribution model with competing
consolidators and self-aggregators? Are
any additional amendments needed,
whether to the definition of NBBO or to
other provisions? Please be specific.
2. Depth of Book Data
Core data currently lacks quotation
information in NMS stocks beyond the
best round lot quotes of each SRO,
commonly referred to as the ‘‘top of
book.’’ However, as regulatory changes
and market developments, such as
decimalization, have increased the
significance of information on quotes
away from the best prices,266 some have
suggested that core data be expanded to
include certain depth of book data (i.e.,
quotations and aggregate size at prices
outside the BBO).267
The Commission is proposing to
define core data to include certain
266 See
infra notes 276–277 and accompanying
text.
267 See, e.g., Roundtable Day One Transcript at
120 (Jeff Brown, Charles Schwab) (‘‘So our
recommendation for this panel and for this day is
that the SEC move to impose . . . depth of book on
the SIP.’’). Suggestions for enhancing core data,
however, have failed to garner the support by
participants to the Equity Data Plans necessary for
action. See infra Section III.C.2(c); supra note 164
and accompanying text; supra Section II.A
(discussing the distinction between the exclusive
SIPs and proprietary DOB data feeds and market
participants’ views regarding their ability to use
core data to be competitive in today’s markets and
provide best execution to their customers). See also,
e.g., NYSE Sharing Data-Driven Insights—Stock
Quotes and Trade Data: One Size Doesn’t Fit All
(Aug. 22, 2019), available at https://www.nyse.com/
equities-insights#20190822 (proposing to replace
the exclusive SIP feeds with three tiered levels of
service, including certain DOB data, based on the
needs of specific types of investors).
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‘‘depth of book data.’’ Specifically,
depth of book data would be defined to
include aggregated quotes at each price
between the best bid (and best offer) and
the protected bid (and protected offer)
(if different), as well as the five price
levels above the protected offer and
below the protected bid.268 The
Commission preliminarily believes this
approach would approximate the level
of liquidity information available to
market participants at the best bid or
offer prior to decimalization and enable
market participants to use proposed
core data to trade in a more informed
and effective manner.269
(a) Regulatory Background
Regulation NMS and the Equity Data
Plans neither require nor prohibit the
collection, consolidation, or
dissemination of depth of book data.
Rule 602 requires that national
securities exchanges and associations
make available their best bids and best
offers, which are defined in Rule
600(b)(8) as the highest priced bid and
lowest priced offer. Similarly, Rule
603(b) requires the dissemination of an
NBBO, and the definition of NBBO in
Rule 600(b)(43) refers to best bids and
best offers. Market participants that
want depth of book data for trading
must rely upon the proprietary feeds
offered by the exchanges, which include
varying degrees of depth of book
data.270
In adopting Regulation NMS, the
Commission considered the scope of
quotations to which trade-through
protection should apply under Rule 611.
The Commission decided to apply Rule
611 to protected quotations 271 but not
to depth of book quotations.272
268 See
supra Section III.C.1(d).
See also infra notes 310–313 and
accompanying text (describing how depth of book
data can be used to optimize order placement and
to provide directional signals regarding near-term
market movements.).
270 For example, CBOE One Premium offers five
levels of aggregated depth while NYSE XDP
Integrated, Nasdaq Total View, and CBOE Depth
offer complete depth of book.
271 See supra note 115.
272 Specifically, the Commission considered a
‘‘Voluntary Depth Alternative’’ under which, in
addition to protecting the best bids and offers of
each SRO (the Market BBO Alternative), depth of
book quotations that markets voluntarily
disseminate in the consolidated quotations stream
would be protected as well. See Regulation NMS
Adopting Release, supra note 10, at 37529. The
Commission decided to adopt the Market BBO
Alternative, explaining that it would represent a
major step toward achieving the objectives of
intermarket price protection but with fewer of the
costs and drawbacks associated with the Voluntary
Depth Alternative. The Commission noted that the
Market BBO Alternative will promote best
execution for retail investors on an order-by-order
basis, given that most retail investors justifiably
expect that their orders will be executed at the
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Similarly, the Commission determined
not to require that depth of book
quotations be included in core data,
reasoning that investors who needed
depth of book data would be able to
obtain that data from markets or thirdparty vendors.273 However, the
Commission acknowledged that depth
of book data is important to investors
and updated former Exchange Act Rule
11Ac1–2 (redesignated as Rule 603) to
address the independent dissemination
of depth of book and other market data
by the exchanges.274 After the adoption
of Regulation NMS in 2005, exchanges
began to sell their proprietary data
products separately from the core data
required by Rule 603(b) of Regulation
NMS.275
increasingly important as decimal
trading has spread displayed depth
across a greater number of price
points.’’ 277
Since the implementation of
decimalization, market participants
have raised concerns about reduced
price transparency and difficulty
executing large transactions at the best
prices due to lower concentrations of
trading interest at the top of book.278 In
the Report to Congress on
Decimalization, required under Section
106 of the Jumpstart Our Business
Startups Act, Commission staff noted
academic literature that found that
quoted depth, on average, declined after
decimalization.279
(b) Market Evolution
The decimalization of securities
pricing in 2001, and the resulting shift
away from the larger fractional quoting
and trading increments,276 had
significant implications for the amount
of liquidity available at the top of book,
the transparency of order book liquidity,
and the need for market participants to
obtain depth of book information. With
the larger quoting and trading
increments associated with fractional
quoting, such as one-sixteenth of a
dollar, trading interest was distributed
across fewer price points and more
liquidity (i.e., aggregate order interest)
was concentrated at the top of book. For
example, as the Commission noted in
adopting Regulation NMS, ‘‘depth-ofbook quotations have become
(c) Comments and Roundtable
Discussion
NBBO and that the Market BBO Alternative would
not require an expansion of the data disseminated
through the exclusive SIP Plans. Id. at 37530.
273 See Regulation NMS Adopting Release, supra
note 10, at 37567. In making that determination, the
Commission stated that this would be ‘‘a
competition-driven outcome [that] would benefit
investors and the markets in general.’’ See id. at
37530.
274 See Regulation NMS Adopting Release, supra
note 10, at 37565; 17 CFR 242.603(a)(2) (an
exchange ‘‘that distributes information with respect
to quotations for or transactions in an NMS stock
to a securities information processor, broker, dealer,
or other persons shall do so on terms that are not
unreasonably discriminatory’’). While the preRegulation NMS rules did not prohibit the
independent distribution of quotes by individual
SROs, Rule 603(a) was intended to impose
‘‘uniform standards’’ to such distribution (i.e., the
‘‘fair and reasonable’’ and ‘‘not unreasonably
discriminatory’’ standards). See Regulation NMS
Adopting Release, supra note 10, at 37569. Prior to
Regulation NMS, however, SROs and their members
were prohibited from disseminating their trade
reports independently. Id. at 37589.
275 See supra note 19 and accompanying text.
276 See Securities Exchange Act Release No.
42914 (June 8, 2000), 65 FR 38010 (June 19, 2000)
(directing the National Association of Securities
Dealers and the national securities exchanges to act
jointly in developing a plan to convert their
quotations in equity securities and options from
fractions to decimals).
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These developments have led market
participants to call for depth of book
data to be distributed through the Equity
Data Plans. In connection with the
Roundtable, several panelists and
commenters recommended adding
depth of book data to SIP data or
otherwise emphasized their views about
277 Regulation NMS Adopting Release, supra note
10, at 37592; see also Securities Exchange Act
Release No. 50870 (Dec. 16, 2004), 69 FR 77424
(Dec. 27, 2004) (‘‘the initiation of trading in penny
increments in 2001 transformed the equity markets.
The number of quotation updates increased, and the
quoted size at any particular price level dropped’’).
278 See, e.g., Regulation NMS Adopting Release,
supra note 10, at 37529 (noting a comment from the
Consumer Federation of America concerning
‘‘complaints that decimal pricing has reduced price
transparency because of the relatively thin volume
of trading interest displayed in the best bid and
offer’’); Letter from Craig S. Tyle, General Counsel,
Investment Company Institute, to Jonathan G. Katz,
Secretary, Commission (Nov. 20, 2001), available at
https://www.sec.gov/rules/concept/s71401/
tyle1.htm#P41_3920 (‘‘As we have previously
noted, the reduction in quoted market depth as the
minimum quoting increment has narrowed to a
penny has adversely affected institutional investors’
ability to execute large orders . . . Preliminary data
has shown that, post-decimalization, it has become
more difficult for large institutional orders to be
filled entirely at the inside.’’).
279 Report to Congress on Decimalization, 10–11
(July 2012), available at https://www.sec.gov/news/
studies/2012/decimalization-072012.pdf.
Cumulative depth at competitive prices did not
change, however. Id. See also Phil MacKintosh,
What is Liquidity? (Dec. 12, 2019), available at
https://www.nasdaq.com/articles/what-is-liquidity2019-12-12 (stating that while smaller quantity of
the NBBO and smaller average trade sizes may
suggest falling liquidity, depth of book liquidity
suggests that overall liquidity is stronger than ever
before); Citadel Securities Market Lens—Has Market
Structure Evolution Made Equities Less Liquid
(Sep. 2019), available at https://
s3.amazonaws.com/citadel-wordpress-prd102/wpcontent/uploads/sites/2/2019/09/27211934/MarketLens-Has-Market-Structure-Evolution-MadeEquities-Less-Liquid.pdf (analyzing full depth of
displayed liquidity from the exchanges’ proprietary
data feeds and finding that liquidity remained
stable over the past eight years).
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the importance of depth of book data.280
One panelist stated that the exclusive
SIPs could be upgraded and made
‘‘relevant again’’ by adding depth of
book data, which would benefit retail
investors by giving them information on
which direction a stock may be moving
and what type of order they may need
to use.281 Another panelist stated that
both his firm and the brokers it employs
cannot rely solely on SIP data, as they
believe they need depth of book data to
have a full view of the market and to
trade competitively, particularly with
respect to large orders.282 One
commenter stated that the Commission
should require depth of book data to be
included in SIP data and recommended
adding at least five levels of depth.283
Some panelists and commenters went
further, suggesting that depth of book
data (or data provided on the exchange
proprietary feeds more generally) is
needed to fulfill best execution
obligations.284 One panelist stated that
paying for full depth of book data from
each exchange is essential to effective
order routing and to fulfilling best
280 See Roundtable Day Two Transcript at 245
(Tyler Gellasch, Healthy Markets) (stating that the
exclusive SIPs should include depth of book data
(as well as auction imbalance data and odd-lot
quote data)); Roundtable Day One Transcript at
228–29 (Joseph Wald, Clearpool Group) (explaining
that the lack of depth of book and auction data on
the exclusive SIP feeds needs to be addressed);
Letter to Brent J. Fields, Secretary, Commission,
from Joe Wald, Chief Executive Officer, The
Clearpool Group (Oct. 23, 2018) (‘‘Clearpool Group
Letter’’) (‘‘We believe that certain information
currently provided through proprietary data feeds,
for example, imbalance data and order depth-ofbook information, should be considered core data
and provided to all market participants through the
SIP.’’); MFA and AIMA Letter at 6 (stating that its
members ‘‘purchase proprietary market data (e.g.,
depth-of-book and imbalance data) from exchanges
for a variety of reasons, including strategy
implementation, risk-analysis, best-execution, less
latency than other sources and to fulfill fiduciary
obligations.’’).
281 See Roundtable Day One Transcript at 119–
120 (Jeff Brown, Charles Schwab).
282 See Roundtable Day One Transcript at 136,
165–66 (Simon Emrich, Norges Bank Investment
Management).
283 See SIFMA Letter II at 2 (stating that retail
firms generally use one level of depth for order
routing and institutional firms generally use up to
five levels of depth (sometimes as much as ten) and
that the Commission should balance the need for
more comprehensive information with the
additional cost and potential increase in latency
from including additional quotes, as well as adjust
the exclusive SIP subscriber fee model to account
for firms that do not need depth of book data).
284 See Roundtable Day One Transcript at 192–
193 (Jamil Nazarali, Citadel Securities) (stating that
proprietary feeds are required for best execution);
Roundtable Day One Transcript at 48 (Prof. Hal
Scott, Committee on Capital Markets Regulation)
(making a similar statement); Roundtable Day Two
Transcript at 58–59 (Prof. Robert Bartlett, UC
Berkeley) (making a similar statement); MFA and
AIMA Letter at 3–4 (stating that broker-dealers that
do not have depth of book information will be
challenged to provide best execution).
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execution obligations, noting that if his
firm did not get depth of book—top of
book and many levels away—it could
not provide best execution to its
clients.285 Another commenter noted
that broker-dealers do not have the
option to forgo buying proprietary data
because SIP data has less content and is
slower, and that, even if the
Commission provided a safe harbor that
best execution requirements may be
satisfied by relying on SIP data, buying
proprietary data would still be
necessary from a business
perspective.286
However, some panelists were
reluctant to embrace the idea of adding
depth of book data to SIP data and
pointed out possible negative impacts
from doing so. One panelist
representing a retail brokerage firm
stated that depth may be important for
active traders and that his firm has
platforms that incorporate it but added
that depth is less important for retail
investors who trade infrequently and
that some of his firm’s platforms do not
incorporate it.287 This panelist also
stated that there could be technological
challenges and latency implications
(i.e., added latency associated with the
need to process additional message
traffic) to adding depth of book data to
SIP data.288 Furthermore, several
panelists noted that adding depth of
book data to the SIP data, particularly
on an order-by-order basis, could be
confusing, but some suggested that the
data could be aggregated at certain price
levels or otherwise simplified.289
285 See Roundtable Day One Transcript at 27, 57–
58, 73 (Doug Cifu, Virtu Financial); Letter to Brent
J. Fields, Secretary, Commission, from Douglas A.
Cifu, Chief Executive Officer, Virtu Financial Inc.,
4 (Oct. 23, 2018) (‘‘Virtu Letter I’’) (‘‘Simply put,
Virtu could not fulfill its obligations to its myriad
of retail customers and institutional clients without
full depth of book market data feeds and robust
exchange connectivity features that the SIP feeds
alone do not offer.’’).
286 See Letter to Brent J. Fields, Secretary,
Commission, from Mehmet Kinak, Global Head of
Systematic Trading and Market Structure, and
Jonathan D. Siegel, Vice President—Senior Legal
Counsel, T. Rowe Price, 2 (Jan. 10, 2019) (‘‘T. Rowe
Price Letter’’).
287 See Roundtable Day One Transcript at 162–
163 (Matt Billings, TD Ameritrade).
288 Id.; see also Roundtable Day Two Transcript
at 74 (Michael Blaugrund, NYSE).
289 See Roundtable Day One Transcript at 227
(Chris Isaacson, Cboe) (stating that he would not go
as far as to add depth of book data to the
consolidated market data, stating that doing so
could potentially cause confusion, and emphasizing
the difference between the plan processors and nonSIPs); Roundtable Day One Transcript at 230
(Ronan Ryan, IEX) (stating that adding depth data
could be confusing, but suggesting that perhaps
there could be simpler alternatives, such as an
aggregated size at each price level rather than orderby-order); Roundtable Day One Transcript at 232
(Michael Friedman, Trillium Management)
(suggesting that perhaps some abbreviated version
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In addition, some commenters stated
that depth of book data is unnecessary
for best execution and not useful for
retail investors and other market
participants.290 In an article submitted
to the comment file for the Roundtable,
one commenter expressed the view that
depth of book data is not helpful for
many types of market participants,
citing a 2014 statistic that only 3.3% of
all trades take place outside the NBBO,
where depth of book information would
be particularly useful. The commenter
also noted that the Commission has
stated that depth of book data is not
necessary for a broker to comply with its
best execution obligations.291
(d) Commission Discussion and
Proposal
Decimalization led to a dispersion of
quoted volume away from the top of
book.292 Consequently, the top of book
(or NBBO) currently shown in SIP data
has become less informative, and some
market participants have come to view
depth of book data as essential both to
their efforts to trade competitively and
to provide best execution to customer
orders.293 The Commission
preliminarily believes that: (1) The lack
of depth of book information in SIP data
creates a significant information
asymmetry between SIP data and
proprietary data; and (2) the availability
of the additional information could help
enhance the best execution analyses of
market participants who currently rely
solely on SIP data.
Accordingly, the Commission
preliminarily believes that core data, as
proposed, should include certain depth
of book data, including aggregated
orders at each price between the best
of depth rather than full depth of book could be
added to the consolidated market data); Roundtable
Day Two Transcript at 70 (Adam Nunes, Hudson
River Trading) (cautioning against trying to force
every market’s depth of book into a single feed).
290 See Letter to Brent J. Fields, Secretary,
Commission, from Thomas Wittman, Executive
Vice President, Head of Global Trading and Market
Services and CEO, Nasdaq Stock Exchange, 11 (Oct.
25, 2018) (‘‘Wittman Letter’’) (‘‘Main Street
investors do not need the exchanges’ proprietary
depth-of-book data offerings, and the fact that some
firms choose to purchase them has no adverse
consequence to the Main Street investor. Nearly
97% of trades occur at or within the NBBO,
reflecting that most customers do not require any
sort of depth-of-book data.’’); NYSE Group Letter at
13 (‘‘NYSE Group believes that the Commission’s
prior conclusion that retail investors do not need
depth-of-book data has not changed.’’).
291 See Letter to Brent J. Fields, Secretary,
Commission, from Charles M. Jones, Robert W. Lear
Professor of Finance and Economics, Columbia
Business School, 15–16 (Oct. 21, 2018) (‘‘Jones
Letter’’) (citing Securities Exchange Act Release No.
59039, supra note 242).
292 See supra Section III.C.2(b).
293 See supra notes 278, 280–286 and
accompanying text.
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bid and best offer and the protected bid
and protected offer (if different), as well
as several price levels above and below
the protected bid and protected offer.
The Commission believes that the
number of additional price levels
should strike an appropriate balance by
significantly enhancing the utility of
proposed core data for a wide range of
market participants, without risking the
excessive message traffic 294 or
complexity that might result from the
inclusion of full depth of book
information in proposed core data. The
Commission preliminarily believes that
this balance is appropriately struck at
five price levels (below and above the
protected bid and protected offer) as this
would approximate the level of liquidity
available to market participants at the
best bid or offer prior to
decimalization.295 The Commission is
seeking comment on whether and to
what extent depth of book data should
be included in the proposed definition
of core data.
Specifically, under proposed Rule
600(b)(25), ‘‘depth of book data’’ would
be defined as all quotation sizes at each
national securities exchange, aggregated
at each price at which there is a bid or
offer 296 that is lower than the best bid
down to the protected bid and higher
than the best offer up to the protected
offer; and all quotation sizes at each
national securities exchange, aggregated
at each of the next five prices at which
there is a bid that is lower than the
protected bid and offer that is higher
than the protected offer.
Although the Commission determined
not to add depth of book data to core
294 As discussed below, aggregated quotation
sizes at the price levels between the best quotes and
protected quotes and the five levels above and
below the protected quotes, particularly for the
most liquid stocks, represent only a subset of all
depth of book price levels at which there are
quotations and could hence be represented in fewer
messages.
295 Prior to decimalization, when stocks were
quoted in sixteenths of a dollar ($0.0625), there
were five one cent increments between each
permissible quoting increment. For example,
market participants could bid $20.0625 or bid
$20.125 but not $20.07, $20.08, $20.09, $20.10,
$20.11. Decimalization permitted quoting at these
intermediate, one-cent price levels, spreading
quotation volume to these price levels. As a result
of the Commission’s proposal to define depth of
book data to include aggregated quotation sizes at
the five levels above and below the protected
quotations, the proposed core data would provide
transparency into the quotation interest that is
comparable to the information that was available at
the top of the book prior to decimalization.
296 See supra Section III.C.1(d)(i) for a discussion
of the proposed definition of round lot and its effect
on the terms bid and offer. As discussed above, bids
and offers would reflect the proposed round lot
sizes. See also Section III.C; supra note 128 and
accompanying text for a discussion of proposed
odd-lot aggregation.
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data in adopting Regulation NMS,297 the
Commission recognizes that the market
data needs of market participants
continuously evolve. Demand for more
content-rich exchange proprietary feeds
has increased substantially in the years
since the adoption of Regulation NMS,
indicating a growing need by market
participants for additional data,
including depth of book data,298 in the
increasingly fast, electronic, and
dispersed markets that have developed
since 2005.299 The Commission
preliminarily believes that enriching the
content of the data that is made
available to investors and market
participants by including depth of book
data, as defined, in the proposed core
data would promote fairer markets by
reducing the information asymmetry
between market participants who
subscribe to the exchanges’ proprietary
depth products and those who rely on
SIP data. In addition, the Commission
preliminarily believes that many market
participants would find depth of book
data useful for trading in a more
informed and effective manner in
today’s markets.
As proposed, core data would include
the best bids and offers and the
protected quotes of each exchange,
which market participants need to
comply with legal and regulatory
requirements, such as the duty of best
execution and Rule 611. The
Commission preliminarily believes that
information on any trading interest
between the best bids or offers and the
protected quotes, if they are different,
would be of keen interest to market
participants. Therefore, the Commission
is proposing to include aggregated
quotation sizes at each price where
there is a bid or offer in that range in
the definition of depth of book data.
However, the Commission
preliminarily believes that not all
individual quotations away from the
best prices should be added to proposed
core data. While there may be some
market participants that need total
visibility into exchange order books, the
Commission does not believe, at this
time, that complete depth of book data
should be required to be made available
as proposed core data. The addition of
complete, order-by-order depth of book
data to proposed core data would
represent an enormous volume of
information, which could increase
latencies in the provision of proposed
297 See
supra note 48.
supra note 275, 277–278 and
accompanying text.
299 See supra notes 241–244 and accompanying
text; infra notes 310–313 and accompanying text
(discussing how depth of book data is used in order
placement and other trading decisions).
298 See
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core data and introduce complexity that
might impair the usability of such data
for many subscribers. The Commission’s
proposed definition of depth of book
data is intended to incorporate into core
data additional quotation information
that would be useful to a broad array of
market participants for trading 300 and to
thereby further the goals of the national
market system.301 The Commission is
not supplanting the proprietary depth
offerings of the exchanges that contain
additional content and that may be more
appropriate for certain market
participants or more specialized use
cases.
The Commission recognizes that
market participants have diverse market
data needs. The discussions at the
Roundtable and the comments received,
however, suggest that many market
participants need more than the best
bids, best offers, and the NBBO
disseminated by the exclusive SIPs in
order to trade competitively and to
optimize the placement of customer
orders.302 As noted above, the
Commission’s proposed definition of
depth of book data seeks to approximate
the quotes that market participants were
able to access on the exclusive SIPs
prior to decimalization, which the
Commission preliminarily believes
would significantly enhance the
usefulness of proposed core data. The
Commission preliminarily believes that
its proposed definition of depth of book
data strikes a balance between
enhancing the usefulness of core data
for the many market participants that
cannot rely entirely on SIP data, and
limiting the amount of data
disseminated to limit complexity and
the processing demand on systems for
market participants that do not need full
depth of book visibility.303 The
300 Section 11A(c)(1)(B) of the Exchange Act, 15
U.S.C. 78k–1(c)(1)(B) (stating that the Commission
shall prescribe rules to ‘‘assure . . . the fairness and
usefulness of the form and content of’’ information
with respect to quotations for or transactions in
securities).
301 See, e.g., 15 U.S.C. 78k–1(a)(1)(C) (‘‘The
Congress finds that . . . [i]t is in the public interest
and appropriate for the protection of investors and
the maintenance of fair and orderly markets to
assure—(i) economically efficient execution of
securities transactions; (ii) fair competition among
brokers and dealers, among exchange markets, and
between exchange markets and markets other than
exchange markets; (iii) the availability to brokers,
dealers, and investors of information with respect
to quotations for and transactions in securities; (iv)
the practicability of brokers executing investors’
orders in the best market; and (v) an opportunity
. . . for investors’ orders to be executed without the
participation of a dealer.’’).
302 See supra text accompanying notes 280–286.
303 As discussed above, the inclusion of a limited
number of price levels in the proposed definition
of depth of book data means that fewer data
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proposed definition of depth of book
seeks to balance the needs of different
market participants, while reducing the
information asymmetries that exist
today in the provision of SIP data and
proprietary data.
Staff believes that there is a
substantial amount of quotation volume
several levels below the best bid and
above the best offer. For example, staff
reviewed depth of book quotations for
corporate stocks using data from July 19,
2019. This analysis revealed that for this
day, indeed, there was substantial
quotation volume several levels below
the best bid (the ask side was not
examined). During active parts of the
trading day, there is quotation interest at
every $0.01 increment at least ten levels
out for the most liquid stocks; for the
least liquid stocks, there is a large gap
between the best bid and the next
highest bid, and large gaps are generally
also present between the next several
bid levels. This is consistent with the
Commission’s proposal to define the
depth of book price levels as the first
five levels ‘‘at which there is a bid or
offer,’’ rather than alternatives such as a
fixed $0.05 band around the best quotes,
since the former would capture much of
the depth of book quotation information
for less liquid stocks.304 In addition, the
staff review found a significant
percentage of the total notional value of
all depth of book quotations for both
liquid and illiquid stocks falls within
the first five price levels. The
Commission preliminarily believes that
messages would be required than would be the case
if full depth of book was proposed. See supra note
294. Accordingly, the proposal would place lower
processing demands on systems than if full depth
of book data were included in the definition of
depth of book data. Similarly, commenters have
recommended the addition of five levels of depth
to core data, emphasizing the importance of
‘‘balanc[ing] the need for more comprehensive
information with the additional cost and potential
increase in latency from including additional
quotes.’’ See supra note 283; SIFMA Letter II at 2.
The Commission is soliciting comment on the
extent of depth of book data that best strikes this
balance, specifically by seeking quantitative data
from market participants regarding any complexity
or processing implications associated with the
proposed definition of depth of book data.
304 Moreover, because a ‘‘bid or offer’’ is defined
in terms of ‘‘round lot,’’ the proposed definition of
round lot in effect would establish a minimum size
requirement for depth price levels so that, for
example, a small number of one share orders at an
away price for a stock whose prior calendar month’s
average closing price on the primary listing
exchange was under $50 would not count as one
of the price levels. The Commission acknowledges
that the inclusion of price levels ‘‘at which there is
a bid or offer’’ in the proposed definition of depth
of book data could include quotations beyond what
would have been available at the top of the book
prior to decimalization for less liquid stocks, but
believes that this approach would approximate the
level of liquidity available at the top of the book
prior to decimalization for more liquid stocks.
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requiring aggregated quotation
information at the first five price levels
above and below the protected quote
range is a reasonable way to delineate
the trading interest that would be useful
to a variety of market participants to
support more effective quoting and
trading. On the other hand, while
quotations at price levels further away
from the best bid and offer may be
relevant for market participants
handling very large orders or orders in
highly illiquid securities for which
liquidity at the top of the book and the
next five price levels is not sufficient to
fully execute the order, the Commission
preliminarily believes that liquidity at
price levels further away is less likely to
provide relevant or immediately
actionable information to many market
participants.305
While some market participants have
stated that depth of book data is
necessary to fulfill their best execution
obligations, other commenters disagreed
and pointed out that the Commission
previously stated that depth of book
data is not necessary for best
execution.306 Several factors are
considered in determining whether a
broker-dealer has ‘‘use[d] reasonable
diligence to ascertain the best
market’’ 307 for a customer order and
fulfilled its best execution
obligations.308 The Commission is not
stating that a broker-dealer must always
use all proposed depth of book data,
under all circumstances, to provide best
execution to its customers. However, the
Commission preliminarily believes that
the expanded set of proposed core data,
including the proposed depth of book
data, provides additional information
that in many circumstances would be
useful to a broker-dealer’s best
execution analysis.309
Where liquidity is distributed over
multiple price points and less liquidity
is available at the top of book,310 depth
305 See SIFMA Letter II at 2 (stating that SIFMA
members that are retail firms generally use one level
of depth for order routing, while SIFMA members
that are institutional firms generally use up to five
levels of depth, and sometimes as much as ten.).
306 See supra notes 284–291 and accompanying
text.
307 FINRA Rule 5310.
308 See Kurz v. Fidelity Management & Research
Co., 556 F.3d 639, 640 (7th Cir. 2009) (describing
the ‘‘duty of best execution’’ as ‘‘getting the optimal
combination of price, speed, and liquidity for a
securities trade’’); Geman v. SEC, 334 F.3d 1183,
1186 (10th Cir. 2003) (noting that ‘‘the duty of best
execution requires that a broker-dealer seek to
obtain for its customer orders the most favorable
terms reasonably available under the
circumstances’’ (quoting Newton v. Merrill, Lynch,
Pierce, Fenner & Smith, Inc., 135 F.3d 266, 270 (3d
Cir. 1998))).
309 See Order Execution Obligations Release,
supra note 245.
310 See supra notes 276–277.
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of book data is of increased importance
to market participants for a number of
reasons. Depth of book data can assist
SORs and electronic trading systems
with the optimal placement of orders
across markets. For example, the
Commission preliminarily believes that
the proposed depth of book data would
better inform traders on how to
optimally place liquidity taking orders
(i.e., marketable orders that execute
against the liquidity of resting limit
orders) that are larger than the displayed
best bid or best offer.311 In addition, the
Commission preliminarily believes that
proposed depth of book data would
assist market participants in
determining how best to use liquidity
providing orders (i.e., non-marketable
orders that will be posted on an
exchange’s order book without
immediately executing) at prices away
from the best bid or offer by providing
insight into the length of order book
queues.312 Finally, the Commission
preliminarily believes that the proposed
depth of book data would provide
market participants with directional
signals to help inform them about nearterm market movements based upon
aggregate market imbalance
information.313
311 For example, if a liquidity taking order is
larger than the displayed liquidity at the top of book
and seeks to access liquidity at additional price
level(s), then information about liquidity at other
price levels is valuable in determining where to
send an oversized order when trading in a market
ecosystem with multiple exchanges. See, e.g.,
Shmuel Baruch, Who Benefits from an Open LimitOrder Book?, Journal of Business, Vol. 78, No. 4,
1267–1306 (July 2005), available at https://
www.jstor.org/stable/10.1086/430860 (presenting
some theoretical results showing that liquidity
takers benefit more from an open limit order book).
312 For example, if a market participant using a
particular trading strategy wishes to post orders
passively at multiple price levels, depth of book
information is valuable in determining the order
book queue length (and therefore the ability to
achieve beneficial queue priority) at different
market centers. Further, depth of book data can
assist market participants’ trading strategies achieve
better queue placement across market centers. See
Roundtable Day One Transcript at 169 (Adam
Inzirillo, BAML) (‘‘So depth of book is important to
understand where you are potentially in the queue
when you aggregate yourself across the overall
market center.’’); Exegy, Checklist for Ensuring Best
Execution with Historical Trade Performance
Analysis (Dec. 6, 2018), available at https://
www.exegy.com/2018/12/checklist-best-executiontrade-performance-analysis/ (‘‘Liquidity can be
valuable for executing large volume orders because
the orders can be executed with minimal impact to
market price. However, very high liquidity can also
cause price volatility at a given exchange or time
interval that produces slippage. Queue position and
message volume are two valuable indicators of this
liquidity. A long depth of book or high message
volume may signal to traders to re-route an order
to a different exchange. However, without a
planned strategy for routing an order, slipping may
arise.’’).
´ lvaro Cartea, et al., Enhancing
313 See, e.g., A
Trading Strategies with Order Book Signals (Oct. 1,
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Several Roundtable panelists and
commenters raised potential concerns
regarding the addition of depth of book
data.314 The Commission preliminarily
believes its proposed definition of depth
of book data, and its proposal to
introduce a definition of core data and
a decentralized consolidation model for
the dissemination of proposed
consolidated market data more broadly,
are responsive to these concerns. With
respect to the view that depth of book
data could be confusing or not of
interest to all investors, the Commission
is not mandating the consumption of
five levels of depth data by all market
data subscribers. While, as discussed
below, competing consolidators must
calculate and generate consolidated
market data, as proposed, including
depth of book data, and offer it to
subscribers, competing consolidators
would not be prohibited from
developing and providing top of book
only or customized depth of book
products to customers who desire such
products.315 The effective national
market system plan(s) could offer a
variety of proposed consolidated market
data products geared toward particular
categories of end-users, and certain
exchanges, recently, have suggested
possible approaches for doing so.316
2015), available at http://www.smallake.kr/wpcontent/uploads/2015/11/SSRN-id2668277.pdf
(‘‘[O]ur measure of [volume] imbalance [in the limit
order book] acts as a strong predictor of the rate of
incoming [market orders] as well as the direction
and magnitude of price movements following a
[market order].’’); Charles Cao, et al., The
Information Content of an Open Limit-Order Book,
Journal of Futures Markets Vol. 29, No. 1, 16–41
(2009), available at http://
www.pbcsf.tsinghua.edu.cn/research/caoquanwei/
paper/10.The%20Information%20Content%20of
%20an%20Open%20Limit%20Order%20Book.pdf
(‘‘[T]he authors find that the order book beyond the
first step is modestly informative and that price
discovery measures suggest that the contribution of
the order book beyond the best bid and offer is
approximately 22%’’); Ke Xu, Martin D. Gould, and
Sam D. Howison, Multi-Level Order-Flow
Imbalance in a Limit Order Book, Mathematical
Institute, University of Oxford (Oct. 29, 2019)
(‘‘[W]e find that including net order flow deeper
into the limit order book improves the goodness-offit of the multi-level order-flow imbalance
regressions for all of the stocks in our sample, with
an improvement of about 65–75% for large-tick
stocks and about 15–30% for small-tick stocks. We
argue that in many practical applications,
improvements of this magnitude are economically
meaningful.’’).
314 See supra notes 287–289 and accompanying
text.
315 See supra Section III.A (explaining that
different market participants and different trading
applications have different needs for NMS
information, that the proposal to expand and
modernize the content of NMS information is
intended to address the needs of a broad crosssection of market participants, and that the
Commission is not specifying minimum data
elements needed to achieve best execution).
316 See, e.g., NYSE Equities Insights, Stock Quotes
and Trade Data: One Size Doesn’t Fit All (Aug. 22,
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With respect to the view that including
depth of book data could present
technical challenges and have latency
ramifications, the Commission
preliminarily believes the proposal to
add five levels of aggregated depth from
each exchange, rather than all order-byorder depth, is responsive to these
concerns.317 Restricting depth of book
data to the aggregate depth at each price
level would limit the number of
messages included within proposed
core data, making the technological
changes required more manageable and
mitigating latency concerns. Indeed, the
Commission’s proposed approach aligns
with some of these commenters’
suggestions that simpler and more
abbreviated versions of depth of book
data might be more workable.318
In addition, some commenters cited
statistics on the high proportion (97%)
of trades that execute at or within the
NBBO in support of their views that
depth of book data is not necessary for
retail investors or other market
participants.319 The Commission
preliminarily believes that, even if these
figures are accurate for the current
market, they do not, on their own,
persuade the Commission that it should
not propose to add depth of book data
to core data. The commenters, for
example, do not specify whether or not
the broker-dealers handling the orders at
issue had access to proprietary DOB
products for their automated trading
systems; if they did, depth of book data
may have been contributing to the
observed high at-or-within-the-NBBO
execution rates. For example, as
discussed above, depth of book data can
indicate the direction a stock price may
be moving, which some market
participants factor into the prices at
which they place limit orders.320
2019), available at https://www.nyse.com/equitiesinsights (proposing enhancing the exclusive SIPs by
offering depth of book, odd-lot quotes, and primary
auction imbalance information in three new tiers of
service, each of which would have different levels
of data content); infra Section IV.B.4.
317 Today, there are a number of private data
vendors that have developed software and
infrastructure solutions for consolidating several of
the most voluminous depth of book data feeds
across equity markets and are providing
consolidated depth of book products, which suggest
that technical challenges and latency concerns can
be addressed.
318 See supra note 289 and accompanying text.
319 See supra notes 290–291 and accompanying
text.
320 Similarly, depth of book data can provide
insight into the length of order book queues on
different exchanges and therefore the prices at
which limit orders can attain queue priority,
helping market participants pursue trading
strategies involving the placement of liquidityproviding orders that will not execute until the
NBBO changes. See supra note 312 and
accompanying text.
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Furthermore, in response to the
comments that retail investors do not
need depth of book data, the
Commission preliminarily believes that
there are different types of retail
investors that have different market data
needs and preferences. Some retail
investors may not need depth of book
information but other, more
sophisticated retail investors may find
depth of book data useful, as one
Roundtable panelist from a retail firm
stated.321 Further, while competing
consolidators would have to offer
proposed consolidated market data to
end-users, they also would be permitted
to develop products for their customers
that could be customized to their
customers’ needs.322 Therefore, a
competing consolidator could develop a
consolidated market data product that
does not contain proposed depth of
book data if there is demand.323 The
Commission’s proposal aims to provide
broker-dealers and other market
participants with improved access to
meaningful depth of book information,
so it can be used to improve order
placement or other trading decisions
and thereby potentially improve
execution quality for investors.
Finally, the proposed definition of
core data specifies that odd-lot
quotations at the relevant price levels
between the national best bid or offer
and the protected quotation, and at the
five price levels above and below the
protected quotation that can be
aggregated into at least a round lot,
would be included in depth of book
data. As discussed above, the
Commission preliminarily believes that
its proposed definition of round lot
reflects trading interest of meaningful
size to market participants. The
Commission further preliminarily
believes that trading interest that is of
less than meaningful size (i.e., an oddlot size), that together with other odd321 See supra note 281 and accompanying text. In
addition, another Roundtable panelist whose firm
handles the orders of retail customers indicated that
his firm needs depth of book data to fulfill its
obligations to its retail customers. See supra note
285.
322 See infra Section IV.B.1.
323 Competing consolidators would be required to
calculate and generate consolidated market data,
including depth of book data as set forth in the
Commission’s proposed definition, and to offer
such data to subscribers. See proposed Rule
614(d)(1)–(3). As explained above, the Commission
believes that the proposed depth of book data
would support the needs of some market
participants. See supra notes 301–305. However,
some market participants may not need the depth
of book data specified in the proposed definition.
As proposed, market participants would be able to
choose the components of consolidated market data
that meet their needs, consistent with regulatory
requirements, and purchase such data from
competing consolidators.
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lots aggregates into a round lot,
similarly represents trading interest of
meaningful size and should be
displayed at the most conservative price
at which such trading interest could be
accessed.324
The Commission requests comment
on the proposed inclusion of depth of
book data in the proposed definition of
core data and the definition of depth of
book data in proposed Rule 600(b)(25).
In particular the Commission solicits
comment on the following:
38. Should depth of book data be
included in the proposed definition of
core data? Why or why not? Do
commenters believe the proposed
definition of depth of book data would
have any negative or unintended
consequences? Why or why not?
39. Do commenters believe that the
Commission’s proposed definition of
depth of book data captures the
appropriate level of depth data that
should be included in the proposed
definition of core data? Why or why
not? Should the Commission include
more or fewer levels of depth or
otherwise revise the definition to
capture the key depth information that
would be useful to market participants?
For example, should the Commission
require depth only within a $0.05 band
of the protected bid and offer rather
than the first five price levels at which
there is interest?
40. Does the proposed definition of
depth of book data adequately balance
the need for more information against
potential increases in complexity and
processing demand that might result
from the addition of such depth of book
data? If not, where is this balance most
appropriately struck in terms of the
extent of depth of book data that should
be included in the proposed definition
of core data? Particularly, what
processing demands would be
associated with including varying levels
of depth of book data? Please consider
the proposed five levels of depth of
book as well as any other possible depth
of book alternatives. Please provide
quantitative data and analyses to
support your comments.
41. Do commenters believe that the
‘‘at which there is a bid or offer’’
language in the Commission’s proposed
definition of depth of book data
establishes an appropriate minimum
324 See supra notes 129–130, 157 and
accompanying text. To the extent that an SRO
provides proprietary data products for the purposes
of making consolidated market data available to
competing consolidators and self-aggregators, any
odd-lot quotations that are aggregated in an SRO’s
existing proprietary data products would be
required to be aggregated in a manner consistent
with the method set forth in the proposed definition
of core data. See proposed Rule 600(b)(20).
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size threshold (i.e., the existence of at
least a round lot of aggregated interest)
for inclusion as one of the five price
levels? Why or why not? Are there
alternative ways to set such a threshold,
such as price levels where the volume
of interest equals a certain percentage of
the volume at the best price?
42. Do commenters believe that oddlot quotes at the depth price levels that
aggregate into at least a round lot should
be included in the proposed definition
of core data? Why or why not?
43. The proposed definition of depth
of book data refers to depth of book
quotations on each national securities
exchange, as FINRA’s Alternative
Display Facility (‘‘ADF’’) currently does
not have quotations submitted to it.
Should the proposed definition be
formulated to include the depth of book
quotations of national securities
associations as well to account for the
possibility of OTC quotes being reported
to the ADF in the future? Why or why
not?
3. Auction Information
Even as the proportion of trades
executing in auctions has risen, little
auction information is currently
included in today’s SIP data.325 The
Commission is proposing to include
auction information, including auction
order imbalance and other auction data
generated by the exchanges during an
auction, in the proposed definition of
core data.326 The Commission
preliminarily believes that including
auction information, as described
below, in the proposed definition of
core data would promote the goals of
the national market system 327 by
conveying important information about
orders participating in auctions and
helping market participants to
325 See
infra notes 333–334 and accompanying
text.
326 See proposed Rule 600(b)(5). The definition of
auction information in proposed Rule 600(b)(5) is
‘‘all information specified by national securities
exchange rules or effective national market system
plans that is generated by a national securities
exchange leading up to and during an auction,
including opening, reopening, and closing auctions,
and disseminated during the time periods and at
the time intervals provided in such rules and
plans.’’ Accordingly, the proposed definition would
include auction information that may be developed
in the future and added to an SRO’s rules that are
approved by the Commission pursuant to Rule 19b–
4, 17 CFR 240–19b–4.
327 See, e.g., 15 U.S.C. 78k–1(a)(1)(C) (‘‘The
Congress finds that . . . [i]t is in the public interest
and appropriate for the protection of investors and
the maintenance of fair and orderly markets to
assure . . . the availability to brokers, dealers, and
investors of information with respect to quotations
for and transactions in securities . . . [and] the
practicability of brokers executing investors’ orders
in the best market.’’).
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participate in auctions in a more
informed and effective manner.
(a) Background
Auctions are held pursuant to
exchange rules at specified periods
during the trading day (i.e., at the open,
at the close, or during the day to reopen
a stock that has been halted) when
continuous trading is not occurring.
During an auction, buy and sell orders
generally interact at the single price,
within limits, that maximizes the
trading volume that can be executed.
For example, a closing auction generally
is held at the end of regular trading
hours on the primary listing exchange
pursuant to a process set forth in the
primary listing exchange’s rules to
determine a security’s official closing
price. Typically, market-on-close orders,
limit-on-close orders, and orders resting
on the primary listing exchange’s order
book at the time a closing auction begins
may participate in a closing auction.
However, the rules of a primary listing
exchange may also allow other specified
order types, such as closing offset orders
and D-orders on NYSE or imbalanceonly close orders on Nasdaq, to
participate in a closing auction.328 The
opening auctions, which generally are
held at the start of regular trading hours,
also use specialized order types as
specified in the rules of the primary
listing market.329
Auctions conducted by the exchanges,
especially opening and closing auctions,
have become increasingly important
liquidity events in recent years and
represent a significant proportion of
overall trading volume.330 One factor
328 See, e.g., NYSE Rule 7.31(d)(4) (A
Discretionary Order, or ‘‘D Order,’’ is a ‘‘Limit
Order that may trade at an undisplayed
discretionary price’’); NYSE Rule 13(c)(1) (A
Closing Offset, or ‘‘CO,’’ Order is ‘‘[a] day Limit
Order to buy or sell as part of the closing
transaction where the eligibility to participate in the
closing transaction is contingent upon: (i) An
imbalance in the security on the opposite side of
the market from the CO Order; (ii) after taking into
account all other types of interest eligible for
executing at the closing price, there is still an
imbalance in the security on the opposite side of
the market from the CO Order; and (iii) the limit
price of the CO Order being at or within the price
of the closing transaction.’’); NYSE Rule 123C;
Nasdaq Rule 4702(b)(13)(A) (‘‘An ‘Imbalance Only
Order’ or ‘IO Order’ is an Order entered with a price
that may be executed only in the Nasdaq Closing
Cross and only against [market-on-close] Orders or
[limit-on-close] Orders.’’).
329 See, e.g., NYSE Open and Closing Auctions,
available at https://www.nyse.com/publicdocs/
nyse/markets/nyse/NYSE_Opening_and_Closing_
Auctions_Fact_Sheet.pdf (last accessed Nov. 25,
2019); Nasdaq Opening and Closing Crosses,
available at http://www.nasdaqtrader.com/
Trader.aspx?id=OpenClose (last accessed Nov. 25,
2019).
330 See, e.g., Rosenblatt Securities, Closing Time:
How End-of-Day Auctions are Taking Over U.S.
Equity Trading (Jan. 17, 2019) (stating that the
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that may be driving the higher
concentration of trading in closing
auctions is the growth of passive, indextracking investment strategies through
mutual funds, ETFs, and similar
products.331 Since passive strategies and
ETFs often track the performance of a
benchmark index, and the closing price
used in the benchmark index
calculation is often set during the
closing auction, participation in closing
auctions has become increasingly
important.332
To participate efficiently in auctions
conducted by the exchanges, market
participants seek information about
orders that are participating in the
auctions. This includes information
about auction order imbalances, which
reflect the extent to which auction buy
percentage of consolidated volume in the executed
at the close increased from 4.6% in 2013 to 8.4%
in 2018); Financial Times, The 30 Minutes that
Have an Outsized Role in US Stock Trading (Apr.
24, 2018), available at https://www.ft.com/content/
9e1f05b4-43e7-11e8-803a-295c97e6fd0b (‘‘The first
and last half-hour of the U.S. trading day now
accounts for 39.6 per cent of all volumes, up from
31.5 per cent a decade ago, according to Credit
Suisse data. A decade ago about 16 per cent of all
trading happened in the final 30 minutes, but that
rose to more than 20 per cent in 2012, and almost
25 per cent this year. The closing auction alone—
when most ETFs do their rebalancing—now
accounts for 8.2 per cent of volumes in 2018, up
from 3 per cent in 2007’’); Greenwich Associates,
Stock Trading Volumes Gravitate to Open and
Closing Auctions (Feb. 2, 2017), https://
www.greenwich.com/press-release/stock-tradingvolumes-gravitate-open-and-closing-auctions
(stating that ‘‘[o]n average across both NYSE and
Nasdaq listed securities, closing auctions now
represent 5.5% of average daily volume, up from
just 3.6% in 2011. Over the same period, average
open auction volume increased from 1.1% to
1.25%’’).
331 See, e.g., Securities Exchange Act Release No.
75165 (June 12, 2015); 80 FR 34729, 34729–30 (June
17, 2015) (‘‘[F]rom 2006 to 2013, the total number
of ETPs [exchange-traded products] listed and
traded as of year-end rose by an average of 160 per
year, with a net increase of more than 200 in both
2007 and 2011. . . The total market capitalization
of ETPs has also grown substantially, nearly
doubling since the end of 2009. Much of this
growth has been in index-based ETPs. As of
December 31, 2014, there were 1,664 U.S.-listed
ETPs, and they had an aggregate market
capitalization of just over $2 trillion. Trading in
these ETPs makes up a significant portion of
secondary-market equities trading. For example,
during 2014, trading in U.S.-listed ETPs made up
about 16.7% of U.S. equity trading by share volume
and 25.7% of U.S. equity trading by dollar
volume.’’).
332 See Greenwich Associates, Webinar: Trading
the Auctions (Apr. 5, 2017), available at https://
business.nasdaq.com/media/Trading-the-AuctionsWebinar-April-2017-17_tcm5044-46070.pdf (‘‘As
passive strategies and ETFs aim to track the
performance of a benchmark index, they rely
heavily on the closing auction, as it determines the
closing price used in the benchmark index price
calculation. Growth in passive investing and ETFs
will thereby make the auction process ever more
important.’’); see also, e.g., Nasdaq Rule 4754 (‘‘The
Nasdaq Closing Cross price will be the Nasdaq
Official Closing Price for stocks that participate in
the Nasdaq Closing Cross.’’).
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orders exceed auction sell orders (or
vice-versa) and are generally provided at
periodic intervals leading up to the
auction. In addition, primary listing
exchanges provide information about
the indicative price for the auction
based on auction orders received at that
time.
Today, only limited auction-related
information is included in SIP data.333
Some NYSE auction data is
disseminated through the CTA/CQ
SIP,334 but this reflects only a small
subset of the auction-related
information that the primary listing
exchanges generate. No auction
information generated by the other
primary listing exchanges, including
Nasdaq, NYSE Arca, and Cboe BZX, is
distributed through the exclusive SIPs.
By contrast, the primary listing
exchanges provide a wide range of
auction-related information through
their proprietary data products.335 For
333 The LULD Plan requires the primary listing
exchanges to provide the exclusive SIPs with
certain auction information for dissemination
related to reopening auctions after LULD trading
pauses: Auction reference price, auction collars,
and number of extensions to the reopening auction.
See LULD Plan, supra note 38, at VII.B.1. The
reopening auction data in proprietary products
contains this data plus additional data. For
example, NYSE’s Integrated feed includes, among
other data elements, a paired quantity (number of
shares paired at the reference price), total imbalance
quantity (number of shares not matched at the
reference price), and the side of any imbalance (buy
or sell). See NYSE XDP Integrated Feed Client
Specification (Jan. 29, 2018). Nasdaq’s Total View
feed includes similar information for auctions that
occur after halts or pauses. See Nasdaq TotalViewITCH 5.0 Specifications.
334 For example, in 1998, the Commission
approved a NYSE proposal to allow the exchange
to disseminate via the CTA/CQ SIP market-on-close
(‘‘MOC’’) and limit-on-close (‘‘LOC’’) imbalance
information in the final minutes of each trading
day. See Securities Exchange Act Release No. 40094
(June 15, 1998), 63 FR 33975 (June 22, 1998). The
proposal provided for mandatory dissemination of
all MOC and LOC imbalances of 50,000 shares or
more at 3:40 p.m. Dissemination of imbalances of
less than 50,000 shares could be made at the
discretion of a floor official. The Commission stated
its belief that the dissemination of such additional
information through the plan processor would
‘‘increase the amount of accurate market
information available to the public’’ and may
‘‘increase public awareness of MOC/LOC order
imbalances,’’ potentially resulting in less market
volatility. See id. at 33977–78; NYSE Rule 123C
(providing that information regarding any disparity
between MOC and marketable LOC interest to buy
and MOC and marketable LOC interest to sell,
measured at 3:50 p.m., of 50,000 shares or more
shall be published on the consolidated tape;
publication of imbalances in amounts less than
50,000 shares may also be published with the prior
approval of a Floor Official or other qualified ICE
employee). In addition, pre-opening indications,
including the security and the price range within
which the opening price is anticipated to occur, are
published via the plan processors under certain
conditions. See NYSE Rule 15.
335 The auction-related information disseminated
through exchange proprietary feeds includes: The
‘‘reference’’ or ‘‘indicative match’’ prices at which
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16757
example, NYSE provides opening
auction information, such as opening
order imbalance information and
indicative pricing information, only
through its proprietary market data
products.336 In addition, with respect to
closing auctions, NYSE disseminates
order imbalance information
approximately every five seconds
between 3:50 p.m. and 4:00 p.m., which
consists of real-time imbalances
between marketable closing orders to
buy and marketable closing orders to
sell, along with the indicative price at
which the auction would occur at that
time. This information is available only
through NYSE’s proprietary market data
products.337 Similarly, Nasdaq,338
the largest potential auction would occur,
imbalance side (buy or sell), number of shares of
buy and sell orders at the indicative match price
and reference price, paired quantity (number of
shares matched at the indicative match price and
reference price), execution quantity (number of
shares executed at the indicative match price and
reference price), imbalance quantity (number of
shares not matched at the indicative match price
and reference price), market order imbalance
quantity (number of shares of market orders not
matched at the indicative match price and reference
price), far price (hypothetical auction-clearing price
for cross orders only), near price (hypothetical
auction-clearing price for cross orders and
continuous orders), price variation indicator
(absolute value of the percent of deviation of the
near price to the nearest current reference price),
continuous book clearing price, closing only
clearing price, upper collar, lower collar, freeze
status, and number of times halt period extended.
See, e.g., Nasdaq Rule 4754; Nasdaq TotalViewITCH 5.0 Specifications; NYSE Rule 15; NYSE XDP
Integrated Feed Client Specification.
336 See NYSE Rule 15.
337 See NYSE Rule 123C (describing the
dissemination of information regarding imbalances
that accumulate prior to the closing transaction,
including information on disparities between MOC
and marketable LOC interest to buy and MOC and
marketable LOC interest to sell, a data field
indicating the price at which closing-only interest
(e.g., MOC, LOC, and other auction-only orders)
may be executed in full, and, beginning at 3:55
p.m., certain floor-broker quotes containing pegging
instructions eligible to participate in the closing
transaction).
338 During the five minutes prior to the Nasdaq
closing auction (also referred to as the closing cross)
at 4:00 p.m., Nasdaq disseminates an ‘‘Order
Imbalance Indicator’’ every second. The Nasdaq
closing cross is an auction process in which
Nasdaq’s closing book and continuous book are
brought together to create a single closing price. See
Nasdaq Opening and Closing Crosses FAQs,
available at https://www.nasdaqtrader.com/
content/ProductsServices/Trading/Crosses/
openclose_faqs.pdf (last accessed Jan. 7, 2020).) The
Order Imbalance Indicator includes a reference
price at which the maximum number of shares can
be matched, the number of shares that can be
matched at the reference price, the number of
shares that cannot be matched at the reference price
(i.e., the imbalance), the buy/sell direction of any
imbalance, and a variety of indicative prices such
as the ‘‘far price,’’ a hypothetical auction-clearing
price for cross orders, and ‘‘near price,’’ a
hypothetical auction-clearing price for cross orders
as well as continuous orders. See Nasdaq Rule
4754; Nasdaq TotalView-ITCH 5.0 Specifications.
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NYSE Arca,339 and Cboe BZX 340
provide auction information that is
available only through each exchange’s
proprietary market data products.
As noted above, proprietary feeds also
include additional information in
connection with reopening auctions
after trading halts that goes beyond the
LULD information that primary listing
exchanges are required to report to the
exclusive SIP.341
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(b) Comments and Roundtable
Discussion
In connection with the Roundtable,
several panelists and commenters
supported the addition of auction
information to SIP data.342 For example,
one commenter stated that the
Commission should require the
inclusion of auction order imbalance
information in SIP data and expressed
the view that doing so should not
materially increase the operating costs
of the exclusive SIP.343
Similarly, other panelists and
commenters emphasized the importance
of auction information, including for
achieving best execution.344 One
339 NYSE Arca disseminates ‘‘Auction Imbalance
Information’’ via proprietary data feeds, specifically
the NYSE Arca Order Imbalance feed and NYSE
Arca Integrated feed. See NYSE Arca Rule 7.35–
E(a)(4)(C); NYSE Arca Trading Information:
Auctions Overview, available at https://
www.nyse.com/markets/nyse-arca/trading-info (last
accessed Jan. 7, 2020). Auction Imbalance
Information includes ‘‘if applicable, the Total
Imbalance, Market Imbalance, Indicative Match
Price, Matched Volume, Auction Reference Price,
Auction Collar, Book Clearing Price, Far Clearing
Price, Imbalance Freeze Indicator, and Auction
Indicator.’’ NYSE Arca Rule 7.35–E(a)(4).
340 Cboe BZX disseminates, via the Bats Auction
Feed, Closing Match Process Information (the total
size of all buy and sell orders matched at the close)
for Non-BZX-Listed Securities and ‘‘information
regarding the current status of price and size
information related to auctions conducted by the
Exchange.’’ See Cboe BZX Rules 11.22(i), 11.28(c).
341 See supra note 333.
342 See Roundtable Day One Transcript at 98
(Stacey Cunningham, NYSE); Roundtable Day One
Transcript at 98 (Chris Concannon, CBOE);
Roundtable Day One Transcript at 116 (Michael
Blaugrund, NYSE); Roundtable Day Two Transcript
at 124 (John Ramsay, IEX); Roundtable Day Two
Transcript at 245–46 (Tyler Gellasch, Healthy
Markets); NYSE Group Letter at 6, 13 (stating
‘‘information about auction imbalances is now
automated and yet is available only via proprietary
data feeds’’ and ‘‘NYSE Group believes that Main
Street could also benefit if auction imbalance
information were included in the core data
disseminated by the SIPs’’ and recommending the
expansion of the definition of core data to include
auction imbalance information).
343 See SIFMA Letter II at 2 (‘‘At minimum,
auction imbalance information shall include
matched quantity, imbalance size, near price, far
price, paired shares and imbalance shares.’’).
344 See Roundtable Day One Transcript at 228–29
(Joseph Wald, Clearpool Group) (stating that the
lack of auction information (and depth of book data)
on the exclusive SIPs needs to be addressed);
Clearpool Letter (‘‘We believe that certain
information currently provided through proprietary
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panelist indicated that auctions are
becoming more important and that
institutional investors use auction
imbalance data to trade.345 Another
panelist stated that auction imbalance
information is important for retail
investors, particularly high-net worth
individuals, because the amount of the
imbalance may be significant to a
trading decision.346
However, one panelist (Nasdaq)
opposed adding auction information to
the exclusive SIP. The panelist
indicated that Nasdaq views its crossing
process as its intellectual property,
retail investors do not use the imbalance
information, and auction data is already
widely available to retail investors and
retail online brokers.347
(c) Commission Discussion and
Proposal
Auctions have become an increasingly
significant part of the trading day,
accounting for approximately 7% of
daily equity trading volume.348
Auctions, especially the opening and
the closing auctions, are important for
the implementation of passive
investment strategies, as detailed above,
and generate prices that are used for a
variety of market purposes, including
setting benchmark prices for index
rebalances and for mutual fund pricing.
Reopening auctions also play a crucial
role in connection with security-specific
or market-wide events, helping to assure
the resumption of orderly trading
following a limit up-limit down or other
regulatory halt.349 Auction information,
data feeds, for example, imbalance data and order
depth of book information, should be considered
core data and provided to all market participants
through the SIP.’’); MFA and AIMA Letter at 6
(stating that that its members purchase proprietary
market data (e.g., depth of book and imbalance data)
from exchanges for a variety of reasons, including
strategy implementation, risk-analysis, best
execution, less latency than other sources, and to
fulfill fiduciary obligations).
345 See Roundtable Day Two Transcript at 68
(Paul O’Donnell, Morgan Stanley).
346 See Roundtable Day One Transcript at 159–60
(Adam Inzirillo, BAML).
347 See Roundtable Day One Transcript at 157–59
(Oliver Albers, Nasdaq).
348 This figure is based on data available on
Cboe’s website from November of 2019. See Cboe:
U.S. Equities Market Volume Summary, available at
https://markets.cboe.com/us/equities/market_
share/ (last accessed Nov. 26, 2019); Rosenblatt
Securities, supra note 330 (stating that closing
auction volume amounted to 8.4% of consolidated
volume); Greenwich Associates, Stock Trading
Volumes Gravitate to Open and Closing Auctions
(Feb. 2, 2017), available at https://
www.greenwich.com/press-release/stock-tradingvolumes-gravitate-open-and-closing-auctions
(stating that average opening auction volume in
2017 was 1.25% of average daily volume).
349 For example, on Aug. 24, 2015, LULD halts
were triggered in 471 securities. More than half
(55%) of the impacted securities triggered more
than one halt, and over one quarter (26%) of the
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including auction order imbalance and
other auction data, is important for
effective participation in these
significant market events.
However, the content of SIP data has
not been updated to reflect the growing
importance of auctions, and today most
auction-related information is available
only through exchange proprietary data
products.350 This exacerbates the
information asymmetries between SIP
data and proprietary data 351 and has
raised concerns among market
participants as to whether SIP data is
sufficient to provide best execution to
customer orders during auctions.352
Moreover, lack of full reopening auction
information in SIP data may inhibit
widespread participation in reopening
auctions following limit-up-limit-down
halts or other volatility events and may
impede efficient price discovery during
these critical periods.353
As discussed above, market
participants rely upon auction
information for effective participation in
opening, closing, and reopening
auctions.354 Accordingly, the
Commission preliminarily believes that
full auction-related information should
be included in the proposed definition
of core data. Specifically, under
proposed Rule 600(b)(5) of Regulation
NMS, ‘‘auction information’’ would be
defined as all information specified by
national securities exchange rules or
impacted securities were halted 4 or more times.
See Staff of the Office of Analytics and Research,
Division of Trading and Markets, Equity Market
Volatility on Aug. 24, 2015, at 68 (Dec. 2015).
350 See supra notes 333–341.
351 See infra note 358 and accompanying text
(explaining that auction data that would support
more informed participation in auctions is not
available publicly or to retail investors).
352 See supra note 344.
353 See supra note 333 (comparing the LULD
information available through the exclusive SIP
feeds with the more extensive reopening auction
information available through proprietary market
data products).
354 Market participants use auction information in
making a variety of trading decisions. See Markets
Media, Auction Imbalance Data Affects Traders
(Feb. 7, 2017), available at https://
www.marketsmedia.com/auction-imbalance-dataaffects-traders (stating that ‘‘70% of traders said
real-time imbalance data can influence how their
firm trades in the auction or continuous market’’
and explaining that large orders can be executed in
auctions with less price impact). For example,
market participants use auction imbalance
information to predict closing volume, which is ‘‘an
important factor in the optimal scheduling of
algorithmic trading.’’ See Global Trading, Closing
Volume Discovery (Sept. 23, 2019), available at
https://www.fixglobal.com/home/closing-volumediscovery/. Since actual daily closing volume can
vary widely, it is difficult for market participants
to manage order placement logic for orders that are
being submitted to auctions. Id. Auction imbalance
messages published by the primary listing
exchanges through proprietary market data
products help market participants more accurately
predict closing volume. Id.
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effective national market system plans
that is generated by a national securities
exchange leading up to and during an
auction, including opening, reopening,
and closing auctions, and disseminated
during the time periods and at the time
intervals provided in such rules and
plans.
The elements of proposed auction
information would be established by
individual exchange rules or effective
national market system plans (e.g., the
LULD Plan). The individual exchanges
have established their own auction
information elements that are relevant
to their individual auction processes,
and effective national market system
plans have also established information
requirements related to certain auctions
(e.g., reopenings after LULD trading
pauses).355 The Commission
preliminarily believes that each
individual exchange and relevant plan
should be able to design and develop its
individual auctions and the data
elements that would be useful to market
participants that participate in such
auctions. Further, by tying the proposed
definition to the rules of the exchanges
and effective national market system
plans, the proposed definition could
evolve over time as such exchanges or
plans develop new data elements in the
future. Any additional data element set
forth in an exchange’s rules or plan(s)
would be subject to Commission
consideration pursuant to Section 19(b)
of the Exchange Act and Rule 19b–4 or
Rule 608, respectively.
The Commission preliminarily
believes that the proposed definition of
auction information would promote
more informed and effective trading in
auctions. For example, information
regarding the size and side of order
imbalances can indicate the direction a
stock’s price might move and inform
decisions on where to price an auction
order and what order type to use.
Including auction information in core
data, as proposed, would facilitate a
broader distribution of this information
to a greater number and variety of
market participants. The Commission
preliminarily believes that this would
help to promote more informed trading
for a greater number of market
participants, which could also facilitate
price formation, and improve execution
quality for more traders and investors.
While some market participants may not
need the proposed auction information,
based on the growth of auctions and the
importance a variety of market
participants have ascribed to
information about orders participating
355 See, e.g., LULD Plan, supra note 38, Section
VII(B)(1).
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in auctions, the Commission
preliminarily believes that many market
participants, including some retail
investors, would use this information to
participate in auctions in a more
informed and effective manner.356
Some Roundtable panelists objected
to the inclusion of auction information
in core data. For example, as previously
noted, Nasdaq asserted that its crossing
process is its intellectual property and
that auction data is already widely
available to retail investors on Nasdaq’s
website and through other data
vendors.357 Although some auctionrelated information may be available on
Nasdaq’s website, the Commission
preliminarily believes that meaningful
auction information, such as the realtime imbalance data that would support
decisions regarding order type selection
and order pricing during auctions, is
available only through Nasdaq’s
proprietary market data products.358 In
addition, the Commission’s proposal
would not require the disclosure of any
specific details about the operation of
Nasdaq’s crossing process that would
appropriate or compromise Nasdaq’s
intellectual property. The proposed
definition of auction information would
require the dissemination of information
about orders participating in
auctions; 359 the proposed definition
would not require the dissemination of
information about the technology or
processes used to hold an auction.
Further, the proposed definition of
auction information is based on
information currently disseminated by
Nasdaq.
The Commission requests comment
on the inclusion of auction information
356 See supra notes 342–346 and accompanying
text. Moreover, as noted above, see supra note 323,
competing consolidators will be required to
calculate and generate consolidated market data,
including the auction information set forth in the
Commission’s proposed definition, and to offer this
information to subscribers. See proposed Rule
614(d)(1)–(3). However, market participants may
require more or less auction information than
specified in the proposed definition, and can
choose auction information products offered by
competing consolidators that are more tailored to
their specific needs.
357 See supra note 347 and accompanying text.
358 See Nasdaq Opening and Closing Crosses,
http://www.nasdaqtrader.com/
Trader.aspx?id=OpenClose (last accessed Jan. 7,
2020) (providing share volume in the Nasdaq
crossing network but noting that imbalance data is
available by subscription only); supra note 338.
359 See Section 11A(c)(1)(C) of the Exchange Act,
stating that the Commission shall assure the
usefulness of the form and content of information
with respect to quotations for and transactions in
securities. 15 U.S.C. 78k–1(c)(1)(C). The Senate
Report stated that the Commission would have the
authority under Section 11A to promulgate rules as
to what information and how such information is
displayed on any tape or within any quotation
system. See Senate Report, supra note 5, at 10.
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16759
in the proposed definition of core data
as well as the proposed definition of
auction information in proposed Rule
600(b)(5). In particular, the Commission
solicits comment on the following:
44. Do commenters believe that
auction information should be included
in the proposed definition of core data?
Why or why not? What kinds of market
participants will use this information?
For what purposes? What are the
advantages or disadvantages of
including auction information in
proposed core data as opposed to
proprietary data?
45. Do commenters believe that the
lack of auction information in current
SIP data creates significant information
asymmetries between users of current
SIP data and users of proprietary data
products? Do commenters believe that
current SIP data is sufficient to meet the
needs of some market participants even
though it does not include auction
information? Please explain.
46. Does the lack of auction
information in current SIP data create
impediments to achieving best
execution when participating in
auctions? Do market participants believe
that it is possible to participate in
auctions without the auction
information? Please explain.
47. What are commenters’ views on
the Commission’s proposed definition
of auction information? Does it capture
the full range of auction-related
information that market participants
need for informed trading in auctions?
Does it include any information that is
not necessary or useful for informed
trading in auctions? Should the
Commission delineate specific data
elements in the definition of auction
information as opposed to defining
auction information in terms of the
auction information that is currently
generated pursuant to exchange rules or
effective national market system plans?
48. Should the proposed definition of
auction information include information
on orders participating in non-auction
matching processes, such as Cboe’s
market close order, that are related to
auctions occurring on other exchanges?
Why or why not?
D. Proposed Definition of ‘‘Regulatory
Data’’
As discussed above,360 the existing
Equity Data Plans disseminate data
elements related to a number of
regulatory requirements, such as
Regulation SHO, LULD, and MWCB
requirements, and other information
provided by the primary listing
exchanges, such as official opening and
360 See
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closing prices. To ensure that this
information is included in the proposed
definition of consolidated market data,
the Commission is proposing to amend
Rule 600 to add a definition of
‘‘regulatory data.’’ Specifically, under
proposed Rule 600(b)(77) of Regulation
NMS, regulatory data would be defined
as: (1) Information required to be
collected or calculated by the primary
listing exchange for an NMS stock and
provided to competing consolidators
and self-aggregators pursuant to the
effective national market system plan or
plans required under Rule 603(b),
including, at a minimum: (A)
Information regarding Short Sale Circuit
Breakers pursuant to Rule 201 of
Regulation SHO; (B) information
regarding Price Bands required pursuant
to the LULD Plan; (C) information
relating to regulatory halts or trading
pauses (news dissemination/pending,
LULD, and MWCBs) and reopenings or
resumptions; (D) the official opening
and closing prices of the primary listing
exchange; and (E) an indicator of the
applicable round lot size; and (2)
information required to be collected or
calculated by the national securities
exchange or national securities
association on which an NMS stock is
traded and provided to competing
consolidators and self-aggregators
pursuant to the effective national market
system plan(s) required under Rule
603(b), including, at a minimum: (A)
Whenever such national securities
exchange or national securities
association receives a bid (offer) below
(above) an NMS stock’s lower (upper)
LULD price band, an appropriate
regulatory data flag identifying the bid
(offer) as non-executable; and (B) other
regulatory messages including subpenny execution and trade-though
exempt indicators. For purposes of
paragraph (1)(C), the primary listing
exchange that has the largest proportion
of companies included in the S&P 500
Index shall monitor the S&P 500 Index
throughout the trading day, determine
whether a Level 1, Level 2, or Level 3
decline, as defined in self-regulatory
organization rules related to MarketWide Circuit Breakers, has occurred,
and immediately inform the other
primary listing exchanges of all such
declines (so that the primary listing
exchange can initiate trading halts, if
necessary).361
361 Because, under the proposed decentralized
consolidation model, primary listing exchanges
would perform some of the functions that the
exclusive SIPs perform today (such as monitoring
the S&P 500 Index), each SRO would have to collect
all elements of consolidated market data. SROs
would not be required to obtain regulatory data or
other consolidated market data from competing
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The primary listing exchange is an
SCI entity under Regulation Systems
Compliance and Integrity (‘‘Regulation
SCI’’).362 An SCI entity includes any
national securities exchange other than
an exchange that is notice registered
with the Commission pursuant to 15
U.S.C. 78f(g) or a limited purpose
national securities association registered
with the Commission pursuant to 15
U.S.C. 78o–3(k).363 Under Regulation
SCI, any SCI system of, or operated by
or on behalf of, the primary listing
exchange that directly supports
functionality relating to trading halts,
would be a ‘‘critical SCI system.’’ An
‘‘SCI system’’ means all computer,
network, electronic, technical,
automated, or similar systems of, or
operated by or on behalf of, an SCI
entity that, with respect to securities,
directly support trading, clearance and
settlement, order routing, market data,
market regulation, or market
surveillance.364 A ‘‘critical SCI system’’
means any SCI systems of, or operated
by or on behalf of, an SCI entity that: (1)
Directly support the functionality
relating to (i) Clearance and settlement
systems of clearing agencies; (ii)
Openings, reopenings, and closings on
the primary listing market; (iii) Trading
Halts; (iv) Initial public offerings; (v)
The provision of consolidated market
data; or (vi) Exclusively-listed
securities; or (2) Provides functionality
to the securities markets for which the
availability of alternatives is
significantly limited or nonexistent and
without which there would be a
material impact on fair and orderly
markets.365 Accordingly, with respect to
any SCI systems used to determine
whether LULD or MWCB trading halts
have been triggered, and to notify other
SROs of such halts, Regulation SCI
requires the primary listing exchange to
have reasonably designed business
continuity and disaster recovery plans
that include maintaining backup and
recovery capabilities sufficiently
resilient and geographically diverse and
that are reasonably designed to achieve
two-hour resumption of such systems
following a wide-scale disruption.366
consolidators; SROs could choose to obtain such
data directly from other SROs.
362 17 CFR 242.1000 et seq.
363 See Rule 1000 of Regulation SCI, 17 CFR
242.1000.
364 See Rule 1000 of Regulation SCI, 17 CFR
242.1000.
365 Id.
366 See Rule 1001(a)(2)(v), 17 CFR
242.1001(a)(2)(v). As the Commission stated when
it adopted Regulation SCI, ‘‘[i]n the event a trading
halt is necessary, it is essential that the systems
responsible for communicating the trading halt—
typically maintained by the primary listing
market—are robust and reliable so that the trading
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Market participants use this
regulatory data to meet their regulatory
obligations and to be informed of
trading halts, price bands, or other
market conditions that may affect their
trading activity. Accordingly, the
Commission preliminarily believes that
this information should be included in
the proposed definition of consolidated
market data.
1. Regulation SHO
In pertinent part, Rule 201(b) requires
a trading center, including a listing
market, to establish, maintain, and
enforce certain written policies and
procedures that are reasonably designed
to prevent the execution or display of a
short sale order of a covered security if
the Short Sale Circuit Breaker has been
triggered and further requires that such
trading center, including a listing
market, regularly surveil to ascertain the
effectiveness of those policies and
procedures and take prompt action to
remedy any deficiencies.
Under the proposed definition of
regulatory data, the primary listing
exchange for an NMS stock (i.e., a
covered security under Rule 201 of
Regulation SHO) 367 would make the
determination 368 regarding whether a
Short Sale Circuit Breaker has been
triggered.369 The Commission proposes
to amend the process required under
Rule 201 in two ways. First, if the Short
Sale Circuit Breaker has been triggered,
the listing market would be required to
immediately notify competing
consolidators and self-aggregators
(rather than a single plan processor as
is currently the case). Competing
consolidators would then be required to
consolidate and disseminate this
information to their subscribers.
Second, under the proposed
decentralized consolidation model with
competing consolidators and selfaggregators, the listing market would
have the option of obtaining proposed
consolidated market data from one or
halt is effective across the U.S. securities markets.
Thus, systems which communicate information
regarding trading halts provide an essential service
in the U.S. markets and, should a systems issue
occur affecting the ability of an SCI entity to
provide such notifications, the fair and orderly
functioning of the securities markets may be
significantly impacted.’’ See Regulation SCI
Adopting Release, supra note 28, at 72278.
367 A ‘‘covered security’’ is defined in Rule
201(a)(1) of Regulation SHO as any NMS stock as
defined in Rule 600(b)(48). 17 CFR 242.201(a)(1).
368 17 CFR 242.201(b)(3).
369 Id. This is consistent with the current
requirements under Rule 201(b)(3). Rule 201(b)(3)
refers to the ‘‘listing market’’ as defined in Rule
201(a)(3). As discussed below, the Commission
proposes to amend the definition of ‘‘listing
market’’ to refer to the proposed definition of
‘‘primary listing exchange’’ in proposed Rule
600(b)(67).
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more competing consolidators (rather
than from a single plan processor as is
currently the case) or, if aggregating
consolidated market data itself, to make
determinations as to whether a Short
Sale Circuit Breaker has been triggered.
Due to the changes proposed herein
(i.e., a listing market would now have
the ability to choose from one or more
competing consolidators for proposed
consolidated market data, or to
aggregate proposed consolidated market
data on its own), the Commission
preliminarily believes that a trading
center, including a listing market,
should consider updating its written
policies and procedures required under
Rule 201(b) to address the source of core
data that it uses in making its
determination regarding whether the
Short Sale Circuit Breaker has been
triggered and any changes to that source
of core data, including the underlying
reason for such change. The
Commission preliminarily believes that
these types of updates to such written
policies and procedures would assist a
listing market in ensuring consistency
in making its determination regarding
whether the Short Sale Circuit Breaker
has been triggered and avoiding any
appearance of ‘‘gaming’’ or ‘‘cherrypicking’’ of core data in making that
determination.
Moreover, the Commission is
proposing certain conforming
amendments in Rule 201 to harmonize
that rule with the Commission’s
proposal. Currently, Rule 201(a) defines
‘‘listing market’’ by reference to the
listing market as defined in the effective
transaction reporting plan for the
covered security.370 Since primary
listing exchanges will be required to
collect and calculate regulatory data, the
Commission is proposing to introduce a
definition of ‘‘primary listing exchange’’
in Rule 600(b)(67) to provide greater
clarity with respect to the
responsibilities regarding regulatory
data. Specifically, under proposed Rule
600(b)(67), primary listing exchange
would be defined as, for each NMS
stock, the national securities exchange
identified as the primary listing
exchange in the effective national
market system plan or plans required
under Rule 603(b).
The Commission preliminarily
believes that it is appropriate for the
effective national market system plan(s)
to determine which exchange is the
primary listing exchange for each NMS
stock and that the proposed definition
would ensure that primary listing
exchanges are clearly identified. The
Commission also preliminarily believes
that the definition of listing market in
Rule 201(a)(3) should be amended so
that it cross-references this proposed
definition of primary listing exchange,
so as to facilitate the consistent
identification of primary listing
exchanges across Regulation SHO and
Regulation NMS and to avoid
potentially duplicative or confusing
definitions in the Commission’s rules.
Similarly, Rule 201(b)(1)(ii) requires
Short Sale Circuit Breakers to be applied
‘‘the remainder of the day and the
following day when a national best bid
for the covered security is calculated
and disseminated on a current and
continuing basis by a plan processor
pursuant to an effective national market
system plan.’’ 371 The Commission is
proposing to update this provision by
removing the reference to the plan
processor to reflect the proposed
decentralized consolidation model. In
addition, Rule 201(b)(3) requires listing
markets to immediately notify ‘‘the
single plan processor responsible for
consolidation of information for the
covered security pursuant to Rule
603(b)’’ 372 when a Short Sale Circuit
Breaker has been triggered. Again, as a
result of the proposed decentralized
consolidation model, this reference to a
single plan processor is proposed to be
removed and replaced by a requirement
for the listing market to immediately
make such information available as
provided in Rule 603(b) (i.e., to
competing consolidators and selfaggregators).
2. Limit Up-Limit Down Plan
Currently, the exclusive SIPs calculate
and disseminate certain LULD data
pursuant to the terms of the LULD
Plan.373 Specifically, the exclusive SIPs
calculate the price bands and reference
prices and disseminate limit state flags
identifying quotes that are nonexecutable, trading pause messages, and
reopening information. To ensure that
this important LULD information
continues to be calculated and
disseminated as part of proposed
consolidated market data, the
Commission is proposing several new
provisions. First, the Commission is
proposing that the primary listing
exchanges be required to calculate and
disseminate the price bands and
reference prices for the LULD Plan as
part of proposed regulatory data. As
discussed below, the existing exclusive
SIPs would be replaced by the proposed
decentralized consolidation model with
competing consolidators and self371 17
CFR 242.201(b)(1)(ii).
CFR 242.201(b)(3).
373 See supra Section II.C.2.
aggregators, and, therefore, the
obligation to calculate and disseminate
LULD data would need to be shifted to
another entity. Primary listing
exchanges have a direct relationship
with their listed companies and are
responsible for imposing market-wide
‘‘news pending’’ and other regulatory
halts. Further, under the LULD Plan, the
primary listing exchanges currently
have substantial obligations with regard
to imposing and communicating LULD
trading pauses, as well as with respect
to the reopening of trading.374 The
Commission therefore believes that the
primary listing exchanges would be
well-situated to perform these
calculations as part of proposed
regulatory data.
The LULD Plan is an important
mechanism in the national market
system. The Commission preliminarily
believes that having multiple entities
(e.g., competing consolidators and selfaggregators) calculating reference prices
and price bands could complicate and
potentially undermine the purposes of
the LULD Plan and create confusion
during periods of market volatility.
Accordingly, the Commission believes
that the LULD reference prices and price
bands should continue to be calculated
and disseminated by a single entity—the
primary listing exchange. The
Commission’s proposal to continue to
have a single entity calculate and
disseminate LULD information as part
of proposed consolidated market data
and, as discussed below, to monitor the
S&P 500 Index throughout the trading
day and send notification messages to
the primary listing exchanges regarding
MWCBs, is not inconsistent with the
proposed decentralized consolidation
model under which multiple competing
consolidators would calculate and
disseminate consolidated market data,
including the NBBO. With brokerdealers aggregating various proprietary
market data products today, the
potential for ‘‘multiple NBBOs’’ already
exists, whereas LULD information is
currently calculated and disseminated
by a single entity (i.e., the exclusive
SIPs) and notifications to primary listing
exchanges regarding MWCBs triggered
by S&P 500 Index declines are also sent
by a single entity (i.e., SIAC).
In addition, under the proposed
definition of regulatory data, all national
securities exchanges or national
securities associations that receive a
quote for an NMS stock that is outside
of the price bands under the LULD Plan
would be required to attach the
appropriate regulatory flag signifying
that the quote is non-executable and to
372 17
370 17
CFR 242.201(a)(3).
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provide the quote and appropriate flag
as part of its regulatory data to
competing consolidators and selfaggregators. The Commission
preliminarily believes that each national
securities exchange or national
securities association is in the best
position to perform the function of
attaching a flag to its own quote. The
Commission preliminarily believes that
assigning the responsibility to identify
quotes as non-executable to parties
other than the SRO disseminating the
quote could add latency and complexity
to the process and increase the risk of
error.
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3. Market-Wide Circuit Breakers
Today, SIAC (the CTA/CQ SIP)
monitors the S&P 500 Index to
determine whether a Level 1, Level 2, or
Level 3 decline has occurred and is
responsible for sending messages to the
primary listing exchanges informing
them of such declines.375 Under the
proposed decentralized consolidation
model, there would no longer be an
exclusive SIP to perform this function.
Accordingly, the proposed definition of
regulatory data identifies a specific
primary listing exchange to monitor the
S&P 500 Index throughout the trading
day, determine whether a Level 1, Level
2, or Level 3 decline, as defined in SRO
rules related to MWCB, has occurred,
and immediately inform the other
primary listing exchanges of all such
declines. Specifically, the primary
listing exchange that has the largest
proportion of companies included in the
S&P 500 Index would be required to
conduct this monitoring and
notification function.376 As discussed
above, the Commission preliminarily
believes that these responsibilities
should continue to be carried out by a
single entity so that messages regarding
the occurrence of Level 1, Level 2, or
Level 3 declines are distributed to
primary listing exchanges
simultaneously from the same source, to
avoid the complexity and confusion that
might result if such messages were
distributed from multiple parties during
periods of market volatility. The
Commission preliminarily believes that
it is appropriate to allocate these
375 By contrast, rather than the exclusive SIP
notifying the primary listing exchange, under
LULD, if trading for an NMS stock does not exit a
limit state within 15 seconds of entry during regular
trading hours, then the primary listing exchange is
required to declare a trading pause in that NMS
stock and notify the exclusive SIP.
376 NYSE currently lists the largest proportion of
companies in the S&P 500 Index. If this changes,
NYSE and the other primary listing exchange would
need to coordinate to ensure that these monitoring
and notification responsibilities are transitioned
effectively.
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functions to the primary listing
exchange that has the largest proportion
of companies included in the S&P 500
Index because a significant proportion
of the monitoring would be related to its
own listings.
In addition, under the proposed
definition of regulatory data, each
primary listing exchange would be
responsible for providing certain
information required under the MWCB
rules to competing consolidators and
self-aggregators. Specifically, each
primary listing exchange would be
required to provide MWCB trading halt
and resumption messages to competing
consolidators and self-aggregators, just
as they do with the exclusive SIPs
today.
4. Other Regulatory Data
Official opening and closing prices
are closely tracked data elements used
by market participants for a variety of
purposes. The primary listing exchanges
currently determine the official opening
and closing prices for their listed
stocks 377 and provide these data
elements to the exclusive SIPs. In
addition to Regulation SHO, LULD, and
MWCB information, the proposed
definition of regulatory data will also
require primary listing exchanges to
provide the official opening and closing
prices for the NMS stocks they list to
competing consolidators and selfaggregators. The Commission
preliminarily believes that the primary
listing exchanges, because they
determine the official opening and
closing prices for their listed stocks and
have direct and immediate access to this
information, are best situated to provide
official opening and closing prices in
their listed securities to competing
consolidators and self-aggregators under
the decentralized consolidation model
so that this important information is
included in the proposed consolidated
market data made available to market
participants.
In addition, the proposed definition of
regulatory data would require the
primary listing exchange for each NMS
stock to calculate and make available to
competing consolidators and selfaggregators an indicator of the
applicable round lot size. As discussed
above, the proposed definition of round
lot would allocate stocks into five round
lot categories based on each stock’s
average closing price on the primary
listing exchange over the prior calendar
month. The Commission preliminarily
377 See, e.g., NYSE Rule 123C(1)(e)(i) (Closing
Procedures); NYSE Rule 123D(a) (Openings);
Nasdaq Rule 4754(b)(4) (Nasdaq Closing Cross);
Nasdaq Rule 4752(d) (Opening Process).
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believes that such an indicator would
help market participants ascertain the
applicable round lot size for each NMS
stock on an ongoing basis.378 Due to the
primary listing exchanges’ direct and
immediate access to the official opening
and closing prices of their listed stocks,
the primary listing exchanges would be
well-situated to calculate the monthly
average closing price, the metric that
will be used to allocate NMS stocks into
round lot sizes under the proposed
definition of round lot; assign a round
lot size of 100, 20, 10, 2, or 1, as
applicable; and include an indicator of
the applicable round lot size in the data
they make available to competing
consolidators and self-aggregators.
The proposed definition of regulatory
data would also require an exchange or
association on which an NMS stock is
traded to provide other data pertaining
to regulatory requirements, including
sub-penny execution indicators and
trade-though exempt indicators.
Additional regulatory messages such as
these are included in the technical
specifications of the Equity Data Plans.
The Commission preliminarily believes
that all of these regulatory messages
provide important information to the
market and facilitate compliance with
regulatory requirements. Therefore, the
Commission preliminarily believes that
such regulatory messages should be
included in the proposed definition of
consolidated market data.
Finally, as discussed above,379 as the
markets continue to evolve, there may
be a need to reflect new regulatory data
elements in proposed consolidated
market data. Accordingly, the
Commission is proposing that the
definition of regulatory data include a
provision (as set forth in proposed
consolidated market data) that would
allow the definition of regulatory data to
be amended to include additional
regulatory data elements pursuant to
amendments to effective national
market system plan(s). As discussed
above, amendments to effective national
market system plans must be filed with,
and approved by, the Commission
pursuant to Rule 608(b).
The Commission requests comment
on the proposed definition of regulatory
data in proposed Rule 600(b)(77). In
particular, the Commission solicits
comment on the following:
378 Among other reasons, market participants
would need to be aware of the applicable round lot
size under the proposed amendments because
several Commission rules would apply to round lot
orders. See supra Section III.C.1(d)(i) (discussing
the impact of the proposed definition of round lot
on Rules 602, 603, 604, and 605 of Regulation
NMS).
379 See supra Section III.B.
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49. Do commenters believe that the
elements of proposed regulatory data
enumerated in proposed Rule 600(b)(77)
reflect the elements that are necessary
for trading in compliance with
Commission rules, Equity Data Plans, or
SRO rules? Why or why not? Should
any additional data elements be
included? Is there any significant
regulatory information that is currently
included in SIP data, including
pursuant to the technical specifications
to the Equity Data Plans, which is not
captured by the proposed definition of
regulatory data? If so, should such
elements be included in the proposed
definition of regulatory data? Please
describe.
50. Should any of the proposed
elements of regulatory data be
excluded? Please explain.
51. Do commenters believe that the
primary listing exchange should be
responsible for calculating regulatory
data, as defined? Why or why not?
Would any of those responsibilities be
more effectively allocated to competing
consolidators? Do commenters believe
another party should perform these
calculations? Would the proposed
definition of regulatory data impose any
additional costs on primary listing
exchanges?
52. In the context of the Short Sale
Circuit Breaker, what benefits and/or
challenges do commenters believe will
result from the proposed change to a
competing consolidator/self-aggregator
model? Do primary listing exchanges
anticipate utilizing a consistent source
of core data in making their
determination regarding whether a
Short Sale Circuit Breaker has been
triggered? Or multiple sources? Please
describe.
53. Will updating the primary listing
exchange’s existing Rule 201 written
policies and procedures, as discussed
above, present any operational (or other)
challenges? If yes, please describe.
54. Would a round lot size indicator
be useful to market participants and
investors? Why or why not?
55. Do commenters believe that the
primary listing exchange that has the
largest proportion of companies
included in the S&P 500 Index should
be required to perform the MWCBrelated functions described in the
proposed definition of regulatory data?
Why or why not? Should the primary
listing market be determined by
weighting the companies included in
the S&P 500 Index? Why or why not? Do
commenters believe that at least one
other market should calculate this
information as a backup contingency?
Are there alternative approaches to the
assignment of the S&P 500 Index
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monitoring and notification function?
Would it be more appropriate to assign
this function to another party? If so,
please explain how any such other party
could appropriately perform this
function.
56. Do commenters believe that each
national securities exchange and
national securities association receiving
a quote outside the price bands under
the LULD Plan should be required to
flag each quote as non-executable? Why
or why not? Are there alternative
approaches to the assignment of the
non-executable quote flagging function?
Would it be more appropriate to assign
this function to another party? If so,
please explain how any such other party
could appropriately perform this
function.
E. Proposed Definition of
‘‘Administrative Data’’
In addition to current core data and
current regulatory data, SIP data today
includes additional technical
information. Much of this information is
enumerated in the technical
specifications of the Equity Data Plans
and described as ‘‘administrative’’ or
‘‘control’’ messages. Examples of
administrative messages include market
center and issue symbol identifiers.380
Examples of control messages include
messages regarding the beginning and
end of trading sessions.381 The
Commission preliminarily believes that
administrative messages can facilitate
the efficient and accurate use of
consolidated market data by market
participants and should be included in
the proposed definition of consolidated
market data. Further, the Commission
preliminarily believes that this
information is useful to market
participants and should continue to be
widely available. The proposed
definition is intended to capture
administrative information that is
currently provided in SIP data.382 In
order to capture this type of
information, under proposed Rule
600(b)(2), ‘‘administrative data’’ would
be defined as administrative, control,
and other technical messages made
available by national securities
exchanges and national securities
associations pursuant to the effective
national market system plan or plans
required under Section 242.603(b) or the
technical specifications thereto as of
380 See, e.g., UTP Data Feed Services
Specification, supra note 142, at 20.
381 Id. at 33.
382 As discussed above, administrative data
elements could be added to consolidated market
data pursuant to amendments to the effective
national market system plan or plans required
under Section 242.603(b). See supra Section III.B.
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16763
[date of Commission approval of this
proposal].
The Commission preliminarily
believes that administrative data, as
proposed to be defined and as currently
exists, provides additional context for
market participants to understand, and
efficiently and accurately use, the
proposed core and regulatory data to
support their trading activities. For
example, issue symbol and market
center identifiers provide basic
information necessary to understand to
which stock the price and size
information represented in core data
relates and the specific exchange on
which this interest is available, which
informs decisions about where orders in
such stocks should be directed. As such,
this information should continue to be
included in the proposed definition of
consolidated market data. Moreover, the
Commission preliminarily believes that
SROs would be well-situated to provide
administrative data messages, which
relate to SRO-specific details such as the
market-center identifiers or the
beginning and ending of trading
sessions, because SROs have direct and
immediate access to this information
and could efficiently integrate it into the
data feeds that they will utilize to make
available the data necessary for
competing consolidators and selfaggregators to generate core and
regulatory data.
The Commission requests comment
on the proposed amendment to Rule
600(b)(2) to introduce a definition of
administrative data. In particular, the
Commission solicits comment on the
following:
57. Do commenters believe that the
Commission should propose a
definition of administrative data? Why
or why not? Should the Commission
take an alternative approach? Why or
why not?
58. Do commenters believe that the
proposed definition of administrative
data captures the market data that
would be necessary or useful to market
participants? Please explain. Does the
proposed definition of administrative
data include any market data that
should not be included? Please explain.
59. Do commenters believe that each
national securities exchange and
national securities association should
make available administrative data?
Should any of the elements be provided
by the primary listing exchange? Are
there specific administrative data
elements that should be consistent
across all SROs? Are there any
administrative data elements that
competing consolidators or some other
party, as opposed to national securities
exchanges and national securities
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Federal Register / Vol. 85, No. 57 / Tuesday, March 24, 2020 / Proposed Rules
associations, should be required to
generate or provide for inclusion in
proposed consolidated market data?
Please explain.
60. Do commenters believe that there
are administrative data elements that
should not require an NMS Plan
amendment for inclusion in
consolidated market data? For example,
are there administrative data elements
that are provided solely in the course of
providing or utilizing other
consolidated market data elements, such
as core or regulatory data? Please
explain. What procedural mechanism
would be appropriate for including any
such data elements in consolidated
market data? How could any such data
elements be distinguished from those
which would require an NMS Plan
amendment to be added to consolidated
market data?
F. Proposed Definition of ‘‘ExchangeSpecific Program Data’’
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In addition to current core data,
regulatory data, and administrative data,
current SIP data includes information
related to individual exchange retail
liquidity programs, which offer
opportunities for retail orders to receive
price improvement.383 The Commission
preliminarily believes that existing
retail liquidity programs and, in certain
cases, other exchange-specific program
information should continue to be
383 See, e.g., CQS Binary Input Specifications
(July 17, 2019), at 37 (describing a ‘‘retail interest
indicator’’ as follows: ‘‘[w]hen Retail Price
Improvement (RPI) interest is priced better than the
Protected Best Bid or Offer (PBBO) by a minimum
of $0.001, an indication of interest on the Bid, Offer,
or both the Bid and Offer will identify that interest
will be eligible to interact with incoming Retail
Order interest.’’); supra note 47; NYSE Rule 107C;
Securities Exchange Act Release No. 67347 (July 3,
2012), 77 FR 40673 (July 10, 2012) (NYSE Retail
Liquidity Program Approval Order); CBOE BYX
Rule 11.24; Securities Exchange Act Release No.
68303 (Nov. 27, 2012), 77 FR 71652 (Dec. 3, 2012)
(CBOE BYX Retail Pilot Program Approval Order);
Nasdaq BX Rule 4780; Securities Exchange Act
Release No. 73702 (Nov. 28, 2014), 79 FR 72049
(Dec. 4, 2014) (NASDAQ BX Retail Pilot Program
Approval Order). For example, NYSE’s retail
liquidity program defines a class of market
participants known as Retail Liquidity Providers
who may provide potential price improvement, in
the form of a non-displayed order that is priced
better than NYSE’s best protected bid or offer called
a Retail Price Improvement Order. See NYSE Rule
107C; NYSE Retail Liquidity Program Approval
Order. Other NYSE members are allowed, but not
required, to submit Retail Price Improvement
Orders. Id. When there is a Retail Price
Improvement Order in a particular security, NYSE
disseminates an indicator, which is included in the
SIP data, known as the Retail Liquidity Identifier,
indicating that such interest exists. In response, a
class of market participants known as Retail
Member Organizations can submit a special type of
order, called a Retail Order, to the exchange. A
Retail Order would interact, to the extent possible,
with available contra-side Retail Price Improvement
Orders. Id.
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19:07 Mar 23, 2020
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included in proposed consolidated
market data and is therefore proposing
to define ‘‘exchange-specific program
data’’ to include this information. Under
proposed Rule 600(b)(32), exchangespecific program data, which would be
included in the proposed definition of
consolidated market data, would be
defined as (i) information related to
retail liquidity programs specified by
the rules of national securities
exchanges and disseminated pursuant to
the effective national market system
plan or plans required under Section
242.603(b) as of [date of Commission
approval of this proposal] and (ii) other
exchange-specific information with
respect to quotations for or transactions
in NMS stocks as specified by the
effective national market system plan or
plans required under Section
242.603(b).
Proposed Rule 600(b)(32)(i) pertains
to information related to existing
exchange retail liquidity programs that
is currently disseminated pursuant to
the Equity Data Plans. The
dissemination of retail liquidity
identifiers in the current SIP data
encourages market participants to
submit orders to, or otherwise
participate in, such programs that the
Commission has approved as consistent
with the Exchange Act, including the
dissemination of the related retail
liquidity program information as SIP
data.384 The proposed definition of
exchange-specific program information
would help ensure that the retail
liquidity program information that is
currently included in SIP data would be
included in consolidated market data.
In addition, to the extent that an
exchange, at its own discretion,
determines to develop a new exchangespecific program in the future, proposed
Rule 600(b)(32)(ii) would permit data
elements related to any such program to
be included in consolidated market data
pursuant to the national market system
plan or plans required under Section
242.603(b) or amendments thereto that
are approved by the Commission. The
Commission preliminarily believes that,
to the extent that (i) exchanges develop
new programs in the future,385 and (ii)
the broad dissemination of information
384 See NYSE Retail Liquidity Program Approval
Order, supra note 383 (stating that ‘‘the Retail
Liquidity Identifier will be disseminated through
the consolidated public market data stream, and
thus be widely viewable by market participants,
and that members of the Exchanges that would not
otherwise participate as Retail Liquidity Providers
would be able to participate in the Program by
submitting Retail Price Improvement Orders’’).
385 See supra note 92 and accompanying text.
Currently, the only exchange-specific program data
disseminated pursuant to the Equity Data Plans
relates to retail liquidity programs.
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about such programs as part of
consolidated market data would
facilitate participation in such
programs, an amendment to the
effective national market system plan(s)
could be filed with the Commission
under Rule 608 of Regulation NMS to
include such information in
consolidated market data. Accordingly,
the Commission preliminarily believes
that this information is useful and
should be included in the definition of
consolidated market data as proposed.
The Commission requests comment
on the proposed amendment to Rule
600(b)(32) to introduce a definition of
exchange-specific program data. In
particular, the Commission solicits
comment on the following:
61. Do commenters believe that the
proposed exchange-specific program
data should be included in proposed
consolidated market data? Why or why
not?
62. Do commenters believe that
information related to retail liquidity
programs currently established pursuant
to exchange rules should be included in
the proposed definition of exchangespecific program data? Why or why not?
Do commenters believe that the
inclusion of data elements related to
these programs in current SIP data is
useful for trading or investment
decisions? Please explain.
63. Do commenters believe that the
proposed definition of exchangespecific program data should permit
data elements related to new exchangespecific programs that may be
established to be included in
consolidated market data pursuant to
amendments to the effective national
market system plan or plans required
under Section 242.603(b)? Why or why
not?
IV. Need for and Proposed
Enhancements to Provision of
Consolidated Market Data
The Commission is proposing to
replace the existing centralized,
exclusive consolidation model for SIP
data 386 with a decentralized,
competitive consolidation model. The
Commission preliminarily believes this
model would foster competition in the
consolidation and dissemination of
proposed consolidated market data,
better serve the needs of market
participants and investors, and help
mitigate the influence of certain
conflicts of interest inherent in the
existing exclusive SIP model.387 The
Commission also preliminarily believes
386 See
supra Sections I and II.A.
conflicts of interest are discussed in
Section VI.A.2 infra.
387 These
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that the proposed approach would
modernize the infrastructure of the
national market system by eliminating
the existing, outdated centralized
architecture for data consolidation and
fostering the use of more competitive
technologies for the collection,
consolidation, and dissemination of
proposed consolidated market data.
Together, these would reduce latency
differentials that currently exist between
SIP data and proprietary data.
Furthermore, the Commission
preliminarily believes that this model
will address concerns about the
significant costs that accompany the
exclusive 388 structure that currently
exists for the aggregation and
dissemination of SIP data.
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A. Existing Centralized Consolidation
Model
Today, SIP data is collected,
consolidated, and disseminated to
investors and market participants
through a centralized consolidation
model with an exclusive SIP for each
NMS stock centrally collecting market
data transmitted from the dispersed
SRO data centers and then
redistributing consolidated SIP data to
end-users. Each exchange and FINRA is
required to transmit its own data for
each NMS stock to the appropriate
exclusive SIP.389 As provided under
Rule 603(b), the exclusive SIPs do not
compete with each other in the
collection, consolidation, or
dissemination of SIP data.390
For many years, this centralized
consolidation model served investors
well by providing an accurate, reliable,
and fair stream of SIP data that was
considered prompt relative to the
prevailing technological standards of
the time. Technological advances as
well as the order routing and trading
strategies that developed in response to
the adoption of Regulation NMS have
greatly increased the speed and
automation of both markets and
common trading strategies. These
changes, along with the provisions
adopted in Regulation NMS that allow
for the sale of proprietary data
products,391 have created incentives for
exchanges to develop enhanced
proprietary data products that they sell
388 See Bloomberg Decision, supra note 37, at 3,
4. See also infra note 439.
389 See supra note 42 and accompanying text.
390 See supra note 21. The Senate Report stated
that an exclusive processor of market information
is, ‘‘in effect, a public utility, and thus it must
function in a manner which is absolutely neutral
with respect to all market centers, all market
makers, and all private firms.’’ See Senate Report,
supra note 5, at 7.
391 See Regulation NMS Adopting Release, supra
note 10, at 37567.
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to the same market participants that are
subscribers to the SIP data, and to offer
connectivity products and services (e.g.,
co-location, fiber connectivity, and
wireless connectivity) that provide lowlatency access to the proprietary data
products. Further, as the markets
evolved and depth of book data became
more important for some market
participants, the exchanges continued to
improve their proprietary data feeds
without similarly improving the
exclusive SIPs to reflect this market
evolution. The content and latency
differentials between SIP data and the
proprietary market data products
disseminated directly by the exchanges
have become increasingly material.392
There are widespread and significant
concerns about the current method of
disseminating SIP data and its
associated latencies.393 The centralized
consolidation model of the Equity Data
Plans and the exclusive SIPs suffers
from three specific sources of latency
disadvantage: (a) Geographic latency, (b)
aggregation or consolidation latency,
and (c) transmission or communication
latency.
Geographic latency, as used herein,
refers to the time it takes for data to
travel from one physical location to
another, which must also take into
account that data does not always travel
between two locations in a straight line.
Greater distances usually equate to
greater geographic latency, though
geographic latency is also affected by
the mode of data transmission, as
discussed below. The Commission
understands that geographic latency is
typically the most significant
component of the additional latency
that SIP data feeds experience compared
to proprietary data feeds.394 Because
each exclusive SIP must collect data
from geographically-dispersed SRO data
centers, consolidate the data, and then
disseminate it from its location to endusers, which are often in other
locations, this hub-and-spoke form of
centralized consolidation creates
392 See
infra Section VI.B.2(b).
e.g., Letter to Brent J. Fields, Secretary,
Commission, from Tyler Gellasch, Executive
Director, Healthy Markets Association, 6 (Oct. 23,
2018) (‘‘Healthy Markets Association Letter I’’)
(‘‘SIP data feeds are still persistently slower and
offer less information than is available through the
private data feeds and connectivity offerings sold by
the exchanges.’’).
394 See, e.g., Letter to Brent J. Fields, Secretary,
Commission, from Michael Blaugrund, Head of
Transactions, New York Stock Exchange, 1 (Oct. 24,
2018) (‘‘Blaugrund Letter’’) (stating that, as
‘‘processing time approaches zero, it is clear that
the time required for trade and quote data to travel
from Participant datacenter -> SIP datacenter ->
Recipient datacenter, or ‘geographic latency,’ is a
larger portion of the total latency.’’).
393 See,
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16765
additional latency.395 For example,
information about quotes and trades on
Nasdaq for NYSE-listed securities incurs
latency as it travels from Nasdaq’s data
center in Carteret approximately 34.5
miles to the CTA/CQ SIP in Mahwah,
and then back to Carteret.396
Aggregation or consolidation latency,
as used herein, refers to the amount of
time an exclusive SIP takes to aggregate
the multiple sources of SRO market data
into SIP data and includes calculation of
the NBBO. This latency reflects the time
interval between when an exclusive SIP
receives data from an SRO and when it
disseminates SIP data to the end-user.
For years, market participants have
claimed that the exclusive SIP
aggregation speeds have remained
measurably slower and uncompetitive
with private market offerings.397 For
395 One commenter has stated ‘‘[w]hile it is true
that the latencies of the SIPs are slightly greater
than those of direct exchange feeds, it is important
to remember that the SIPs are a consolidation of all
market data feeds, not a single feed. Therefore, the
SIPs must first aggregate data from multiple
exchanges located in geographically disparate data
centers before processing and transmitting it to the
market, which means their feeds will always be, by
definition, slightly slower than the data a user can
receive directly from an exchange.’’ See Statement
from the SIP Operating Committees Adding to SEC
Commissioner Jackson’s Recent Comments (Sept.
24, 2018), available at https://www.nyse.com/
publicdocs/ctaplan/notifications/trader-update/
Media_Statement_from_SIP_Operating_
Committees_Chair_Emily_Kasparov.pdf; Nasdaq,
Total Markets Report, supra note 127, at 20.
396 See Roundtable Day One Transcript at 127
(Mark Skalabrin, Redline Trading Solutions)
(stating that customers cannot be competitive using
SIP data due to geographic latency, explaining ‘‘[i]f
you’re sitting at Secaucus and you get a direct feed
tick from BATS, it shows up in a few microseconds
from when they publish it. That same tick for the
SIP for Nasdaq-listed symbols goes to Carteret, for
NYSE-listed symbols they go to Mahwah and they
come back again. The real numbers are, for one,
about 350 microseconds and the other about close
to a millisecond in latency for those to show up for
someone using the SIP to get the BATS tick. So this
is just an architectural—an obsolete architecture,
really, for an automated trading system in today’s
world . . . you can’t be competitive with those kind
of latencies compared to just getting it directly from
the exchange.’’).
397 See Joel Hasbrouck, Price Discovery in High
Resolution, New York University (Aug. 9, 2019
draft) (‘‘The first analysis examines the extent to
which the conventional source of market data (the
consolidated tape) accurately reflects the prices
observed by agents who subscribe (at additional
cost) to direct exchange feeds. At a one-second
resolution, the information share of the direct feeds
is indistinguishable from that of the consolidated
tape. At resolutions of 100 and 10 microseconds,
however, the direct feeds are totally dominant, and
the consolidated share approaches zero.’’); Elaine
Wah and Michael P. Wellman, Latency Arbitrage,
Market Fragmentation, and Efficiency: A TwoMarket Model, University of Michigan (2013)
(‘‘Given order information from exchanges, the SIP
takes some finite time, say [X] milliseconds, to
compute and disseminate the NBBO. A
computationally advantaged trader who can process
the order stream in less than [X] milliseconds can
simply out-compute the SIP to derive NBBO*, a
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example, in the second quarter of 2010,
the average aggregation latency 398 for
the Tapes A and B quotes and trades
feeds exceeded 6,000 microseconds, and
the Tape C feeds exceeded 5,500
microseconds.399 In recent years, the
Equity Data Plans operating committees
have made some improvements to
aspects of the exclusive SIPs and related
infrastructure, including to address
aggregation latency.400 For example, as
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projection of the future NBBO that will be seen by
the public. By anticipating future NBBO, an HFT
algorithm can capitalize on cross-market disparities
before they are reflected in the public price quote,
in effect jumping ahead of incoming orders to
pocket a small but sure profit.’’); Herbert Lash,
Potential Profit from U.S. ‘‘Latency Arbitrage’’
Trading May Be $3 Billion—Study, Reuters (Feb.
25, 2016).
398 Average latency is only one latency metric.
Another metric for the use of evaluating the
performance of the exclusive SIP is latency at the
99th percentile, which means that 99% of exclusive
SIP latency observations for a given period were
below that value. The 99th percentile is often
reflective of periods of peak message traffic. These
outlier periods tend to be among the more
important trading periods during the day, and
exclusive SIP latencies have tended to lag in
performance during these periods. For example, in
the second quarter of 2019, the latency
measurement at the 99th percentile for Tapes A and
B trades was 648 milliseconds, which is over 4
times slower than the average latency. See CTA,
Key Operating Metrics of Tape A&B U.S. Equities
Securities Information Processor (CTA SIP),
available at https://www.ctaplan.com/publicdocs/
CTAPLAN_Processor_Metrics_2Q2019.pdf (last
accessed Jan. 22, 2020).
399 Id.; see also UTP Q4 2016—Dec. Tape C Quote
and Trade Metrics, available at http://
www.utpplan.com/DOC/UTP_website_Statistics_-_
Q4_2016_-_December.pdf (last accessed Jan. 22,
2020).
400 One commenter stated, ‘‘In the last three years,
the SIP Operating Committees have invested in the
technology that powers them, increasing resiliency
and redundancy while reducing latency . . .’’ See
Statement from the SIP Operating Committees
Adding to SEC Commissioner Jackson’s Recent
Comments, supra note 395. Following the Nasdaq
UTP SIP Outage—and a meeting between the
equities and options exchanges, FINRA, DTCC, the
Options Clearing Corporation, and the then-Chair of
the Commission—the Equity Data Plans’ operating
committees discussed with Commission staff the
operating committees’ plans for the exclusive SIPs
‘‘designed to improve operational resiliency,
strengthen interoperability standards and disaster
recovery capabilities, enhance governance,
accountability, and establish a clear testing
framework for the industry.’’ See Self-Regulatory
Organizations Response to SEC for Strengthening
Critical Market Infrastructure (Nov. 12, 2013),
available at https://ir.theice.com/press/pressreleases/all-categories/2013/11-12-2013; NYSE
Group Letter, at 3 (‘‘[E]xchanges have invested
significantly in the operation of the [SIPs], resulting
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Jkt 250001
of the second quarter of 2019, Tapes A
and B reduced average quote feed
aggregation latency to 69 microseconds
and trade feed aggregation latency to
139 microseconds.401 As another
example, Tape C reduced its average
quote feed aggregation latency to an
average of 16.9 microseconds for quotes
and 17.5 microseconds for trades in the
second quarter of 2019.402 As shown by
these latency statistics, however,
aggregation latency for the CTA/CQ SIP
data continues to be meaningfully
greater than that of Nasdaq UTP SIP
data, despite these improvements.403
Transmission latency, as used herein,
refers to the time interval between when
data is sent (e.g., from an exchange) and
when it is received (e.g., at an exclusive
SIP and/or at the data center of the
subscriber), and the transmission
latency between two fixed points is
determined by the transmission
communications technology through
which the data is conveyed.
Transmission latency will also vary
in improved resilience and reduced latency, all
while managing increased volumes.’’); infra Section
VI.B.
401 See CTA, Key Operating Metrics of Tape A&B
U.S. Equities Securities Information Processor (CTA
SIP), available at https://www.ctaplan.com/
publicdocs/CTAPLAN_Processor_Metrics_
2Q2019.pdf (last accessed Jan. 22, 2020).
402 See UTP Q3 2019—July Tape C Quote and
Trade Metrics, available at http://
www.utpplan.com/DOC/UTP_website_Statistics_
Q3-2019-July.pdf (last accessed Jan. 22, 2020).
Nasdaq has stated that the Nasdaq UTP SIP is
‘‘faster at processing quote and trade messages than
any Nasdaq-owned exchange trading system’’ with
an average SIP processing time of 16 microseconds,
compared to 25 microseconds ‘‘from entry of an
order on the Nasdaq stock market until the
associated quotation or execution or execution
message is transmitted on the exchange’s
proprietary TotalView data feed.’’ See Wittman
Letter at 9. These latencies are perceived to be at
or near competitive market standards. See also
Roundtable Day One Transcript at 106 (statement of
Oliver Albers, Nasdaq) (‘‘There have been vast
improvements in SIP data in recent years, even as
SIP revenue to exchanges has fallen. The Nasdaq
UTP SIP has an average latency of just 16 millionths
of a second . . . The Nasdaq UTP SIP can also
handle 10 billion messages per day, 20 times more
than a decade ago, and significant cybersecurity and
fraud prevention investments by Nasdaq and other
operators have increased the overall market
efficiency and resiliency.’’).
403 See Nasdaq Total Markets Report, supra note
127, at 19, n.19 (stating that the CTA/CQ SIP
‘‘currently operates with over 100 microseconds of
latency, which is not up to the standard that
investors have come to expect in the modern
markets.’’).
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Sfmt 4702
depending on the geographic distance
between where the data is sent and
where it is received. There are several
options currently used for transmitting
market data, such as fiber optics, which
typically are used by the exclusive SIPs
for receipt and dissemination of SIP
data, and wireless microwave
connections, which the exchanges offer
as an alternative for their proprietary
data feeds but not for SIP data. Fiber
optics use light to transmit data through
glass fiber cables. Wireless microwave
connections (including extremely high
frequency millimeter waves) transmit
data through the air via towers in line
of sight of one another and are
commonly used to transmit market data
today. Fiber optics are generally more
reliable than wireless networks since
the data signal is less affected by
weather; 404 however, fiber tends to
suffer greater latency because of its
dependence on geography: The cables
often cannot be laid in the most direct
manner, adding distance for the signal
to travel. Light also travels slower
through fiber than microwaves travel
through the air. Laser transmission, a
more recent addition to high speed
market data transmission, is another
wireless mode of transmission that is
known to be faster than microwaves but
less susceptible to weather
conditions.405
404 See Andriy Shkilko and Konstantin Sokolov,
Every Cloud Has a Silver Lining: Fast Trading,
Microwave Connectivity and Trading Costs (Apr.
2019), available at https://ssrn.com/
abstract=2848562.
405 See Reuters, Lasers, Microwave Deployed in
High-Speed Trading Arms Race (May 1, 2013),
available at https://www.reuters.com/article/ushighfrequency-microwave/lasersmicrowavedeployed-in-high-speed-trading-armsrace-idUSBRE9400L920130501; ExtremeTech, New
Laser Network between NYSE and Nasdaq Will
Allow High-Frequency Traders to Make Even More
Money (Feb. 14, 2014), available at https://
www.extremetech.com/extreme/176551-new-lasernetwork-between-nyse-andnasdaq-will-allow-highfrequency-traders-to-make-even-more-money; ‘‘The
World’s First Laser Network for Transporting
Equities Market Data between Nasdaq and BATS/
DirectEdge is Now Live and Operational’’ (July 22,
2015), available at https://anovanetworks.com/theworlds-first-laser-network-for-transporting-equitiesmarket-data-between-nasdaq-batsdirectedge-isnow-live-operational/; ICE Global Network: New
Jersey Metro, available at https://www.theice.com/
market-data/connectivity-and-feeds/wireless/newjersey-metro (last accessed Jan. 22, 2020).
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lotter on DSKBCFDHB2PROD with PROPOSALS2
The modes of transmission for SIP
data are typically slower than the modes
of transmission used for proprietary
data. For example, proprietary data
products offered by the exchanges often
rely on low-latency wireless
connections,406 whereas the Equity Data
Plans rely on fiber optics for
connectivity.407 Additionally, the
NYSE, as the operator of the CTA/CQ
SIP, has required that access to the
CTA/CQ SIP be through the use of the
NYSE’s IP local area network. Recently,
the NYSE submitted a proposed rule
change to amend its prices related to colocation services to provide access to
NMS feeds. The NYSE stated in that
proposed rule change that the operating
committee of the CTA and CQ Plans
instituted this access requirement
because of the IP network’s security,
resiliency, and redundancy.408 The
NYSE stated that the IP network is not
a low-latency network, so ‘‘the
requirement to use the IP network to
access the NMS feeds introduces a layer
of latency.’’ 409 The NYSE stated that it
is in the process of building a lowlatency network alternative to connect
to the CTA/CQ SIP that would result in
406 Some of these services are solely offered by
exchanges within the facility of an exchange (e.g.,
co-location connectivity at NYSE’s data center in
Mahwah and Nasdaq’s co-location at its data center
in Carteret) and some are offered by both exchanges
and other third party providers (e.g., fiber and
wireless connectivity between data centers). See,
e.g., Nasdaq Trade Management Services—Wireless
Connectivity Suite, available at http://
n.nasdaq.com/WirelessConnectivitySuite (last
accessed on Jan. 22, 2020) (describing low-latency
wireless network technology to deliver market
data); ICE Global Network—Wireless, available at
https://www.theice.com/market-data/connectivityand-feeds/wireless (last accessed on Jan. 22, 2020)
(describing low-latency wireless connectivity
options between trading hubs).
407 See Roundtable Day One Transcript at 99
(Stacey Cunningham, NYSE) (‘‘[i]n the short term,
we could use wireless technology to deliver SIP and
overcome some of the geographic latencies.’’); at
156–157 (Oliver Albers, Nasdaq) (stating that
Nasdaq could consider permitting microwave
transmission from the exchanges to the Nasdaq UTP
SIP); ICE Global Network & Colocation: Technical
Specifications (Oct. 2019), available at https://
www.nyse.com/publicdocs/data/IGN_Colo_US_
Technical_Specifications.pdf.
408 See NYSE Low-Latency SIP Filing, supra note
47. NYSE currently assesses the following
colocation fees for access to the IP network: (1) For
a 1 gb circuit, $2,500 per connection initial charge
plus $2,500 monthly per connection; (2) for 10 gb
circuit, $10,000 per connection initial charge plus
$11,000 monthly per connection; and (3) for a 40
gb circuit, $10,000 per connection initial charge
plus $18,000 monthly per connection. See NYSE
Price List 2020, available at https://www.nyse.com/
publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf
(last accessed Jan. 22, 2020).
409 See NYSE Low-Latency SIP Filing, supra note
47, at 47594. The filing defines ‘‘NMS feeds’’ to
include the data streams of the Consolidated Tape
System, the Consolidated Quote System, and the
Options Price Reporting Authority (‘‘OPRA’’).
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a one-way latency reduction of over 140
microseconds.410
Over the past several years, market
participants have increasingly raised
concerns about these various forms of
latency and how they affect their ability
to participate competitively in today’s
markets and provide best execution to
their customers. Market participants
have argued that as significant
investments have been made in the
proprietary data environment, the
Equity Data Plans, which are operated
by the SROs, have not made—or have
410 Id. The Commission understands this to mean
that, currently, each of the CTA/CQ Plan
participants must transmit its data through
connectivity options that have a round-trip latency
of at least 280 microseconds [140 microsecond oneway latency) * 2 = 280 microsecond round-trip
latency]. The Commission believes that this is in
addition to the transmission latency that is in the
published CTA average aggregation latency metrics
of between 69 microseconds for the quote feed and
139 microseconds for the trade feed. See CTA, Key
Operating Metrics of Tape A&B U.S. Equities
Securities Information Processor (CTA SIP), supra
note 398 (regarding the second quarter of 2019). The
round-trip latency of 280 microseconds would
increase the 2Q19 realized CTA aggregation latency
to 349 microseconds (from 69 microseconds) for the
quotes feed and 419 microseconds (from 139
microseconds) for the trade feed. At the same time,
the Commission understands that NYSE, which
owns the CTA/CQ SIP, offers non-SIP proprietary
data transmission to end-users via faster microwave
networks. See, e.g., ICE Global Network: Chicago—
New Jersey, available at https://www.theice.com/
market-data/connectivity-and-feeds/wireless/
chicago-to-new-jersey (last accessed Jan. 22, 2020)
(describing ICE’s microwave route between the
Chicago metro trading hub to Nasdaq’s data center
in Carteret, NJ); ICE Global Network: New Jersey
Metro, available at https://www.theice.com/marketdata/connectivity-and-feeds/wireless/new-jerseymetro (last accessed Jan. 22, 2020) (describing ICE’s
laser and millimeter wave route between ICE’s
Mahwah data center and the Carteret and Secaucus
data centers. The Commission has instituted
proceedings to allow for additional analysis and
input concerning proposed fees in connection with
the NYSE Low-Latency SIP Filing. See Securities
Exchange Act Release No. 87699 (Dec. 9, 2019), 84
FR 68239 (Dec. 13, 2019). In addition, the CTA and
OPRA recently made changes that permit access to
the NMS feeds with an expected reduction in
latency. ‘‘The NMS Network uses low-latency
network switches and optimized topology to
minimize latency, which [CTA and OPRA] expects
will result in one-way latency, across all network
hops, of approximately 5us, including fiber latency.
This is a substantial improvement over the current
inbound one-way latency of approximately 144us
over [Secure Financial Transaction Infrastructure].’’
See NMS Network Customer FAQs, at 3 (2019),
available at https://www.ctaplan.com/publicdocs/
ctaplan/notifications/trader-update/NMS_Network_
FAQ.pdf (last accessed Jan. 22, 2020); CTA and UTP
Annual Letter, supra note 181, at 1 (‘‘In its
continuing effort to reduce latency and improve
resiliency, the CTA will be making two
improvements to the CTA/CQ feeds this year. First,
subscribers will be able to connect to a new,
dedicated, low latency NMS network to access
CTA/CQ feeds. Subject to SEC approval, this should
be available in the first quarter of 2020. Second, the
CTA will complete its migration to NYSE’s new
Pillar technology, which will provide substantial
latency reductions for the CTA/CQ feeds. CTA
anticipates that it will launch the new technology
in the summer of 2020.’’).
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been slow to make—the investments
necessary to address most of these
concerns.411 As a result, the latency
differentials, in their various forms,
between SIP data and proprietary data
are significant enough that market
participants believe they affect their
ability to trade competitively and to
provide best execution to customer
orders.412
Proprietary data products often rely
on low latency wireless connections,
and the data is transmitted directly from
each exchange to the data center of the
subscriber without first having to travel
to a centralized consolidation location
as is the case with the exclusive SIPs.
In addition, new entities have entered
the market data space by providing
specialized market data products for
subscribers using proprietary data feeds.
In essence, the provision of proprietary
data to market participants via a
decentralized consolidation model has
developed in a competitive environment
that has enhanced content and reduced
latency for market participants;
however, improvements to latency
occurred more slowly and to a lesser
extent with the exclusive SIPs.413 The
concurrent existence of both the
exclusive, centralized consolidation
model for SIP data and the
decentralized consolidation model for
enhanced proprietary data has resulted
in a two-tiered market data
environment, where those participants
that can reasonably afford and choose to
411 See Letter from Theodore R. Lazo, Managing
Director and Associate General Counsel, SIFMA, to
Mary Jo White, Chair, Commission, 8–9 (Oct. 24,
2014), available at https://www.sec.gov/comments/
s7-02-10/s70210-422.pdf; Letter from John Ramsay,
Chief Market Policy Officer, Investors Exchange
LLC, to Vanessa Countryman, Secretary,
Commission (Sept. 24, 2019) (‘‘Ramsay Letter II’’)
(attachment to letter), available at https://
www.sec.gov/comments/4-729/4729-6190352192448.pdf; Proposed Governance Order, supra
note 8.
412 See, e.g., Roundtable Day One Transcript at 64
(Brad Katsuyama, IEX) (‘‘[a]nyone who cares or is,
you know, making machine-level decisions cannot
use the SIP just from a speed standpoint . . . [b]ut
if full information and speed become important,
which it is for the majority of large players
maintaining their own electronic trading platform,
then I would not say the SIP serves much of a
purpose to them.’’); at 66 (Mehmet Kinak, T. Rowe
Price (‘‘[t]his is a best execution obligation. We are
obligated to try and produce best execution on
every single order that we have. If our brokers are
not aligned in that manner to use the most direct,
the fastest, the most robust feeds they can get their
hands on, then we will trade with someone else.’’);
T. Rowe Price Letter at 2 (explaining that brokerdealers must purchase proprietary data because SIP
data is slow and not as expansive as proprietary
data and that even if the Commission provided a
safe harbor permitting broker-dealers to fulfill their
best execution requirements by relying on SIP data,
broker-dealers believe that they have an obligation
to obtain the ‘‘more robust, faster’’ proprietary data
feeds).
413 See supra note 411 and accompanying text.
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pay for the proprietary feeds receive
other content rich data faster than those
who do not, such as smaller market
participants that face higher barriers to
entry from data and other exchange
fees.414 The Commission is concerned
about this disparity and its effect on
investors. Accordingly, the Commission
is proposing to address the latency
differentials and reduce the
asymmetries that exist within this twotiered environment.
B. Proposed Decentralized
Consolidation Model
To enhance the speed and quality of
the collection, consolidation, and
dissemination of the proposed
consolidated market data, the
Commission is proposing a
decentralized consolidation model with
competing consolidators 415 and selfaggregators 416 to replace the existing
centralized consolidation model which
relies on the exclusive SIPs.417
The Commission preliminarily
believes that a decentralized
consolidation model with competing
consolidators and self-aggregators
would benefit market participants
because it would significantly reduce
the geographic, aggregation, and
transmission latency differentials that
exist between SIP data and proprietary
data that have increasingly reduced the
utility of SIP data and disadvantaged, in
particular, smaller market
participants.418 Specifically, as
414 See
infra note 418.
infra Section IV.B.2.
416 See infra Section IV.B.3.
417 The Commission is taking an incremental
approach to addressing market data infrastructure
issues and is at this time addressing only the market
data infrastructure issues of NMS stocks. The
market data needs of options market participants
and equities market participants are different, as are
the market structures for options and equities more
broadly. The Commission’s proposal to expand the
content of consolidated market data and introduce
a decentralized consolidation model for its
distribution to market participants has been
designed for NMS stocks. The Commission may in
the future consider the market data infrastructure of
listed options. See also Proposed Governance
Order, supra note 8.
418 See infra Section VI.C.2(c). Roundtable
panelists stated that broker-dealers do not have the
option to forgo buying the proprietary data in
meeting their clients’ needs because the SIPs are
slower and not as expansive. See Roundtable Day
One Transcript at 65–66 (Mehmet Kinak, T. Rowe
Price); T. Rowe Price Letter at 2; Roundtable Day
Two Transcript at 245 (Tyler Gellasch, Healthy
Markets) (asking how a small firm can be
competitive when it has to spend $50,000 per
month to connect to one exchange group’s
proprietary data feeds), at 280–281 (describing
market data as a mandatory ‘‘tax’’ on doing business
that imposes a disproportionately large burden on
small brokers). But see Robert P. Bartlett, III and
Justin McCrary, How Rigged Are Stock Markets?
Evidence from Microsecond Timestamps (2017)
(‘‘Bartlett and McCrary’’), available at https://
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415 See
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discussed above, the Commission
preliminarily believes that the
decentralized consolidation model
would reduce geographic latency by
facilitating the ability of proposed
consolidated market data to be delivered
to subscribers more directly, without
going to a separate location to be
consolidated by the exclusive SIPs.419 In
addition, the proposed decentralized
consolidation model likely would
reduce geographic latency by allowing
consolidation to occur at the data center
where a data end-user is located instead
of occurring only at the CTA/CQ SIP
and the Nasdaq UTP SIP data centers.
This arrangement would permit
competing consolidators to receive data
from each exchange directly at the point
of consolidation and latency-sensitive
data end-users to receive proposed
consolidated market data at the same
location if they so desired.420 This
would eliminate the geographic latency
necessarily encountered when a latencysensitive data end-user receives
consolidated data from an exclusive SIP
that is in a separate data center and that
exclusive SIP is consolidating data from
exchanges that are located in other data
centers.
In addition, the Commission
preliminarily believes that the
introduction of competitive forces will
lead to improvements in the use of more
competitive, low latency aggregation
and transmission technologies for
consolidated market data. Specifically,
competition should incentivize
competing consolidators to minimize
the amount of time it takes to aggregate
www.law.berkeley.edu/wp-content/uploads/2019/
10/bartlett_mccrary_latency2017.pdf (‘‘[O]ur
analysis suggests SIP reporting latencies generate
remarkably little scope for exploiting the
informational asymmetries available to subscribers
to exchanges’ direct data fees.’’). Bartlett and
McCrary, however, cautioned that their ‘‘results
should not be over-interpreted’’ and noted that their
results ‘‘do not rule out other types of latency
arbitrage that might be prevalent in the current
environment.’’ Roundtable respondents supported
the view that a competing consolidator model
would reduce the speed differential between
current SIP data and proprietary data. See, e.g.,
Roundtable Day One Transcript at 49–50 (Prof. Hal
Scott, Harvard University); SIFMA Letter II.
419 As noted above, the current Equity Data Plan
architecture requires SRO data to be sent from an
SRO’s data center to the exclusive SIP (typically in
a separate data center in a different geographic
location) for consolidation, prior to then being
transmitted from the plan processor’s data center to
market data users (again, typically in a separate data
center in a different geographic location) once the
data is consolidated. See supra notes 395–396 and
accompanying text.
420 If a competing consolidator chooses not to
consolidate data at the data center of its users, the
Commission believes the users would still benefit
from reduced aggregation and transmission
latencies resulting from the proposed decentralized
consolidation model. See infra notes 421–422 and
accompanying text.
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SRO data into proposed consolidated
market data.421 In addition, competition
could incentivize competing
consolidators to reduce transmission
latency by offering superior connectivity
options that are faster than fiber optics,
such as microwave, laser, or other
wireless means of connectivity.422
Competing consolidators and selfaggregators would not be restricted to
the transmission methods mandated by
the Equity Data Plans 423 and would
compete based on the efficiency of their
aggregation of raw SRO data to generate
proposed consolidated market data. By
introducing competitive forces into the
collection, consolidation, and
dissemination of proposed consolidated
market data, the Commission
preliminarily believes such data could
be delivered to market participants with
improved efficiencies and latencies
comparable to proprietary market data
products.
To implement this model, the
Commission proposes to: (1) Amend
Rule 600 to introduce definitions of
competing consolidator and selfaggregator; (2) amend Rule 603(b) to
require the SROs to provide their NMS
information to competing consolidators
and self-aggregators in the same manner
the SROs make available this
information to any person and to
remove the requirement that there be
only one plan processor for each NMS
stock; and (3) adopt new Rule 614 to
require the registration of competing
consolidators and establish the
obligations with which they must
comply and a new Form CC for
competing consolidator registration. In
addition, the Commission is proposing
to amend Regulation SCI to expand the
definition of ‘‘SCI entities’’ to include
competing consolidators because they
would be sources of proposed
consolidated market data, and therefore
would ‘‘play a significant role in the
U.S. securities markets and/or have the
potential to impact investors, the overall
market, or the trading of individual
securities.’’ 424 As discussed below, the
Commission preliminarily believes that
if a competing consolidator’s
consolidated market data feed became
unavailable or otherwise unreliable, it
could have a significant impact on the
trading of securities, and could interfere
421 The Commission is proposing to require each
competing consolidator to publish on its website its
latency statistics on a monthly basis. See infra
Section IV.B.2(e)(ii).
422 See infra Section VI.C.2(c).
423 As noted above, the NYSE and Nasdaq offer
faster wireless connectivity to their data centers and
other data centers. See supra Section IV.A.
424 See Regulation SCI Adopting Release, supra
note 28, at 72258.
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with the maintenance of fair and orderly
markets.425 Accordingly, this change
would subject competing consolidators
to the requirements of Regulation SCI.
Under this new proposed decentralized
consolidation model, the SROs would
be required to provide their NMS
information to competing consolidators
and self-aggregators and the existing
exclusive SIP model would cease.
The Commission preliminarily
believes that the implementation of a
decentralized consolidation model with
competing consolidators and selfaggregators will fundamentally improve
the way consolidated market data, as
proposed, is provided in the U.S.
Among other things, this model should
materially reduce information
asymmetries for those market
participants who rely exclusively on the
exclusive SIP feed and facilitate the
ability to achieve best execution for
those broker-dealers who rely
exclusively on the SIP feed. Finally, the
Commission believes that the
introduction of competition into the
collection, consolidation, and
dissemination of the proposed
consolidated market data should help
ensure that such data continues to be
provided in an accurate, reliable,
prompt, and fair manner 426 as the
market evolves in the future.
1. Access to Data
The Commission is proposing to
amend Rule 603(b) of Regulation NMS
to reflect the decentralized
consolidation model by requiring each
SRO to provide its NMS information,
including all data necessary to generate
proposed consolidated market data, to
all competing consolidators and selfaggregators 427 in the same manner and
using the same methods, including all
methods of access 428 and data formats,
425 See
infra Section IV.B.2(f).
15 U.S.C. 78k–1(c)(1)(B).
427 The proposal does not include a requirement
that the SROs provide a standardized format for the
data because the Commission preliminarily believes
that imposing a standardized format would increase
costs and burdens on the SROs and that competing
consolidators and self-aggregators would be able to
handle data received in multiple formats, as
determined by each SRO, as is the case today for
proprietary data. The Commission is proposing to
require each SRO to offer the same access or
transmission options and the same formats offered
for proprietary data to proposed consolidated
market data. See proposed amendment to Rule
603(b).
428 For example, the same access options
available to proprietary feeds, including, but not
limited to transmission medium (i.e., fiber optics or
wireless), multicast communication, colocation
options, physical port, logical port, bandwidth, and
FPGA, would be required to be made available for
proposed consolidated market data feeds. Further,
any enhancements to proprietary feed methods of
access should similarly be made to consolidated
market feeds.
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426 See
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as such SRO makes available any
information to any other person.429
Under the Commission’s proposed
approach, competing consolidators and
self-aggregators would have to collect,
and the SROs would provide, all of each
SRO’s market data that is necessary to
generate consolidated market data as
proposed,430 and the competing
consolidators and self-aggregators
would aggregate the SROs’ market data
to generate the proposed consolidated
market data. For exchange data, an
exchange could leverage its existing
offerings and infrastructure and make
available to competing consolidators
and self-aggregators its current
429 Four commenters supported this approach.
One commenter stated that for a new consolidator
model to be competitive, the consolidators would
have to have the right to buy data from exchanges
on non-discriminatory terms. See Ramsay Letter II
(attachment to letter). Another commenter stated
that the economic terms of co-located competing
consolidators at an exchange data center should be
equivalent to those offered to the exchange’s trading
members. This commenter also suggested that any
exchange that operates a competing consolidator in
its data center should have policies and procedures
to ensure that competing consolidators in the same
data center have equal access to the exchange’s
feeds at equal latencies. This commenter also
supported the provision of direct market data feeds
by exchanges to competing consolidators. See Letter
to Brent J. Fields, Secretary, Commission, from
Melissa MacGregor, Managing Director and
Associate General Counsel, and Theodore R. Lazo,
Managing Director and Associate General Counsel,
SIFMA, dated Oct. 24, 2018 (‘‘SIFMA Letter’’)
(attachment to letter). The third commenter stated
that all market data distributors should receive the
same market data at the same time and at the same
cost, which may require exchange proprietary data
feeds to be delayed to match the data receipt time
of affiliated or third-party SIPs. The commenter said
that exchanges, affiliates, and third parties then
would be able to compete to provide market data
to recipients. See Letter to Jay Clayton, Chairman,
Commission, from Tyler Gellasch, Executive
Director, Healthy Markets Association, 3 (Jan. 3,
2020) (‘‘Healthy Markets Association Letter III’’).
The fourth commenter suggested that the
Commission update its interpretations for Rule
603(a) to emphasize ‘‘the synchronized availability
of data between SIP and exchanges’ proprietary
products to satisfy the fair and reasonable, as well
as non-discriminatory principles.’’ See Letter to
Vanessa Countryman, Secretary, Commission, from
Kelvin To, Founder and President, Data Boiler
Technologies, LLC, 8 (Dec. 6, 2019) (‘‘Data Boiler
Letter’’). The Commission believes that its proposed
amendment to Rule 603(b), as discussed below,
would achieve this result by requiring the same
manner and methods, including all methods of
access and the same format for competing
consolidators, self-aggregators and subscribers of
proprietary data.
430 One commenter advocated that each exchange
provide a single data feed to market participants.
The commenter said that a single data feed ‘‘would
better serve market participants from the standpoint
of equality and fairness.’’ See T. Rowe Price Letter
at 3. The proposed rule does not require the SROs
to provide a single feed. The Commission
preliminarily believes that the SROs should be able
to utilize their current data feeds to make available
the data necessary to generate proposed
consolidated market data. This would reduce the
costs and burdens of implementing the proposed
amendments to Rule 603(b).
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proprietary data products that contain
data elements that are specified in the
proposed definition of consolidated
market data,431 or an exchange could
develop a new market data product that
contains only the data elements that are
specified in the proposed definition of
consolidated market data. Competing
consolidators and self-aggregators could
choose to purchase products that
include only the proposed consolidated
market data elements or products that
contain elements of both proposed
consolidated market data and other
proprietary data. However, all SROs
must offer market data, and access to
such data, to those competing
consolidators or self-aggregators that
elect to purchase only data that would
be necessary to create consolidated
market data, as required under the
proposed rule amendments.
The proposed decentralized
consolidation model and the proposed
consolidated market data definition do
not preclude the exchanges from
continuing to sell proprietary data. If an
exchange provided its proprietary data
products to a competing consolidator or
self-aggregator and a competing
consolidator or self-aggregator
developed a product, or otherwise used
data, that exceeded the scope of
proposed consolidated market data (e.g.,
full depth of book data), the competing
consolidator or self-aggregator would be
charged separately for the proprietary
data use pursuant to the individual
exchange fee schedules.432 Selfaggregators and competing consolidators
that limit their use of exchange data to
proposed consolidated market data
elements would be charged only for
proposed consolidated market data
pursuant to the effective national market
system plan(s) fee schedules.433 As
noted above, under the proposed
decentralized consolidation model,
SROs must make available market data
to competing consolidators or selfaggregators that elect only to purchase
431 For example, an exchange could make
available a current proprietary DOB product that
contains elements of proposed core data to
competing consolidators and self-aggregators for
purposes of Rule 603(b).
432 Fees for market data that is outside of the
proposed definition of consolidated market data
(i.e., proprietary data products, and access to such
proprietary data products) would be subject to the
rule filing process pursuant to Section 19(b) and
Rule 19b–4. As discussed above, competing
consolidators would be able to develop products for
their subscribers based on subscriber demand. See
supra notes 322–323 and accompanying text.
433 Fees for proposed consolidated market data
would be subject to the NMS plan process pursuant
to Rule 608 of Regulation NMS. See infra Section
IV.B.4 for a discussion of the effective national
market system plan(s).
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data necessary for the proposed
consolidated market data.434
Currently, the exclusive SIPs are
subject to Exchange Act Section
11A(c)(1)(C) (as implemented by Rule
603(a)(1)), which requires that exclusive
processors (which include the exclusive
SIPs and SROs when they distribute
their own data) must assure that all
securities information processors may
obtain on fair and reasonable terms
information with respect to quotations
for and transactions in securities, which
includes consolidated market data.435
Section 11A(c)(1)(D), in turn (as
implemented by Rule 603(a)(2)),
requires that the SROs provide such
data to broker-dealers and others on
terms that are not unreasonably
discriminatory. As we have noted,
competing consolidators will be
securities information processors and
thus Exchange Act Section
11(A)(c)(1)(C) will continue to apply.
Similarly, self-aggregators are brokerdealers and thus Exchange Act Section
11A(c)(1)(D) will continue to apply.
The Commission seeks to ensure that
consolidated market data is widely
available for reasonable fees.436 In
discharging its statutorily mandated
review function, the Commission must
assess the proposed fees and determine
whether they are fair and reasonable,
and not unreasonably discriminatory.437
The Commission must have ‘‘sufficient
information before it to satisfy its
statutorily mandated review function’’—
that the fees meet the statutory
434 Vendors would still be able to operate in the
decentralized consolidation model. Vendors would
be able to receive proprietary market data directly
from the SROs as they do today or they would be
able to receive consolidated market data from a
competing consolidator in a manner that is similar
to how they receive SIP data today without being
required to register as a competing consolidator.
However, if a vendor wished to receive directly
from the SROs information with respect to
quotations for and transactions in NMS stocks at the
prices established by the effective national market
system plan(s) and generate consolidated market
data for dissemination, such vendor would be
required to register as a competing consolidator.
Thus, only competing consolidators and selfaggregators would be able to directly receive the
NMS information that is necessary to generate
consolidated market data from the SROs at the
prices established by the effective national market
system plan(s). Id.
435 15 U.S.C. 78k–1(c). See also Rule 603(a)(1)–(2)
of Regulation NMS, 17 CFR 242.603(a)(1)–(2).
436 Bloomberg Decision, supra note 37, at 4, n.12
(citing Regulation NMS Adopting Release, supra
note 10, at 37560) (‘‘In the Proposing Release, the
Commission emphasized that one of its primary
goals with respect to market data is to assure
reasonable fees that promote the wide public
availability of consolidated market data.’’).
437 See 15 U.S.C. 78k–1(c); see also Rules
603(a)(1)–(2), 608 of Regulation NMS, 17 CFR
242.603(a)(1)–(2), 608; Bloomberg Decision, supra
note 37, at 11–12.
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standard.438 The Commission has
previously stated that fees for
consolidated SIP data can be shown to
be fair and reasonable if they are
reasonably related to costs.439
The exchanges would be able to offer
different access options (e.g., with
different latencies, throughput
capacities, and data-feed protocols) to
market data customers, but any access
options available to proprietary data
customers must also be available to
competing consolidators and selfaggregators for the purpose of collecting
and consolidating proposed
consolidated market data.440 Proposed
Rule 603(b) would require exchanges to
provide all forms of access used for
proprietary data to all competing
consolidators and self-aggregators for
the collection of the data necessary to
generate proposed consolidated market
data. The Commission is proposing to
require that an exchange offer the same
form of access, such as fiber optics,
wireless, or other forms, in the same
438 Bloomberg Decision, supra note 37 at 15; cf.
Rule of Practice 700, 17 CFR 201.700 (providing
that the burden of demonstrating that a proposed
rule change satisfies statutory standards is on the
self-regulatory organization that proposed the rule
change).
439 In the Market Information Concept Release,
the Commission stated ‘‘the fees charged by a
monopolistic provider (such as the exclusive
processors of market information) need to be tied
to some type of cost-based standard in order to
preclude excessive profits if fees are too high or
underfunding or subsidization if fees are too low.
The Commission therefore believes that the total
amount of market information revenues should
remain reasonably related to the cost of market
information.’’ See Market Information Concept
Release, supra note 11, at 70627. The Commission
later explained that because core data must be
purchased, their fees are less sensitive to
competitive forces. See Securities Exchange Act
Release No. 59039 (Dec. 2, 2008), 73 FR 74770,
74782 (Dec. 9, 2008) (File No. SR–NYSEArca–2006–
21). A reasonable relation to costs has since been
the principal method discussed by the Commission
for assessing the fairness and reasonableness of
such fees for core data, with the recognition that
‘‘[t]his does not preclude the Commission from
considering in the future the appropriateness of
another guideline to assess the fairness and
reasonableness of core data fees in a manner
consistent with the Exchange Act.’’ See Bloomberg
Decision supra note 37, at 15 & nn.63. Although this
proposal introduces competition into the
dissemination of consolidated market data, the
mandatory nature of the provision of consolidated
market data by the SROs has not changed. The
‘‘principal method we have discussed for assessing
the fairness and reasonableness of core data fees has
stated that core data fees should bear at least some
relationship to costs; past Commission statements
have contemplated various approaches for how that
relationship might be assessed. This is because
distributors of core data have an effective monopoly
over such data, and accordingly competitive market
forces are not operating to impose sufficient
constraints to promote core data fees’ fairness and
reasonableness.’’ See Bloomberg Decision, supra
note 37, at 15 (footnotes and citations omitted).
440 See Rule 603(a) of Regulation NMS, 17 CFR
242.603(a). Access fees would be set forth in each
individual SRO’s fee schedules.
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manner and using the same methods,
including all methods of access and the
same format, as the exchange offers for
its proprietary data. For instance, if an
exchange has more than one form of
transmission for its proprietary data,
then the exchange must offer the
competing consolidators and selfaggregators those types of transmission
for proposed consolidated market data.
The proposed rule would not require an
exchange to offer new forms of access,
but if an exchange did offer any new
forms of access for proprietary data, it
would have to offer them for proposed
consolidated market data as well.
Different forms of access affect the
delivery of data. For example, as
discussed above, fiber connections have
latencies that wireless connections do
not. If an exchange provided its
proprietary market data via wireless
connections and proposed consolidated
market data only via fiber connections,
the latencies that exist today would
continue. Accordingly, the Commission
preliminarily believes that the SROs
should be required to provide proposed
consolidated market data in the same
manner and using the same methods,
including all methods of access and the
same format as they provide for
proprietary data.
The Commission understands that
different market participants have
different access needs. The Commission
is not mandating a specific connectivity
option or limiting options for market
participants but believes that all
connectivity options, including colocation, must be available to all market
participants whether they are
purchasing proposed consolidated
market data or proprietary data. In
addition, the access requirement under
Rule 603(b) would require that the
exchanges provide their NMS
information, including all data
necessary to generate consolidated
market data, at one data dissemination
location co-located near each exchange’s
matching engine. This requirement
would allow competing consolidators
and self-aggregators to receive data at
that location at the same speeds, and
with the same access options, as the
exchange offers its market data.
Different colocation options within a
data center could raise concerns about
whether that exchange is providing the
same manner of access to its data as
proposed to be required under Rule
603(b). Further, the exchanges would
not be permitted to provide their NMS
information necessary to generate
consolidated market data in a faster
manner to any affiliate exchange, a
subsidiary or other affiliate that operates
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as a competing consolidator or a
subsidiary or affiliate that competes in
the provision of proprietary data.
Furthermore, proposed Rule 603(b)
would require that all access options be
provided in a latency-neutralized
manner such that all participants within
the exchange’s data center—such as
proprietary data subscribers, competing
consolidators, and self-aggregators—
would receive the data at the same time,
regardless of their location or status
within the data center.441 For example,
exchanges could adopt equal cable
length protocols (i.e., where cable
lengths from network equipment to
customer cabinets are harmonized for
equal access) to ensure that all of the
exchange’s data center connections
provide market data simultaneously.
The proposed decentralized
consolidation approach would require
the SROs to use the same latencyneutralization processes for competing
consolidators and self-aggregators as
they offer to subscribers of proprietary
data.
The Commission is also proposing to
remove the requirement in Rule 603(b)
that ‘‘all consolidated information for an
individual NMS stock [be disseminated]
through a single plan processor.’’ 442
While this requirement is necessary for
the centralized consolidation model, it
would be inconsistent with the
proposed decentralized consolidation
model, which would allow multiple
competing consolidators to disseminate
proposed consolidated market data in
individual NMS stocks and would
permit self-aggregators to collect and
generate proposed consolidated market
data for individual NMS stocks for their
own internal uses.
The Commission preliminarily
believes that the proposed amendments
to Rule 603(b) would be consistent with
the goals of Section 11A of the Exchange
Act by helping to ensure the prompt,
accurate, reliable, and fair collection,
processing, distribution, and
publication of NMS information, as well
as the fairness and usefulness of such
data.443
The Commission requests comment
on the proposed amendments to Rule
441 See also Rule 603(a) of Regulation NMS, 17
CFR 242.603(a); supra note 440 and accompanying
text.
442 17 CFR 242.603(b).
443 See Section 11A(c)(1)(B) of the Exchange Act,
15 U.S.C. 78k–1(c)(1)(B). Section 11A(c)(1)(B) of the
Exchange Act authorizes the Commission to
prescribe rules, as necessary or appropriate in the
public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the
Exchange Act, that assure the prompt, accurate,
reliable, and fair collection, processing,
distribution, and publication of quotation and
transaction information, as well as the fairness and
usefulness of the form and content of such data. Id.
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603(b) of Regulation NMS. In particular
the Commission solicits comment on
the following:
64. Should the SROs be required to
provide all of their market data with
respect to NMS stocks to competing
consolidators and self-aggregators?
Should the SROs charge fees based on
the use of the data, e.g., fees for
proposed consolidated market data set
by the effective national market system
plan(s) and fees for proprietary data set
by individual SROs? Should the SROs
only be required to provide the market
data that is necessary to generate and
calculate proposed consolidated market
data? Or, should the determination as to
how best to provide the market data that
is necessary to generate and calculate
proposed consolidated market data be
left to the discretion of SROs? What are
the benefits and costs of each of these
potential approaches?
65. Should the SROs be required to
offer both proposed consolidated market
data and proprietary data to competing
consolidators from the same platform
and using the same technology
infrastructure at an exchange data center
for both products?
66. Should the SROs be required to
offer both proposed consolidated market
data and proprietary data to competing
consolidators from the same platform
and using the same SRO infrastructure
where the pricing model for the
different products is based on data use
as opposed to being based upon distinct
data feeds?
67. Should the SROs be permitted to
process their market data before
providing it to competing consolidators
and self-aggregators? For example,
should the SROs be permitted to
aggregate odd-lots before providing data
to competing consolidators and selfaggregators? If so, why and to what
extent? Should such processing only be
allowed to the extent that it does not
result in any latency differential
between processed and unprocessed
data? Alternatively, should such
processing be required to facilitate ease
of use for certain customers?
68. Should exchanges be required to
permit co-location of competing
consolidators and self-aggregators
within their data centers? If so, should
the fees charged for such colocation be
subject to the effective national market
system plan(s) for NMS stocks?
69. Should all data disseminated by
the SROs to competing consolidators
and self-aggregators be in the same
format (e.g., aggregated vs. message-bymessage depth of book)? Please explain
the expected benefits and costs of
allowing for multiple formats for data
dissemination.
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70. Should the SROs make historical
data freely available to market
participants at a specified location and
in a specified format? Why or why not?
71. Is there anything different about
having competing consolidators or
changing the content of consolidated
market data that should affect the
analysis of the fairness and
reasonableness of fees for data
distributed pursuant to an NMS plan, or
how the NMS plan participants
demonstrate the fairness and
reasonableness of those fees? If so,
please explain why.
72. Do commenters believe that the
Commission should also require the
SROs to provide a connectivity option
solely for access to the NMS information
necessary to generate proposed
consolidated market data?
2. Competing Consolidators
As noted above, currently Rule 603(b)
requires all consolidated information for
an individual NMS stock to be
disseminated through a single plan
processor.444 While the Commission has
issued a proposed order that would
direct the SROs to develop a single
‘‘New Consolidated Data Plan’’ with a
new governance structure,445 the
Commission now proposes to update
and modernize the manner in which
NMS information is collected,
consolidated, and disseminated. The
Commission is proposing to amend
Regulation NMS to introduce
competitive forces as one of several
means to update and modernize the
provision of proposed consolidated
market data. Competing consolidators
would replace the existing exclusive
SIPs and would collect NMS
information from each of the SROs.446
Thereafter, competing consolidators
would calculate, consolidate, and
disseminate the data as consolidated
market data, as proposed to be
defined.447 The Commission
444 Rule 603(b) of Regulation NMS, 17 CFR
242.603(b). See also supra Section II.B.
445 See Proposed Governance Order, supra note 8.
446 The existing exclusive SIPs would be required
to continue their operations until such time as the
Commission considers and approves an NMS plan
amendment that would effectuate a cessation of
their operations. See infra Section IV.B.6. Should
the existing exclusive SIPs choose to become
competing consolidators, proposed Rule 614(a)
mandates a registration process for securities
information processors that wish to become
competing consolidators. See infra Section
IV.B.2(e). If the existing exclusive SIPs choose to
cease operations, the SROs would be required to
amend the effective national market system plan(s)
for NMS stocks to reflect this change.
447 As discussed in Section IV.B.2(f), infra,
because competing consolidators would be the
sources of proposed consolidated market data, the
Commission is proposing to define them as ‘‘SCI
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preliminarily believes that the proposed
amendments to Regulation NMS to
introduce competing consolidators
should help to ensure the ‘‘prompt,
accurate, reliable, and fair collection,
processing, distribution, and
publication of information with respect
to quotations for and transactions in
such securities and the fairness and
usefulness of the form and content of
such information.’’ 448 Further, the
Commission preliminarily believes that
these new market data providers could
help to effectively address the latency
concerns related to the exclusive SIPs,
as well as the cost concerns that have
been raised regarding the need to buy
both SIP data from the Equity Data Plans
as well as proprietary data from the
exchanges, and add resilience to the
collection, consolidation and
distribution of consolidated market data
by having redundant systems perform
these functions rather than an exclusive
SIP.
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(a) Previous Consideration of Competing
Consolidators Under Regulation NMS
The Commission previously
considered introducing competitive
forces to the dissemination of SIP data
when it proposed and adopted
Regulation NMS. Specifically, the
Commission discussed a competing
consolidator model 449 that, as
described, would have retained the
consolidated display requirement of the
predecessor to Rule 603(c) of Regulation
NMS but would have eliminated the
Equity Data Plans and the two exclusive
SIPs.450 Under the competing
consolidator model that was being
considered, each SRO would be allowed
to establish its own fees, enter into and
administer its own market data
contracts, and provide its own data
distribution facility.451 Competing
consolidators would purchase data from
the individual SROs, consolidate it, and
entities,’’ and thus subject to the requirements of
Regulation SCI. The Commission proposes to
amend Rule 1000 of Regulation SCI to effect this
change. See proposed amendment to Rule 1000 of
Regulation SCI. See also 17 CFR 242.1000.
448 15 U.S.C 78k–1(c)(1)(B).
449 The competing consolidator model was
recommended by the Advisory Committee on
Market Information (‘‘Advisory Committee on
Market Information’’), which had been formed to
consider market data issues. See Report of the
Advisory Committee on Market Information: A
Blueprint for Responsible Change (Sept. 14, 2001),
available at https://www.sec.gov/divisions/
marketreg/marketinfo/finalreport.htm.
450 See Securities Exchange Act Release No.
49325 (Feb. 26, 2004), 69 FR 11126 (Mar. 9, 2004)
(‘‘Regulation NMS Proposing Release’’), at 11177–
11178; Regulation NMS Adopting Release, supra
note 10, at 37558–37559.
451 See Regulation NMS Proposing Release, supra
note 450, at 11177; Regulation NMS Adopting
Release, supra note 10, at 37559.
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distribute it to investors and other data
users.452
At that time, however, the
Commission noted several drawbacks to
that competing consolidator model,453
including: (1) A lack of uniform data
distribution to the public, (2) the
potential for an increase in processing
costs due to multiple consolidators
performing tasks previously performed
by a single processor, and (3) the risk
that the fees for core data, as then
contemplated, could increase because
payment of every SRO’s fees would be
mandatory, thereby affording little room
for competitive forces to influence the
level of fees.454
When addressing its concerns about a
potential loss of data uniformity, the
Commission explained that a report
issued by the Advisory Committee on
Market Information, which prompted
consideration of a competing
consolidator model in the Regulation
NMS Proposing and Adopting
Releases,455 noted four types of quality
problems that could arise from the
competing consolidator model relating
to: (1) Sequencing of information, (2)
validation tolerances, (3) capacity, and
(4) data protocols and formats.456 With
respect to information sequencing, the
report stated that the competing
consolidator model would impose a risk
that market data messages would be
processed in different sequences by
different consolidators due to the use of
differing hardware, software, or
communications platforms to process
market data. On validation tolerances,
the report stated that standards would
need to be established for competing
consolidators to verify the consistency
of information (such as the NBBO),
since the plan processors currently
check all market center messages to
verify that they utilize correct message
structures. The report stated that
competing consolidators must have
sufficient capacity (for example,
specifying network capacity, input,
output line, system, internal system
threading, storage and memory capacity,
and database size) to process the
452 Id.
453 See Regulation NMS Proposing Release, supra
note 450, at 11178.
454 Id. The Commission stated that it would have
to review every SRO’s market data fees and get
involved in multiple market data fee disputes.
455 See supra notes 449–450.
456 See supra note 449. See infra text
accompanying notes 503–509, 513–515 for a
discussion of the risks. The Advisory Committee on
Market Information report stated that these risks
would be manageable and recommended allowing
the private sector to establish technical standards
for competing consolidators rather than the
Commission. See supra note 449, at Section
VII.C.2.b(iv).
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information from all reporting market
centers, explaining that if capacity is
lacking, messages will be delayed to
data recipients. Finally, with respect to
data protocols and formats, the report
said that the use of different protocols,
message formats, and technologies by
different consolidators could make the
market data system more cumbersome
and prone to error. The report noted that
exclusive SIPs currently receive market
center information using standard input
formats and disseminate consolidated
data using standard output formats.457
Ultimately, the Commission
concluded that investors and other data
users would bear the most risk in
switching to a competing consolidator
model, while the SROs would benefit by
being able to charge higher fees for
lower quality information; 458 therefore,
the Commission decided not to propose
the competing consolidator model for
adoption.459
In the Regulation NMS Adopting
Release, the Commission focused its
discussion on the extent to which the
competing consolidator model would
subject the level of market data fees to
competitive forces.460 The Commission
stated that market participants would
need to purchase data from the SROs
and expressed concern that ‘‘the overall
level of fees would not be reduced
unless one or more of the SROs or
Nasdaq was willing to accept a
significantly lower amount of revenue
than they are currently allocated by the
Plans.’’ 461 The Commission believed
that it was ‘‘unlikely that any SRO or
Nasdaq would voluntarily propose to
lower just its own fees.’’ Rather, the
Commission stated that some SROs,
‘‘particularly those with dominant
market shares whose information is
most vital to investors,’’ might propose
higher fees to increase their revenues.462
457 See
supra note 449, at Section VII.C.2.b.
Commission stated that the four types of
data quality problems identified by the Advisory
Committee could be limited in severity, but
remained concerned that the introduction of
competing consolidators would compromise data
quality. See Regulation NMS Proposing Release,
supra note 450, at 11178.
459 See Regulation NMS Proposing Release, supra
note 450, at 11178. In the Regulation NMS
Adopting Release, the Commission questioned the
extent to which market data fees, which would be
charged per SRO, would be subject to competition.
See Regulation NMS Adopting Release, supra note
10, at 37559.
460 Id. While the Commission did not propose a
competing consolidator model, it received
comments on the model described in the Regulation
NMS Proposing Release.
461 Id.
462 Id.
458 The
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(b) Comments and Roundtable
Discussion
The current market data
infrastructure, with the Equity Data
Plans providing SIP data and the
exchanges providing proprietary data
products, has led some market
participants to suggest that a competing
consolidator model be considered again
as a means to address the latency and
cost differentials that exist between the
two data categories.463
Several panelists and commenters at
the Roundtable discussed a competing
consolidator model. One panelist
presented a competing consolidator
model and noted that it would
introduce competition in the provision
of market data by allowing competing
consolidators to compete against each
other for subscribers.464 This panelist
also stated that market forces would
drive consolidators’ ‘‘micro-decisions’’
regarding the technology that they
would use to provide data.465 The
panelist also suggested that competing
consolidators should be ‘‘authorized’’
and be Regulation SCI-compliant.466
The panelist expressed confidence that
a competitive market would produce a
more reliable solution than the current
centralized consolidation model.467
One panelist explained that the
exclusive SIPs represent a single point
of failure for the equity markets and that
competing consolidators could improve
the speed and quality of SIP data while
also reducing their costs.468 Another
panelist said that his clients have
expressed interest in competitive
SIPs.469 One panelist suggested a
competing consolidator model wherein
entities would consolidate messages
463 The Treasury Capital Markets Report
(‘‘Treasury Report’’), which was published one year
prior to the Roundtable and referenced by
Roundtable respondents, recommended that the
Commission amend Regulation NMS to permit
competing consolidators as alternatives to the
exclusive SIPs as a means to provide faster
consolidation and distribution of a wider breadth of
market data, at a lower cost than provided by the
exclusive SIPs. The Treasury Report suggested that
competing consolidators be allowed to purchase
proprietary data feeds from exchanges on a nondiscriminatory basis. See U.S. Department of the
Treasury, A Financial System that Creates
Economic Opportunities—Capital Markets, 64 (Oct.
2, 2017). Other alternatives to the current
centralized consolidation model are discussed
below. See infra Section IV.C.
464 See Roundtable Day Two Transcript at 25
(Paul O’Donnell, Morgan Stanley).
465 Id. at 26.
466 Id. at 25.
467 Id.
468 See Roundtable Day One Transcript at 49–50
(Prof. Hal Scott, Harvard University). This panelist
also suggested that the SIPs should include
proprietary data and also permit competing
consolidators to do the same.
469 See Roundtable Day Two Transcript at 43
(Jarred Yuster, PICO).
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from individual exchange members. The
panelist acknowledged that this
approach would likely result in latency
issues, but suggested that such a
consolidated feed could possibly be
leveraged from work being done on
reporting to the consolidated audit
trail.470
Several comment letters submitted in
connection with the Roundtable
expressed support for a competing
consolidator model.471 One commenter
stressed the importance to investors of
competition by stating that competition
would result in the reduction of the
latency differential between the
exclusive SIPs and proprietary data
feeds, resilience through the use of
multiple consolidators, and lower
market data costs.472 Another
commenter stated that competing
consolidators would compete on
‘‘speed, reliability, and price to the
benefit of traders and investors
alike’’ 473 and that competing
consolidators would provide ‘‘the
benefit of expanded access to highquality, low-cost market data.’’ 474
Another commenter noted the Treasury
Report, which was published in
2017,475 recommended that the
Commission recognize that markets for
SIP data and proprietary data feeds are
not fully competitive and consider
amending Regulation NMS to enable
competing consolidators as an
alternative to the exclusive SIPs.476 This
commenter recommended that if
competing consolidators are permitted,
regulators should examine why a
broker-dealer chooses a particular
consolidator over others and should
monitor how much exchanges decide to
charge consolidators for market data.477
Several commenters suggested details
on the types of entities that could be
470 See Roundtable Day One Transcript at 182–
184 (Michael Friedman, Trillium Trading).
471 See T. Rowe Price Letter, Letter to Brent J.
Fields, Secretary, Commission, from Marcy Pike,
SVP, Enterprise Infrastructure, and Krista Ryan, VP,
Associate General Counsel, Fidelity Investments
(Oct. 26, 2018) (‘‘Fidelity Letter’’); SIFMA Letter;
SIFMA Letter II; Ramsay Letter II.
472 See SIFMA Letter II at 3. In addition to the use
of competing consolidators, this commenter
suggested that the Commission require the
exclusive SIPs to compete with each other. See also
T. Rowe Price Letter at 3. This commenter believed
that competition among organizations eligible to
serve as exclusive SIPs, either through a periodic
bidding process or the ability of multiple firms to
simultaneously serve as exclusive SIPs and compete
to provide the best overall combination of fees,
services, and reliability would be beneficial.
473 See Ramsay Letter II; Fidelity Letter at 10
(noting that competition may reduce the cost of
consolidated market data).
474 See Ramsay Letter II.
475 See supra note 463.
476 See Fidelity Letter at 10.
477 Id.
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16773
competing consolidators and the
functions they could perform.478 For
example, one commenter suggested that
a competing consolidator could be any
commercial entity meeting minimum
standards, which may include
exchanges or other financial technology
vendors,479 and another suggested that
they could be private companies that,
unlike the existing exclusive SIPs, could
operate in any location and would
obtain and sell data comparable to
proprietary data feeds.480 One
commenter suggested a list of
functionality that competing
consolidators could provide, such as
direct exchange feed data from all tapes,
quote and trade feeds, regulatory
messages, and the market status of all
contributing markets.481
Several panelists, in particular
representatives of exchanges operating
the current exclusive SIPs, expressed
concern with a competing consolidator
model. One panelist suggested that the
interest in competing consolidators
arises from a perception that competing
consolidators will make market data less
costly.482 The panelist said that the cost
to produce market data is not a
competing consolidator’s cost and that
this realization may make such a model
less attractive to potential users of
competing consolidators.483 Another
panelist said that a competing
consolidator model could result in
multiple NBBOs prevailing at the same
nanosecond, which would provide a
broker with a choice regarding the price
at which it filled a customer’s order.484
The panelist believed that this
discretion in choosing an NBBO could
result in uncertainty regarding whether
the broker had executed a customer’s
order at a price that was in the
customer’s interest or the broker’s own
interest.485 One panelist stated that
there is value in understanding what the
NBBO is when there are competing SIPs
and asked whether this model would
introduce benchmark reference price
arbitrage.486 The panelist suggested that
478 See
SIFMA Letter; Ramsay Letter II.
SIFMA Letter.
480 See Ramsay Letter II.
481 See SIFMA Letter (attachment to the letter).
This commenter also stated that depth of book
should be considered but stated that it should
possibly be sold separately.
482 See Roundtable Day Two Transcript at 46–47
(Michael Blaugrund, NYSE).
483 Id.
484 See Roundtable Day Two Transcript at 61
(Prof. Robert Bartlett, U.C. Berkeley).
485 Id.
486 See Roundtable Day One Transcript at 151–
152 (Oliver Albers, Nasdaq); Bartlett and McCrary,
supra note 418 (examining the incidence of
exclusive SIP latency arbitrage strategies using
479 See
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a conflict could arise if a broker-dealer
executes customer orders and also
manages the price against which such
trades are benchmarked, i.e., by
calculating the NBBO.487
Several comment letters expressed
skepticism about the benefits of a
competing consolidator model. One
commenter said that making radical
market structure changes could
undermine the NBBO and that adding
multiple competing SIPs would create
operational, legal, and regulatory
complexities as well as unintended
consequences, and may not solve
concerns about geographic latency.488
Further, this commenter advocated that
having a single source of best quote and
trade data creates confidence in the U.S.
markets because investors can be
assured that orders will automatically
route to the venue with the best quoted
price on the exclusive SIP feed.489
One commenter said that competition
would result in multiple NBBOs that
would confuse the market. Further, the
commenter stated that competition
would not ‘‘curb rent-seeking behaviors,
nor promote fairness.’’ 490 This
commenter suggested that the
Commission mandate a type of
encryption instead of introducing
competition, explaining that encrypting
market data would allow proprietary
and exclusive SIP feeds to be made
available ‘‘securely in synchronized
time.’’ 491
Another commenter urged the
Commission to do a cost benefit analysis
of efforts to decentralize the exclusive
SIP architecture and recommended
introducing additional instances of
existing technology (i.e., a distributed
SIP model) as the best approach to
reducing geographic latency.492 This
commenter added that a competing
consolidator approach would create
complexity that would undermine the
timestamp data from the two SIPs and concluding
that trading surrounding exclusive SIP priced trades
showed little evidence that fast traders initiate
liquidity taking orders to pick off stale quotes).
487 See Roundtable Day One Transcript at 151–
152 (Oliver Albers, Nasdaq).
488 See Wittman Letter at 14; Letter to Brent J.
Fields, Secretary, Commission, from Oliver Albers,
SVP, Head of Global Partnerships, Nasdaq, 3 (Oct.
24, 2018) (‘‘Albers Letter’’); Blaugrund Letter at 2.
The Wittman and Albers Letters were submitted on
behalf of Nasdaq. The Blaugrund Letter was
submitted on behalf of NYSE.
489 See Albers Letter at 3.
490 See Data Boiler Letter at 4. This commenter
also suggested that the Commission amend
interpretations of Rule 603(a) of Regulation NMS to
emphasize ‘‘synchronized availability of data
between SIP and exchanges’ proprietary products.’’
Id. at 8.
491 Id. at 2, 8.
492 See NYSE Group Letter at 6; Blaugrund Letter
at 4. The Blaugrund Letter was submitted on behalf
of NYSE.
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purposes of Regulation NMS to keep
costs low for investors.493
Finally, one commenter opined that
competing SIPs would not solve the
problem of the exchanges’ control over
market data access.494 This commenter
asked why a technology firm would
become a competing SIP when it cannot
control the cost of the market data it
must purchase.495
(c) Commission Discussion
The Commission is proposing a
decentralized consolidation model with
competing consolidators and selfaggregators who would collect data from
the SROs, and calculate, consolidate,
and disseminate proposed consolidated
market data to investors and market
participants.496 As discussed below, the
Commission preliminarily believes that
competing consolidators should be
required to disclose publicly certain
information about their organization,
operations, and products, as well as
regularly publish certain performance
statistics on, for example, capacity,
system availability, and latency to
demonstrate their operational capability
and to provide transparency into the
performance of their systems.497 In
addition, the Commission preliminarily
believes that competing consolidators
should have written policies and
procedures to assure the prompt,
accurate, and reliable delivery of
consolidated market data.
The Commission preliminarily
believes that the competing consolidator
proposal would reduce latency, bolster
the resilience of the market data
infrastructure, and permit the market
data infrastructure to more readily adapt
to changes in technology to better fit the
needs of market participants. The
Commission also preliminarily believes
that market forces could help to ensure
that the proposed consolidated market
data is reliable, accurate, and prompt.
To attract and maintain its subscriber
base, a competing consolidator would
have to ensure that it provides
consolidated market data, as proposed,
with minimal latency, but also reliably
and accurately, and in a cost-effective
manner. A competing consolidator that
does not adequately perform would risk
losing customers to another competing
493 See
494 See
Blaugrund Letter at 2.
Healthy Markets Association Letter I at 38.
495 Id.
496 See infra Section IV.B.2(e)(ii) for a discussion
of proposed Rule 614, which would require
competing consolidators that are SIPs to register
with the Commission and comply with specified
responsibilities.
497 One Roundtable respondent supported
publication of operational capabilities and
performance metrics by competing consolidators.
See SIFMA Letter (attachment to letter).
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consolidator. Competition should also
incentivize competing consolidators to
evolve and adapt to the needs of the
marketplace. If a new technology would
result in better provision of data, a
competing consolidator likely would
adopt that technology to expand its
client base. Finally, the introduction of
multiple competing consolidators may
bring additional resilience to the
collection, consolidation, and
distribution of consolidated market
data, as there would be redundant
systems performing these functions
rather than one exclusive SIP creating a
single point of failure.498
In proposing this competing
consolidator model, the Commission
considered the concerns it described
when it previously evaluated a different
competing consolidator model in
connection with the adoption of
Regulation NMS.499 The Commission
preliminarily believes that the proposed
competing consolidator model should
not raise the same concerns due to the
differences between the two models and
the manner in which market
participants handle market data today.
First, to address the Commission’s
prior concern about a lack of data
uniformity resulting from the use of
multiple competing consolidators,500
the Commission is proposing
requirements governing how
consolidated market data is collected,
calculated, generated, and made
available.501 The Commission
acknowledges that the introduction of
multiple entities generating
consolidated market data would result
in multiple versions of consolidated
market data. However, market
participants currently consolidate
proprietary data feeds, generate their
own consolidated data, and calculate
their own NBBO.502 The proposal
498 The single point of failure problem was most
recently evidenced on August 12, 2019, when the
CTA/CQ SIP experienced multiple system issues
and was unable to effectively fail over to its backup
system. Among other impacts, final closing prices
for many symbols were not able to be published by
the CTA until after 8:00 p.m. See CTA, CTA
Processing Issue on August 12, 2019: CTA
Participant Trade Files—Revised Notice, Alert
(Aug. 28, 2019), available at https://
www.ctaplan.com/alerts#110000144324. Several
Roundtable respondents noted the additional
reliability through the redundancy that multiple
consolidators would provide. See Roundtable Day
One Transcript at 49–50 (Prof. Hal Scott, Harvard
University); Roundtable Day Two Transcript at 77
(Paul O’Donnell, Morgan Stanley); Ramsay Letter II.
499 See supra notes 453–454.
500 See supra note 453.
501 See proposed Rules 614(d)(1)–(3).
502 See Roundtable Day One Transcript at 128
(Mark Skalabrin, Redline Trading Solutions)
(explaining that his firm builds an NBBO for its
customers that use proprietary data feeds), at 141
(‘‘[E]ffectively today, people have to form the NBBO
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would require competing consolidators
and self-aggregators to calculate
consolidated market data, including the
NBBO, in a consistent manner as set
forth in the proposed definitions in Rule
600 of Regulation NMS, which the
Commission preliminarily believes
would help ensure continuity and
consistency in how proposed
consolidated market data, including the
NBBO, is calculated.
Further, on the Advisory Committee
on Market Information’s validation
tolerance concerns from 2001,503 the
report had stated that standards should
be created to ensure the consistency of
information, such as the NBBO and
market center message formatting.504
The report also stated that differences in
the protocols and formats used by
competing consolidators could make the
market data system cumbersome or
prone to error.505 As noted above, the
proposal would require competing
consolidators and self-aggregators to
calculate consolidated market data,
including the NBBO, in a consistent
manner in accordance with the
proposed definitions in Rule 600 of
Regulation NMS. Further, the
Commission preliminarily believes that
competing consolidators would likely
establish their own standards for
verifying information for consistency
because they would be the entities
responsible, pursuant to proposed Rule
614(d)(2), for calculating and generating
consolidated market data based on this
information.506 In addition, as the
entities responsible for generating
consolidated market data, competing
consolidators would likely be
incentivized by competition to
disseminate data using a protocol or
format that results in data that is readily
usable by their subscribers. As market
participants are currently able to ingest
market data from different sources, such
as the exclusive SIPs and proprietary
at their own location. Even a dark pool does that
that’s just trying to match at the best bid and offer.
If they use the SIP NBBO, their customers would
be subject to latency harm, because it’s too old to
use at their location after it’s merged to really get
effective performance.’’). Although the Commission
does not know the exact number of market
participants that currently consolidate proprietary
data feeds, generate their own consolidated data,
and calculate their own NBBO, Nasdaq has stated
that approximately 100 firms purchase all depth of
book data from every exchange. See In the Matter
of the Application of SIFMA, supra note 37, at 29
(citing an assertion from Nasdaq that 100 firms
purchase all depth of book data from every
exchange). The Commission acknowledges that not
all of these market participants consolidate the
proprietary data feeds and solicits comment on the
number of market participants that do.
503 See supra text accompanying notes 455–457.
504 Id.
505 Id.
506 See proposed Rule 614(d)(2).
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data feeds, the Commission
preliminarily believes that differences
in the protocols or formats used by
competing consolidators would not
likely introduce a new challenge to the
market. Rather than impose technical
standards, the Commission
preliminarily believes that competing
consolidators would be in the best
position to develop standards with
respect to data consistency and
generation, as appropriate, because they
would be directly responsible for the
quality of their product that is in
compliance with Rule 614(d)(2), and
would be incentivized through
competition to create standards to
ensure the integrity of their
consolidated market data.
With respect to the Advisory
Committee on Market Information’s
previous concerns about capacity,507 the
Commission is proposing to require
each competing consolidator to publish
on its website its capacity statistics on
a monthly basis so that market
participants can evaluate whether a
competing consolidator has sufficient
capacity to process information.508 The
Commission is also proposing to require
each competing consolidator to
establish, maintain, and enforce written
policies and procedures reasonably
designed to ensure that its systems have
levels of capacity to maintain
operational capability and assure the
prompt, accurate, and reliable delivery
of consolidated market data.509
The Commission was previously
concerned about an increase in
processing costs due to multiple
consolidators 510 performing the tasks
performed by an exclusive SIP. As noted
above, the Commission preliminarily
believes that the introduction of
competition should help to ensure that
proposed consolidated market data is
disseminated in a cost-effective
manner.511
Finally, the Commission was
previously concerned about the risk that
fees for core data would increase
because payment to each SRO would be
mandatory. The previous competing
507 See
508 See
supra text accompanying notes 455–457.
infra Section IV.B.2(e)(ii).
509 Id.
510 The Commission preliminarily estimates that
there could be up to twelve competing
consolidators. This estimate includes the CTA/CQ
SIP and the Nasdaq UTP SIP. See infra Section V.C.
511 See also, e.g., Roundtable Day One Transcript
at 49–50 (Prof. Hal Scott, Harvard University)
(‘‘[C]ompetition among consolidators of SIP data
. . . could improve the speed and quality of
consolidated sources of market data while also
reducing their costs.’’); Treasury Report, supra note
463, at 64 (‘‘The competing consolidators would
aim to provide faster consolidation and
distribution, improved breadth of data, and lower
cost than the SIPs.’’).
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16775
consolidator model would have
eliminated the Equity Data Plans and
contemplated that each individual
exchange would have developed its own
pricing scheme for its individual data.
As discussed below, in contrast, under
the proposed decentralized
consolidation model, the SROs would
continue to develop jointly the fees
associated with the provision of the
proposed consolidated market data
through an effective national market
system plan(s) for NMS stocks.512 These
fees would be subject to Commission
oversight under Rule 608.
The use of competing consolidators
may introduce sequencing risk, a
concern raised by the Advisory
Committee on Market Information 513 as
well as the Commission when it
dismissed a competing consolidator
model in proposing Regulation NMS.514
Having multiple competing
consolidators using different technology
could result in messages being
processed in different sequences. The
outcome would be the loss of a single
reference for consolidated market data,
which could negatively impact the
reconstruction of the markets at a given
point in time. However, the Commission
believes that the proposal would
mitigate the effects of sequencing risk by
mandating that the effective national
market system plan(s) require the
application of timestamps to all
consolidated market data by the SROs
when they send market data to
competing consolidators as well as
requiring competing consolidators to
apply timestamps to consolidated
market data. Accordingly, no matter the
differences in message processing across
the competing consolidators, the
sequencing of market data based on SRO
timestamps should be able to be
reconstructed.515
The Commission believes that there
are a number of existing firms that
512 See infra Section IV.B.4; Proposed Governance
Order, supra note 8; Effective on Filing Proposal,
supra note 37 (a proposal to amend Regulation
NMS to rescind a provision that allows a proposed
amendment to an effective national market system
plan(s) to become effective upon filing if the
proposed amendment establishes or changes a fee
or other charge).
513 See supra text accompanying notes 455–457.
514 See Regulation NMS Proposing Release, supra
note 450, at 11178.
515 The Commission further notes that the NBBOs
currently calculated by the exclusive SIPs at
different data centers may vary due to geographic
and other forms of latency, and therefore, the
proposed competing consolidator model does not
introduce a new issue in this regard. However,
under the proposed competing consolidator model,
NBBOs created at other data centers where the
exclusive SIPs currently do not have a point of
presence (e.g., NY4 in Secaucus) could be more
accurate for those market participants that are
located in such data center.
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would be well-positioned to become
competing consolidators. First, trading
technology firms that today provide
proprietary data aggregation services for
their subscribers may decide to register
as competing consolidators in order to
potentially expand their subscriber base
and to be eligible for the pricing for data
content used to create proposed
consolidated market data.516 In
addition, the existing exclusive SIPs,
CTA/CQ and Nasdaq UTP, could
consider becoming competing
consolidators, as they have extensive
experience in this area and may choose
to remain in the market data
consolidation business. Similarly, SROs
have experience collecting and
processing market data and may wish to
act as competing consolidators. The
Commission preliminarily believes that
the creation of a competing consolidator
market would open up the potential for
other entrants, as well. For example,
various market participants that are
currently self-aggregating and have the
technology to consolidate core data may
decide to enter the competing
consolidator business given the
potential market opportunity. Finally,
other entities have been interested in
performing as plan processors. For
example, there were competing bids to
be the Nasdaq UTP SIP in 2014,517 and
in 2013 and 2019 for OPRA. The
bidding firms (or similar types of firms)
may decide to enter the market as
competing consolidators.
The Commission preliminarily
believes that sufficient incentives exist
to attract a number of entities to register
as competing consolidators and for a
competitive market to develop. For one
thing, the proposed definition of core
data will incorporate additional
elements such as quotation data in
smaller size increments, depth of book
data, and auction information, all of
which market participants have
recommended as necessary or useful.
Therefore, there seems to be demand for
the key product—i.e., consolidated
market data as proposed—that
competing consolidators will be
producing and selling. Moreover, the
516 The Commission does not know the number
of aggregators in operation today, but assumes that
certain market data vendors in the following list
currently perform that function. See Nasdaq: Market
Data Vendors, available at http://
www.nasdaqtrader.com/Trader.aspx?id=Market
DataVendorsList&StartAlphabet=A&EndAlphabet=
ZZZ (last accessed Dec. 17, 2019).
517 Bidders included Nasdaq, Thesys
Technologies LLC, CenturyLink, and a unit of
exchange operator Miami International Holdings
Inc. See Herbert Lash, Nasdaq Wins Bid to Manage
Key Data Processor for Stock Trading, Reuters (Nov.
5, 2014), available at https://www.reuters.com/
article/us-exchanges-stocktrading-nasdaq-omx-id
USKBN0IQ00220141106.
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proposed competing consolidator
registration regime and responsibilities
outlined below—while designed to
collect relevant information about
competing consolidators and to require
competing consolidator performance
data, data quality issues, and system
issues to be made publicly available—
are intended to be a relatively
streamlined process that would impose
appropriate burdens on entities likely to
register as competing consolidators.
Several Roundtable panelists and
commenters raised potential issues
about a competing consolidator model,
in particular, about uncertainties
regarding control over market data
access, the costs of obtaining market
data from the various SROs, and
operational complexities associated
with the model, such as the
introduction of multiple NBBOs.518
However, the Commission preliminarily
believes that some of these issues would
be addressed by the proposal and the
others would not be novel or
insurmountable. On control over market
data access, Rule 603 and the proposed
amendments to Rule 603(b) would
require that the SROs directly make
available to competing consolidators
and self-aggregators NMS information,
including all data necessary to generate
consolidated market data, on terms that
are fair and reasonable and not
unreasonably discriminatory. With
respect to the costs of market data, the
SRO fees associated with consolidated
market data would be subject to Equity
Data Plan requirements and the fees
must be fair and reasonable.519 Finally,
with respect to the concerns regarding
the complexities associated with a
competing consolidator model, many of
the functions of competing
consolidators are performed today by
market participants, such as the
consolidation of proprietary data feeds
and calculation of NBBOs.520
Finally, a Roundtable panelist
suggested that multiple NBBOs could
raise concerns about broker-dealers
executing customer orders at prices that
are in the broker’s own interest, rather
than the customers’ interest, and
questioned whether a competing
consolidator model would introduce
518 See Roundtable Day One Transcript at 151–
152 (Oliver Albers, Nasdaq); Roundtable Day Two
Transcript at 46–47 (Michael Blaugrund, NYSE), at
61 (Prof. Robert Bartlett, U.C. Berkeley); Wittman
Letter at 14; Albers Letter at 3; Blaugrund Letter, at
2; Healthy Markets Association Letter I, at 38; Data
Boiler Letter at 4, 8.
519 See supra note 439.
520 For example, multiple NBBOs exist today
because many broker-dealers independently
calculate it for themselves.
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benchmark reference price arbitrage.521
A broker-dealer must provide best
execution to its customers’ orders.522
However, the existence of multiple
NBBOs, which occurs today, does not
impact a broker’s best execution
obligations. Further, the panelist
questioned whether there would be
conflicts for broker-dealers that execute
customer trades as well as manage the
price against which the trades are
benchmarked (i.e., by calculating the
NBBO). Broker-dealers today purchase
market data from the SIP as well as
proprietary data feeds and calculate
NBBOs. Accordingly, the Commission is
not persuaded by concerns about the
introduction of multiple NBBOs because
multiple NBBOs already exist.
(d) Proposed Definition of Competing
Consolidator in Rule 600(b)
The Commission is proposing to
introduce a definition of competing
consolidator in Rule 600(b).
Specifically, under proposed Rule
600(b)(16) of Regulation NMS, a
competing consolidator would be
defined as a securities information
processor required to be registered
pursuant to Rule 614 or a national
securities exchange or national
securities association that receives
information with respect to quotations
for and transactions in NMS stocks and
generates consolidated market data for
dissemination to any person.
The Commission requests comment
on the proposed amendment to Rule
600(b) to introduce a definition of
‘‘competing consolidator.’’ In particular,
the Commission solicits comment on
the following:
73. Is a decentralized consolidation
model with competing consolidators
and self-aggregators a viable and/or
appropriate model for the collection,
consolidation, and dissemination of
consolidated market data? Are there any
other viable and/or appropriate
alternatives?
74. Do commenters believe that the
definition of competing consolidator
accurately captures the requisite
functions necessary for collecting,
consolidating, and disseminating
consolidated market data? Do
commenters believe that there would be
sufficient interest in entities that would
become competing consolidators?
75. Do commenters believe that
competing consolidators would provide
the necessary competition to lower the
processing time and distribution speeds
521 See Roundtable Day One Transcript at 151–
152 (Oliver Albers, Nasdaq); Roundtable Day Two
Transcript at 61 (Prof. Robert Bartlett, U.C.
Berkeley); Data Boiler Letter at 4.
522 See supra note 308.
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for consolidated market data, as
proposed to be defined, as well as
reduce the overall costs of proposed
consolidated market data?
76. Do commenters believe that
concerns identified by the Commission
regarding the competing consolidator
model considered in the Regulation
NMS Proposing and Adopting Releases
would be sufficiently addressed with
the proposed decentralized
consolidation model with competing
consolidators and self-aggregators
proposed in this release? If not, how
should these concerns be addressed?
77. Will the change to a proposed
competing consolidator/self-aggregator
model present any specific operational
and/or regulatory challenges to market
participants? Are the challenges evenly
distributed amongst market participants
or would one set of market participants
bear more of any burden? If so, please
describe.
78. The Commission solicits
commenters’ views regarding the
various concerns raised by Roundtable
respondents about the competing
consolidator model. In particular, do
commenters have any concerns about
competing consolidators calculating
independent NBBOs? Please explain. Do
commenters have concerns about
multiple versions of consolidated
market data, as proposed? Please
explain. If there are such concerns,
please also explain how these concerns
would vary from the multiple different
forms of aggregation that exist today
among broker-dealers either selfaggregating proprietary data feeds or
utilizing vendors to do so on their
behalf.
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(e) Proposed Rule 614
The Commission preliminarily
believes that SIPs that wish to act as
competing consolidators should be
required to register with the
Commission 523 and be required to
publicly disclose certain information
about their organization, operations, and
products. The proposed disclosure
framework is similar to the disclosures
currently required under Form SIP, with
differences tailored to the proposed
523 As explained further below, SROs are
excluded from the definition of SIP under Section
3(a)(22)(A) of the Exchange Act. 15 U.S.C.
78c(a)(22)(A). SROs that wish to act as competing
consolidators would therefore not be required to
register with the Commission on proposed Form
CC, which, as explained below, is the form that SIPs
would use to register as competing consolidators.
See infra Section IV.B.2(e)(iii). However, SROs that
wish to act as competing consolidators would be
subject to the other requirements of proposed Rule
614, including the responsibilities of competing
consolidators enumerated in proposed Rule 614(d),
such as the monthly publication of performance
metrics. See infra Section IV.B.2(e)(ii).
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regulatory structure that would apply to
competing consolidators. As described
more fully below, a competing
consolidator would be required to
register with the Commission on
proposed Form CC and to amend its
Form CC (i) prior to the implementation
of a material change to the competing
consolidator’s pricing, connectivity, or
products offered (a ‘‘Material
Amendment’’); and (ii) no later than 30
calendar days after the end of each
calendar year to correct information that
has become inaccurate or incomplete for
any reason and to provide an Annual
Report as required under Form CC (each
a ‘‘Form CC Amendment’’).524 A
competing consolidator would be
required to publish notice of its
cessation of operations on Form CC at
least 30 business days prior to the date
it ceases to operate as a competing
consolidator.525 The Commission would
make public on its website each
effective initial Form CC, order of
ineffective initial Form CC, Form CC
Amendment, and notice of cessation.526
The Commission also preliminarily
believes that competing consolidators
should be subject to certain obligations
and should regularly publish certain
performance statistics on a monthly
basis on their respective websites
pursuant to proposed Rules 614(d)(5)
and (6).527 These disclosures are similar
to disclosures currently made by the
exclusive SIPs.
These requirements, together with the
operational transparency proposed in
new Form CC for those SIPs that register
as competing consolidators,528 should
help to ensure that consolidated market
data, as proposed to be defined, is
provided in a prompt, accurate, and
reliable manner and that all competing
consolidators disclose the same
information to allow for easier
comparison and evaluation.
Specifically, these requirements should
allow market participants to effectively
evaluate competing consolidators and
foster competition among competing
consolidators, which should result in
high levels of performance in the
524 See proposed Rules 614(a)(1)(i) and (a)(2)(i)
and (ii).
525 See proposed Rule 614(a)(3).
526 See proposed Rule 614(b)(2). The Commission
would publish an effective initial Form CC upon
effectiveness and would publish a Form CC
Amendment no later than 30 calendar days from the
date of filing. See proposed Rule 614(b)(2)(iii).
527 See infra Section IV.B.2(e)(ii) for a discussion
of the obligations and performance statistics. The
information that the Commission is proposing that
competing consolidators publish is based upon
information that is currently collected or produced
by the CTA/CQ SIP and the Nasdaq UTP SIP, either
for public or internal distribution.
528 See infra Section IV.B.2(e)(iii) for a discussion
of proposed Form CC.
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16777
provision of proposed consolidated
market data. In addition, these
requirements should facilitate
Commission oversight of competing
consolidators and help to ensure the
resiliency of their systems.
(i) Section 11A(b) of the Exchange Act
Section 11A(b)(1) of the Exchange
Act 529 provides that a SIP not acting as
the ‘‘exclusive processor’’ 530 of any
information with respect to quotations
for or transactions in securities is
exempt from the requirement to register
with the Commission as a SIP unless the
Commission, by rule or order,
determines that the registration of such
SIP ‘‘is necessary or appropriate in the
public interest, for the protection of
investors, or for the achievement of the
purposes of [Section 11A].’’ A SIP that
proposes to act as a competing
consolidator would not engage on an
exclusive basis on behalf of any national
securities exchange or registered
securities association in collecting,
processing, or preparing for distribution
or publication any information with
respect to quotations for or transactions
in securities; therefore, such a proposed
competing consolidator would not fall
under the statutory definition of
‘‘exclusive processor.’’ However, under
the proposed rules, competing
consolidators would play a vital role in
the national market system by
collecting, consolidating, and
disseminating proposed consolidated
market data. Because the availability of
prompt, accurate, and reliable
consolidated market data, as proposed,
is essential to investors and other
market participants, the Commission
preliminarily believes that it is
necessary and appropriate in the public
interest and for the protection of
investors to require each SIP that wishes
to act as a competing consolidator to
register with the Commission as a SIP
pursuant to proposed Rule 614. Section
11A(b)(1) provides the Commission
with authority to require the registration
of a SIP not acting as an exclusive
processor by rule or order. The
Commission is exercising this authority
by proposing Rule 614 to establish the
process by which SIPs that wish to act
as competing consolidators would be
required to register with the
Commission.
The registration process for exclusive
SIPs under Section 11A requires the
Commission to publish notice of an
exclusive SIP’s application for
registration and, within 90 days of
publication of notice of the application,
529 15
U.S.C. 78k–1(b)(1).
supra note 20.
530 See
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by order grant the application or
institute proceedings to determine
whether the registration should be
denied.531 At the conclusion of the
proceedings, the Commission must, by
order, grant or deny the registration.532
Section 11A(b)(1) of the Exchange Act
also authorizes the Commission, by rule
or by order, upon its own motion or by
application, to conditionally or
unconditionally exempt any SIP or class
of SIPs from any provision of Section
11A or the rules or regulations
thereunder if the Commission finds that
such exemption is consistent with the
public interest, the protection of
investors, and the purposes of Section
11A, including the maintenance of fair
and orderly markets in securities and
the removal of impediments to and
perfection of the mechanisms of a
national market system. The
Commission preliminarily believes that
it is consistent with the public interest,
the protection of investors, and the
purposes of Section 11A to use its
authority under Section 11A(b)(1) to
exempt SIPs that wish to act as
competing consolidators from the
registration process established in
Section 11A(b)(3) of the Exchange Act
and to allow such competing
consolidators to register pursuant to a
process that is more streamlined and
limited than the process described in
Section 11A(b)(3). The process specified
in Section 11A(b)(3) of the Exchange
Act was developed for exclusive SIPs
and reflects the heightened need to
review and analyze exclusive
processors. In contrast, SIPs that do not
act as an exclusive SIP are exempt from
registration unless the Commission
‘‘finds that the registration of such
securities information processor is
necessary or appropriate in the public
interest, for the protection of investors,
or for the achievement of the purposes
of [Section 11A].’’ The Commission
preliminarily believes that the proposed
registration process would provide the
Commission with the information
necessary to oversee competing
consolidators and help ensure that
relevant information regarding such
competing consolidators is available to
the Commission and to the public,
while providing a streamlined
registration process designed to
encourage entities to register as
competing consolidators.
The registration process proposed in
new Rule 614 requires any person, other
than an SRO,533 that chooses to become
531 See
Section 11A(b)(3), 15 U.S.C. 78k–1(b)(3).
Section 11A(b)(3)(B), 15 U.S.C. 78k–
1(b)(3)(B).
533 See supra note 523.
532 See
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a competing consolidator to file with the
Commission proposed Form CC.534 The
Commission would review the initial
Form CC and such filing would become
effective, unless declared ineffective by
the Commission by order.535 The
Commission would make public on its
website each effective initial Form CC
and any order of ineffective initial Form
CC, amendment to Form CC and notice
of cessation, if applicable. The
registration process proposed in new
Rule 614 would not require the
publication for notice and comment of
an application for registration as a
competing consolidator, nor would it
require Commission approval of such an
application. However, the Commission
preliminarily believes that it is
consistent with the public interest, the
protection of investors, and the
purposes of Section 11A to establish a
relatively streamlined registration
process based on disclosure for those
SIPs that wish to act as competing
consolidators. The Commission
preliminarily believes that a relatively
streamlined registration process would
impose minimal burdens on entities
likely to register as competing
consolidators.
In addition, the Commission
preliminarily believes that it is
consistent with the public interest, the
protection of investors, and the
purposes of Section 11A to use its
exemptive authority under Section
11A(b)(1) of the Exchange Act to exempt
those SIPs that act as competing
consolidators from Section 11A(b)(5) of
the Exchange Act,536 which requires a
registered SIP to notify the Commission
if the SIP prohibits or limits any person
with respect to access to its services.
Section 11A(b)(5) allows any person
aggrieved by a prohibition or limitation
of such access to the SIP’s services to
petition the Commission to review the
prohibition or limitation of access.
Exclusive SIPs, by definition, engage on
an exclusive basis in collecting,
534 See infra Sections IV.B.2(e)(ii) and
IV.B.2(e)(iii) for a discussion of the registration
process for competing consolidators under
proposed Rule 614.
535 Proposed Rule 614(a)(1)(iii) provides that the
Commission may, by order, declare an initial Form
CC ineffective no later than 90 calendar days from
the date of filing with the Commission.
536 Section 11A(b)(5) of the Exchange Act, 15
U.S.C. 78k–1(b)(5), requires a SIP promptly to notify
the Commission if the registered SIP prohibits or
limits any person in respect of access to services
offered, directly or indirectly, by the registered SIP.
The notice must be in the form and contain the
information required by the Commission. Any
prohibition or limitation on access to services with
respect to which a registered SIP is required to file
notice is subject to review by the Commission on
its own motion, or upon application by any person
aggrieved by the prohibition or limitation.
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Frm 00054
Fmt 4701
Sfmt 4702
processing, or preparing data. In
contrast, the proposed competing
consolidators would not engage in
collecting, processing, or preparing data
on an exclusive basis. Therefore, the
Commission preliminarily believes that
the protections of Section 11A(b)(5) of
the Exchange Act, including the ability
of an aggrieved person to petition the
Commission for review of a SIP’s
prohibition or limitation of access to the
SIP’s services, are not necessary for the
SIPs that register as competing
consolidators. The Commission
preliminarily believes that competitive
forces would reduce the likelihood that
a subscriber would not be able to access
consolidated market data as proposed
because a subscriber should be able to
obtain such data from another
competing consolidator. Accordingly,
the Commission preliminarily believes
that it would be consistent with the
protection of investors and the public
interest to exempt competing
consolidators from Section 11A(b)(5) of
the Exchange Act.
The Commission requests comment
on the proposal to establish a
registration process for SIPs that wish to
act as competing consolidators and to
exempt such competing consolidators
from Section 11A(b)(5) of the Exchange
Act. In particular, the Commission
solicits comment on the following:
79. Do commenters agree that the SIPs
that wish to act as proposed competing
consolidators should be required to
register with the Commission? Do
commenters agree that such competing
consolidators should be subject to the
proposed registration requirements in
proposed Rule 614, rather than the
registration requirements set forth in
Section 11A(b) of the Exchange Act?
Why or why not?
80. Do commenters believe that the
Commission should establish a
registration process for competing
consolidators different from the
registration process in proposed Rule
614? If so, please describe. Should
competing consolidator registration be
subject to Commission approval and/or
additional or different regulation? Why
or why not? If so, please describe.
81. Do commenters believe that
competition and market forces would be
sufficient to support the proposed
registration regime for SIPs that wish to
act as competing consolidators? Why or
why not?
82. Do commenters agree that the
Commission should exempt SIPs that
register as competing consolidators from
Section 11A(b)(5) of the Exchange Act?
Why or why not?
83. Do commenters believe that
competition and market forces are
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sufficient to ensure that market
participants would have access to
consolidated market data as proposed?
Why or why not?
(ii) Description of Proposed Rule 614
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Proposed Rule 614(a)(1)(i) would
prohibit any person, other than an
SRO,537 from (i) receiving directly from
a national securities exchange or
national securities association
information with respect to quotations
for and transactions in NMS stocks; and
(ii) generating the proposed
consolidated market data for
dissemination to any person (i.e., acting
as a competing consolidator by
disseminating data to external parties)
unless that person files with the
Commission an initial Form CC and the
initial Form CC has become effective
pursuant to proposed Rule
614(a)(1)(v).538 The Commission
537 As noted above, SROs are excluded from the
definition of SIP in Section 3(a)(22)(A) of the
Exchange Act and therefore would not be required
to register as a competing consolidator pursuant to
proposed Rules 614(a)–(c) and proposed Form CC.
However, SROs are regulated entities, and an SRO
competing consolidator would be required to
provide information equivalent to that required by
proposed Form CC. For example, national securities
exchanges must file information about their control
persons, officers, and directors, and affiliates on
Form 1 that is similar to the disclosures required
under Exhibits A–D of proposed Form CC. See
Form 1 Instructions, at Exhibits C, J, and K,
available at https://www.sec.gov/files/form1.pdf
(last accessed Jan. 8, 2020). In addition, SRO
competing consolidators would be required to file
with the Commission all proposed rule changes
pursuant to Section 19(b) of the Exchange Act and
Rule 19b–4 thereunder to begin operations as a
competing consolidator, including rule changes
related to the SRO competing consolidator’s
operations, disclosures regarding consolidated
market data products, and all fees related to
consolidated market data products. The other
requirements of proposed Rule 614—specifically,
the responsibilities of competing consolidators
enumerated in proposed Rule 614(d), as described
below, including the monthly performance metrics
and other information required under proposed
Rules 614(d)(5) and (d)(6)—would apply to any
competing consolidator, including any SRO that
acts as a competing consolidator. An SRO, however,
would have a choice of the manner in which—and
the regulatory regime that would apply to—its
competing consolidator business: An SRO could
operate a competing consolidator as a facility of the
SRO, which would be subject to the rule filing
requirements of Section 19(b) of the Exchange Act
and Rule 19b–4 thereunder, or the SRO could
operate a competing consolidator in a separate
affiliated entity, not as a facility, which, like other
competing consolidators, would be subject to the
proposed registration requirements under proposed
Rule 614.
538 In contrast, a self-aggregator would be defined
as any broker-dealer that receives information with
respect to quotations for and transactions in NMS
stocks and generates consolidated market data
solely for internal use, and therefore would not be
a competing consolidator. See infra Section IV.B.3.
If a self-aggregator disseminated consolidated
market data to any person, it would be acting as a
competing consolidator and would be required to
register pursuant to proposed Rule 614 and comply
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preliminarily believes that a SIP that
wishes to act as a competing
consolidator should not be permitted to
commence operations until the
Commission has had the opportunity to
review such competing consolidator’s
initial Form CC. The Commission’s
review of initial Form CC would help to
ensure that a SIP that wishes to register
as a competing consolidator makes
disclosures that comply with the
requirements of proposed Rule 614 and
that a consistent level of information,
and consistent disclosures, are made
available to market participants to
evaluate such competing consolidators.
Proposed Rule 614(a)(1)(ii) would
require any reports required under new
Rule 614 to be filed electronically on
Form CC, include all of the information
as prescribed in Form CC and the
instructions to Form CC, and contain an
electronic signature.539 The electronic
signature requirement is consistent with
the intention of the Commission to
receive documents that can be readily
accessed and processed electronically.
The proposed rule contemplates the
use of an online filing system through
which competing consolidators would
file a completed Form CC. The system,
known as the electronic form filing
system (‘‘EFFS’’) is currently used by
SROs to submit Form 19b–4 filings and
by SCI entities to submit Form SCI
filings.540 Other methods of electronic
filing of Form CC could include the use
of secure file transfer through
specialized electronic mailbox or
through the Electronic, Data Gathering,
Analysis and Retrieval (‘‘EDGAR’’)
system, or directly through SEC.GOV
via a simple HTML form. Based on the
widespread use and availability of the
internet, the Commission believes that
filing Form CC in an electronic format
would be less burdensome and a more
efficient filing process for competing
consolidators and the Commission
because it is likely to be less expensive
and cumbersome than mailing and filing
paper forms with the Commission.
In addition, proposed Rule
614(a)(1)(ii) would establish a uniform
manner in which the Commission
would receive, and competing
consolidators would provide, reports
made pursuant to proposed Rule 614.
The standardization would make it
with the requirements applicable to competing
consolidators.
539 This proposed requirement is consistent with
electronic reporting standards set forth in other
Commission rules under the Exchange Act, such as
Rule 17a–25 (Electronic Submission of Securities
Transaction Information by Exchange Members,
Brokers, and Dealers). See 17 CFR 240.17a–25.
540 See Securities Exchange Act Release No.
50486 (Oct. 4, 2004), 69 FR 60287 (Oct. 8, 2004)
(adopting the EFFS for use in filing Form 19b–4).
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easier and more efficient for the
Commission to promptly review and
analyze the information that competing
consolidators provide.
Proposed Rule 614(a)(1)(iii) would
provide that the Commission may, by
order, declare an initial Form CC filed
by a competing consolidator ineffective
no later than 90 calendar days from
filing with the Commission.541 The
Commission preliminarily believes that
90 calendar days would provide the
Commission with adequate time to carry
out its oversight functions with respect
to its review of an initial Form CC,
including its responsibilities to protect
investors and maintain fair, orderly, and
efficient markets.
Proposed Rule 614(a)(1)(iv) would
require a competing consolidator to
withdraw an initial Form CC that has
not become effective if any information
disclosed in the initial Form CC is or
becomes inaccurate or incomplete. The
competing consolidator would be able
to refile an initial Form CC pursuant to
proposed Rule 614(a)(1). The
Commission preliminarily believes that
it would be appropriate to require an
initial Form CC to be withdrawn if any
information in the form is or becomes
inaccurate or incomplete to assure that
the Commission’s review is based on
accurate and complete information and
to assure that the Commission has
adequate time to review an accurate and
complete initial Form CC.
Proposed Rule 614(a)(1)(v)(A) would
provide that an initial Form CC would
become effective, unless declared
ineffective, no later than the expiration
of the review period provided in
paragraph (a)(1)(iii) and upon
publication of the initial Form CC
pursuant to proposed Rule 614(b)(2)(i).
Proposed Rule 614(a)(1)(v)(B) would
provide that the Commission would
declare ineffective an initial Form CC if
it finds, after notice and opportunity for
hearing, that such action is necessary or
appropriate in the public interest and is
consistent with the protection of
investors. The Commission also
preliminarily believes that it would be
necessary and appropriate in the public
interest, and consistent with the
protection of investors, to declare
ineffective an initial Form CC if it finds,
after notice and opportunity for hearing,
that one or more disclosures reveal noncompliance with federal securities laws
or the rules or regulations thereunder.
The Commission also would make such
a declaration if it finds, for example,
that one or more disclosures on the
initial Form CC were materially
deficient with respect to their accuracy,
541 See
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currency, or completeness. The
Commission preliminarily believes that
market participants would use the Form
CC disclosure to understand and
evaluate the operations of a competing
consolidator and to help determine
whether to subscribe to a competing
consolidator. A disclosure on Form CC
that is materially deficient with respect
to its completeness or comprehensibility
could mislead market participants or
impede their ability to evaluate a
competing consolidator. In addition, the
Commission intends to use the
information disclosed on an initial Form
CC to exercise oversight over competing
consolidators. Given these potential
uses, the Commission believes that it is
important that an initial Form CC
contain disclosures that are accurate,
current, and complete. During its
review, the Commission and its staff
may provide comments to the applicant
and may request that the applicant
supplement information in its initial
Form CC or revise its disclosures on its
initial Form CC.542
If the Commission declares an initial
Form CC ineffective, the applicant
would be prohibited from operating as
a competing consolidator. An initial
Form CC declared ineffective would not
prevent the competing consolidator
from subsequently filing a new Form CC
that attempted to address any disclosure
deficiencies or other issues that caused
the initial Form CC to be declared
ineffective.
The Commission requests comment
on proposed Rule 614(a)(1), which
establishes filing requirements for an
initial Form CC and a Commission
review period for determining whether
a filed initial Form CC should be
declared ineffective. In particular, the
Commission solicits comment on the
following:
84. Do commenters believe that the
proposed electronic filing requirement
is appropriate? Are there methods other
than EFFS that would be appropriate? If
so, please describe. Is EFFS an efficient
system for filing proposed Form CC?
Would another system be more
efficient? If so, please specify and
describe the rationale for using a
different system.
542 The responsibility for accurate, current, and
complete disclosures on proposed Form CC would
lie with the competing consolidator. The
Commission’s review of an initial Form CC would
focus on an evaluation of the completeness and
accuracy of the disclosures and compliance with
federal securities laws. The Commission’s
evaluation regarding compliance with federal
securities laws would involve a review of the Form
CC disclosures for apparent non-compliance with
federal securities laws, or other rules or regulations
thereunder, and would focus on the disclosures
made on the Form CC.
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85. Should the Commission adopt the
proposal that an initial Form CC will
become effective by operation of rule
without the Commission issuing an
order declaring effective the initial Form
CC? Do commenters believe that
publishing an initial Form CC on the
Commission’s website, without a
Commission order declaring an initial
Form CC effective, would provide
sufficient notice that an initial Form CC
has become effective? Why or why not?
Please support your arguments.
86. Should the Commission require
the existing exclusive SIPs to file an
initial Form CC before they may become
competing consolidators if they decide
to act as competing consolidators? Why
or why not? Please support your
arguments.
87. Do commenters believe that the
process to declare a Form CC ineffective
is appropriate? Why or why not?
88. Do commenters believe that an
SRO seeking to operate a competing
consolidator would establish the
competing consolidator within the SRO
or in a separate affiliated entity? What
do commenters believe would be the
advantages and disadvantages of each
form of operation? Do commenters
believe that an SRO competing
consolidator would have any advantages
over a competing consolidator registered
pursuant to proposed Rules 614(a)–(c)
and proposed Form CC?
89. If an SRO decides to act as a
competing consolidator, should it be
required to file a specific notice of its
intent to operate as a competing
consolidator in addition to, or in lieu of,
a Form 19b–4 with the Commission?
Would a Form 19b–4 filing by itself
provide sufficient notice that an SRO
intends to act as a competing
consolidator? Please explain.
The Commission is proposing Rule
614(a)(2) to provide the requirements for
amending an effective Form CC. Under
proposed Rule 614(b)(2)(iii), the
Commission will make public any Form
CC Amendment, as described below, no
later than 30 calendar days from the
date of its filing with the Commission.
Proposed Form CC is similar to Form
SIP and the information required to be
filed on proposed Form CC is designed
to enable market participants to make
informed decisions when selecting a
competing consolidator and to facilitate
Commission oversight of competing
consolidators. As described more fully
below,543 proposed Form CC would
require information concerning, among
other things: The legal name and legal
status of the competing consolidator; the
owners, directors, officers, and
543 See
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governors of the competing
consolidator, or persons performing
similar functions; whether the
competing consolidator is a brokerdealer or an affiliate of a broker-dealer
and a description of the organizational
structure of the competing consolidator;
contact information for an employee of
the competing consolidator prepared to
respond to questions regarding Form
CC; a description of each consolidated
market data service or function,
including connectivity and delivery
options for subscribers, and a
description of all procedures utilized for
the collection, processing, distribution,
publication and retention of information
with respect to quotations for, and
transactions in, securities; a description
of all market data products with respect
to consolidated data, or a subset thereof,
that the competing consolidator
provides to subscribers; a description of
fees and charges for use of the
competing consolidator with respect to
consolidated market data, including the
types, range, and structure of the
competing consolidator’s fees and
differentiation among the types of
subscribers; a description of any colocation and related services, the terms
and conditions for co-location,
connectivity, and related services,
including connectivity and throughput
options offered, and a description of any
other means besides co-location and
related services to increase the speed of
communication, including a summary
of the terms and conditions for its use;
and a narrative description, or the
functional specifications, of each
consolidated market data service or
function, including connectivity and
delivery options for the subscribers.
The Commission is proposing Rule
614(a)(2)(i) to require a competing
consolidator to amend an effective Form
CC in accordance with the instructions
therein: (i) Prior to the date of
implementation of a material change to
the pricing, connectivity, or products
offered; and (ii) no later than 30
calendar days after the end of each
calendar year to correct information,
whether material or immaterial, that has
become inaccurate or incomplete for
any reason (‘‘Annual Report’’). The
Commission preliminarily believes that
a change to a competing consolidator’s
pricing, connectivity, or products
offered would be material if there is a
substantial likelihood that a reasonable
market participant would consider the
change important when evaluating the
competing consolidator as a provider of
market data.544
544 See Securities Exchange Act Release No.
833633 (July 18, 2018), 83 FR 38768 (Aug. 7, 2018)
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The Commission preliminarily
believes that the proposal to amend an
effective Form CC prior to implementing
a Material Amendment would provide
market participants with information
concerning changes to significant
aspects of the competing consolidator’s
services, which would assist market
participants in evaluating, or reevaluating, the competing consolidator
as a provider of market data. The
Commission preliminarily believes that
requiring a competing consolidator to
amend an effective Form CC no later
than 30 calendar days after the end of
each calendar year to correct any other
information that has become inaccurate
or incomplete for any reason would
help to ensure that market participants
have accurate and current information
regarding competing consolidators. The
Commission preliminarily believes that
providing a mechanism for competing
consolidators to disclose changes to
their operations or to update
information that does not constitute a
Material Amendment (e.g., a change in
the organizational structure of the
competing consolidator, its officers or
directors, or its affiliated entities) no
later than 30 calendar days after the end
of each calendar year would tailor the
reporting burden on competing
consolidators to the degree of
significance of the change in a manner
that does not compromise the ability of
market participants to obtain
information about the competing
consolidator’s operations.
The Commission believes that market
participants would use information
regarding a competing consolidator’s
organization, operational capability,
market data products, fees, and colocation and related services to
determine whether to subscribe, or
continue subscribing, to a competing
consolidator. In addition, this
information would assist market
participants in evaluating which
products and services of the competing
consolidator would be most useful to
them. The information in proposed
Form CC is also designed to ensure that
the Commission has specified
information regarding entities acting as
competing consolidators, to facilitate
the Commission’s oversight of
competing consolidators and help to
ensure the resiliency of a competing
(Regulation of NMS Stock Alternative Trading
Systems) (stating that a change to the operations of
an NMS Stock ATS, or the disclosures regarding the
activities of the broker-dealer operator of the NMS
Stock ATS and its affiliates, would be material if
there is a substantial likelihood that a reasonable
market participant would consider the change
important when evaluating the NMS Stock ATS as
a potential trading venue).
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consolidator’s systems. Given these
intended uses, the Commission believes
that it is important for a competing
consolidator to maintain an accurate,
current, and complete Form CC.
The Commission requests comment
on proposed Rule 614(a)(2), which
establishes filing requirements for Form
CC Amendments. In particular, the
Commission solicits comment on the
following:
90. In addition to material changes to
a competing consolidator’s pricing,
connectivity, or products, what should
be a Material Amendment?
91. Do commenters believe that a
competing consolidator should be
required to file a Material Amendment
within a specified time prior to
implementing the change that
constitutes a Material Amendment?
Why or why not? Please support your
arguments. Is 30 days an appropriate
amount of time for a Material
Amendment to be filed?
92. Do commenters believe that a
competing consolidator should be
required to file an Annual Report? Why
or why not? Proposed Rule 614(a)(3)
would require a competing consolidator
to provide notice of its cessation of
operations on Form CC at least 30
business days before the date the
competing consolidator ceases to
operate as a competing consolidator.
The notice of cessation would cause the
Form CC to become ineffective on the
date designated by the competing
consolidator. This requirement would
provide notice to the public and the
Commission that the competing
consolidator intends to cease
operations. The Commission
preliminarily believes that this notice
would provide market participants with
time to find and select an alternative
provider of market data.
The Commission requests comment
on proposed Rule 614(a)(3), which
establishes filing requirements for a
Form CC notice of cessation. In
particular, the Commission solicits
comment on the following:
93. Should the Commission require a
competing consolidator to give notice
that it intends to cease operations 30
business days or more before ceasing
operations as a competing consolidator?
If not, why not? Is 30 business days an
appropriate time for providing notice of
an intention to cease operations? If not,
what time period would be appropriate?
In proposed Rule 614(b), the
Commission is proposing to make
public all Form CC reports filed by
competing consolidators and other
information. Under proposed Rule
614(b)(1), every Form CC filed pursuant
to Rule 304 shall constitute a ‘‘report’’
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16781
within the meaning of Sections 11A,
17(a), 18(a), and 32(a), and any other
applicable provisions of the Exchange
Act. Because proposed Form CC is a
report that is required to be filed under
the Exchange Act, it would be unlawful
for any person to willfully or knowingly
make, or cause to be made, a false or
misleading statement with respect to
any material fact in Form CC. Under
proposed Rule 614(b)(2), the
Commission would make public via
posting on the Commission’s website
each: (i) Effective initial Form CC; (ii)
order of ineffective Form CC; (iii) filed
Form CC Amendment; and (iv) notice of
cessation. Under the proposed rule, the
Commission would publish each Form
CC Material Amendment and Annual
Report on its website no later than 30
days after the competing consolidator
filed the amendment.
The Commission preliminarily
believes that making each Form CC
filing public via public posting on the
Commission’s website would provide
market participants with important
information about the operations of a
competing consolidator and facilitate
the Commission’s oversight of
competing consolidators. The
Commission preliminarily believes that
this information should be easily
accessible to all market participants so
that market participants may better
evaluate a competing consolidator as a
potential provider of market data.
Additionally, the Commission
preliminarily believes that the
publication of Material Amendments
and Annual Reports would provide
market participants with information
necessary to evaluate, or re-evaluate, a
competing consolidator as a provider of
market data, facilitate the Commission’s
oversight of competing consolidators,
and help to ensure the continued
resiliency of a competing consolidator’s
systems.
The Commission requests comment
on proposed Rule 614(b), which would
establish public disclosure requirements
for Form CC filings. In particular, the
Commission solicits comment on the
following:
94. Do commenters believe that the
Commission should post on its website
each effective initial Form CC, each
notice of ineffectiveness of a Form CC,
each Form CC Amendment, and each
notice of cessation? Why or why not?
Please support your arguments. Do
commenters believe a competitive
marketplace would provide competing
consolidators with incentives to
disclose sufficient information in the
normal course of business? Why or why
not?
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The Commission preliminarily
believes that it would be helpful for a
competing consolidator to make market
participants aware that the competing
consolidator’s filings are publicly
posted on the Commission’s website.
Therefore, proposed Rule 614(c) would
require each competing consolidator to
post on its website a direct URL
hyperlink to the Commission’s website
that contains the documents
enumerated in proposed Rule 614(b)(2),
which includes the competing
consolidator’s Form CC filings. The
Commission preliminarily believes that
this requirement would make it easier
for market participants to review a
competing consolidator’s Form CC
filings by providing an additional means
for market participants to locate Form
CC filings that are posted on the
Commission’s website.
The Commission requests comment
on proposed Rule 614(c), which would
require each competing consolidator to
provide a direct URL hyperlink to the
Commission’s website that contains the
documents identified in proposed Rule
614(b)(2). In particular, the Commission
solicits comment on the following:
95. Do commenters believe that
proposed Rule 614(c) should require
each competing consolidator to provide
a direct URL hyperlink to the
Commission’s website that contains the
documents identified in proposed Rule
614(b)(2). Why or why not? Please
support your arguments.
Under the proposed decentralized
consolidation model, competing
consolidators would be required to
perform many of the obligations
currently performed by the existing
exclusive SIPs. Proposed Rule 614(d)
establishes the responsibilities
applicable to competing consolidators,
which also includes the disclosure of
information that would facilitate the
Commission’s oversight of competing
consolidators and assist market
participants in choosing and evaluating
competing consolidators. Proposed Rule
614(d)(1) would require each competing
consolidator to collect from each
national securities exchange and
national securities association, either
directly or indirectly, the information
with respect to quotations for and
transactions in NMS stocks as provided
in Rule 603(b), which would include all
data necessary to generate the proposed
consolidated market data. Proposed
Rule 614(d)(2) would require each
competing consolidator to calculate and
generate consolidated market data, as
defined in proposed Rule 600(b)(16),
from the information collected in
proposed Rule 614(d)(1). Proposed Rule
614(d)(3) would require competing
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consolidators to make the proposed
consolidated market data available to
subscribers on a consolidated basis and
on terms that are not unreasonably
discriminatory, with the timestamps
required by proposed Rule 614(d)(4) and
Rule 614(e)(1)(ii), as discussed below.
As noted above, competing
consolidators would be required under
proposed Rule 614(d)(2) to calculate and
generate proposed consolidated market
data and make proposed consolidated
market data available to subscribers.
Accordingly, all competing
consolidators would be required to
develop a consolidated market data
product that contains all of the data
elements provided under the proposed
definition of consolidated market data.
In addition, competing consolidators
could develop other market data
products that contain only a subset of
consolidated market data elements (e.g.,
a TOB product) and could develop
market data products that contain
elements that go beyond the elements
required under the proposed definition
of consolidated market data (e.g., a full
DOB product). The Commission
recognizes that market participants have
varying needs with respect to market
data, and the proposed rules would
permit a competing consolidator to offer
additional market data products to meet
these needs so long as the competing
consolidator complies with proposed
Rules 614(d)(2) and (d)(3) by providing
a consolidated market data product.545
The Commission preliminarily
believes that the proposed provisions
are both necessary and appropriate
because they reflect the main
obligations of competing consolidators,
which are to collect, calculate, and
disseminate consolidated market data,
as proposed. In addition, the use of a
competing consolidator at a specific
data center would likely be more
accurate and useful in assessing the
trading activity of a trading participant
in that same data center. As proposed,
competing consolidators would be the
only entities providing proposed
consolidated market data to market
participants. Accordingly, the terms by
which they provide proposed
consolidated market data to their
subscribers must not be unreasonably
discriminatory.546
The Commission requests comment
on proposed Rules 614(d)(1)–(3). In
particular, the Commission solicits
comment on the following:
96. Do these provisions reflect the
main obligations of competing
545 See
546 See
PO 00000
supra Section III.A.
15 U.S.C. 78k–1(c)(1)(D).
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consolidators? Should there be any
other obligations?
97. Competing consolidators would be
required to generate proposed
consolidated market data, which would
include the calculation of an NBBO
consistent with the process outlined in
the definition of NBBO in Rule
600(b)(42). Do commenters believe that
the definition of NBBO would ensure
the calculation of consistent NBBOs by
competing consolidators?
98. Do commenters believe that
competing consolidators should be
required to develop a consolidated
market data product that contains all of
the data elements provided under the
proposed definition of consolidated
market data? Why or why not? Could
there be some competing consolidators
that only offer a subset of the proposed
consolidated market data? Please
explain.
Proposed Rule 614(d)(4) would
require each competing consolidator to
timestamp the information collected in
proposed Rule 614(d)(1): (i) Upon
receipt from each national securities
exchange and national securities
association at the exchange’s or
association’s data center; (ii) upon
receipt of such information at its
aggregation mechanism; and (iii) upon
dissemination of consolidated market
data to customers. The Commission
understands that the existing SIPs
similarly timestamp information in
accordance with proposed Rule
614(d)(4)(i) and (iii). The Commission
preliminarily believes that the proposed
rule is appropriate because it would
allow subscribers to ascertain a
competing consolidator’s realized
latency (i.e., how quickly the competing
consolidator can receive data from the
exchanges, transmit that data between
the exchange’s data center and its
aggregation center, and aggregate and
disseminate proposed consolidated
market data to subscribers). This
information provides transparency that
should help subscribers evaluate a
potential competing consolidator or
determine whether an existing
competing consolidator continues to
meet their needs.547
The Commission is also proposing
several rules, described below, that
would require public disclosure of
metrics and other information
concerning the performance and
operations of a competing consolidator.
The information that the Commission is
547 If a competing consolidator uses a vendor to
transmit data between the SRO data center and the
competing consolidator’s data center, the competing
consolidator retains responsibility for collecting all
of the timestamps described in proposed Rule
614(d)(4).
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proposing that competing consolidators
publish is based upon information that
is currently produced by the CTA/CQ
SIP and the Nasdaq UTP SIP, either for
public or internal distribution.548
Because this information is useful to
current users of the exclusive SIPs and
participants of the Equity Data Plans,
the Commission preliminarily believes
that it should be made publicly
available 549 by competing
consolidators. The Commission
preliminarily believes that public
disclosure and accessibility of this
information would help market
participants to evaluate the merits of a
competing consolidator by providing
transparency into the services and
performance, and resiliency of each
competing consolidator, and could also
lower search costs for market
participants and enhance competition.
In addition, the Commission
preliminarily believes that the public
disclosure of this information—
particularly the system availability and
network delay statistics and data quality
and system issues—would help to
ensure that competing consolidators
have a demonstrated ability to provide
consolidated market data in a stable and
resilient manner.
Proposed Rule 614(d)(5) would
require each competing consolidator to
publish prominently on its website,
within 15 calendar days after the end of
each month, certain performance
metrics. All information posted
pursuant to proposed Rule 614(d)(5)
must be publicly posted in
downloadable files and must remain
548 The exclusive SIPs currently publish to their
respective websites monthly processor metrics that
provide the following information: System
availability, message rate and capacity statistics,
and the following latency statistics from the point
of receipt by the SIP to dissemination from the SIP:
Average latency and 10th, 90th and 99th percentile
latency. See CTA Metrics, available at https://
www.ctaplan.com/metrics; UTP Metrics, available
at http://www.utpplan.com/metrics. Additionally,
the exclusive SIPs post on their websites any
system alerts and the Nasdaq UTP Plan posts
vendor alerts as well. See CTA Alerts, available at
https://www.ctaplan.com/alerts; UTP–SIP System
Alerts, available at http://www.utpplan.com/
system_alerts; UTP Vendor Alerts, available at
http://www.utpplan.com/vendor_alerts. Further, the
exclusive SIPs publish on their websites charts
detailing realized latency from the inception of a
Participant matching engine event through the
point of dissemination from the exclusive SIP. See
CTA Latency Charts, available at https://
www.ctaplan.com/latency-charts; UTP Realized
Latency Charting, available at http://
www.utpplan.com/latency_charts.
549 Rule 600(b)(37) of Regulation NMS defines
‘‘make publicly available’’ as ‘‘posting on an
internet website that is free and readily accessible
to the public, furnishing a written copy to
customers on request without charge, and notifying
customers at least annually in writing that a written
copy will be furnished on request.’’ See 17 CFR
242.600(b)(37).
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free and accessible (without any
encumbrances or restrictions) by the
general public on the website for a
period of not less than three years from
the initial date of posting. The
Commission preliminarily believes that
the availability of this information on a
website (without any encumbrances or
restrictions) would assist market
participants in comparing competing
consolidators and evaluating their
performance over time.550 In particular,
proposed Rule 614(d)(5) would provide
that the performance metrics include: (i)
Capacity statistics (such as system
tested capacity, system output capacity,
total transaction capacity, and total
transaction peak capacity); (ii) message
rate and total statistics (such as peak
output rates on the following bases: 1millisecond, 10-millisecond, 100millisecond, 500-millisecond, 1-second,
and 5-second); (iii) system availability
statistics (for example, whether system
up-time has been 100% for the month
and cumulative amount of outage time);
(iv) network delay statistics (for
example, today under a TCP–IP
network, network delay statistics would
include quote and trade zero window
size events, quote and trade TCP
retransmit events, and quote and trade
message total); and (v) latency statistics
(with distribution statistics up to the
99.99th percentile) for (1) when a
national securities exchange or national
securities association sends an inbound
message to a competing consolidator
network and when the competing
consolidator network receives the
inbound message; 551 (2) when the
competing consolidator network
receives the inbound message and when
the competing consolidator network
sends the corresponding consolidated
message to a subscriber; and (3) when a
national securities exchange or national
securities association sends an inbound
message to a competing consolidator
network and when the competing
consolidator network sends the
corresponding consolidated message to
a subscriber.
Additionally, proposed Rule 614(d)(6)
would require each competing
consolidator to publish prominently on
its website, within 15 calendar days
after the end of each month, information
on: (i) Data quality issues (such as
delayed message publication,
publication of duplicative messages,
550 A competing consolidator that ceases
operations would not be required to maintain the
information posted pursuant to proposed Rule
614(d)(5) after the competing consolidator files its
notice of cessation and its Form CC becomes
ineffective, as provided in proposed Rule 614(a)(3).
551 The Commission believes that the SIPs do not
currently produce this latency statistic.
PO 00000
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and message inaccuracies); (ii) system
issues (such as processing, connectivity,
and hardware problems); (iii) any clock
synchronization protocol utilized; (iv)
for the clocks used to generate the
timestamps described in Rule 614(d)(4),
clock drift averages and peaks and
number of instances of clock drift
greater than 100 microseconds; 552 and
(v) vendor alerts (such as holiday
reminders and testing dates). All
information posted pursuant to
proposed Rule 614(d)(6) must be
publicly posted and must remain free
and accessible (without any
encumbrances or restrictions) by the
general public on the website for a
period of not less than three years from
the initial date of posting.
The Commission requests comment
on proposed Rules 614(d)(4)–(d)(6). In
particular, the Commission solicits
comment on the following:
99. Do commenters believe that
separate timestamps should be required
as described in Rule 614(d)(4)? Are
these the relevant instances for
timestamps? Should any other
timestamps be adopted? Should any of
the proposed timestamps not be
required?
100. Do commenters believe that the
information required to be published
pursuant to proposed Rule 614(d)(5) and
proposed Rule 614(d)(6) is appropriate
for competing consolidators? Should
any further information be published? Is
any information proposed to be
published unnecessary?
101. Do commenters believe that the
frequency of publication of the
information required to be published
pursuant to proposed Rule 614(d)(5) and
proposed Rule 614(d)(6) is sufficient? Is
it too onerous?
102. Do commenters believe that
requiring each competing consolidator
to publish the data required by
proposed Rule 614(d)(5) and proposed
Rule 614(d)(6) on its respective website
is appropriate? Would commenters
prefer that the competing consolidators
instead file the data with the
Commission for publication on the
Commission’s website?
103. Do commenters believes that any
of the information required to be
published on the competing
consolidator’s website should not be
required to be made publicly available?
Please explain. If so, should this
information be required to be provided
to subscribers? Should any information
proposed to be made publicly available
not be made publicly available due to
competitive concerns? If so, please
552 The Commission believes that the SIPs do not
currently produce this information.
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identify the information and provide an
explanation.
104. Do commenters believe a
requirement for the competing
consolidators to publish historical
performance data should be included in
proposed Rule 614(d)(5) and proposed
Rule 614(d)(6)? If yes, for what time
periods should historical data be
required to be published?
The Commission is proposing several
rules that would require competing
consolidators to provide and maintain
information for regulatory purposes.
Proposed Rule 614(d)(7) would require
each competing consolidator to keep
and preserve at least one copy of all
documents, including all
correspondence, memoranda, papers,
books, notices, accounts, and such other
records as shall be made or received by
it in the course of its business as such
and in the conduct of its business.553
The proposed rule would require
competing consolidators to keep these
documents for a period of no less than
five years, the first two years in an
easily accessible place. Proposed Rule
614(d)(8) would require each competing
consolidator to, upon request of any
representative of the Commission,
promptly furnish to the possession of
such representative copies of any
documents required to be kept and
preserved by it.554 These requirements
would facilitate the Commission’s
oversight of competing consolidators
and the national market system.
The Commission requests comment
on proposed Rules 614(d)(7) and (d)(8).
In particular, the Commission solicits
comment on the following:
105. Do commenters believe that the
documents required to be kept and
553 See Section 17(a)(1) of the Exchange Act, 15
U.S.C. 78q(a)(1).
554 In this context, ‘‘promptly’’ or ‘‘prompt’’
means making reasonable efforts to produce records
that are requested by the staff during an
examination without delay. The Commission
believes that in many cases a competing
consolidator could, and therefore will be required
to, furnish records immediately or within a few
hours of a request. The Commission expects that
only in unusual circumstances would a competing
consolidator be permitted to delay furnishing
records for more than 24 hours. Accord Regulation
Crowdfunding, Securities Act Release No. 9974,
Securities Exchange Act Release No. 76324 (Oct. 30,
2015), 80 FR 71387, 71473 n. 1122 (Nov. 15, 2015)
(similarly interpreting the term ‘‘promptly’’ in the
context of Regulation Crowdfunding Rule 404(e));
Security Based Swap Data Repository Registration,
Duties, and Core Principles, Securities Exchange
Act Release No. 74246 (Feb. 11, 2015), 80 FR 14438,
14500, n. 846 (March 19, 2015) (similarly
interpreting the term ‘‘promptly’’ in the context of
Exchange Act Rule 13n–7(b)(3)); Registration of
Municipal Advisors, Securities Exchange Act
Release No. 70462 (Sept. 20, 2013), 78 FR 67468,
67578–67579 n. 1347 (Nov. 12, 2013) (similarly
interpreting the term ‘‘prompt’’ in the context of
Exchange Act Rule 15Ba1–8(d)).
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preserved by proposed Rule 614(d)(7)
are appropriate for competing
consolidators? If not, please explain.
Are there any other documents that
should be kept and preserved by
competing consolidators?
106. Do commenters believe that the
recordkeeping time periods required by
proposed Rule 614(d)(7) are appropriate
for competing consolidators? If not,
what would be more appropriate
recordkeeping time periods?
107. Do commenters believe that
proposed Rule 614(d)(8), which requires
competing consolidators to provide
copies of any documents required to be
kept and preserved to any representative
of the Commission upon request, is
appropriate for competing
consolidators? If not, please explain.
The Commission is proposing to
define ‘‘business day’’ for purposes of
proposed Rule 614 to comport with
provisions contained in Rule 19b–4 and
to specify the conditions under which
filings required pursuant to Rule 614 are
deemed to have been made on a
particular business day. Specifically, the
Commission proposes to define
‘‘business day’’ in the same manner in
which it is defined in Rule 19b–
4(b)(2).555 The Commission
preliminarily believes that these
provisions providing a date-of-filings
standard would facilitate the ability of
competing consolidators to comply with
the requirements of Rule 614 and
facilitate the ability of the Commission
to effectively receive, review, and make
public the filings required under
proposed Rule 614.
The Commission requests comment
on proposed Rules 614(a)(4)(i) and
(a)(4)(ii). In particular, the Commission
solicits comment on the following:
108. Do commenters believe that the
definition of business day in proposed
Rule 614(a)(4)(i) is appropriate? Why or
why not? Would any alternative
definition of business day be preferable?
Please explain.
109. Do commenters believe that the
standards set forth in proposed Rule
614(a)(4)(ii) regarding when a filing or
publication requirement is deemed to
have occurred on a particular business
day are appropriate? Why or why not?
Would any alternative standards be
preferable? Please explain.
(iii) Proposed New Form CC
Proposed new Form CC includes a set
of instructions for its completion and
submission. These instructions are
attached to this release, together with
proposed Form CC. Proposed Form CC
would require competing
555 See
PO 00000
Rule 19b–4(b)(2), 17 CFR 240.19b–4(b)(2).
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consolidators556 to provide information
and/or reports in narrative form by
attaching specified exhibits. The
proposed form would require a
competing consolidator to indicate the
purpose for which it is filing the form
(i.e., initial report, material amendment,
annual amendment, or notice of
cessation), and to provide information
in four categories: (1) General
information, along with contact
information; (2) business organization;
(3) operational capability; and (4)
services and fees. The Commission
preliminarily believes that it is
necessary to obtain the information
requested in proposed Form CC to
enable the Commission to determine
whether to declare a Form CC
ineffective. Specifically, the
Commission believes that the requested
information would assist the
Commission in understanding the
competing consolidator’s overall
business structure, technological
reliability, and services offered. In
addition, Form CC would help to
provide for consistent disclosures
among competing consolidators.
General Information: Proposed Form
CC would require a competing
consolidator to provide its legal name
and ‘‘DBA’’ (doing business as), if
applicable, its address, website URL,
legal status (e.g., corporation,
partnership, and sole proprietorship),
and, except in the case of a sole
proprietorship, the date of formation
and state or country in which it was
formed. The Commission preliminarily
believes that this basic information is
necessary for the Commission to
evaluate a competing consolidator.
Proposed Form CC also would require
the competing consolidator to indicate
(1) whether it is registered as a brokerdealer or affiliated with a registered
broker-dealer and (2) whether it is a
successor to a previously registered
competing consolidator and, if so, the
date of succession and the name and
address of the predecessor registrant.
The Commission preliminarily believes
that this would provide basic
identifying information about the
competing consolidator and assist the
Commission in its review of Form CC.
Business Organization: Proposed
Form CC would require each competing
consolidator to provide information
regarding its business organization,
including: (1) In Exhibit A, information
regarding any person who owns 10
percent or more of the competing
556 As explained above, only non-exclusive SIP
competing consolidators, and not SRO competing
consolidators, would be required to register on
Form CC.
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consolidator’s stock or who, either
directly or indirectly, through
agreement or otherwise, in any other
manner, may control or direct the
competing consolidator’s management
or policies, including the full name and
title of any such person and a copy of
the agreement, or if there is no written
agreement, a description of the
agreement or basis upon which such
person may exercise such control or
direction; (2) in Exhibit B, a list of the
officers, directors, governors, or persons
performing similar functions of the
competing consolidator; (3) in Exhibit C,
a narrative or graphic description of the
competing consolidator’s organizational
structure; and (4) in Exhibit D, a list of
all affiliates of the competing
consolidator and the general nature of
the affiliations. The Commission
preliminarily believes that obtaining
this information would assist the
Commission in understanding the
competing consolidator’s overall
business structure, governance
arrangements, and operations, all of
which would assist the Commission in
its review of Form CC. If the competing
consolidator is a broker-dealer, or is
affiliated with a broker-dealer, proposed
Form CC would permit the competing
consolidator to attach its, or its
affiliate’s, Schedule A of Form BD,
relating to direct owners and executive
officers, and Schedule B of Form BD,
relating to indirect owners.
Alternatively, in lieu of filing Exhibits A
and B to proposed Form CC, or
providing Schedules A and B of Form
BD, proposed Form CC would permit a
competing consolidator to provide a
URL address where the information
requested under Exhibits A and B to
proposed Form CC are available. The
Commission preliminarily believes that
this information would help the
Commission and market participants
understand the persons and entities that
directly and indirectly own the brokerdealer, thereby enabling the
Commission and market participants to
better understand potential conflicts of
interest that may arise for a competing
consolidator that is a broker-dealer or is
affiliated with a broker-dealer.
Operational Capability: Proposed
Form CC would require each competing
consolidator to provide a description of
each proposed consolidated market data
service or function, including
connectivity and delivery options for
subscribers, and a description of all
procedures utilized for the collection,
processing, distribution, publication,
and retention of information with
respect to quotations for, and
transactions in, securities. The
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Commission further believes,
preliminarily, that this information
could assist the Commission in
overseeing competing consolidators and
assist market participants in assessing
whether to become a subscriber of a
certain competing consolidator.
Competing consolidators could serve an
important role in the national market
system by calculating and generating
consolidated market data, as proposed,
and, accordingly, it is important for the
competing consolidator to provide the
requested information relating to its
operational capability.
Services and Fees: Proposed Form CC
would further require a competing
consolidator to provide information
regarding access to its competing
consolidator services, including: (1) A
description of all market data products
with respect to proposed consolidated
market data or any subset of proposed
consolidated market data that are
provided to subscribers; (2) a
description of any fees or charges for
use of the competing consolidator with
respect to proposed consolidated market
data or any subset of proposed
consolidated market data, including the
types of fees (e.g., subscription and
connectivity), the structure of the fee
(e.g., fixed and variable), variables that
affect the fees (e.g., data center costs,
aggregation costs, and transmission
costs), pricing differentiation among the
types of subscribers, and range of fees
(high and low); (3) a description of any
co-location, connectivity, and related
services, and the terms and conditions
for co-location and related services,
including connectivity and throughput
options offered; and (4) a description of
any other means besides co-location and
related services to increase the speed of
communication, including a summary
of the terms and conditions for its use.
The Commission preliminarily believes
that this information would assist
market participants in determining
whether to become a subscriber of a
competing consolidator by requiring the
availability to all market participants of
information regarding the services
offered by the competing consolidator
and the fees it charges for services and
proposed consolidated market data. The
availability of this information would
also help to assure that all subscribers
and potential subscribers have the same
information about the services that the
competing consolidator offers.
Contact Information: In addition to
the foregoing, proposed Form CC would
require a competing consolidator to
provide Commission staff with point of
contact information for a person(s)
prepared to respond to questions
regarding Form CC, including the name,
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16785
title, telephone number, and email
address of such person. Proposed Form
CC also would require an electronic
signature to help ensure the authenticity
of the Form CC submission. The
Commission preliminarily believes
these proposed requirements would
expedite communications between
Commission staff and a competing
consolidator and help to ensure that
only personnel authorized by the
competing consolidator are submitting
required filings and responding to
questions from Commission staff
regarding Form CC.
The Commission requests comment
on proposed Form CC. In particular, the
Commission solicits comment on the
following:
110. Are the instructions in proposed
Form CC sufficiently clear? If not,
identify any instructions that should be
clarified, and, if possible, offer
alternatives.
111. Should the Commission
implement an electronic filing system
for receipt of Form CC, and, if so, what
particular features should be
incorporated into the system? Are there
any burdens associated with the
electronic filing of proposed Form CC
that the Commission should consider?
112. Is the requested information
relating to a competing consolidator’s
operational capability appropriate? If
not, identify any items that are not
appropriate, explain why, and, if
possible, offer alternatives.
113. Is the requested information
relating to access to a competing
consolidator’s services appropriate? If
not, identify any items that are not
appropriate, explain why, and, if
possible, offer alternatives.
114. Do commenters believe that
competing consolidators will bundle
their products and/or services? If so,
should this be disclosed on Form CC?
115. Should the Commission require
any additional information on Form CC?
If so, what information and why?
116. Are there any items on proposed
Form CC that the Commission should
not request? If so, which items and
why?
(f) Amendments to Regulation SCI
The Commission adopted Regulation
SCI in November 2014 to strengthen the
technology infrastructure of the U.S.
securities markets.557 Regulation SCI is
designed to reduce the occurrence of
systems issues in the U.S. securities
markets, improve resiliency when
systems problems occur, and enhance
557 See Regulation SCI Adopting Release, supra
note 28, at 72252–56 for a discussion of the
background of Regulation SCI.
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the Commission’s oversight of securities
market technology infrastructure. The
key market participants that are
currently subject to Regulation SCI are
called ‘‘SCI entities’’ and include certain
SROs (including stock and options
exchanges, registered clearing agencies,
FINRA and the Municipal Securities
Regulatory Board) (‘‘SCI SROs’’);
alternative trading systems that trade
NMS and non-NMS stocks exceeding
specified volume thresholds (‘‘SCI
ATSs’’); the exclusive SIPs (‘‘plan
processors’’); and certain exempt
clearing agencies.558 Regulation SCI,
among other things, requires these SCI
entities to establish, maintain, and
enforce written policies and procedures
reasonably designed to ensure that their
key automated systems have levels of
capacity, integrity, resiliency,
availability, and security adequate to
maintain their operational capability
and promote the maintenance of fair
and orderly markets, and that such
systems operate in accordance with the
Exchange Act and the rules and
regulations thereunder and the entities’
rules and governing documents, as
applicable.559 Broadly speaking,
Regulation SCI also requires SCI entities
to take appropriate corrective action
when systems issues occur; provide
certain notifications and reports to the
Commission regarding systems
problems and systems changes; inform
members and participants about systems
issues; conduct business continuity and
disaster recovery testing and penetration
testing; conduct annual reviews of their
automated systems; and make and keep
certain books and records.560
Regulation SCI applies primarily to
the systems of, or operated on behalf of,
SCI entities that directly support any
one of six key securities market
functions—trading, clearance and
settlement, order routing, market data,
market regulation, and market
surveillance (‘‘SCI systems’’).561 With
respect to security, Regulation SCI also
applies to systems that, if breached,
would be reasonably likely to pose a
security threat to SCI systems (‘‘indirect
SCI systems’’).562 In addition, certain
558 See Rule 1000 of Regulation SCI, 17 CFR
242.1000. Because self-aggregators would be brokerdealers, see infra Section IV.B.3, they would be
subject to existing broker-dealer risk control and
supervisory obligations. See, e.g., 17 CFR 240.15c3–
5, FINRA Rule 3110, FINRA Rule 4370, FINRA Rule
4380.
559 See Rule 1001 of Regulation SCI, 17 CFR
242.1001, which is also discussed further below.
560 See Rules 1002–1007 of Regulation SCI, 17
CFR 242.1001–1007, which are also discussed
further below.
561 See Rule 1000 of Regulation SCI, 17 CFR
242.1000.
562 Id.
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systems that raise concerns about single
points of failure (defined as ‘‘critical SCI
systems’’) are subject to certain
heightened requirements.563
When adopting Regulation SCI, the
Commission included within the scope
of Regulation SCI those entities ‘‘that
play a significant role in the U.S.
securities markets and/or have the
potential to impact investors, the overall
market, or the trading of individual
securities.’’ 564 The Commission
identified by function the key market
participants it believed were integral to
ensuring the stability, integrity, and
resiliency of securities market
infrastructure.565 As discussed below,
‘‘plan processors’’ are currently among
those entities that are subject to
Regulation SCI. Under Regulation SCI,
‘‘plan processors’’ have the meaning set
forth in Regulation NMS.566 Thus,
currently, the exclusive SIPs, or plan
processors of the Equity Data Plans and
the OPRA Plan, are subject to
Regulation SCI.567 The Commission
included plan processors within the
scope of Regulation SCI because the
Commission believed that such entities,
because they are exclusive processors
and providers of key market data
pursuant to a national market system
plan, are central features of the national
market system and serve an important
role within the national market system
in operating and maintaining computer
and communications facilities for the
receipt, processing, validating, and
dissemination of quotation and/or last
sale price information.568
The Commission preliminarily
believes that competing consolidators,
because they would be sources of
consolidated market data, even if not
exclusive sources of such data, would
similarly serve an important role in the
national market system, and therefore
should be subject to the requirements of
563 Id. Subparagraph (1) of the definition of
‘‘critical SCI systems’’ in Rule 1000 of Regulation
SCI specifically enumerates certain systems to be
within its scope, including those that ‘‘directly
support functionality relating to: (i) Clearance and
settlement systems of clearing agencies; (ii)
openings, reopenings, and closings on the primary
listing market; (iii) trading halts;(iv) initial public
offerings; (v) the provision of consolidated market
data; or (vi) exclusively-listed securities . . .’’.
564 See Regulation SCI Adopting Release, supra
note 28, at 72258.
565 Id. at 72254.
566 See Rule 600(b)(59) of Regulation NMS, 17
CFR 242.600(b)(59).
567 See also Regulation SCI Adopting Release,
supra note 28, at 72270–71, n. 196 (discussing how
the term ‘‘plan processor’’ applies to the CTA, CQ,
Nasdaq UTP, and OPRA plans).
568 See also id. at 72271. The Commission also
stated how systems issues affecting SIPs highlighted
their importance within the national market system.
See id. at n. 199 (discussing the impact of two
systems issues involving SIPs).
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Regulation SCI. When adopting
Regulation SCI, the Commission
explained that Regulation SCI would
apply not only to exclusive providers of
consolidated market data, but also to the
market data systems of SCI SROs,
stating, ‘‘both consolidated and
proprietary market data systems are
widely used and relied upon by a broad
array of market participants, including
institutional investors, to make trading
decisions, and [] if a consolidated or a
proprietary market data feed became
unavailable or otherwise unreliable, it
could have a significant impact on the
trading of the securities to which it
pertains, and could interfere with the
maintenance of fair and orderly
markets.’’ 569 The Commission
preliminarily believes that if a
consolidated market data feed of a
competing consolidator became
unavailable or otherwise unreliable, it
could have a significant impact on the
trading of NMS stocks and/or the market
participants subscribing to its data
feeds, and could possibly interfere with
the maintenance of fair and orderly
markets. A systems issue could occur at
a competing consolidator (e.g., a
systems disruption that prevented the
competing consolidator from
disseminating consolidated market data
to its subscribers, a systems intrusion
that impacted the quality of the data
being disseminated, or another
cybersecurity incident, such that certain
market participants or the securities
markets broadly could be significantly
impacted until such time that the issue
was resolved at the competing
consolidator, or the end user (or its
market data vendor, if applicable) was
able to implement any backup
arrangements with an alternative
competing consolidator. As detailed
further below, the Commission is
requesting comment on whether all of
the obligations set forth in Regulation
SCI should apply to competing
consolidators, or whether only certain
requirements should be imposed, such
as those requiring written policies and
procedures, notification of systems
problems, business continuity and
disaster recovery testing (including
testing with participants/subscribers of
a competing consolidator), and
penetration testing.
In addition, the Commission is
proposing to revise the definition of
‘‘critical SCI system,’’ to take account of
competing consolidators, which, as
proposed, would not be exclusive
providers of consolidated market data.
Currently, subparagraph (1)(v) of the
569 See Regulation SCI Adopting Release, supra
note 28, at 72275.
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definition of ‘‘critical SCI systems’’
includes those SCI systems of, or
operated on behalf of, an SCI entity that
directly support functionality relating to
‘‘the provision of consolidated market
data.’’ The Commission is proposing to
revise this subparagraph to apply to
those systems that directly support
functionality relating to ‘‘the provision
of market data by a plan processor.’’ The
proposed revised language in
subparagraph (1)(v) is intended to
identify as critical SCI systems only
those market data systems that perform
an exclusive market data dissemination
function pursuant to an NMS plan.
Accordingly, the scope of ‘‘critical SCI
systems’’ would still capture single
points of failure within the national
market system. Under the current
consolidation model, because the
exclusive SIPs represent such single
points of failure, they are all subject to
heightened requirements as ‘‘critical SCI
systems.’’ However, because the
competing consolidator model is
designed to result in multiple viable
sources of consolidated market data,
and would not be initiated until a
transition period was complete,570 the
Commission preliminarily believes that
including systems of such competing
consolidators within the scope of
‘‘critical SCI systems’’ would not be
necessary. With multiple competing
consolidators operating in the national
market system, the systems of
competing consolidators would be
subject to the standard (i.e., as SCI
systems that are not critical SCI
systems) requirements of Regulation
SCI, whereas the proposed revised
definition of ‘‘critical SCI systems’’
would address single point of failure
concerns.
Because the competing consolidator
model would not apply with respect to
trading in options, the definition of
‘‘critical SCI systems’’ must still account
for the systems of OPRA’s plan
processor, whose systems would
continue to be ‘‘critical SCI systems.’’ In
addition, to avoid confusion with the
term ‘‘consolidated market data’’—
which is proposed to be defined to
include (1) core data, (2) regulatory data,
(3) administrative data, (4) exchangespecific program data, and (5) additional
regulatory, administrative, or exchangespecific program data elements defined
as such pursuant to the effective
national market system plan(s) required
under Rule 603(b) 571—the Commission
is proposing to replace that phrase
570 See
infra Section IV.B.6.
proposed Rule 600(b)(19) of Regulation
NMS. See also supra Section III.B.
571 See
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within the definition of ‘‘critical SCI
systems’’ with ‘‘market data.’’ 572
Thus, under this proposal, the
definition of ‘‘SCI entities’’ would be
expanded to include ‘‘competing
consolidators,’’ which would be defined
to have the same meaning as the
definition of ‘‘competing consolidators’’
set forth in proposed Rule 600(b)(16) of
Regulation NMS.573 Competing
consolidators would be subject to the
requirements of Regulation SCI, as
described below.
Rule 1001(a) of Regulation SCI
requires SCI entities to have policies
and procedures reasonably designed to
ensure that their SCI systems and, for
purposes of security standards, indirect
SCI systems, have levels of capacity,
integrity, resiliency, availability, and
security adequate to maintain their
operational capability and promote the
maintenance of fair and orderly markets,
and includes certain minimum
requirements for those policies and
procedures relating to capacity
planning, stress tests, systems
development and testing methodology,
the identification of vulnerabilities,
business continuity and disaster
recovery plans (including geographic
diversity and resumption goals), and
monitoring.574 Of particular note for
competing consolidators is Rule
1001(a)(2)(vi), which requires that an
SCI entity’s policies and procedures
include standards ‘‘that result in such
systems being designed, developed,
tested, maintained, operated, and
surveilled in a manner that facilitates
the successful collection, processing,
and dissemination of market data.’’ 575
Rule 1001(a)(3) of Regulation SCI
requires that SCI entities periodically
review the effectiveness of these
policies and procedures, and take
prompt action to remedy any
deficiencies.576 Rule 1001(a)(4) of
Regulation SCI provides that, for
purposes of the provisions of Rule
572 See proposed amendment to Rule 1000 of
Regulation SCI.
573 See proposed amendment to Rule 1000 of
Regulation SCI. As discussed above, competing
consolidators would not fall within the definition
of ‘‘plan processors’’ under Regulation SCI. See
supra notes 566–567 and accompanying text. In
addition to revising Rule 1000 of Regulation SCI to
define ‘‘competing consolidators’’ and include them
within the definition of ‘‘SCI entity,’’ corresponding
changes would be made to Form SCI and the
General Instructions to Form SCI to include
references to ‘‘competing consolidators.’’ See infra
note 595 and accompanying text (discussing Form
SCI and Rule 1006 of Regulation SCI).
574 Rule 1001(a) of Regulation SCI, 17 CFR
242.1001(a).
575 Rule 1001(a)(2)(vi) of Regulation SCI, 17 CFR
242.1001(a)(2)(vi).
576 Rule 1001(a)(3) of Regulation SCI, 17 CFR
242.1001(a)(3).
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1001(a), an SCI entity’s policies and
procedures will be deemed to be
reasonably designed if they are
consistent with current SCI industry
standards, which shall be comprised of
information technology practices that
are widely available to information
technology professionals in the financial
sector and issued by an authoritative
body that is a U.S. governmental entity
or agency, association of U.S.
governmental entities or agencies, or
widely recognized organization; 577
however, Rule 1001(a)(4) of Regulation
SCI also makes clear that compliance
with such ‘‘current SCI industry
standards’’ are not the exclusive means
to comply with these requirements.
Rule 1001(b) of Regulation SCI
requires that each SCI entity establish,
maintain, and enforce written policies
and procedures reasonably designed to
ensure that its SCI systems operate in a
manner that complies with the Act and
the rules and regulations thereunder
and the entity’s rules and governing
documents, as applicable, and specifies
certain minimum requirements for such
policies and procedures.578 Rule
1001(b)(3) of Regulation SCI requires
that SCI entities periodically review the
effectiveness of these policies and
procedures, and take prompt action to
remedy any deficiencies.579 Rule
1001(b)(4) of Regulation SCI provides
individuals with a safe harbor from
liability under Rule 1001(b) if certain
conditions are met.580
Rule 1001(c) of Regulation SCI
requires SCI entities to establish,
maintain, and enforce reasonably
designed written policies and
procedures that include the criteria for
identifying responsible SCI personnel,
the designation and documentation of
responsible SCI personnel, and
577 Rule 1001(a)(4) of Regulation SCI, 17 CFR
242.1001(a)(4). We note that concurrent with the
Commission’s adoption of Regulation SCI,
Commission staff issued staff guidance on current
SCI industry standards as referenced in Regulation
SCI. The staff guidance listed examples of
publications in nine domains describing processes,
guidelines, frameworks, or standards an SCI entity
could look to in developing reasonable policies and
procedures to comply with Rule 1001(a) of
Regulation SCI. See ‘‘Staff Guidance on Current SCI
Industry Standards,’’ November 19, 2014, available
at: https://www.sec.gov/rules/final/2014/staffguidance-current-sci-industry-standards.pdf. The
domains included: Application controls; capacity
planning; computer operations and production
environment controls; contingency planning;
information security and networking; audit;
outsourcing; physical security; and systems
development methodology.
578 Rule 1001(b)(1)–(2) of Regulation SCI, 17 CFR
242.1001(b)(1)–(2).
579 Rule 1001(b)(3) of Regulation SCI, 17 CFR
242.1001(b)(3).
580 Rule 1001(b)(4) of Regulation SCI, 17 CFR
242.1001(b)(4).
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escalation procedures to quickly inform
responsible SCI personnel of potential
SCI events.581 Rule 1000 of Regulation
SCI defines ‘‘responsible SCI personnel’’
to mean, ‘‘for a particular SCI system or
indirect SCI system impacted by an SCI
event, such senior manager(s) of the SCI
entity having responsibility for such
system, and their designee(s).’’ 582 Rule
1000 also defines ‘‘SCI event’’ to mean
an event at an SCI entity that constitutes
a system disruption, a systems
compliance issue, or a systems
intrusion.583 Rule 1001(c)(2) of
Regulation SCI requires that SCI entities
periodically review the effectiveness of
these policies and procedures, and take
prompt action to remedy any
deficiencies.584
Under Rule 1002 of Regulation SCI,
SCI entities have certain obligations
related to SCI events. Specifically, when
any responsible SCI personnel has a
reasonable basis to conclude that an SCI
event has occurred, an SCI entity must
begin to take appropriate corrective
action which must include, at a
minimum, mitigating potential harm to
investors and market integrity resulting
from the SCI event and devoting
adequate resources to remedy the SCI
event as soon as reasonably
practicable.585 Rule 1002(b) provides
the framework for notifying the
Commission of SCI events including,
among other things, to: Immediately
notify the Commission of the event;
provide a written notification within 24
hours that includes a description of the
SCI event and the system(s) affected,
with other information required to the
extent available at the time; provide
regular updates regarding the SCI event
until the event is resolved; and submit
a final detailed written report regarding
the SCI event.586 Rule 1002(c) of
581 Rule 1001(c) of Regulation SCI, 17 CFR
242.1001(c).
582 Rule 1000 of Regulation SCI, 17 CFR 242.1000.
583 A ‘‘systems disruption’’ means an event in an
SCI entity’s SCI systems that disrupts, or
significantly degrades, the normal operation of an
SCI system. A ‘‘systems compliance issue’’ means
‘‘an event at an SCI entity that has caused any SCI
system of such entity to operate in a manner that
does not comply with the Act and the rules and
regulations thereunder or the entity’s rules or
governing documents, as applicable.’’ A ‘‘systems
intrusion’’ means any unauthorized entry into the
SCI systems or indirect SCI systems of an SCI
entity.’’ See Rule 1000 of Regulation SCI, 17 CFR
242.1000.
584 Rule 1001(c)(2) of Regulation SCI, 17 CFR
242.1001(c)(2).
585 See Rule 1002(a) of Regulation SCI, 17 CFR
242.1002(a).
586 See Rule 1002(b) of Regulation SCI, 17 CFR
242.1002(b). For any SCI event that ‘‘has had, or the
SCI entity reasonably estimates would have, no or
a de minimis impact on the SCI entity’s operations
or on market participants,’’ Rule 1002(b)(5)
provides an exception to the general Commission
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Regulation SCI also requires that SCI
entities disseminate information to their
members or participants regarding SCI
events.587 These information
dissemination requirements are scaled
based on the nature and severity of an
event. Specifically, for ‘‘major SCI
events,’’ SCI entities are required to
promptly disseminate certain
information about the event to all of its
members or participants. For SCI events
that are not ‘‘major SCI events,’’ SCI
entities must, promptly after any
responsible SCI personnel has a
reasonable basis to conclude that an SCI
has occurred, disseminate certain
information to those SCI entity members
and participants reasonably estimated to
have been affected by the event. In
addition, dissemination of information
to members or participants is permitted
to be delayed for systems intrusions if
such dissemination would likely
compromise the security of the SCI
entity’s systems or an investigation of
the intrusion.588
Rule 1003(a) of Regulation SCI
requires SCI entities to provide reports
to the Commission relating to system
changes, including a report each quarter
describing completed, ongoing, and
planned material changes to their SCI
systems and the security of indirect SCI
systems, during the prior, current, and
subsequent calendar quarters, including
the dates or expected dates of
commencement and completion.589
Rule 1003(b) of Regulation SCI also
requires that an SCI entity conduct an
‘‘SCI review’’ not less than once each
calendar year.590 ‘‘SCI review’’ is
defined in Rule 1000 of Regulation SCI
to mean a review, following established
procedures and standards, that is
performed by objective personnel
having appropriate experience to
conduct reviews of SCI systems and
indirect SCI systems, and which review
contains: A risk assessment with respect
to such systems of an SCI entity; and an
notification requirements under Rule 1002(b).
Instead, an SCI entity must make, keep, and
preserve records relating to all such SCI events, and
submit a quarterly report to the Commission
regarding any such events that are systems
disruptions or systems intrusions.
587 See Rule 1002(c) of Regulation SCI, 17 CFR
242.1002(c).
588 See Rule 1002(c)(2) of Regulation SCI, 17 CFR
242.1002(c)(2). In addition, the information
dissemination requirements of Rule 1002(c) do not
apply to SCI events to the extent they relate to
market regulation or market surveillance systems,
or to any SCI event that has had, or the SCI entity
reasonably estimates would have, no or a de
minimis impact on the SCI entity’s operations or on
market participants. See Rule 1002(c)(4) of
Regulation SCI, 17 CFR 242.1002(c)(4).
589 See Rule 1003(a) of Regulation SCI, 17 CFR
242.1003(a).
590 See Rule 1003(b) of Regulation SCI, 17 CFR
242.1003(b).
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assessment of internal control design
and effectiveness of its SCI systems and
indirect SCI systems to include logical
and physical security controls,
development processes, and information
technology governance, consistent with
industry standards.591 Rule 1003(b)(2)–
(3) SCI entities are also required to
submit a report of the SCI review to
their senior management, and must also
submit the report and any response by
senior management to the report, to
their board of directors as well as the
Commission.592
Rule 1004 of Regulation SCI sets forth
the requirements for testing an SCI
entity’s business continuity and disaster
recovery plans with its members or
participants. This rule requires that,
with respect to an SCI entity’s business
continuity and disaster recovery plan,
including its backup systems, each SCI
entity shall: (a) Establish standards for
the designation of those members or
participants that the SCI entity
reasonably determines are, taken as a
whole, the minimum necessary for the
maintenance of fair and orderly markets
in the event of the activation of such
plans; 593 (b) designate members or
participants pursuant to the standards
established and require participation by
such designated members or
participants in scheduled functional
and performance testing of the operation
of such plans, in the manner and
frequency specified by the SCI entity,
provided that such frequency shall not
be less than once every 12 months; and
(c) coordinate the testing of such plans
on an industry- or sector-wide basis
with other SCI entities.
Rule 1005(b) of Regulation SCI relates
to the recordkeeping requirements of
competing consolidators related to
compliance with Regulation SCI.594
591 See Rule 1000 of Regulation SCI, 17 CFR
242.1000. In addition, Rule 1003(b)(1) of Regulation
SCI states that penetration test reviews of an SCI
entity’s network, firewalls, and production systems
must be conducted at a frequency of not less than
once every three years, and assessments of SCI
systems directly supporting market regulation or
market surveillance must be conducted at a
frequency based upon the risk assessment
conducted as part of the SCI review, but in no case
less than once every three years. See Rule
1003(b)(1)(i)–(ii) of Regulation SCI, 17 CFR
242.1003(b)(1)(i)–(ii).
592 See Rule 1003(b)(2)–(3) of Regulation SCI, 17
CFR 242.1003(b)(2)–(3).
593 See Rule 1004 of Regulation SCI, 17 CFR
242.1004. For a competing consolidator, its
designated members or participants generally
would include the national securities exchanges
that receive its consolidated market data, as well as
its other significant subscribers for such data
(including, but not limited, to major market data
vendors that widely redistribute such data).
594 See Rule 1005 of Regulation SCI, 17 CFR
242.1005. Rule 1005(a) relates to recordkeeping
provisions for SCI SROs, whereas Rule 1005(b)
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Rule 1006 of Regulation SCI provides
for certain requirements relating to the
electronic filing, on Form SCI, of any
notification, review, description,
analysis, or report to the Commission
required to be submitted under
Regulation SCI.595 Finally, Rule 1007 of
Regulation SCI contains requirements
relating to a written undertaking when
records required to be filed or kept by
an SCI entity under Regulation SCI are
prepared or maintained by a service
bureau or other recordkeeping service
on behalf of the SCI entity.596
The Commission requests comment
on the proposed inclusion of competing
consolidators in Regulation SCI and the
related revisions to Rule 1000 of
Regulation SCI. In particular, the
Commission solicits comment on the
following:
117. Do commenters believe that
Regulation SCI should apply to
competing consolidators? If so, do
commenters believe that the proposed
revisions to Rule 1000 of Regulation SCI
are appropriate? Why or why not? Is
there a potential for a systems issue at
a competing consolidator to have an
adverse impact on the maintenance of
fair and orderly markets? If so, what do
commenters believe would be the most
effective way to mitigate that potential?
118. Do commenters believe that
competing consolidators could play a
significant role in the U.S. securities
markets such that they should be
defined as SCI entities? Why or why
not? What do commenters believe are
the risks related to subscribers
associated with systems issues at a
competing consolidator? What impact
would a systems issue have on the
trading of securities and the
maintenance of fair and orderly
markets? Do commenters believe that all
requirements set forth in Regulation SCI
should apply to competing
consolidators? Why or why not?
119. Unlike other types of SCI
entities, ATSs are only subject to
Regulation SCI if they meet certain
volume thresholds set forth in the
definition of ‘‘SCI ATS.’’ Do
commenters similarly believe there is a
threshold size, or a threshold for
significant market share, at which
Regulation SCI should apply to a
competing consolidator? For example,
the definition of SCI ATSs contains a
two-pronged volume threshold test
measured over a ‘‘four out of six-month’’
period to determine whether an
relates to the recordkeeping provision for SCI
entities other than SCI SROs.
595 See Rule 1006 of Regulation SCI, 17 CFR
242.1006.
596 See Rule 1007 of Regulation SCI, 17 CFR
242.1007.
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alternative trading system is subject to
Regulation SCI. Would a similar test be
appropriate for competing
consolidators? If so, what do
commenters believe would be an
appropriate measurement that should be
used for such a test? For example, in the
definition of SCI ATS, the NMS stock
volume threshold test for inclusion of
an alternative trading system in
Regulation SCI is one percent (1%) or
more of overall volume in NMS stocks
during at least four of the preceding six
calendar months. Would it, for example,
be appropriate for the Commission to
apply Regulation SCI to competing
consolidators that had one percent (1%)
or more of total subscribers of
consolidated market data during at least
four of the preceding six calendar
months? Or, would a different threshold
(such as five, ten, or twenty percent) be
more appropriate? Why or why not?
Please describe. Do commenters believe
that another measurement (other than
total subscribers of consolidated market
data) be more appropriate? If so, what
do commenters believe that
measurement should be? Please
describe.
120. Do commenters believe that only
certain provisions of Regulation SCI
should apply to competing
consolidators? For example, should
competing consolidators only be subject
to certain aspects of Regulation SCI,
such as the policies and procedures
required by Rule 1001 of Regulation
SCI; the requirement to provide
notification of SCI events and to take
corrective action as required by Rule
1002 of Regulation SCI; the requirement
to conduct SCI reviews as required by
Rule 1003 of Regulation SCI; the
requirement to perform disaster
recovery testing as required by Rule
1004 of Regulation SCI; the
requirements related to recordkeeping,
as required by Rule 1005 of Regulation
SCI; the requirements relating to
electronic filing on Form SCI pursuant
to Rule 1006 of Regulation SCI; and the
requirements relating to service bureaus,
as required by Rule 1007 of Regulation
SCI? If so, which provisions should
apply? Do commenters believe that
different or unique requirements should
apply to the systems of competing
consolidators? What should they be and
why?
121. In what instances, if at all,
should the systems of competing
consolidators be defined as ‘‘critical SCI
systems’’? Please describe.
122. Which subscribers or types of
subscribers should competing
consolidators consider as ‘‘designated
members or participants’’ that should be
required to participate in the annual
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mandatory business continuity and
disaster recovery testing? Please
describe.
123. Do commenters believe that
requiring competing consolidators to be
defined as SCI entities would deter
parties from registering as competing
consolidators? Why or why not?
124. Do commenters believe that
competing consolidators should not be
defined as SCI entities but should be
required to comply with provisions
comparable to provisions of Regulation
SCI? Why or why not?
125. If commenters believe that
competing consolidators should not be
defined as SCI entities but should be
required to comply with provisions
comparable to provisions of Regulation
SCI, what provisions should apply?
Should competing consolidators be
required to have business continuity
and disaster plans, to designate
subscribers that the competing
consolidator determines are necessary
for the maintenance of fair and orderly
markets in the event of the activation of
such plans, to mandate such
subscribers’ participation in scheduled
functional and performance testing of
the operation of such plans not less than
once every 12 months, and to coordinate
testing of such plans on an industry- or
sector-wide basis with SCI entities, or
otherwise be required to participate in
coordinated testing scheduled by SCI
entities? Why or why not?
126. Do commenters believe that
existing proprietary market data
aggregation firms that wish to register as
competing consolidators would
establish separate legal entities for that
purpose? Why or why not?
3. Self-Aggregators
Currently, some broker-dealers
effectively act as self-aggregators by
purchasing proprietary data products
from the exchanges, consolidating that
information (either independently or
with the use of vendor services and/or
hardware), and calculating the NBBO
for their own use. Broker-dealers may
self-aggregate to eliminate various forms
of latency 597 or to access the additional
content provided by proprietary data
feeds in a consolidated form. This selfaggregated consolidated data may be
used for SORs, algorithmic trading
systems, alternative trading systems
(‘‘ATSs’’), visual display, or other uses.
While broker-dealers raised concerns
about the costs associated with
proprietary data products, some have
developed these self-aggregation
solutions as a means to address the
597 See supra Section IV.A for a discussion of
geographic, aggregation, and transmission latencies.
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latency and content issues that are
present with the exclusive SIPs
themselves.598 The Commission
preliminarily believes that brokerdealers should be permitted to continue
to self-aggregate consolidated market
data as proposed to be defined under
the proposed decentralized
consolidation model. The Commission
is concerned that eliminating the ability
of broker-dealers to self-aggregate
proposed consolidated market data for
their own use would be unnecessarily
disruptive to the current market data
infrastructure landscape.
Accordingly, the Commission
proposes to amend Rule 600(b) to add
a definition of a self-aggregator. The
Commission proposes to define a selfaggregator as ‘‘a broker or dealer that
receives information with respect to
quotations for and transactions in NMS
stocks, including all data necessary to
generate consolidated market data, and
generates consolidated market data
solely for internal use. A self-aggregator
may not make consolidated market data,
or any subset of consolidated market
data, available to any other person.’’ In
particular, a self-aggregator would
collect the NMS information necessary
to generate proposed consolidated
market data that it needs to trade for its
own account or to execute transactions
for its customers. A self-aggregator
would generate the proposed
consolidated market data that it needs
for its business, such as calculating
current protected bids and offers from
each trading center for purposes of Rule
611 and the current best bids and offers
from each trading center for achieving
and analyzing best execution.599 The
proposed definition would prohibit selfaggregators from disseminating
proposed consolidated market data to
any person, including a customer or any
affiliated entity, as such action would
not be for the internal use of a selfaggregator and would be akin to the
actions of a competing consolidator, and
thus would require registration as a
competing consolidator.
598 See, e.g., Roundtable Day One Transcript at
198–199 (Joseph Wald, Clearpool) (‘‘Clearpool and
other broker-dealers are compelled to purchase
exchanges’ proprietary data feeds, both to provide
competitive execution services to our clients and to
meet our best execution obligations due to the
content of the information contained in the
proprietary data feeds as well as the latency
differences between them, which are major and
important considerations for brokers.’’).
599 A self-aggregator also would receive from the
primary listing exchanges regulatory data (as
defined as proposed consolidated market data),
which would be necessary for meeting regulatory
obligations, such as monitoring Short Sale Circuit
Breakers and LULD price bands. See supra Section
III.D.
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Like competing consolidators, a selfaggregator would collect all information
with respect to quotations for and
transactions in NMS stocks directly
from each SRO, but importantly, selfaggregators would not be permitted to
re-distribute or re-disseminate proposed
consolidated market data to any person,
including to any affiliates or
subsidiaries. A self-aggregator that redistributed or re-disseminated proposed
consolidated market data, or any subset
of proposed consolidated market data,
would be performing the functions of a
competing consolidator and,
accordingly, would be required to
register as a competing consolidator.
Self-aggregators would establish
connectivity to the SROs directly or
through the use of a service provider
and would either use their own
proprietary technology or that of a third
party vendor to perform aggregation and
any other functions necessary for
generating proposed consolidated
market data. A vendor providing
hardware, software, and/or other
services for the purposes of selfaggregation would not be a competing
consolidator unless it collected and
aggregated proposed consolidated
market data in a standardized format
within its own facility (e.g., not that of
a broker-dealer customer) and resold
that configuration of proposed
consolidated market data to a customer.
As discussed above, pursuant to Rule
603(b), self-aggregators would receive
access from the SROs, either directly or
via the use of a vendor, to the data
necessary to generate proposed
consolidated market data in the same
manner and using same methods as
other persons, including competing
consolidators.600 A self-aggregator that
limits its use of exchange data to the
creation of proposed consolidated
market data would be charged only for
proposed consolidated market data
pursuant to the effective national market
system plan(s) fee schedules.601 A selfaggregator that uses an exchange’s
proprietary data (e.g., full depth of book
data) could be charged separately for the
proprietary data use pursuant to the
individual exchange’s fee schedule.602
600 See
supra Section IV.B.1.
infra Section IV.B.4 for a discussion of the
effective national market system plan(s). This
would apply to proposed consolidated market data
provided through an exchange’s proprietary data
product.
602 SRO fees for market data other than the
proposed consolidated market data would be
subject to the rule filing process pursuant to Section
19(b) and Rule 19b–4.
601 See
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(a) Roundtable Discussion and
Comments
Roundtable participants discussed
self-aggregation. One panelist described
a variation of the self-aggregation
alternative that he referred to as the
‘‘one feed-one speed’’ model.603 The
panelist suggested that consolidated
market data should be made available in
a similar manner and using the same
framework as the exchanges use to make
available their direct proprietary data
feeds.604
The Commission received one
comment letter that supported
consideration of a self-aggregation
model. The commenter believed that
this approach would further the
principles of transparency and fairness
and ‘‘level the playing field for industry
participants.’’ 605
In contrast, the Commission received
one comment letter that expressed
criticism of a self-aggregation model.
The commenter urged against
government intervention requiring all
market participants to use the same
connectivity and the same data,
explaining that different customers need
different products and that the
government should not limit choices ‘‘in
this radical manner.’’ 606 The
commenter also stated that adding
multiple consolidators or competing
SIPs to the model would magnify
risks.607
603 See Roundtable Day Two Transcript at 27–29
(Adam Nunes, Hudson River Trading).
604 Id. This panelist also published a note that
described the ability of firms and vendors to receive
data directly from the exchanges. See Adam Nunes,
MMI Member Guest Editorial: Speed up the SIP,
Modern Markets Initiative (Dec. 22, 2015), available
at https://www.modernmarketsinitiative.org/
archive/2018/11/14/mmi-member-guest-editorialspeed-up-the-sip. In this note, the panelist
described a model in which (1) firms would order
the SIP data as they do today, by contacting their
vendor or the SIP administrator; (2) the firm/vendor
connecting to the SIP would get a connection to
each exchange to listen to their data where the data
is produced (rather than getting the data from a
central location); and (3) the firm would receive and
process the data similarly to how it handles direct
market data feeds.
605 See Letter to Brent J. Fields, Secretary,
Commission, from Kirsten Wegner, Chief Executive
Officer, Modern Markets Initiative, 5–6 (Oct. 18,
2018) (‘‘Modern Markets Initiative Letter’’). One
commenter advocated that each exchange should
provide a single data feed to market participants
(instead of a SIP data feed and proprietary data
feeds). The commenter said that a single data feed
‘‘would better serve market participants from the
standpoint of equality and fairness.’’ However, the
commenter also noted that investors would benefit
from competition among organizations able to
operate as SIPs, either through a bidding process for
a centralized SIP or the ability of multiple SIPs to
operate (i.e., a competing consolidator model). See
T. Rowe Price Letter at 3.
606 See Wittman Letter at 15.
607 Id. at 16.
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(b) Commission Discussion
The Commission preliminarily
believes that the proposed decentralized
consolidation model should allow
broker-dealers to continue to selfaggregate by collecting and calculating
consolidated market data, as proposed,
solely for their internal use, in a manner
that would allow access to proposed
consolidated market data on fair and
reasonable terms and without the
inefficiencies and added latencies
associated with the existing exclusive
SIP model.
The proposed decentralized
consolidation model is designed to
increase, rather than limit, market
participants’ choices with respect to
data products and connectivity.
Accordingly, the Commission
preliminarily believes that brokerdealers should be able to choose to selfaggregate consolidated market data for
their own internal purposes in a similar
manner as they may do today with
proprietary data. Under the proposed
rules, competing consolidators and selfaggregators would be able to select the
transmission services that meet the
needs of their client or their individual
needs, respectively, rather than be
restricted to transmission services
mandated by the Equity Data Plans. In
addition, the proposed rules would
allow competing consolidators and selfaggregators to choose to receive
exchange data products that include
only proposed consolidated market data
elements or products that contain both
proposed and non-proposed
consolidated market data elements (e.g.,
existing proprietary data products).
As discussed more fully above, the
proposed rules would permit the
exchanges to offer different connectivity
options (e.g., with different latencies,
throughput capacities, and data-feed
protocols) to market data customers but
would require that any options provided
to proprietary data customers be
available to competing consolidators
and self-aggregators in the same manner
and using the same methods, including
all methods of access and the same
format, for the purpose of collecting and
consolidating proposed consolidated
market data.
Self-aggregators may have a minor
latency advantage over market
participants that decide to utilize a
competing consolidator for their
consolidated market data, due to the fact
that self-aggregators will be collecting
and consolidating this data for
themselves rather than relying on a
competing consolidator to do so, and
therefore would eliminate a potential
latency cost that comes with an extra
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hop within a given data center. The
Commission, however, preliminarily
believes that the addition of competitive
forces with the introduction of
competing consolidators should
minimize these inherent latencies.608
The Commission has not proposed a
separate registration requirement for
self-aggregators, nor has it proposed to
impose the obligations of competing
consolidators on self-aggregators.
Because self-aggregators will be brokerdealers who are subject to broker-dealer
registration requirements, the
Commission preliminarily believes that
imposing an additional registration
requirement and the competing
consolidator obligations on selfaggregators would be unnecessary and
could result in undue costs and
burdens. Further, self-aggregators would
be required to calculate and generate
proposed consolidated market data, or a
component of proposed consolidated
market data, to the extent that such
information is necessary for the selfaggregator to comply with applicable
regulatory requirements. For example,
to the extent that a self-aggregator’s
activities require that self-aggregator to
generate the NBBO, the self-aggregator
would be required to do so consistent
with proposed Rule 600(b)(50). Any
self-aggregator that disseminates to any
person—including to an affiliate or
subsidiary of the self-aggregator—or
makes public the proposed consolidated
market data, or any subset of the
proposed consolidated market data,
would be required to register as a
competing consolidator.609
608 Some have argued that speed-based
competition in modern markets—in particular, the
speed advantages of high-frequency traders and
practices such as ‘‘latency arbitrage’’— impose costs
on investors and other market participants. See,
e.g., Matteo Aquilina, et al., Quantifying the HighFrequency Trading ‘‘Arms Race’’: A Simple New
Methodology and Estimates, Financial Conduct
Authority (Jan. 2020), available at https://
www.fca.org.uk/publication/occasional-papers/
occasional-paper-50.pdf?mod=article_inline. But
see Bartlett and McCrary, supra note 418. As
discussed above, the Commission preliminarily
believes that the proposed decentralized
consolidation model would reduce latency in the
distribution of proposed consolidated market data
and speed-based information asymmetries between
market participants. See supra Section IV.B.
609 A self-aggregator that provides a software
product to other broker-dealers for purposes of
allowing such other broker-dealers to self-aggregate
SRO data to generate proposed consolidated market
data within such other broker-dealers’ facilities
would not be a competing consolidator because the
self-aggregator itself would not be generating
consolidated market data for dissemination to such
broker-dealers. However, if an entity uses its own
software product to aggregate SRO data to generate
proposed consolidated market data within the selfaggregator’s facilities and thereafter redistributes or
disseminates proposed consolidated market data to
other broker-dealers or market participants, such
entity would be a competing consolidator because
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16791
The Commission requests comment
on the proposed amendment to Rule
600(b)(82) to introduce a definition of
‘‘self-aggregator.’’ In particular, the
Commission solicits comment on the
following:
127. Is the definition of self-aggregator
as ‘‘a broker or dealer that receives
information with respect to quotations
for and transactions in NMS stocks,
including all information necessary to
generate consolidated market data, and
generates consolidated market data
solely for internal use’’ too broad or
narrow? Should other entities be
included in the definition? Please
identify such entities and explain.
128. Are the distinctions between selfaggregators and competing consolidators
sufficiently clear? Should any
additional clarification be provided to
fully distinguish between a vendor that
provides self-aggregation services to
multiple broker-dealers and competing
consolidators that provide aggregated
data to multiple broker-dealers? If so,
please describe what additional
clarification should be provided.
129. Should self-aggregators be
subject to a registration requirement?
Why or why not?
130. Self-aggregators may have a
minor latency advantage over competing
consolidators. Please provide comment
on this potential latency advantage.
Would the latency advantage be
material? Are there methods to
neutralize any latency advantage
between self-aggregators and competing
consolidators? If so, should they be
instituted?
131. Should self-aggregators be
permitted to disseminate proposed
consolidated market data to their
affiliates and subsidiaries without being
required to register as a competing
consolidator? Why or why not? Does the
restriction on not providing
consolidated market data or a subset
thereof to customers or affiliates reflect
a significant departure from current
practices? Please explain.
132. Should any market participants
aside from broker-dealers be included in
the proposed definition of selfaggregator? Please explain.
4. Amendment to the Effective National
Market System Plan(s) for NMS Stocks
An integral part of the national market
system is the use of NMS plans. Section
11A(a)(3)(B) of the Exchange Act reflects
their importance by providing the
Commission the authority to require the
SROs, by order, ‘‘to act jointly . . . in
planning, developing, operating, or
it would be generating and disseminating
consolidated market data to others.
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regulating a national market system (or
a subsystem thereof).’’ The Equity Data
Plans, which are the effective national
market system plans for NMS stocks,610
historically have played an important
role in developing, operating, and
governing the national market
system.611 The proposed decentralized
consolidation model would
fundamentally change the national
market system and the role of the Equity
Data Plans.612 Under the decentralized
consolidation model, the effective
national market system plan(s) for NMS
stocks, would continue to play an
important but modified role in the
national market system.613 Therefore,
the Commission is proposing in Rule
614(e) that an amendment to the
effective national market system plan(s)
be filed with the Commission to
conform the plan(s) to the decentralized
consolidation model, to address the
application of timestamps by the SROs,
to require annual assessments of
competing consolidators’ performance,
and to develop a list of the primary
listing market for each NMS stock, as
discussed below. Proposed Rule 614(e)
would require the participants to the
effective national market system plan(s)
for NMS stocks to submit an
amendment pursuant to Rule 608 to
conform the plan(s) to the proposed
decentralized consolidation model
within 60 calendar days from the
effective date of Rule 614.
As discussed above, today, the Equity
Data Plans operate the exclusive SIPs for
the collection, consolidation, and
dissemination of SIP data.614 In the
decentralized consolidation model, the
effective national market system plan(s)
for NMS stocks would no longer be
responsible for collecting, consolidating,
and disseminating consolidated market
data and would no longer operate an
exclusive SIP.615 Instead, the
participants of the effective national
market system plan(s) for NMS stocks
would develop and file with the
Commission the fees for SRO data
content required to be made available by
each SRO to competing consolidators
and self-aggregators for the creation of
proposed consolidated market data,
including fees for SRO market data
610 See
611 See
Proposed Governance Order, supra note 8.
supra Section II.A.
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612 Id.
613 Pursuant to the proposed amendments to Rule
603(b), proposed consolidated market data would
be collected, consolidated, and disseminated
pursuant to an effective national market system
plan.
614 See supra Section II.A.
615 The Commission preliminarily believes that
the operators of the existing exclusive SIPs may
choose to become competing consolidators. See
infra Section IV.B.6.
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products that contain all of the
components of proposed consolidated
market data as well as the fees for
market data products that contain only
a subset of the components of proposed
consolidated market data.616 The
effective national market system plan(s)
would also collect fees for the SRO data
content used to create the proposed
consolidated market data; 617 and
allocate the revenues among the SRO
participants. The effective national
market system plan(s) would also
oversee plan accounts and plan audits
for purposes of billing, among other
things.618
Rule 614(e)(1) would direct the
participants to file with the Commission
an amendment to the effective national
market system plan(s) for NMS stocks in
order to conform the plan(s) to reflect
the proposed consolidated market data
and proposed decentralized
consolidation model. The Commission
preliminarily believes that to conform to
the proposed decentralized
consolidation model, the effective
national market system plan(s) for NMS
stocks would need to be amended to
reflect the fees for the proposed
consolidated market data. The proposed
new fees would need to reflect the
following: (i) That proposed
consolidated market data includes the
content described above, including
depth of book data, auction information,
and additional information on orders of
sizes smaller than 100 shares; (ii) that
the effective national market system
plan(s) for NMS stocks is no longer
operating an exclusive SIP and is no
longer performing aggregation and other
operational functions; and (iii) that the
SROs are no longer responsible for the
connectivity and transmission services
required for providing data to the
exclusive SIPs from the SROs’ data
centers since the exclusive SIPs will no
longer be operated by the effective
national market system plan(s) for NMS
616 For example, the operating committee of the
effective national market system plan(s) could
develop different pricing for a TOB product that
includes only certain SRO data content used to
create proposed consolidated market data. See
supra note 316 and accompanying text. See also
NYSE Sharing Data-Driven Insights—Stock Quotes
and Trade Data: One Size Doesn’t Fit All (Aug. 22,
2019), available at https://www.nyse.com/equitiesinsights#20190822 (proposing to replace the
exclusive SIP feeds with three tiered levels of
service, including certain DOB data, based on the
needs of specific types of investors). Nothing in this
proposal would prevent the operating committee of
the effective national market system plan(s) from
structuring the sale of data in a similar manner.
617 See supra Section IV.B.1.
618 The effective national market system plan(s)
for NMS stocks would review the performance of
competing consolidators. See infra discussion on
proposed Rule 614(e) (1)(iii).
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stocks.619 The proposed new fees for
consolidated market data must be fair
and reasonable and not unfairly
discriminatory.620 The proposed fees
must be submitted by the participants of
the effective national market system
plan(s) for NMS stocks pursuant to Rule
608 under the Exchange Act. In
addition, to conform the effective
national market system plan(s) for NMS
stocks to the proposed decentralized
consolidation model, the amendment to
the plan(s) generally should include a
harmonized approach to data billing
protocols, including with respect to any
unified multiple installations, single
users (‘‘MISU’’) policy.621
Proposed Rule 614(e)(1)(ii) would
require the participants to file a
proposed amendment to the effective
national market system plan(s) for NMS
stocks to address the application of
timestamps by the SRO participants on
proposed consolidated market data,
including the time the proposed
consolidated market data was generated
by the SRO participant and the time the
SRO participant made the proposed
consolidated market data available to
competing consolidators and selfaggregators. Timestamping should
provide incentives for the SROs to
generate and disseminate proposed
consolidated market data as quickly as
possible. Further, the Commission
preliminarily believes that the
application of timestamps will be an
important part of market participants’
ability to measure latency and to seek to
ensure accurate sequencing of data in
the new national market system, and
therefore the application of timestamps
should be consistent and reliable.622
619 As noted above, pursuant to proposed Rule
603(b), each SRO must provide its NMS
information, including all data necessary to
generate proposed consolidated market data, to all
competing consolidators and self-aggregators in the
same manner and using the same methods,
including all methods of access and the same
format, as such SRO makes available any
information to any other person. The competing
consolidators and self-aggregators will be
responsible for establishing the connectivity and
transmission services they use to connect to the
SROs.
620 See Rule 603(a) of Regulation NMS, 17 CFR
242.603(a).
621 MISU policies seek to ensure that a single
device fee is applied to a data user that receives
consolidated market data on multiple display
devices. See, e.g., CTA, CTA Multiple Installations
for Single Users (MISU) Policy (Apr. 2016),
available at https://www.ctaplan.com/publicdocs/
ctaplan/notifications/trader-update/Policy%20%20MISU%20with%20FAQ.pdf. MISU policies
would need to be conformed in the proposed
decentralized consolidation model to reflect that
consolidated market data users may seek to receive
through more than one competing consolidator and/
or access through multiple devices.
622 SRO timestamps would also assist market
participants in their ability to assess latencies in the
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The Commission understands that the
SROs currently submit timestamped
data under the SIP plans 623 and the
National Market System Plan Governing
the Consolidated Audit Trail (‘‘CAT
NMS Plan’’).624
Proposed Rule 614(e)(1)(iii) would
require the participants to file a
proposed amendment to the effective
national market system plan(s) for NMS
provision of proposed consolidated market data.
Under proposed Rule 614(d)(3), competing
consolidators would have to make available
consolidated market data that includes timestamps
assigned by the SROs as well as competing
consolidators. See supra Section IV.B.2(e)(ii) and
the discussion of proposed Rule 614(d)(4).
623 See, e.g., CTA Plan, supra note 13, at Section
VI.(c); Nasdaq UTP Plan, supra note 13, at Section
VIII.
624 See CAT NMS Plan at Sections 6.3(d), 6.8. As
required by Rule 613, the CAT NMS Plan was filed
with the Commission by the national securities
exchanges and national securities associations, who
include BATS Exchange, Inc. (n/k/a Cboe BZX
Exchange, Inc.), BATS–Y Exchange, Inc. (n/k/a
Cboe BYX Exchange, Inc.), BOX Exchange LLC, C2
Options Exchange, Incorporated (n/k/a Cboe C2
Exchange, Inc.), Chicago Board Options Exchange,
Incorporated (n/k/a Cboe Exchange, Inc.), Chicago
Stock Exchange, Inc. (n/k/a NYSE Chicago, Inc.),
EDGA Exchange, Inc. (n/k/a Cboe EDGA Exchange,
Inc.), EDGX Exchange, Inc. (n/k/a Cboe EDGX
Exchange, Inc.), Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’), International Securities
Exchange, LLC (n/k/a Nasdaq ISE, LLC), ISE
Gemini, LLC (n/k/a Nasdaq GEMX, LLC), Miami
International Securities Exchange LLC, NASDAQ
OMX BX, Inc. (n/k/a Nasdaq BX, Inc.), NASDAQ
OMX PHLX LLC (n/k/a Nasdaq PHLX LLC), The
Nasdaq Stock Market LLC, National Stock
Exchange, Inc. (n/k/a NYSE National, Inc.), New
York Stock Exchange LLC, NYSE MKT LLC, and
NYSE Arca, Inc. See 17 CFR 242.613; Securities
Exchange Act Release No. 78318 (Nov. 15, 2016),
81 FR 84696, (Nov. 23, 2016) (‘‘CAT NMS Plan
Approval Order’’). The CAT NMS Plan is Exhibit
A to the CAT NMS Plan Approval Order. See CAT
NMS Plan Approval Order, at 84943–85034. In
approving the CAT NMS Plan, the Commission
added ISE Mercury, LLC (n/k/a Nasdaq MRX, LLC)
and Investors’ Exchange LLC as Participants to the
CAT NMS Plan. See id. at 84728. On January 30,
2017 and March 1, 2019, the Commission noticed
for immediate effectiveness amendments to the
CAT NMS Plan to add MIAX PEARL, LLC and
MIAX Emerald, LLC, respectively, as Participants.
See Securities Exchange Act Release Nos. 79898
(Jan. 30, 2017), 82 FR 9250 (Feb. 3, 2017), and
85230 (Mar. 1, 2019), 84 FR 8356 (Mar. 7, 2019).
On November 27, 2019, the Commission noticed for
immediate effectiveness amendments to the CAT
NMS Plan to add Long-Term Stock Exchange, Inc.
as a Participant. See Securities Exchange Act
Release No. 87595 (Nov. 22, 2019), 84 FR 65447
(Nov. 27, 2019). The CAT NMS Plan functions as
the limited liability company agreement of the
jointly owned limited liability company formed
under Delaware state law through which the
Participants conduct the activities of the CAT (the
‘‘Company’’). Each Participant is a member of the
Company and jointly owns the Company on an
equal basis. The Participants submitted to the
Commission a proposed amendment to the CAT
NMS Plan on August 29, 2019, which they
designated as effective on filing. Under the
amendment, the limited liability company
agreement of a new limited liability company
named Consolidated Audit Trail, LLC serves as the
CAT NMS Plan, replacing in its entirety the CAT
NMS Plan. See Securities Exchange Act Release No.
87149 (Sept. 27, 2019), 84 FR 52905 (Oct. 3, 2019).
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stocks to reflect that the participants
would need to conduct an annual
assessment of the overall performance of
competing consolidators, including
speed, reliability, and cost of data
provision and provide the Commission
with a report of such assessment on an
annual basis. As noted above, the Equity
Data Plans play an important role in
governing the operation of the national
market system. The Commission
preliminarily believes that the effective
national market system plan(s) for NMS
stocks should continue in this important
role by monitoring the overall
performance of competing consolidators
to seek to ensure that the decentralized
consolidation model is operating
soundly. To aid the Commission’s
monitoring, the Commission is requiring
the effective national market system
plan(s) for NMS stocks to provide
assessments in key factors of competing
consolidators, including: Speed of the
competing consolidators in receiving,
calculating, and disseminating proposed
consolidated market data; the reliability
of the transmission of proposed
consolidated market data; and a detailed
cost analysis of the provision of
proposed consolidated market data. The
effective national market system plan(s)
would base their assessments on
publicly available information about the
competing consolidators, including the
information that each competing
consolidator would be required to make
available under proposed Rule 614.
Finally, proposed Rule 614(e)(1)(iv)
would require the participants to file an
amendment to the effective national
market system plan(s) for NMS stocks to
include a list that identifies the primary
listing exchange for each NMS stock. As
discussed above, primary listing
exchanges will be required to collect,
calculate, and provide the data included
in the proposed definition of
‘‘regulatory data’’ to competing
consolidators and self-aggregators.
Moreover, the Commission is proposing
to define ‘‘primary listing exchange’’ in
proposed Rule 600(b)(67) as ‘‘for each
NMS stock, the national securities
exchange identified as the primary
listing exchange in the effective national
market system plan or plans required
under § 242.603(b).’’ The effective
national market system plan(s) for NMS
stocks must accordingly be amended to
include this list so that the primary
listing exchange for each NMS stock—
and the responsibilities regarding the
collection, calculation, and provision of
regulatory data—are clear. The
Commission preliminarily believes that
information regarding the primary
listing exchange for each NMS stock is
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16793
readily accessible and that the operating
committee of the effective national
market system plan(s) for NMS stock,
which will have representation from
each primary listing exchange, is wellsituated to include such a list in a plan
amendment.
The Commission requests comment
on proposed Rule 614(e). In particular,
the Commission solicits comment on
the following:
133. Do the proposed amendments to
the effective national market system
plan(s) for NMS stocks reflect an
appropriate role for the NMS plan(s)
under the proposed decentralized
consolidation model?
134. Should the rule include other
provisions that should be included in an
amendment to the effective national
market system plan(s) for NMS stocks?
Please describe.
135. Should the rule require an
amendment to the effective national
market system plan(s) for NMS stocks to
include plan provisions related to the
development by competing
consolidators of non-core market data
products (i.e., a full depth of book
product)? Why or why not?
136. Should the rule require an
amendment to the effective national
market system plan(s) to require the
operating committee of such plan(s) to
develop latency statistics based on the
SRO timestamps and make them
publicly available?
137. Do commenters believe that the
proposed timestamps are sufficiently
comprehensive? Should the
Commission require other timestamps to
be added by the SROs, or should any of
the proposed requirements for the
timestamps be pared down or removed?
Please explain.
138. Should the rule require an
amendment to the effective national
market system plan(s) for NMS stocks to
specify a method for synchronizing
clocks on the various systems and
networks utilized in the provision of
proposed consolidated market data? If
yes, what is the appropriate method or
protocol (e.g., Precision Time Protocol
vs. Network Time Protocol)? Or should
the requirement for clock
synchronization be performance based
(i.e., accurate to less than one
microsecond)? If so, what is the
appropriate standard for maximum
allowable clock drift? Please explain.
Should the SROs be required to publish
clock drift statistics?
139. Do commenters believe that there
are other measures to assess the
performance of competing consolidators
that should be included in the annual
report? Please explain.
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The Commission preliminarily believes
that this provision of the CAT NMS Plan
will be affected by the proposed
decentralized consolidation model and
the proposed definition of consolidated
market data. Rule 603(b), as proposed to
be amended, would require the national
securities exchanges and associations to
distribute consolidated market data
‘‘pursuant to one or more effective
national market system plans.’’ Under
Section 6.5(a)(ii) of the CAT NMS Plan,
the Central Repository must collect and
retain ‘‘all data’’ from ‘‘a SIP or pursuant
to an NMS Plan,’’ so the Central
Repository would be required to collect
and retain consolidated market data.
Because proposed consolidated
market data would include information
beyond the data that is currently
disseminated by the exclusive SIPs,
such as smaller-sized orders in higherpriced stocks pursuant to the proposed
definition of round lot, proposed depth
of book data, and proposed auction
information, the scope of the
consolidated data collected and retained
by the CAT Central Repository would be
expanded. In addition, the Central
Repository may have to obtain the data
from a different source. The
Commission preliminarily believes that
having the Central Repository collect an
expanded set of data from a different
source and retain this data in the
Central Repository are appropriate to
further the objectives of CAT by
enabling regulators to use the expanded
set of data ‘‘solely for surveillance and
5. Effects on the National Market System regulatory purposes.’’ 629
Plan Governing the Consolidated Audit
The Commission requests comment
Trail
on the effects of the proposed
The CAT NMS Plan requires the
decentralized consolidation model and
Central Repository 625 to ‘‘collect (from
the proposed definition of consolidated
a SIP 626 or pursuant to an NMS Plan 627) market data on the CAT. In particular,
and retain on a current and continuing
the Commission solicits comment on
basis . . . all data, including the
the following:
628
following (collectively, ‘SIP Data’).’’
145. Do commenters believe that CAT
625 The CAT NMS Plan defines ‘‘Central
should receive consolidated market data
Repository’’ as ‘‘the repository responsible for the
from one competing consolidator, all
receipt, consolidation, and retention of all
competing consolidators, or some
information reported to the CAT pursuant to SEC
specific subset of competing
Rule 613 and this Agreement.’’ CAT NMS Plan,
consolidators? Please explain.
supra note 624, at Section 1.1.
626 The CAT NMS Plan defines ‘‘Securities
146. Do commenters believe the
Information Processor’’ or ‘‘SIP’’ as having ‘‘the
selection by the CAT of a competing
same meaning provided in Section 3(a)(22)(A) of
consolidator could have a competitive
the Exchange Act.’’ Id. at Section 1.1.
627 The CAT NMS Plan defines ‘‘NMS Plan’’ as
impact on other competing
having ‘‘the same meaning as ‘National Market
consolidators? Please explain.
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140. Do commenters believe that a
portion of the assessment or the full
assessment should be made public? Do
commenters believe that a portion of the
annual report or the full annual report
to the Commission should be made
public? Why or why not? Please
explain.
141. Do commenters believe that the
operating committee for the effective
national market system plan(s) for NMS
stocks should conduct an assessment
and provide the Commission with a
report more frequently than annually, or
at all? Please describe any alternative
frequency and the rationale.
142. Do commenters believe that a
similar report should be generated for
self-aggregators? If so, please explain.
Should self-aggregators be required to
publish any performance statistics
publicly or to the Commission?
143. Do commenters believe that the
effective national market system plan(s)
for NMS stocks should be amended to
include a list that identifies the primary
listing exchange for each NMS stock?
Please explain. Are there alternative
ways to ensure that the primary listing
exchange for each NMS stock is clearly
identified? Please explain.
144. Do commenters believe that the
effective national market system plan(s)
for NMS stocks should include fees for
different types of proposed consolidated
market data products, such as products
that contain only a subset of proposed
core data elements (e.g., a TOB
product)? If so, what products should be
included?
System Plan’ provided in SEC Rule 613(a)(1) and
SEC Rule 600(b)(43).’’ Id. at Section 1.1.
628 Id. at Section 6.5(a)(ii). Section 6.5(a)(ii)
specifically enumerates the following ‘‘SIP Data’’
elements: ‘‘(A) Information, including the size and
quote condition, on quotes including the National
Best Bid and National Best Offer for each NMS
Security; (B) Last Sale Reports and transaction
reports reported pursuant to an effective transaction
reporting plan filed with the SEC pursuant to, and
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meeting the requirements of, SEC Rules 601 and
608; (C) trading halts, Limit Up/Limit Down price
bands, and Limit Up/Limit Down indicators; and
(D) summary data or reports described in the
specifications for each of the SIPs and disseminated
by the respective SIP.’’ Id.
629 See CAT NMS Plan, supra note 624, at Section
6.5(g); infra Section VI.C.4(c).
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6. Transition Period
A transition period would be
necessary to implement the
decentralized consolidation model.
While SROs would be permitted to
make the data necessary to generate
consolidated market data, as proposed
to be defined, available to competing
consolidators and self-aggregators using
their existing data feeds, SROs may also
choose to provide this data through
new, separate feeds,630 which would
require development time. Furthermore,
the proposed requirements related to the
provision by SROs of regulatory data to
competing consolidators and selfaggregators would require SROs to make
adjustments to their data collection and
processing systems and procedures to
integrate the proposed regulatory data
elements into new or existing data
feeds.631 In addition, firms intending to
act as competing consolidators or selfaggregators will need to register,
develop or modify systems, establish
pricing, and make other preparations
needed to function as competing
consolidators or self-aggregators.
Finally, market participants would be
expected to need some period of time
for implementation and testing of any
new data feeds. As these changes are
being implemented, market participants
will continue to need a consistent and
reliable source of consolidated market
data.
Accordingly, the Commission
preliminarily believes that the existing
exclusive SIPs should continue their
operations until such time as the
Commission considers and approves an
NMS plan amendment that would
effectuate a cessation of their operations
as exclusive SIPs. In considering and
approving such an NMS plan
amendment, the Commission
preliminarily believes that it would
need to consider the operational
readiness of competing consolidators
and self-aggregators to determine
whether market participants are fully
able to receive proposed consolidated
market data in a manner that is
sufficiently prompt, accurate, and
reliable.632 The Commission
preliminarily believes that sufficient
operational readiness would only be
achieved once consolidated market data
generated under the decentralized
consolidation model is demonstrably
capable of supporting the various needs
of users of consolidated market data,
including needs for visual display,
trading activities, and compliance with
630 See
supra Section IV.B.1.
supra Section III.D.
632 Section 11A(c)(1)(B) of the Exchange Act, 15
U.S.C. 78k–1(c)(1)(B).
631 See
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regulatory obligations, such as under
Rules 603(c) and Rule 611 under
Regulation NMS and best execution. In
determining whether to approve an
NMS plan amendment to effectuate the
cessation of the operations of the
existing exclusive SIPs and whether it
meets the standards set forth in Rule
608(b)(2),633 the Commission would
consider the state of the market and the
general readiness of the competing
consolidator infrastructure. Examples of
some of the things that the Commission
could consider include, among other
things: The status of registration, testing,
and operational capabilities of multiple
competing consolidators, selfaggregators, and market participants;
capabilities of competing consolidators
to provide monthly performance metrics
and other data required to be published
pursuant to proposed Rule 614(d)(5)–
(6); 634 and the consolidated market data
products offered by competing
consolidators. The Commission
preliminarily believes that
consideration of these and other factors
should help to ensure that market
participants have effective and
continuous access to proposed
consolidated market data and other
market data products during the
transition period and prior to the
cessation of operations of the existing
exclusive SIPs.
The Commission anticipates that the
operators of the existing exclusive SIPs
may choose to become competing
consolidators and that they too may
need to make additional investments
and operational changes during this
transition period to provide a
competitive competing consolidator
service.635 The Commission
preliminarily believes that the existing
exclusive SIPs should have the ability to
pursue such development while
continuing concurrent operations of
existing SIPs. Given their experience
operating the exclusive SIPs, the
exclusive SIP operators would likely be
able to enter the competing consolidator
business from a competitively strong
633 See 17 CFR 242.608(b)(2) (providing that the
Commission shall approve an NMS plan
amendment ‘‘if it finds that such plan or
amendment is necessary or appropriate in the
public interest, for the protection of investors and
the maintenance of fair and orderly markets, to
remove impediments to, and perfect the
mechanisms of, a national market system, or
otherwise in furtherance of the purposes of the
Act.’’).
634 See supra Section IV.B.2(b).
635 The exclusive SIPs may choose to utilize
existing proprietary data feeds for the provision of
consolidated market data. They may also choose to
develop a business to support self-aggregation by
broker-dealers.
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position relative to other potential
competing consolidators.
The Commission requests comment
on the proposed transition period to
implement the decentralized
consolidation model. In particular, the
Commission solicits comment on the
following:
147. What period of time should be
expected for SROs to make any changes
necessary to provide the data necessary
to generate proposed consolidated
market data to competing consolidators
and self-aggregators?
148. What period of time should be
expected for broker-dealers to make any
changes necessary, including testing, to
utilize the new data feeds in a manner
that is not disruptive to their trading
practices and their ability to meet their
regulatory obligations?
149. What other factors should be
taken into consideration to allow for a
smooth transition from a centralized,
exclusive SIP model to a competitive,
decentralized consolidation model?
150. What should the Commission
take into consideration in determining
whether the availability of proposed
consolidated market data from
competing consolidators, or any other
aspect of the development or
implementation of the proposed
decentralized consolidation model, is
sufficient to allow for the cessation of
the existing exclusive SIPs?
151. Should the Commission require
the operation of a certain number of
competing consolidators before allowing
the exclusive SIPs to cease operations?
Why or why not? If so, how many
competing consolidators should be
operational before allowing exclusive
SIPs to cease operations? Please explain.
152. How long do commenters think
such an implementation period should
be? Please explain your answer.
C. Alternatives to the Centralized
Consolidation Model
Several alternative approaches to the
centralized consolidation model were
suggested by Roundtable respondents
and separately by several exchanges.
These suggestions include the
distributed SIP model, a single SIP for
all exchange-listed securities, and a lowlatency dedicated connection to existing
exclusive SIP feeds.
1. Distributed SIP Alternative
A distributed SIP alternative has been
suggested as one possible means to
reduce geographic latency.636
Specifically, under a distributed SIP
636 See supra notes 492–493 and accompanying
text; Cboe Report, supra note 186, at 3–4
(recommending the creation of distributed SIPs in
different geographic locations).
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alternative, each exclusive SIP would
place an additional processor in other
major data centers, where the additional
processor would separately aggregate
and disseminate consolidated market
data for its respective tape. The SROs
would submit their quotations and trade
information directly to each instance of
the exclusive SIP in each data center,
and each exclusive SIP instance would
consolidate and disseminate its
respective consolidated market data
feeds to subscribers at those data
centers, thereby eliminating geographic
latency. Under the distributed SIP
alternative, consolidated market data
would not have to travel from an
exchange at one location to an exclusive
SIP at a second location for
consolidation and dissemination prior
to traveling yet again to a subscriber that
may be at a third location.637
(a) Comments and Roundtable
Discussion
The distributed SIP model was
suggested and discussed at the
Roundtable by certain panelists and
commenters. One panelist who
presented on the distributed SIP model
argued that it would be the least
burdensome approach for the industry
to reduce delays,638 explaining that
firms could consume data under the
current structure without having to
make any changes if they did not have
sub-millisecond latency concerns, while
those firms for which geographic
latency is critical could choose to
consume data at the nearest SIP
instance.639
Two other panelists expressed interest
in considering the distributed SIP
model.640 One panelist said that the
637 One commenter noted that the distributed SIP
alternative could address the issue of geographic
latency. See SIFMA Letter II at 3.
638 See Roundtable Day Two Transcript at 17
(Michael Blaugrund, NYSE).
639 See Roundtable Day Two Transcript at 18
(Michael Blaugrund, NYSE). This panelist also
believed that the distributed SIP model would not
require changes to Rule 603(b) of Regulation NMS,
which requires the dissemination of consolidated
information for an individual NMS stock through a
single plan processor. The panelist stated that the
existing SIPs would remain under the distributed
SIP model, only with additional processors. See
Roundtable Day Two Transcript at 19–20 (Michael
Blaugrund, NYSE).
640 See, e.g., Roundtable Day One Transcript at
227–228 (Chris Issacson, Cboe) (‘‘[W]e’re open to
discussion about distributed SIPs.’’); at 98–99
(Stacey Cunningham, NYSE) (‘‘. . . there is debate
the NYSE brought to the SIP Committee a long time
ago to talk about the nature of a distributed SIP and
that is something we should explore.’’); Roundtable
Day Two Transcript at 17 (Michael Blaugrund,
NYSE) (‘‘. . . we think that a distributed SIP
implementation of the existing processors would be
the simplest, least costly approach for the industry
to minimize delays when consolidated data and
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distributed SIP model could address the
latencies of the current centralized
consolidation model.641 Another
panelist suggested that a distributed SIP
model with enhanced content, such as
auction imbalance and depth of book
information, would be useful 642 and
that even a fiber optics connection
could be sufficient for a distributed SIP
model since the consolidated market
data would no longer have to travel
throughout the various data centers for
collection and distribution.643
Three panelists were skeptical about
the value of the distributed SIP model.
One panelist described the distributed
SIP model as better than the current SIP
system, ‘‘but just less worse than direct
feeds,’’ 644 and said what is desired
instead is an exclusive SIP that is as fast
as the direct feeds.645 Another panelist
said that, with the distributed SIP
model, determining the appropriate
instance of the SIP locations would be
complicated.646
One commenter submitted two
comment letters that discussed the
distributed SIP model. One letter urged
the Commission to do a cost benefit
analysis of efforts to decentralize the SIP
architecture and recommended
introducing additional instances of
existing technology as the best approach
to reducing geographic latency.647 The
other letter noted questions about which
SIP location would be responsible for
regulatory messages, such as for LULD
and MWCBs, and whether the costs for
the industry to connect to this
infrastructure would outweigh the
benefits.648
Another commenter stated that the
distributed SIP alternative would
introduce new and expensive
operational complexities, legal and
regulatory questions, and possible
unintended consequences. This
commenter also questioned whether the
distributed SIP alternative would
resolve concerns regarding geographic
latency and noted that the NBBO could
differ among the distributed SIPs,
single market proprietary data are received in
distant data centers.’’).
641 See Roundtable Day One Transcript at 231–
232 (Vlad Khandros, UBS).
642 See Roundtable Day One Transcript at 225
(Ronan Ryan, IEX).
643 See Roundtable Day One Transcript at 229–
230 (Ronan Ryan, IEX). This is a reference to the
understanding that a distributed SIP model would
solve for geographic latency.
644 See Roundtable Day Two Transcript at 27
(Adam Nunes, Hudson River Trading).
645 Id.
646 See Roundtable Day One Transcript at 151–
152 (Oliver Albers, Nasdaq).
647 See Blaugrund Letter at 4. The Blaugrund
Letter was submitted on behalf of NYSE.
648 See NYSE Group Letter at 10.
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leading to operational and compliance
questions.649
(b) Commission Discussion
The Commission preliminarily
believes that a distributed SIP model
could address the geographic latencies
that exist in the current centralized
consolidation model but is concerned
that the distributed SIP model has
certain fundamental shortcomings that
make it a less desirable option
compared to the proposed competitive,
decentralized consolidation model. In
particular, the distributed SIP model
does not allow for the introduction of
competitive forces and continues to
allow for one exclusive SIP to have
exclusive rights for the dissemination of
market data for the NMS stocks on a
given consolidated tape. Because the
distributed SIP model does not
introduce competitive forces, it is less
likely to adequately address the broader
array of latencies and competitive
product and service offerings.
In addition, insofar as the distributed
SIP model does not allow for the
provision of all three consolidated tapes
to be consolidated and disseminated
from a single entity, it retains the
inefficiencies that would not apply to a
competing consolidator model, such as
the need for end-users to obtain data
from multiple SIPs.650
As a result, the Commission
preliminarily believes that, since the
distributed SIP model could result in
significant additional costs and
complexity and would not be likely to
competitively address all forms of
content and latency differentials, the
Commission preliminarily believes that
the distributed SIP model is not the
optimal solution for the provision of
consolidated market data.
The Commission requests comment
on the distributed SIP alternative. In
649 See Albers Letter at 3; Wittman Letter at 14.
The Albers and Wittman Letters were submitted on
behalf of Nasdaq. The commenter also believed that
significant advances in clock synchronization
techniques would be necessary. See Wittman Letter
at 14. This commenter later expressed support for
the distributed SIP model, stating that the approach
could reduce data transmission time for some
market participants between 400 and 750
microseconds. See Nasdaq Total Markets Report,
supra note 127, at 19–20; Remarks by Tal Cohen,
Nasdaq, Meeting of the Securities and Exchange
Commission Investor Advisory Committee, at 50
(‘‘[R]ecognizing the industry’s desire for a
distributed SIP, we support this in concept to
ensure geographic latency concerns are
addressed.’’).
650 Since 2017, a distributed SIP subcommittee
created by the CTA and Nasdaq UTP Plan operating
committees has considered and continues to
consider implementation of a distributed SIP model
to address geographic latencies. See CTA and UTP
Annual Letter, supra note 181, at 1–2.
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particular, the Commission solicits
comment on the following:
153. Is the distributed SIP alternative
a viable or superior alternative to the
proposed competing consolidator and
self-aggregator model? If so, please
describe the benefits of the distributed
SIP model and why that model is the
preferred alternative.
2. Single SIP Alternative
Another suggestion to modify the
centralized consolidation model to
address latency concerns was to
combine the exclusive SIPs into a single
exclusive SIP for all exchange-listed
securities.651 Comments noted that such
a change would permit the
harmonization of exclusive SIP
infrastructure 652 and narrow the latency
difference between the exclusive SIPs
and proprietary data feeds.653 One
commenter thought this alternative
would be a low cost alternative.654
In light of the fact that the Nasdaq
UTP SIP has less latency that the CTA/
CQ SIP, within the current exclusive
and centralized exclusive SIP model,
this solution has certain merits. It could
allow for an upgrade to existing
processor technology for the CTA/CQ
SIP, which continues to lag the
performance of the Nasdaq UTP SIP. It
could also eliminate certain
inefficiencies in having two separate
exclusive SIPs for SIP data. Potentially
having a single administrator and
exclusive SIP could ease these burdens
and introduce benefits such as a less
complex infrastructure and greater
standardization.
However, this alternative has certain
key shortcomings. For one thing, it does
not attempt to introduce competitive
forces, and, therefore, as with the
distributed SIP alternative, would not
necessarily be expected to fully address
all forms of latency in a competitive
data environment. Further, it does not
attempt to address geographic latency,
which, as noted, is believed to be the
most significant source of latency
undermining the viability of the current
centralized exclusive SIP model.
The Commission requests comment
on these alternative approaches to the
current centralized consolidation
651 See Nasdaq Total Markets Report, supra note
127, at 21; SIFMA Letter II at 3. This suggestion
would apply the centralized consolidation
structure.
652 See Nasdaq Total Markets Report, supra note
127, at 21.
653 See SIFMA Letter II at 3. The commenter did
not elaborate on how this model could address
latency issues. This commenter, however, noted
that the use of competing consolidators would best
resolve the latency issues because competition
would provide the incentives for improvements.
654 Id.
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model. In particular, the Commission
solicits comment on the following:
154. Is the single exclusive SIP
alternative a viable alternative to
addressing the concerns with the
current centralized consolidation
model? If so, please describe the
operation of the single exclusive SIP
alternative and how it would address
the latency and cost concerns arising
from the centralized consolidation
model. Are there any other viable
alternatives?
155. Do commenters believe that the
single centralized exclusive SIP model
could be a viable solution despite the
fact that it would not introduce
competitive forces into the provision of
consolidated data and would not
address geographic latency? If so, please
describe any factors that make this
solution as good as or better than the
proposed decentralized model.
V. Paperwork Reduction Act
Certain provisions of the proposed
rules and proposed rule amendments
contain ‘‘collection of information
requirements’’ within the meaning of
the Paperwork Reduction Act of 1995
(‘‘PRA’’).655 The Commission is
submitting these collections of
information to the Office of
Management and Budget (‘‘OMB’’) for
review in accordance with 44 U.S.C.
3507(d) and 5 CFR 1320.11. The title of
the new collection of information is
‘‘Market Data Infrastructure and Form
CC.’’ Further, the title of the existing
collection of information for Regulation
SCI is ‘‘Regulation SCI, Form SCI,’’
OMB Control No. 3235–0703.656 An
agency may not conduct or sponsor, and
a person is not required to respond to,
a collection of information unless the
agency displays a currently valid
control number.
A. Summary of Collection of
Information
The proposed rules and rule
amendments would include a collection
of information within the meaning of
the PRA for competing consolidators
who would be required to comply with
655 44
U.S.C. 3501 et seq.
discussed below, the proposed
modifications to Regulation SCI contain ‘‘collection
of information requirements’’ within the meaning of
the PRA. See infra Section V.G. Further, as
discussed above, the proposed definition of round
lot would affect Rule 606(b)(3) by requiring
actionable indications of interest to be in the
proposed round lot sizes and included in 606(b)(3)
reports. The Commission preliminarily believes that
the PRA estimates set forth in the Rule 606
Adopting Release would cover the collection of
actionable indications of interest in the proposed
round lot sizes because there should only be minor
systems updates to reflect the new round lot sizes.
See Rule 606 Adopting Release, supra note 227.
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656 As
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the provisions of Rule 614 and file a
Form CC with the Commission. In
addition, SROs would be required to
collect information that they would then
have to provide to competing
consolidators and self-aggregators for
the purposes to generating proposed
consolidated market data. Finally, the
SROs would be required to amend the
effective national market system plan(s)
required under Rule 603(b).
1. Registration Requirements and Form
CC
Proposed Rule 614(a)(1)(i) would
require each competing consolidator to
register with the Commission by filing
Form CC electronically in accordance
with the instructions contained on the
form.657 To file a form CC, a competing
consolidator would need to access the
Commission’s EFFS, a secure website
operated by the Commission. Each
competing consolidator would have to
submit an application and register each
individual who would access the EFFS
system on behalf of the competing
consolidator. Proposed Rule 614(a)(1)(ii)
would require any reports required
under proposed Rule 614 to be filed
electronically on Form CC, include all
of the information as prescribed in Form
CC and contain an electronic signature.
Proposed Rule 614(a)(1)(iv) would
require a competing consolidator to
withdraw an initial Form CC during its
review by the Commission if
information on the initial Form CC is or
becomes inaccurate or incomplete.
Under proposed Rule 614(a)(2)(i), a
competing consolidator would be
required to amend an effective Form CC
in accordance with the instructions
therein: (i) Prior to the implementation
of a material change to pricing,
connectivity or products offered; and (ii)
no later than 30 calendar days after the
end of each calendar year to correct
information that has become inaccurate
or incomplete for any reason. Proposed
Rule 614(a)(3) would require a
competing consolidator to provide
notice of its cessation of operations on
Form CC at least 30 business days before
the date the competing consolidator
ceases to operate as a competing
consolidator.
2. Competing Consolidator Duties and
Data Collection
Proposed Rules 614(d)(1)–(4) would
require each competing consolidator to:
(1) Collect from each national securities
exchange and national securities
657 As explained above, SROs that wish to act as
competing consolidators would not be required to
register with the Commission on Form CC. See
supra note 537.
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association, either directly or indirectly,
the information with respect to
quotations for and transactions in NMS
stocks as provided in Rule 603(b); (2)
calculate and generate consolidated
market data as defined in proposed Rule
600(b)(19) from the information
collected pursuant proposed Rule
614(d)(1); (3) make consolidated market
data, as defined in proposed Rule
600(b)(19), and as timestamped as
required by proposed Rule 614(d)(4) and
including the SRO data generation
timestamp required to be provided by
the SROs by proposed Rule 614(e)(1)(ii),
available to subscribers on a
consolidated basis on terms that are not
unreasonably discriminatory; and (4)
timestamp the information collected
pursuant to proposed Rule 614(d)(1): (i)
Upon receipt from each national
securities exchange and national
securities association; (ii) upon receipt
of such information at its aggregation
mechanism; and (iii) upon
dissemination of consolidated market
data, as defined in proposed Rule
600(b)(19), to customers. Proposed Rule
614(c) would require each competing
consolidator to make public on its
website a direct URL hyperlink to the
Commission’s website that contains
each effective initial Form CC, as
amended, order of ineffective initial
Form CC, and Form CC amendment to
an effective Form CC.
3. Recordkeeping
Proposed Rule 614(d)(7) would
require each competing consolidator to
keep and preserve at least one copy of
all documents, including all
correspondence, memoranda, papers,
books, notices, accounts and such other
records as shall be made or received by
it in the course of its business as such
and in the conduct of its business. The
proposed rule would require competing
consolidators to keep these documents
for a period of no less than five years,
the first two years in an easily accessible
place. Proposed Rule 614(d)(8) would
require each competing consolidator,
upon request of any representative of
the Commission, to promptly furnish to
such representative copies of any
documents required to be kept and
preserved by it.
4. Reports and Reviews
Proposed Rule 614(d)(5) would
require each competing consolidator,
within 15 calendar days after the end of
each month, to publish prominently on
its website monthly performance
metrics, as defined by the effective
national market system plan(s) for NMS
stocks, that shall include at least the
following: (i) Capacity statistics; (ii)
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message rate and total statistics; (iii)
system availability; (iv) network delay
statistics; (v) latency statistics for the
following, with distribution statistics up
to the 99.99th percentile: (A) When a
national securities exchange or national
securities association sends an inbound
message to a competing consolidator
network and when the competing
consolidator network receives the
inbound message; (B) when the
competing consolidator network
receives the inbound message and when
the competing consolidator network
sends the corresponding consolidated
message to a subscriber; and (C) when
a national securities exchange or
national securities association sends an
inbound message to a competing
consolidator network and when the
competing consolidator network sends
the corresponding consolidated message
to a subscriber. All information posted
pursuant to proposed Rule 614(d)(5)
must be publicly posted in
downloadable files and must remain
free and accessible (without any
encumbrances or restrictions) by the
general public on the website for a
period of not less than three years from
the initial date of posting.
Proposed Rule 614(d)(6) would
require a competing consolidator,
within 15 calendar days after the end of
each month, to publish prominently on
its website the following information: (i)
Data quality issues; (ii) system issues;
(iii) any clock synchronization protocol
utilized; (iv) for the clocks used to
generate the timestamps described in
proposed Rule 614(d)(4), the clock drift
averages and peaks, and the number of
instances of clock drift greater than 100
microseconds; and (v) vendor alerts. All
information posted pursuant to
proposed Rule 614(d)(6) must be
publicly posted and must remain free
and accessible (without any
encumbrances or restrictions) by the
general public on the website for a
period of not less than three years from
the initial date of posting.
5. Amendment to the Effective National
Market System Plan(s) for NMS Stocks
As detailed above, proposed Rule
614(e)(1) would direct the participants
to the effective national market system
plan(s) for NMS stocks to submit an
amendment to such plan(s) within 60
days of the effectiveness of the proposed
rule that would address several
articulated provisions. In particular,
proposed Rule 614(e)(1)(i) would
require that the amendment conform the
plan(s) to reflect the provision of market
data that is necessary to generate
consolidated market data, as defined in
proposed Rule 600(b)(19), by the SRO
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participants to competing consolidators
and self-aggregators, and the role that
the plan(s) would have in developing
fees for consolidated market data and
defining the monthly performance
metrics that competing consolidators
would be required to publish.658
Proposed Rule 614(e)(1)(ii) would
require that the participants to the
effective national market system plan(s)
for NMS stocks file an amendment that
contains provisions regarding the
application of timestamps by the SRO
participants on all consolidated market
data, as defined in proposed Rule
600(b)(19), and that such time stamps be
attached at the time the data was
generated by the SRO and the time that
the SRO made the proposed
consolidated market data available to
competing consolidators and selfaggregators. The participants to the
effective national market system plan(s)
for NMS stocks would be required to file
an amendment that includes provisions
relating to assessments of competing
consolidator performance that would
include the speed, reliability and cost of
data provision and the provision of an
annual report of such assessment to the
Commission. Finally, participants to the
effective national market system plan(s)
for NMS stocks would be required to file
an amendment to identify the primary
listing market for each NMS stock.
Proposed Rule 614(e) would impose
paperwork burdens on the participants
to the effective national market system
plan(s) for NMS stocks. First, requiring
the submission of an amendment or
amendments to the effective national
market system plan(s) for NMS stocks
would impose a paperwork burden on
the participants of such plan(s)
associated with preparing and filing the
amendment or amendments. Second,
defining the monthly performance
metrics for competing consolidators
would impose a paperwork burden on
the participants of the plan(s). Third,
developing the requirements for the
application of timestamps by the SROs
would impose a paperwork burden on
the SRO participants of such plans.
Fourth, requiring the provision of an
annual report to the Commission
assessing competing consolidator
performance would impose a paperwork
burden on the participants of the
effective national market system plan(s)
for NMS stocks. Finally, developing and
maintaining a list of the primary listing
market for each NMS stock would
impose a paperwork burden on the
participants of the effective national
market system plan(s) for NMS stocks.
658 See
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6. Collection and Dissemination of
Information by National Securities
Exchanges and National Securities
Associations
The proposed amendment to Rule
603(b) would require every national
securities exchange on which an NMS
stock is traded and national securities
association to make available to all
competing consolidators and selfaggregators all information with respect
to quotations for and transactions in
NMS stocks, including all data
necessary to generate consolidated
market data, in the same manner and
using the same methods, including all
methods of access and using the same
format, as such exchange or association
makes available any information with
respect to quotations for and
transactions in NMS stocks to any
person. SROs would be required to
collect the information necessary to
generate proposed consolidated market
data, which would be required to be
made available under proposed Rule
603(b). As proposed, the primary listing
exchange would have to collect and
make available pursuant to Rule 603(b)
information required under Rule 201 of
Regulation SHO. Moreover, the proposal
would require the primary listing
exchange with the largest proportion of
stocks includes in the S&P 500 Index to
monitor the index throughout the
trading day. The collection of
information may require system changes
by the SROs.
B. Proposed Use of Information
1. Registration Requirements and Form
CC
As discussed above, proposed Form
CC, Rules 614(a)(1) and 614(a)(2) would
generally require competing
consolidators to register on Form CC
and make amendments to an effective
Form CC prior to implementing a
material change to the pricing,
connectivity or products offered and
annually to correct information that has
become inaccurate or incomplete for
any reason. The information collected in
Form CC would be used to help assure
that a competing consolidator’s
disclosures comply with the
requirements of proposed Rule 614 and
so that specified information would be
made publicly available and could be
used to evaluate competing
consolidators. The information required
under proposed Rule 614(a)(1) also
would be used by the Commission to
determine whether to declare ineffective
an initial Form CC filed by a competing
consolidator.
Proposed Rule 614(a)(3) would
require a competing consolidator to
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provide notice of its cessation of
operations on Form CC at least 30
business days prior to the date the
competing consolidator will cease to
operate as a competing consolidator.
This information would be used by the
Commission to monitor and oversee
competing consolidators and would
provide notice to the public that the
competing consolidator intends to cease
operations.
conduct of its business. These
documents must be kept for a period of
no less than five years, the first two
years in an easily accessible place.
Proposed Rule 614(d)(8) would require
each competing consolidator to
promptly furnish these documents to
any representative of the Commission
upon request. This information would
facilitate the Commission’s oversight of
competing consolidators.
2. Competing Consolidator Duties and
Data Collection
Under the proposed decentralized
consolidation model, proposed Rules
614(d)(1)–(d)(3) would require the
competing consolidators to collect from
the SROs quotation and transaction
information for NMS stocks, calculate
and generate consolidated market data,
as proposed, from this information, and
make such consolidated market data
available on terms that are not
unreasonably discriminatory to
subscribers. The information that would
be collected under these provisions is a
critical element of the U.S. national
market system, and the availability of
this information would promote fair and
efficient markets and facilitate the
ability of brokers and dealers to trade
more effectively and to provide best
execution to their customers.
Proposed Rule 614(d)(4) would
require competing consolidators to
timestamp the information with respect
to quotations and transactions in NMS
stocks that they collect from the SROs
pursuant to proposed Rule 614(d)(1)
upon receipt, upon receipt by the
aggregation mechanism, and upon
dissemination to subscribers. This
information would be used by
subscribers to determine a competing
consolidator’s realized latency and
should assist subscribers in choosing a
competing consolidator or in deciding
whether the chosen competing
consolidator continues to meet their
latency needs.
Proposed Rule 614(c) would require
each competing consolidator to make
public on its website a direct URL
hyperlink to the Commission’s website
that contains each effective initial Form
CC, order of ineffective initial Form CC,
and amendments to effective Form CCs.
These proposed requirements will help
to assure that information regarding
competing consolidators is readily
available.
4. Reports and Reviews
Proposed Rules 614(d)(5) and (d)(6)
would require the monthly publication,
on a competing consolidator’s website,
of metrics and other information
concerning the competing consolidator’s
performance and operations. This
information would include, among
other things, latency statistics, system
availability, data quality problems, and
clock drift information. The information
must be publicly posted and must
remain free and accessible (without any
encumbrances or restrictions) by the
general public on the website for a
period of not less than three years from
the initial date of posting. These
proposed rules would provide
transparency with respect to the
services and performance of a
competing consolidator, which would
allow market participants to evaluate
the merits of a competing consolidator.
3. Recordkeeping
Proposed Rule 614(d)(7) would
require each competing consolidator to
keep and preserve at least one copy of
all documents made or received by it in
the course of its business and in the
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5. Amendment to the Effective National
Market System Plan(s) for NMS Stocks
As discussed above, the effective
national market system plan(s) for NMS
stocks would need to be updated and
would be required to include specified
new provisions. Accordingly, the
participants would be required to file an
amendment or amendments to the plans
to reflect the new role and functions of
the plan(s). For example, the proposed
amendment would need to reflect that
the plan(s) is (are) no longer operating
the exclusive SIPs. In addition, the
amendment would reflect the new fees
for consolidated market data as well as
the approach to billing protocols,
including an MISU policy. In addition,
the participants to the plan(s) would
need to file an amendment to define the
monthly performance metrics of
competing consolidators. The
information that would be collected
pursuant to the proposed plan(s)
amendment would inform market
participants of the proposed operation
of the effective national market system
plan(s) for NMS stocks and facilitate the
Commission’s ability to oversee the
national market system for NMS stocks.
The information that would be collected
pursuant to the proposed plan(s)
amendment would also inform
PO 00000
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16799
competing consolidators of the monthly
performance metrics that they would be
required to develop. The amendment or
amendments would be published for
public comment.
(a) Proposed Application of Timestamps
(Rule 614(e)(1)(iii))
As noted above, timestamps are used
extensively in reporting market data
elements. Timestamps are used to
properly sequence events and are
necessary for the elements of
consolidated market data, as proposed.
Timestamps also help to measure
latencies with the provision of proposed
consolidated market data. The lack of
timestamps would impair the usefulness
of the data and would impair market
participants’ ability to measure the
latencies involved with the provision of
proposed consolidated market data.
Accordingly, the Commission
preliminarily believes that the
timestamp information that would be
collected pursuant to the effective
national market system plan(s) would be
used by competing consolidators and
self-aggregators to properly sequence
core data elements and measure
latencies relating to the collection,
calculation and generation of core
data.659
(b) Proposed Annual Report (Rule
614(a)(2)(ii))
The proposed assessment of
competing consolidators’ performance
and the proposed annual report would
be used by the Commission to analyze
and oversee the operation of the
effective national market system plan(s)
for the provision of proposed
consolidated market data in NMS
stocks. The annual report would contain
useful information for measuring the
promptness, accuracy and reliability of
the competing consolidator model. As
noted above, the provision of
consolidated market data is a necessary
part of the national market system and
the annual report would be useful in
assessing its operation.
(c) Proposed List of Primary Listing
Markets (Rule 614(e)(1)(iv))
The proposed list of the primary
listing market for each NMS stock
would be used by the Commission to
oversee the development and provision
of proposed regulatory data. In addition,
the list would be used by primary listing
exchanges to identify which primary
listing exchange is responsible for
making Short Sale Circuit Breaker
659 In addition, the proposed timestamps would
be used by competing consolidators to generate the
monthly performance metrics pursuant to proposed
Rule 614(d)(5).
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6. Collection and Dissemination of
Information by National Securities
Exchanges and National Securities
Associations
As discussed above, the proposed
amendment to Rule 603(b) would
require every national securities
exchange on which an NMS stock is
traded and national securities
association to make available to all
competing consolidators and selfaggregators all information with respect
to quotations for and transactions in
NMS stocks, including all data
necessary to generate consolidated
market data, as proposed, in the same
manner and using the same methods,
including all methods of access and
using the same format, as such exchange
or association makes available any
information with respect to quotations
for and transactions in NMS stocks to
any person. In addition, as proposed,
the primary listing exchange would
have to collect and make available
pursuant to Rule 603(b) information
required under Rule 201 of Regulation
SHO. Moreover, the primary listing
exchange with the largest proportion of
stocks included in the S&P 500 Index
would need to monitor the index
throughout the trading day. Therefore,
to comply with this provision, the SROs
would have to collect all elements of
consolidated market data. The
competing consolidators would
consolidate, process, and sell to their
customers these data regarding NMS
stock quotations and transactions. The
data will also be used by self-aggregators
to trade and provide services to their
customers.
C. Respondents
The collection of information in the
proposed changes to Rule 603(b) would
apply to the sixteen national securities
exchanges (that are equity securities
exchanges) and the one national
securities association (Financial
Industry Regulatory Authority, Inc.) that
are registered with the Commission. The
amendment to the effective national
market system plan(s) for NMS stocks
would apply to these sixteen national
securities exchanges and the one
national securities association
(Financial Industry Regulatory
Authority, Inc.) that are registered with
the Commission and that are
participants in the effective national
market system plan(s) for NMS
stocks.660 In addition, the proposed
660 Currently, these national securities exchanges
are: Cboe BYX Exchange, Inc., Cboe BZX Exchange,
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information collections regarding
registration requirements and Form CC,
competing consolidator duties and data
collection, recordkeeping, reports and
reviews, and policies and procedures as
contemplated in proposed Rule 614
would apply to those entities that
register under the process in proposed
Rule 614 to become competing
consolidators. The Commission
preliminarily estimates that there would
initially be 12 persons who decide to
perform the functions of a competing
consolidator that would have to comply
with the proposed information
collections.
D. Total Annual Reporting and
Recordkeeping Burden
1. Registration Requirements and Form
CC
(a) Initial Burden and Costs
As discussed above, proposed Rule
614(a)(1) would require competing
consolidators to register with the
Commission by filing electronically new
Form CC in accordance with the
instructions to the Form CC. For
purposes of the PRA, the Commission
preliminarily estimates that it will take
200 hours to complete the initial Form
CC with the information required,
including all exhibits to Form CC. The
Commission based this estimate on the
number of hours necessary to complete
Form SIP because Form CC was
generally based on Form SIP and
incorporated many of the provisions of
Form SIP.661 In addition, the
Commission estimates that each
competing consolidator would initially
designate two individuals to access
EFFS, with each application to access
EFFS taking 0.15 hours for a total of 0.3
hours per competing consolidator.
Therefore, the Commission estimates
that it would take 200.3 hours to
complete the Form CC and gain access
to EFFS.
Inc., Cboe EDGA Exchange, Inc., Cboe EDGX
Exchange, Inc., Cboe Exchange, Inc., Investors
Exchange LLC, Long-Term Stock Exchange, Inc.,
Nasdaq BX, Inc., Nasdaq ISE, LLC, Nasdaq PHLX
LLC, Nasdaq Stock Market LLC, New York Stock
Exchange LLC, NYSE American LLC, NYSE Arca,
Inc., NYSE Chicago, Inc., and NYSE National, Inc.
The primary listing exchanges responsible for
making Short Sale Circuit Breaker information
available pursuant to Rule 201(b)(3) would be
identified in the effective national market system
plan(s).
661 The Commission estimated that completing
Form SIP, which includes 20 exhibits, would take
400 hours. See Securities Exchange Act Release No.
63347 (Nov. 19, 2010), 75 FR 77306 (Dec. 10, 2010)
(‘‘The Commission calculated in 2008 that Form SIP
takes 400 hours to complete.’’). Proposed Form CC
includes 9 exhibits, so the Commission
preliminarily estimates that completing proposed
Form CC would take 200 hours.
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As noted above, the Commission
preliminarily estimates that 12
respondents would be subject to this
burden, however, as noted above, SROs
are not required to file Form CC.662
Therefore, there would be 8 respondents
(the Commission preliminarily
estimates that 4 SROs would also act as
competing consolidators). Accordingly,
the Commission estimates that the onetime initial registration burden for all
competing consolidators is
approximately 1,602.4 burden hours.663
The Commission estimates that
competing consolidators will, as a
general matter, prepare Form CC
internally and not use external service
providers to complete the form. It is
likely that Form CC would be prepared
by an attorney, and, with approximately
1,602.4 burden hours for all competing
consolidators, the total cost to register
all competing consolidators would be
$748,320.80.664 In addition, the
Commission estimates that each
respondent would designate two
individuals to sign the Form CC. An
individual signing the Form CC must
obtain a digital ID, at the cost of
approximately $25 each year. Therefore,
each respondent would expend
approximately $50 annually to obtain
digital IDs for the individuals with
access to EFFS for the purposes of
signing the Form CC 665 or
approximately $400 for all
respondents.666
As discussed below, the Commission
believes that amendments to Form CC
represent the ongoing annual burdens of
Form CC and proposed Rule 614(a)(2).
The Commission preliminarily
estimates that competing consolidators
may file two amendments—one Material
Amendment and one Annual Report—
during its first year after the
662 See
supra note 537.
hour figure is based on 200.3 hours × an
estimated 8 competing consolidators. The
Commission preliminarily believes that additional
competing consolidators may register from time to
time and would be subject to a similar one-time
initial registration burden.
664 The Commission based this estimate on the
$467 hourly rate as of May 2019 for an assistant
general counsel × 200.3 hours × 8 respondents. The
Commission derived this estimate based on per
hour figures from SIFMA’s Management &
Professional Earnings in the Securities Industry
2013, modified by Commission staff to account for
an 1,800-hour work-year and inflation, and
multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead. Burden estimates
may vary to the extent that competing consolidators
utilize external service providers or outside
counsel. The Commission preliminarily believes
that competing consolidators would use in-house
counsel and not use external service providers or
outside counsel to file the Form CC.
665 $25 per digital ID × 2 individuals = $50 per
respondent.
666 $50 per respondent × 8 total respondents =
$400.
663 The
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effectiveness of its Form CC. As
discussed below, the ongoing annual
burden for complying with these
amendment requirements will be
approximately 6.0 burden hours for
each competing consolidator per
amendment 667 (for a total of $2,802),
and approximately 48 burden hours for
all competing consolidators per
amendment (for a total of $22,416).668
Therefore, the Commission
preliminarily estimates that each
respondent will have an average annual
burden of 12.0 hours (for a total of
$5,604) for a total estimated average
annual burden of 96 hours (for a total
of $44,832).669 As with the initial Form
CC, the Commission believes the
competing consolidators will conduct
this work internally.
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(b) Ongoing Burden and Costs
As discussed above, proposed Rule
614(a)(2) would require competing
consolidators to amend Form CC prior
to the implementation of material
changes to pricing, connectivity, or
products offered as well as annually to
correct information that has become
inaccurate or incomplete for any reason.
On an ongoing basis, each competing
consolidator may add one individual to
access the EFFS system for
amendments, adding 0.15 hours per
competing consolidator.670 The
Commission believes that these
amendments represent the ongoing
annual burdens of Form CC and
proposed Rule 614(a)(2). The
Commission preliminarily estimates
that the ongoing annual burden for
complying with these amendment
requirements will be approximately 6.15
burden hours for each competing
consolidator per amendment 671 (for a
667 When Form SDR was adopted in 2015, the
Commission estimated the hour burden for
amendments to be roughly 3% of the initial burden.
Securities Exchange Act Release No. 74246, supra
note 554, at 14522. In that release, the initial burden
was calculated to be 400 hours per respondent and
12 hours per respondent for amendments. The
Commission believes that a similar ratio will apply
to filers of Form CC because filers of Form SDR, like
filers of Form CC, are required to file amendments
annually as well as when certain information on
Form SDR becomes inaccurate. Form SDR: General
Instructions for Preparing and Filing Form SDR,
available at https://www.sec.gov/about/forms/
formsdr.pdf (last accessed Jan. 8, 2020). Thus, the
Commission estimates that the annual burden of
filing one amendment on Form CC will be 3% of
the 200 hour initial burden, or 6 hours.
668 See supra note 664.
669 See id.
670 For example, a competing consolidator may
have to add an individual to access EFFS to account
for staffing changes.
671 When Form SDR was adopted in 2015, the
Commission estimated the hour burden for
amendments to be roughly 3% of the initial burden.
Securities Exchange Act Release No. 74246, supra
note 554, at 14522. In that release, the initial burden
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total of $2,872.05), and approximately
49.2 burden hours for all competing
consolidators per amendment (for a total
of $22,976.40).672
The Commission preliminarily
believes that one Material Amendment
would be a reasonable estimate for the
number of such amendments per year.
Thus, the Commission preliminarily
estimates that respondents will be
required to file on average a total of two
amendments per year, one Material
Amendment plus one Annual Report.
Therefore, the Commission
preliminarily estimates that each
respondent will have an average annual
burden of 12.3 hours (for a total of
$5,744.10) for a total estimated average
annual burden of 98.4 hours (for a total
of $45,952.80).673 As with the initial
Form CC, the Commission believes the
competing consolidators will conduct
this work internally. Further, as noted
above, an individual signing the Form
CC must obtain a digital ID, at the cost
of approximately $25 each year.
Therefore, each respondent would
expend approximately $25 annually to
obtain digital IDs for the individuals
with access to EFFS for the purposes of
signing the Form CC or approximately
$200 for all respondents. Thus, the
Commission preliminary estimates that
each respondent will have an average
annual cost of $5,769.10 ($5,744.10 +
$25) and a total estimated annual cost
of $46,152.80 ($5,769.10 * 8).
As discussed above, proposed Rule
614(a)(3) would permit a competing
consolidator to cease acting as a
competing consolidator by filing an
amendment to Form CC 30 business
days before the proposed cessation of
acting as a competing consolidator. The
Commission preliminarily believes that
a competing consolidator’s notice of
cessation of acting as a competing
consolidator on Form CC will be
substantially similar to its most recently
filed Form CC. The Form CC being filed
in this circumstance will therefore
already be substantially complete and as
a result, the burden will not be as great
as the burden of filing an application for
registration on Form CC. Rather, the
was calculated to be 400 hours per respondent and
12 hours per respondent for amendments. The
Commission believes that a similar ratio will apply
to filers of Form CC because filers of Form SDR, like
filers of Form CC, are required to file amendments
annually as well as when certain information on
Form SDR becomes inaccurate. Form SDR: General
Instructions for Preparing and Filing Form SDR,
available at https://www.sec.gov/about/forms/
formsdr.pdf (last accessed Jan. 8, 2020). Thus, the
Commission estimates that the annual burden of
filing one amendment on Form CC will be 3% of
the 200 hour initial burden, or 6 hours.
672 See supra note 664.
673 See id.
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Commission preliminarily believes that
the burden of filing a notice of cessation
of acting as a competing consolidator on
Form CC will be akin to filing an
amendment on Form CC. Thus, the
Commission estimates that the one-time
burden of filing Form CC to notice
cessation of acting as a competing
consolidator will be approximately 2
burden hours (for a total of $934).674
2. Competing Consolidator Duties and
Data Collection
As discussed above, proposed Rules
614(d)(1)–(d)(3) would require the
competing consolidators to collect from
the SROs quotation and transaction
information for NMS stocks, calculate
and generate proposed consolidated
market data from this information, and
make proposed consolidated market
data available to subscribers on a
consolidated basis on terms that are not
unreasonably discriminatory. Proposed
Rule 614(d)(4) would require competing
consolidators to timestamp the
information with respect to quotations
and transactions in NMS stocks that
they collect from the SROs pursuant to
proposed Rule 614(d)(1) upon receipt,
upon receipt by the aggregation
mechanism, and upon dissemination to
subscribers. The Commission
preliminarily believes that five types of
entities may register to become
competing consolidators and would
have to build systems, or modify
existing systems, that comply with
Rules 614(d)(1)–(d)(4): (1) Market data
aggregation firms, (2) broker-dealers that
currently aggregate market data for
internal uses, (3) the existing exclusive
SIPs (CTA/CQ and Nasdaq UTP SIPs),
(4) entities that would be entering the
market data aggregation business for the
first time (‘‘new entrants’’), and (5)
SROs. The Commission preliminarily
estimates that, apart from the SRO
category, two respondents from each
category may register to become a
competing consolidator; the
Commission preliminarily believes that
four SROs may register to become
competing consolidators.675
(a) Initial Burden Hours and Costs for
Market Data Aggregation Firms
There are a number of technology
firms that provide proprietary market
data aggregation services. The
Commission preliminarily believes that
674 See id. The Commission preliminarily
estimates that no competing consolidators would
cease operation in the first three years of the rule’s
effectiveness.
675 The Commission preliminarily believes that
these SROs may be a national securities association
and equities national securities exchanges that do
not currently operate an exclusive SIP.
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some of these firms may choose to
become competing consolidators
because they currently collect,
consolidate and disseminate market
data to their customers, much like
competing consolidators would. The
systems used by these firms already
collect, consolidate and disseminate
more extensive proprietary market data
than the data that is provided by the
exclusive SIPs. Therefore, the
Commission preliminarily believes that
firms providing proprietary market data
aggregation services would not have to
extensively modify their systems to
comply with Rules 614(d)(1)–(d)(4). For
example, the Commission preliminarily
believes that each market data
aggregation firm would incur burden
hours to expand their bandwidth to
receive information that is not currently
disseminated in the exchange
proprietary market data feeds, such as
the proposed regulatory data and
administrative data, and may incur
external costs to purchase hardware to
receive such added information.
The Commission preliminarily
believes that each market data
aggregation firm that chooses to become
a competing consolidator would incur
initial burden hours to upgrade its
systems to comply with Rules
614(d)(1)–(d)(4) in order to collect,
consolidate and disseminate the
proposed consolidated market data. The
Commission also preliminarily believes
that each market data aggregation firm
would incur initial external costs
associated with such upgrades,
including co-location fees at the
exchange data centers and the cost of
market data.
The Commission preliminarily
believes that each market data
aggregation firm would incur 900 initial
burden hours 676 and $206,250 in
external costs 677 to modify its systems
to comply with Rules 614(d)(1)–(d)(4).
Additionally, the Commission estimates
that an existing market data aggregator
676 The Commission estimates the monetized
initial burden for this requirement to be $293,750.
Based on discussions with a market participant, the
Commission reached the following estimates: [(Sr.
Programmer at $332/hour for 350 hours) + (Sr.
Systems Analyst at $285/hour for 300 hours) +
(Compliance Manager at $310/hour for 100 hours)
+ (Director of Compliance at $489/hour for 50
hours) + (Compliance Attorney at $366/hour for 100
hours)] = 6 months (900 burden hours) to upgrade
existing systems to comply with Rules 614(d)(1)–
(d)(4). The Commission derived this estimate based
on per hour figures from SIFMA’s Management &
Professional Earnings in the Securities Industry
2013, modified by Commission staff to account for
an 1,800-hour work-year and inflation, and
multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead.
677 This estimate is based on discussions with a
market participant and the Commission’s
understanding of hardware costs.
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would incur initial external costs of
$14,000 to purchase market data from
the SROs,678 and an additional initial
external cost of $194,000 to co-locate at
four exchange data centers,679 for a total
initial external cost of $414,250 per
existing market data aggregator,680 and
an aggregate estimate of 1,800 initial
burden hours 681 and $828,500 in initial
external costs.682 The Commission
solicits comment on the accuracy of this
information.
(b) Initial Burden Hours and Costs for
Broker-Dealers That Aggregate Market
Data
The Commission preliminarily
believes that some broker-dealers that
currently aggregate market data for their
own internal uses may choose to
become competing consolidators. The
systems used by such broker-dealers
already collect and consolidate the
proprietary feeds from the exchanges,
which contain more extensive data than
the data provided by the exclusive SIPs.
Therefore, Commission preliminarily
believes that these firms may not have
to extensively modify their systems to
comply with Rules 614(d)(1)–(d)(4). For
example, the Commission preliminarily
believes that each broker-dealer would
incur burden hours to expand their
bandwidth to receive information that is
not currently disseminated in the
exchange proprietary market data feeds,
such as data from the OTC market, the
proposed regulatory data and
678 The Commission is using the monthly market
data access and redistribution fees currently
charged by the CTA/CQ SIP and Nasdaq UTP SIP
as the basis of this estimate ($14,000).
679 This estimate is based on an estimated $48,500
in initial co-location fees as calculated from NYSE
Price List 2020, multiplied by four exchange data
centers. The Commission preliminarily believes
that the market data aggregators would already be
co-located at the four exchange data centers, which
may lower this estimate. See NYSE Price List 2020,
supra note 408.
680 $414,250 = [($206,250 in initial external costs
to modify systems to comply with Rules 614(d)(1)–
(d)(4)) + ($14,000 for the first month of market data
costs) + ($194,000 in initial co-location costs at four
exchange data centers)].
681 The Commission estimates the monetized
initial burden for this requirement to be $587,500.
Based on discussions with a market participant, the
Commission reached the following estimates: [(Sr.
Programmer at $332/hour for 350 hours) + (Sr.
Systems Analyst at $285/hour for 300 hours) +
(Compliance Manager at $310/hour for 100 hours)
+ (Director of Compliance at $489/hour for 50
hours) + (Compliance Attorney at $366/hour for 100
hours)] × [(2 market data aggregation firms)] = 1,800
initial burden hours across the market data
aggregation firms.
682 The Commission preliminarily estimates that
the market data aggregation firms would incur the
following initial external costs: [($206,250 to
modify systems to comply with Rules 614(d)(1)–
(d)(4)) + ($14,000 to purchase market data) +
($194,000 to co-locate within four exchange data
centers)] × [(2 market data aggregation firms)] =
$828,500.
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administrative data and may incur
external costs to purchase hardware to
receive such added information. In
addition, these broker-dealers would
incur burden hours to disseminate
proposed consolidated market data to
subscribers. The Commission estimates
that the initial burden hour and external
costs estimates for these broker-dealers
to modify their systems to comply with
Rules 614(d)(1)–(d)(4) would be similar
to market data aggregation firms
because, for both types of respondents,
the scope of the systems changes and
costs associated with becoming
competing consolidators would be
comparable.
The Commission preliminarily
believes that each broker-dealer that
aggregates market data for internal uses
that chooses to become a competing
consolidator would incur burden hours
to upgrade its systems to comply with
Rules 614(d)(1)–(d)(4) in order to
collect, consolidate, and disseminate the
proposed consolidated market data. The
Commission also preliminarily believes
that each broker-dealer would also incur
initial external costs associated with
such upgrades, including co-location
fees at the exchange data centers and the
cost of market data.
The Commission preliminarily
believes that each broker-dealer would
incur 900 initial burden hours 683 and
$206,250 in external costs 684 to modify
its systems to comply with Rules
614(d)(1)–(d)(4). Additionally, the
Commission estimates that a brokerdealer would incur initial external costs
of $14,000 to purchase market data from
the SROs,685 and an additional initial
external cost of $194,000 to co-locate
itself at four exchange data centers,686
683 The Commission estimates the monetized
initial burden for this requirement to be $293,750.
Based on discussions with a market participant, the
Commission reached the following estimates: [(Sr.
Programmer at $332/hour for 350 hours) + (Sr.
Systems Analyst at $285/hour for 300 hours) +
(Compliance Manager at $310/hour for 100 hours)
+ (Director of Compliance at $489/hour for 50
hours) + (Compliance Attorney at $366/hour for 100
hours)] = 6 months (900 burden hours) to upgrade
existing systems to comply with Rules 614(d)(1)–
(d)(4). The Commission derived this estimate based
on per hour figures from SIFMA’s Management &
Professional Earnings in the Securities Industry
2013, modified by Commission staff to account for
a 1,800-hour work-year and inflation, and
multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead.
684 This estimate is based on discussions with a
market participant and the Commission’s
understanding of hardware costs.
685 The Commission is using the monthly market
data access and redistribution fees currently
charged by the CTA/CQ SIP and Nasdaq UTP SIP
as the basis of this estimate ($14,000).
686 This estimate is based on an estimated $48,500
in initial co-location fees as calculated from NYSE
Price List 2020, multiplied by four exchange data
centers. See NYSE Price List 2020, supra note 408.
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for a total initial external cost of
$414,250 per broker-dealer,687 and an
aggregate estimate of 1,800 initial
burden hours 688 and $828,500 in initial
external costs.689 The Commission
solicits comment on the accuracy of this
information.
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(c) Initial Implementation Burden Hours
and Costs for the Exclusive SIPs
The Commission preliminarily
believes that the CTA/CQ SIP and the
Nasdaq UTP SIP could choose to
become competing consolidators due to
their years of experience in collecting,
consolidating and disseminating market
data. The systems used by the exclusive
SIPs already collect, consolidate and
disseminate SIP data. Therefore, the
Commission preliminarily believes that
the exclusive SIPs would not have to
build entirely new systems to comply
with Rules 614(d)(1)–(d)(4). For
example, each exclusive SIP would
incur burden hours and external costs to
expand their bandwidth and
connections to consume and
disseminate proposed consolidated
market data as well as to transmit it, and
to program feed handlers to receive and
normalize the different formats of the
data feeds developed by the
exchanges.690 Further, each exclusive
SIP would expend external costs on
purchasing proposed consolidated
market data and on colocation fees at
the exchange data centers.
However, the exclusive SIPs may have
to make a greater scope of changes to
become competing consolidators than
market data aggregation firms. For this
reason, the Commission has estimated
initial burden hour and external cost
estimates that are higher than those
estimated for market data aggregation
firms.
The Commission preliminarily
believes that each exclusive SIP would
687 $414,250 = [($206,250 in initial external costs
to modify systems to comply with Rules 614(d)(1)–
(d)(4)) + ($14,000 for the first month of market data
costs) + ($194,000 in initial co-location costs at four
exchange data centers)].
688 The Commission estimates the monetized
initial burden for this requirement to be $587,500.
Based on discussions with a market participant, the
Commission reached the following estimates: [(Sr.
Programmer at $332/hour for 350 hours) + (Sr.
Systems Analyst at $285/hour for 300 hours) +
(Compliance Manager at $310/hour for 100 hours)
+ (Director of Compliance at $489/hour for 50
hours) + (Compliance Attorney at $366/hour for 100
hours)] × [(2 broker-dealers)] = 1,800 initial burden
hours across the broker-dealers.
689 The Commission preliminarily estimates that
broker-dealers would incur the following initial
external costs: [($206,250 to modify systems to
comply with Rules 614(d)(1)–(d)(4)) + ($14,000 to
purchase market data) + ($194,000 to co-locate
within four exchange data centers) × (2 brokerdealers)] = $828,500.
690 Feed handlers receive market data and make
it usable to customers.
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incur burden hours to upgrade their
systems to comply with Rules
614(d)(1)–(d)(4) to collect, consolidate
and disseminate the proposed
consolidated market data. The
Commission also preliminarily believes
that each exclusive SIP would also incur
external costs associated with such
upgrades, including co-location fees at
the exchange data centers and the cost
of market data. The Commission
preliminarily believes that each
exclusive SIP would incur 1,800 initial
burden hours 691 and $412,500 in
external costs 692 to modify its systems
to comply with Rules 614(d)(1)–(d)(4).
Additionally, the Commission estimates
that an exclusive SIP would incur initial
external costs of $14,000 to purchase
market data from the SROs,693 and an
additional initial external cost of
$194,000 to co-locate itself at four
exchange data centers,694 for a total
initial external cost of $620,500 per
existing SIP,695 and an aggregate
estimate of 3,600 initial burden
hours 696 and $1,241,000 in initial
691 Based on discussions with a market
participant, the Commission reached the following
estimates for a market data aggregation firm: [(Sr.
Programmer at $332/hour for 350 hours) + (Sr.
Systems Analyst at $285/hour for 300 hours) +
(Compliance Manager at $310/hour for 100 hours)
+ (Director of Compliance at $489/hour for 50
hours) + (Compliance Attorney at $366/hour for 100
hours)] = 6 months (900 burden hours) to upgrade
existing systems to comply with Rules 614(d)(1)–
(d)(4). The Commission derived this estimate based
on per hour figures from SIFMA’s Management &
Professional Earnings in the Securities Industry
2013, modified by Commission staff to account for
a 1,800-hour work-year and inflation, and
multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead. As noted above,
the Commission has increased this initial burden
hour estimate for the exclusive SIPs. Therefore, the
Commission preliminarily estimates that each
exclusive SIP will incur 1,800 initial burden hours
to upgrade its existing systems to comply with
Rules 614(d)(1)–(d)(4) (or $587,500, as monetized).
692 As noted above, the Commission estimates the
initial external cost estimates to comply with Rules
614(d)(1)–(d)(4) will be higher for exclusive SIPs
than for market data aggregation firms. Therefore,
the Commission preliminarily estimates that each
existing SIP will incur $412,500 in initial external
costs to modify its systems to comply with Rules
614(d)(1)–(d)(4).
693 The Commission is using the monthly market
data access and redistribution fees currently
charged by the CTA/CQ SIP and Nasdaq UTP SIP
as the basis of this estimate ($14,000).
694 This estimate is based on an estimated $48,500
in initial co-location fees as calculated from NYSE
Price List 2020, multiplied by four exchange data
centers. See NYSE Price List 2020, supra note 408.
695 The Commission preliminarily estimates that
each existing SIP would incur the following initial
external costs: [($412,500 to modify systems to
comply with Rules 614(d)(1)–(d)(4)) + ($14,000 to
purchase market data) + ($194,000 to co-locate
within four exchange data centers)] = $620,500.
696 Based on discussions with a market
participant, the Commission reached the following
estimates for a market data aggregation firm: [(Sr.
Programmer at $332/hour for 350 hours) + (Sr.
Systems Analyst at $285/hour for 300 hours) +
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16803
external costs.697 The Commission
solicits comment on the accuracy of this
information.
(d) Initial Implementation Burden Hours
and Costs for New Entrants
The Commission anticipates that
firms without prior experience in the
business of collecting, consolidating and
disseminating market data may choose
to become competing consolidators and
would have to build systems to comply
with Rules 614(d)(1)–(d)(4). Because
these systems would be completely
new, the Commission preliminarily
believes that these new entrants will
incur substantially higher initial burden
hours and external costs to build a
system that complies with Rules
614(d)(1)–(d)(4) than the other entities
described above. For this reason, the
Commission has estimated initial
burden hour and external cost estimates
for new entrants that are higher than
those estimated for the other potential
entities that may choose to become
competing consolidators. The
Commission preliminarily believes that
each new entrant would incur initial
burden hours to comply with Rules
614(d)(1)–(d)(4) to build a system that
collects, consolidates, and disseminates
the proposed consolidated market data.
The Commission also preliminarily
believes that each new entrant would
incur associated external costs,
including co-location fees at the
exchange data centers and the cost of
market data. The Commission
preliminarily believes that each new
entrant would incur 3,600 initial burden
hours 698 and $825,000 in external
(Compliance Manager at $310/hour for 100 hours)
+ (Director of Compliance at $489/hour for 50
hours) + (Compliance Attorney at $366/hour for 100
hours)] = 900 initial burden hours across the market
data aggregation firms. As noted above, the
Commission has increased this initial burden hour
estimate to apply to the exclusive SIPs. Therefore,
the Commission preliminarily estimates that each
exclusive SIP will incur 1,800 initial burden hours
to upgrade its existing systems to comply with
Rules 614(d)(1)–(d)(4) (or $587,500, as monetized).
The aggregate initial burden hour estimate for two
exclusive SIPs would be [(1,800 initial burden
hours) × (2 existing SIPs)] = 3,600 initial burden
hours.
697 The Commission preliminarily estimates that
the exclusive SIPs would incur the following initial
external costs: [($412,500 to modify systems to
comply with Rules 614(d)(1)–(d)(4)) + ($14,000 to
purchase market data) + ($194,000 to co-locate
within four exchange data centers)] × [(2 exclusive
SIPs)] = $1,241,000.
698 Based on discussions with a market
participant, the Commission reached the following
estimates for a market data aggregation firm: [(Sr.
Programmer at $332/hour for 350 hours) + (Sr.
Systems Analyst at $285/hour for 300 hours) +
(Compliance Manager at $310/hour for 100 hours)
+ (Director of Compliance at $489/hour for 50
hours) + (Compliance Attorney at $366/hour for 100
hours)] = 6 months (900 burden hours) to upgrade
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costs 699 to build systems to comply
with Rules 614(d)(1)–(d)(4).
Additionally, the Commission estimates
that a new entrant would incur initial
external costs of $14,000 to purchase
market data from the SROs,700 and an
additional initial external cost of
$194,000 to co-locate itself at four
exchange data centers,701 for a total
initial external cost of $1,033,000 per
new entrant,702 and an aggregate
estimate of 7,200 initial burden
hours 703 and $2,066,000 in initial
external costs.704 The Commission
solicits comment on the accuracy of this
information.
existing systems to comply with Rules 614(d)(1)–
(d)(4). The Commission derived this estimate based
on per hour figures from SIFMA’s Management &
Professional Earnings in the Securities Industry
2013, modified by Commission staff to account for
an 1,800-hour work-year and inflation, and
multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead. As noted above,
the Commission has increased this initial burden
hour estimate to apply to the new entrants.
Therefore, the Commission preliminarily estimates
that each new entrant will incur 3,600 initial
burden hours to build systems to comply with
Rules 614(d)(1)–(d)(4) (or $1,175,000, as
monetized).
699 As noted above, the Commission has increased
its initial external cost estimates for market data
aggregation firms to apply to new entrants.
Therefore, the Commission preliminarily estimates
that each new entrant will incur $825,000 in initial
external costs to build systems to comply with
Rules 614(d)(1)–(d)(4).
700 The Commission is using the monthly market
data access and redistribution fees currently
charged by the CTA/CQ SIP and Nasdaq UTP SIP
as the basis of this estimate ($14,000).
701 This estimate is based on an estimated $48,500
in initial co-location fees as calculated from NYSE
Price List 2020, multiplied by four exchange data
centers. See NYSE Price List 2020, supra note 408.
702 The Commission preliminarily estimates that
each new entrant would incur the following initial
external costs: [($825,000 to build systems to
comply with Rules 614(d)(1)–(d)(4)) + ($14,000 to
purchase market data) + ($194,000 to co-locate
within four exchange data centers)] = $1,033,000.
703 Based on discussions with a market
participant, the Commission reached the following
estimates for a market data aggregation firm: [(Sr.
Programmer at $332/hour for 350 hours) + (Sr.
Systems Analyst at $285/hour for 300 hours) +
(Compliance Manager at $310/hour for 100 hours)
+ (Director of Compliance at $489/hour for 50
hours) + (Compliance Attorney at $366/hour for 100
hours)] = 900 initial burden hours. As noted above,
the Commission has increased the per market data
aggregation firm initial burden hour estimate to
apply to the new entrants. Therefore, the
Commission preliminarily estimates that each
existing SIP will incur 3,600 initial burden hours
to upgrade its existing systems to comply with
Rules 614(d)(1)–(d)(4) (or $1,175,000, as
monetized). [(3,600 burden hours) × (2 new
entrants] = 7,200 hours (or $2,350,000 as
monetized).
704 The Commission preliminarily estimates that
each new entrant would incur the following initial
external costs: [($825,000 to build systems to
comply with Rules 614(d)(1)–(d)(4)) + ($14,000 to
purchase market data) + ($194,000 to co-locate
within four exchange data centers) × (2 new
entrants)] = $1,033,000. [($1,033,000 in initial
external costs) × (2 new entrants)] = $2,066,000.
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(e) Initial Implementation Burden Hours
and Costs for SROs
The Commission anticipates that
SROs may choose to become competing
consolidators and would have to build
new systems to comply with Rules
614(d)(1)–(d)(4). Although these SROs
may be able to leverage existing systems
in developing a system compliant with
Rules 614(d)(1)–(d)(4), the Commission
preliminarily believes that these SROs
would likely have to build new systems
and thus will incur initial burden hours
to comply with Rules 614(d)(1)–(d)(4)
that are similar to new entrants. The
Commission preliminarily believes that
each SRO would incur initial burden
hours to comply with Rules 614(d)(1)–
(d)(4) to build a system that collects,
consolidates, and disseminates the
proposed consolidated market data. The
Commission also preliminarily believes
that each SRO would incur associated
external costs, including co-location
fees at the exchange data centers and the
cost of market data. The Commission
preliminarily believes that each SRO
would incur 3,600 initial burden
hours 705 and $825,000 in external
costs 706 to build systems to comply
with Rules 614(d)(1)–(d)(4).
Additionally, the Commission estimates
that an SRO would incur initial external
costs of $14,000 to purchase market data
from the SROs,707 and an additional
initial external cost of $194,000 to colocate itself at four exchange data
centers,708 for a total initial external cost
705 Based on discussions with a market
participant, the Commission reached the following
estimates for a market data aggregation firm: [(Sr.
Programmer at $332/hour for 350 hours) + (Sr.
Systems Analyst at $285/hour for 300 hours) +
(Compliance Manager at $310/hour for 100 hours)
+ (Director of Compliance at $489/hour for 50
hours) + (Compliance Attorney at $366/hour for 100
hours)] = 6 months (900 burden hours) to upgrade
existing systems to comply with Rules 614(d)(1)–
(d)(4). The Commission derived this estimate based
on per hour figures from SIFMA’s Management &
Professional Earnings in the Securities Industry
2013, modified by Commission staff to account for
an 1,800-hour work-year and inflation, and
multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead. As it did for its
new entrant estimates, the Commission has
increased this initial burden hour estimate to apply
to the SROs. Therefore, the Commission
preliminarily estimates that each new entrant will
incur 3,600 initial burden hours to build systems
to comply with Rules 614(d)(1)–(d)(4) (or
$1,175,000, as monetized).
706 As it did for its new entrant estimates, the
Commission has increased its initial external cost
estimates for market data aggregation firms to apply
to the SROs. Therefore, the Commission
preliminarily estimates that each SRO will incur
$825,000 in initial external costs to build systems
to comply with Rules 614(d)(1)–(d)(4).
707 The Commission is using the monthly market
data access and redistribution fees currently
charged by the CTA/CQ SIP and Nasdaq UTP SIP
as the basis of this estimate ($14,000).
708 This estimate is based on an estimated $48,500
in initial co-location fees as calculated from NYSE
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of $1,033,000 per new entrant,709 and an
aggregate estimate of 14,400 initial
burden hours 710 and $4,132,000 in
initial external costs.711 The
Commission solicits comment on the
accuracy of this information.
(f) Ongoing Burden Hours and Costs for
Market Data Aggregation Firms, BrokerDealers That Aggregate Market Data,
Exclusive SIPs, New Entrants, and SROs
The Commission preliminarily
believes that once a competing
consolidator’s system has been built, the
entities that have become competing
consolidators (originally, the existing
market data aggregation firms, brokerdealers that aggregate market data,
exclusive SIPs, new entrants, and SROs)
will incur annual ongoing burden hours
and external costs to operate and
maintain their systems to comply with
Rules 614(d)(1)–(d)(4). The Commission
also preliminarily believes that these
annual ongoing burdens should be
similar across the competing
consolidators because such systems
would likely be similar in nature.
Therefore, the burden hours and costs
associated with operating and maintain
a competing consolidator system should
be comparable across competing
consolidators. The Commission is
therefore applying the same annual
ongoing burden hour and external cost
estimates across the five types of entities
that the Commission anticipates may
choose to become competing
consolidators.
Price List 2020, multiplied by four exchange data
centers. See NYSE Price List 2020, supra note 408.
709 The Commission preliminarily estimates that
each SRO would incur the following initial external
costs: [($825,000 to build systems to comply with
Rules 614(d)(1)–(d)(4)) + ($14,000 to purchase
market data) + ($194,000 to co-locate within four
exchange data centers)] = $1,033,000.
710 Based on discussions with a market
participant, the Commission reached the following
estimates for a market data aggregation firm: [(Sr.
Programmer at $332/hour for 350 hours) + (Sr.
Systems Analyst at $285/hour for 300 hours) +
(Compliance Manager at $310/hour for 100 hours)
+ (Director of Compliance at $489/hour for 50
hours) + (Compliance Attorney at $366/hour for 100
hours)] = 900 initial burden hours. As it did for its
new entrant estimates, the Commission has
increased the per market data aggregation firm
initial burden hour estimate to apply to the SROs.
Therefore, the Commission preliminarily estimates
that each SRO will incur 3,600 initial burden hours
to upgrade its existing systems to comply with
Rules 614(d)(1)–(d)(4) (or $1,175,000, as
monetized). [(3,600 burden hours) × (4 new
entrants] = 14,400 hours (or $4,700,000 as
monetized).
711 The Commission preliminarily estimates that
each SRO would incur the following initial external
costs: [($825,000 to build systems to comply with
Rules 614(d)(1)–(d)(4)) + ($14,000 to purchase
market data) + ($194,000 to co-locate within four
exchange data centers)] = $1,033,000. [($1,033,000
in initial external costs) × (4 new entrants)] =
$4,132,000.
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The Commission preliminarily
believes that entities choosing to
become competing consolidators would
incur annual ongoing burden hours and
external costs to operate and maintain
their modified systems to comply with
Rules 614(d)(1)–(d)(4). The Commission
preliminarily believes that each entity
would incur 540 annual ongoing burden
hours 712 and $123,725 in annual
ongoing external costs 713 to operate and
maintain its systems to comply with
Rules 614(d)(1)–(d)(4).
Additionally, the Commission
estimates that each entity would incur
annual ongoing external costs of
$168,000 to purchase market data from
the SROs,714 and an additional annual
ongoing external cost of $4,602,720 to
co-locate itself at four exchange data
centers,715 for a total annual ongoing
external cost of $4,894,445 per entity.716
Because the Commission preliminarily
believes that there will be two entities
per category of potential competing
consolidators for existing market data
aggregators, broker-dealers that
currently aggregate market data,
exclusive SIPs and new entrants, for
each of these categories, the aggregate
712 The Commission preliminarily believes that
once a competing consolidator’s infrastructure is in
place, the burden of operating and maintaining the
infrastructure will be less than the burdens
associated with establishing the infrastructure. The
Commission estimates the monetized initial burden
for this requirement to be $176,250. The
Commission derived this estimate based on per
hour figures from SIFMA’s Management &
Professional Earnings in the Securities Industry
2013, modified by Commission staff to account for
an 1,800-hour work-year and inflation, and
multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead: [(Sr. Programmer
at $332 for 210 hours) + (Sr. Systems Analyst at
$285 for 180 hours) + (Compliance Manager at $310
for 60 hours) + (Director of Compliance at $489 for
30 hours) + (Compliance Attorney at $366 for 60
hours)] = 540 burden hours per entity and $176,250.
713 This estimate is based on the initial external
cost estimate for a market data aggregation firm to
modify its systems to comply with Rules 614(d)(1)–
(d)(4), but reduced because the Commission
preliminarily believes that once a competing
consolidator’s infrastructure is in place, the burden
of operating and maintaining the infrastructure will
be less than the burdens associated with
establishing the infrastructure.
714 The Commission is using the monthly market
data access and redistribution fees currently
charged by the CTA/CQ SIP and Nasdaq UTP SIP
as the basis of this estimate ($14,000), multiplied
by 12 months.
715 This estimate is based on an estimated $95,890
in monthly co-location fees as calculated from
NYSE Price List 2020, multiplied by four exchange
data centers over 12 months. The Commission
preliminarily believes that the market data
aggregators would already be co-located at the four
exchange data centers, which may lower this
estimate for this category of respondent. See NYSE
Price List 2020, supra note 408.
716 $4,894,445 = [($123,725 to operate and
maintain systems to comply with Rules 614(d)(1)–
(d)(4)) + ($168,000 in monthly market data fees over
12 months) + ($4,602,720 to co-locate within four
exchange data centers over 12 months)].
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estimates would amount to estimate of
1,080 annual ongoing burden hours 717
and $9,797,530 in annual ongoing
external costs.718
Since the Commission preliminarily
believes that there may be four SROs
that will choose to become competing
consolidators, it is estimating that these
SROs will incur an aggregate estimate of
2,160 annual ongoing burden hours 719
and $19,577,780 in annual ongoing
external costs.720 The Commission
solicits comment on the accuracy of this
information.
(g) Initial Burden and Costs for
Proposed Rule 614(c)
As discussed above, proposed Rule
614(c) would require each competing
consolidator to make public on its
website a direct URL hyperlink to the
Commission’s website that contains
each effective initial Form CC, order of
ineffective initial Form CC, and
amendments to effective Form CCs. The
Commission preliminarily estimates an
717 The Commission estimates the monetized
annual ongoing burden for this requirement to be
$352,500. The Commission derived this estimate
based on per hour figures from SIFMA’s
Management & Professional Earnings in the
Securities Industry 2013, modified by Commission
staff to account for an 1,800-hour work-year and
inflation, and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead:
[(Sr. Programmer at $332 for 210 hours) + (Sr.
Systems Analyst at $285 for 180 hours) +
(Compliance Manager at $310 for 60 hours) +
(Director of Compliance at $489 for 30 hours) +
(Compliance Attorney at $366 for 60 hours)] × [(2
market data aggregation firms/broker-dealers that
currently aggregate market data/existing SIPs/new
entrants)] = 1,080 annual ongoing burden hours and
$352,500.
718 The Commission preliminarily estimates that
the market data aggregation firms/broker-dealers
that currently aggregate market data for their own
usage/exclusive SIPs/new entrants would incur the
following aggregate annual ongoing external costs:
[($123,725 to operate and maintain systems to
comply with Rules 614(d)(1)–(d)(4)) + ($168,000 in
monthly market data fees over 12 months) +
($4,602,720 to co-locate within four exchange data
centers over 12 months)] × [(2 entities)] =
$9,788,890.
719 The Commission estimates the monetized
initial burden for this requirement to be $353,500.
The Commission derived this estimate based on per
hour figures from SIFMA’s Management &
Professional Earnings in the Securities Industry
2013, modified by Commission staff to account for
an 1,800-hour work-year and inflation, and
multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead: [(Sr. Programmer
at $332 for 210 hours) + (Sr. Systems Analyst at
$285 for 180 hours) + (Compliance Manager at $310
for 60 hours) + (Director of Compliance at $489 for
30 hours) + (Compliance Attorney at $366 for 60
hours)] × [(4 SROs)] = 2,160 annual ongoing burden
hours across the SROs and $705,000.
720 The Commission preliminarily estimates that
the SROs would incur the following initial external
costs: [($123,725 to operate and maintain systems
to comply with Rules 614(d)(1)–(d)(4)) + ($168,000
in monthly market data fees over 12 months) +
($4,602,720 to co-locate within four exchange data
centers over 12 months)] × [(4 SROs)] = $19,577,780
across the SROs.
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16805
initial burden of 0.5 hours per
competing consolidator to publicly post
the Commission’s direct URL hyperlink
to its website upon filing of the initial
Form CC,721 for an aggregate initial
burden of approximately six hours for
the competing consolidators to publicly
post the direct URL hyperlink to the
Commission’s website on their own
respective websites.722
(h) Ongoing Burden and Costs for
Proposed Rule 614(c)
The Commission preliminarily
believes that each competing
consolidator would check the
Commission’s website whenever it
submits amendments to effective Form
CCs to ensure that the Commission’s
direct URL hyperlink that the competing
consolidator has posted to its own
website remains valid. The Commission
preliminarily believes that a competing
consolidator will file two amendments
per year, so the Commission
preliminarily estimates that each
competing consolidator will incur an
ongoing burden of 0.25 hours per
amendment, or 0.5 hours per year, to
ensure that it has posted the correct
direct URL hyperlink to the
Commission’s website on its own
website,723 for an aggregate annual
721 The Commission bases this estimate on a fulltime Programmer Analyst spending approximately
0.5 hours to publicly post the URL hyperlink per
competing consolidator. The Commission estimates
the monetized initial burden for this requirement to
be $120.50. The Commission derived this estimate
based on per hour figures from SIFMA’s
Management & Professional Earnings in the
Securities Industry 2013, modified by Commission
staff to account for an 1,800-hour work-year and
inflation, and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead:
Programmer Analyst at $241 for 0.5 hours = 0.5
initial burden hours per competing consolidator
and $120.50.
722 The Commission estimates the monetized
initial aggregate burden for this requirement to be
$1,446. The Commission derived this estimate
based on per hour figures from SIFMA’s
Management & Professional Earnings in the
Securities Industry 2013, modified by Commission
staff to account for an 1,800-hour work-year and
inflation, and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead:
[(Programmer Analyst at $241 for 0.5 hours) × (12
competing consolidators)] = 6 initial burden hours
across the competing consolidators and $1,446.
723 The Commission bases this estimate on a fulltime Programmer Analyst spending approximately
0.25 hours to check the Commission’s website when
the competing consolidator submits an amendment
to effective Form CCs to ensure that the
Commission’s direct URL hyperlink that the
competing consolidator has posted to its own
website remains valid. Since the Commission
preliminarily believes that a competing
consolidator would file two amendments per year,
the Commission preliminarily estimates that each
competing consolidator would incur a burden of 0.5
hours per year. [(0.25 hours) × (2 amendments per
year)] = 0.5 hours per year to check the URL
hyperlink. The Commission estimates the
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burden of approximately six hours for
the competing consolidators to do so.724
3. Recordkeeping
(a) Initial Burden and Costs
Proposed Rule 614(d)(7) would
require each competing consolidator to
keep and preserve at least one copy of
all documents made or received by it in
the course of its business and in the
conduct of its business. These
documents must be kept for a period of
no less than five years, the first two
years in an easily accessible place.
Proposed Rule 614(d)(8) would require
each competing consolidator to
promptly furnish these documents to
any representative of the Commission
upon request. Based on the
Commission’s experience with
recordkeeping costs and consistent with
prior burden estimates for similar
provisions,725 the Commission
preliminarily estimates that this
requirement will create an initial
burden of 40 hours (for a total cost of
$8,720),726 for a total initial burden of
480 hours for all respondents (for a total
cost of $104,640).
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(b) Ongoing Burden and Costs
The Commission preliminarily
believes that the ongoing annual burden
of recordkeeping in accordance with
proposed Rules 614(d)(7) and 614(d)(8)
would be 20 hours per respondent (for
a total cost of $4,360) and a total
ongoing annual burden of 240 hours for
all respondents (for a total cost of
$52,320).
monetized annual burden for this requirement to be
$120.50. The Commission derived this estimate
based on per hour figures from SIFMA’s
Management & Professional Earnings in the
Securities Industry 2013, modified by Commission
staff to account for an 1,800-hour work-year and
inflation, and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead:
Programmer Analyst at $241 for 0.5 hours = 0.5
annual burden hours per competing consolidator
and $120.50.
724 The Commission estimates the monetized
aggregate annual burden for this requirement to be
$1,446.00. The Commission derived this estimate
based on per hour figures from SIFMA’s
Management & Professional Earnings in the
Securities Industry 2013, modified by Commission
staff to account for an 1,800-hour work-year and
inflation, and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead:
[(Programmer Analyst at $241 for 0.5 hours) × (12
competing consolidators)] = 6 annual burden hours
across the competing consolidators and $1,446.00.
725 See Securities Exchange Act Release No.
74246, supra note 554, at 14541.
726 The Commission based this estimate on the
$218 hourly rate as of May 2019 for a paralegal ×
40 hours. The Commission derived this estimate
based on per hour figures from SIFMA’s
Management & Professional Earnings in the
Securities Industry 2013, modified by Commission
staff to account for an 1,800-hour work-year and
inflation, and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead.
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4. Reports and Reviews
(a) Initial Burden and Costs
The Commission preliminarily
believes that the average one-time,
initial burden to program systems to
produce the monthly reports required
by proposed Rules 614(d)(5) and (d)(6),
including keeping the information
publicly posted and free and accessible
(in downloadable files under Rule
614(d)(5)), would be 246 hours per
competing consolidator (for a total cost
of $80,507) 727 and $800 in external
costs.728 The Commission estimates that
the total initial burden would be 2,952
hours (for a total cost of $966,804) 729
and a total initial external cost of
$9,600.730
727 This figure is based on the estimated initial
paperwork burden for Rule 606(a), which requires
each broker or dealer to make publicly available on
a website a quarterly report on its routing of nondirected orders in NMS stocks that are submitted
on a held basis and of non-directed orders that are
customer orders in NMS securities. See Disclosure
of Order Handling Information, Securities Exchange
Act Release No. 84528, supra note 10. For purposes
of this proposal, the Commission is converting the
10 hour estimate for a quarterly report to an
estimate for a monthly report. Additionally, the
Commission is adding the burden of posting the
required information to the website. The
Commission estimates the monetized initial burden
for this requirement to be $80,507. The Commission
derived this estimate based on per hour figures from
SIFMA’s Management & Professional Earnings in
the Securities Industry 2013, modified by
Commission staff to account for an 1,800-hour
work-year and inflation, and multiplied by 5.35 to
account for bonuses, firm size, employee benefits
and overhead: [(Sr. Programmer at $332 per hour for
160 hours) + (Sr. Database Administrator at $342
per hour for 20 hours) + (Sr. Business Analyst at
$275 per hour for 20 hours) + (Attorney at $417 per
hour for 4 hours) + (Sr. Operations Manager at $366
per hour for 20 hours) + (Systems Analyst at $263
per hour for 16 hours) + ($308.50 blended rate for
Sr. Systems Analyst and Sr. Programmer for 6
hours)] = 246 initial burden hours per competing
consolidator and $80,507.
728 The Commission estimates that each
competing consolidator would incur an initial
external cost of $800 for an external website
developer to create the website.
729 The Commission estimates the monetized
initial aggregate burden for this requirement to be
$966,804. The Commission derived this estimate
based on per hour figures from SIFMA’s
Management & Professional Earnings in the
Securities Industry 2013, modified by Commission
staff to account for an 1,800-hour work-year and
inflation, and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead:
[(Sr. Programmer at $332 per hour for 160 hours)
+ (Sr. Database Administrator at $342 per hour for
20 hours) + (Sr. Business Analyst at $275 per hour
for 20 hours) + (Attorney at $417 per hour for 4
hours) + (Sr. Operations Manager at $366 per hour
for 20 hours) + (Systems Analyst at $263 per hour
for 16 hours) + ($308.50 blended rate for Sr.
Systems Analyst and Sr. Programmer for 6 hours)]
× [(12 competing consolidators)] = 2,952 initial
aggregate burden hours across the competing
consolidators and $966,804.
730 $9,600 = ($800 for an external website
developer to create the website) × (12 competing
consolidators).
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(b) Ongoing Burden and Costs
The Commission estimates that each
competing consolidator would incur an
average burden of 11 hours to prepare
and make publicly available a monthly
report in the format required by
proposed Rules 614(d)(5) and (d)(6) (for
a total cost of $3,768.50), or a burden of
132 hours per year (for a total cost of
$45,222).731 Once a report is posted on
an internet website, the Commission
does not estimate that there would be an
additional burden to allow the report to
remain posted for the period of time
specified in the rules. The total burden
per year for all competing consolidators
to comply with the monthly reporting
requirement in proposed Rules 614(d)(5)
and (d)(6) is estimated to be 1,584 hours
(for a total cost of $542,664).732
5. Amendment to the Effective National
Market System Plan(s) for NMS Stocks
As discussed above, the proposed rule
would require an amendment to the
effective national market system plan(s)
for NMS stocks from the 16 national
securities exchanges and one national
securities association respondents who
are participants in the effective national
market system plan(s). The Commission
preliminarily estimates that it would
take the participants to the effective
731 This figure is based on the estimated ongoing
paperwork burden for Rule 606(a), which requires
each broker or dealer to make publicly available on
a website a report on a quarterly basis. In the
Paperwork Reduction Act discussion for Rule
606(a), the Commission established that the average
annual burden for a broker-dealer to comply with
Rules 606(a)(1)(i)–(iii) would be 10 hours. See supra
note 727, at 58388. For purposes of this proposal,
the Commission is converting the 10 hour estimate
for a quarterly report to an estimate for a monthly
report. Additionally, the Commission is adding the
burden of updating the website. The Commission
estimates the monetized annual burden for this
requirement to be $3,768.50. The Commission
derived this estimate based on per hour figures from
SIFMA’s Management & Professional Earnings in
the Securities Industry 2013, modified by
Commission staff to account for an 1,800-hour
work-year and inflation, and multiplied by 5.35 to
account for bonuses, firm size, employee benefits
and overhead: [(Sr. Business Analyst at $275 per
hour for 5 hours) + (Attorney at $417 per hour for
5 hours) + ($308.50 blended rate for Sr. Systems
Analyst and Sr. Programmer for 1 hour)] × [(12
months)] = 132 initial burden hours per competing
consolidator and $45,222.
732 The Commission estimates the monetized
annual aggregate burden for this requirement to be
$542,664. The Commission derived this estimate
based on per hour figures from SIFMA’s
Management & Professional Earnings in the
Securities Industry 2013, modified by Commission
staff to account for an 1,800-hour work-year and
inflation, and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead:
[(Sr. Business Analyst at $275 per hour for 5 hours)
+ (Attorney at $417 per hour for 5 hours) + ($308.50
blended rate for Sr. Systems Analyst and Sr.
Programmer for 1 hour)] × [(12 competing
consolidators)] × [(12 months)] = 1,584 aggregate
burden hours across the competing consolidators
and $542,664.
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national market system plan(s)
approximately 420 hours to prepare the
amendment. This preliminary estimate
includes 210 hours for a respondent to
comply with the timestamps required by
the proposed rule, including a review
and any applicable change of the
respondent’s technical systems and
rules. Each SRO already employs some
form of timestamping, and the
Commission does not necessarily expect
that the burden to comply with the
timestamp requirement would be
particularly burdensome.733 The
preliminary estimate also includes 105
hours for the participants to compose
the form of annual report on competing
consolidator performance. Finally, the
preliminary estimate includes 20 hours
the participants to compile and confirm
the primary listing exchange for each
NMS stock. The initial burden hours for
all respondents would be 420 hours × 17
(for a total cost of $2,977,380).734
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6. Collection and Dissemination of
Information by National Securities
Exchanges and National Securities
Associations
As discussed above, the proposed
amendment to Rule 603(b) would
require every national securities
exchange on which an NMS stock is
traded and national securities
association to make available to all
competing consolidators and selfaggregators all information with respect
to quotations for and transactions in
NMS stocks, including all data
necessary to generate consolidated
market data, in the same manner and
using the same methods, including all
methods of access and using the same
formats, as such exchange or association
makes available any information with
respect to quotations for and
transactions in NMS stocks to any
person. Accordingly, the SROs would be
required to collect the information
necessary to generate proposed
consolidated market data, which would
be required to be made available under
proposed Rule 603(b). The respondents
to this collection of information are the
16 national securities exchanges and the
733 Currently, under the Equity Data Plans, the
SROs attach timestamps to quotation information
and transaction information provided to the
exclusive SIPs. See, e.g., Nasdaq UTP Plan, supra
note 13, at Section VIII; CQ Plan, supra note 13, at
Section VI; CTA Plan, supra note 13, at Section VI.
734 The Commission estimates the monetized
burden for this requirement to be $130,860. The
Commission derived this estimate based on per
hour figures from SIFMA’s Management &
Professional Earnings in the Securities Industry
2013, modified by Commission staff to account for
an 1,800-hour work-year and inflation, and
multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead: [(Attorney at $417
for (420 × 17) hours)].
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one national securities association who
are participants in the effective national
market system plan(s). The new data
elements of proposed consolidated
market data that the national securities
exchanges and national securities
associations must make available
include auction information, depth of
book data, round lot data, regulatory
data (including LULD price bands), and
administrative data. The Commission
understands that the national securities
exchanges and national securities
associations currently collect and/or
calculate all data necessary to generate
proposed consolidated market data.735
Therefore, the Commission believes that
the proposed amendments to 603(b)
would impose minimal initial and
ongoing burdens on these respondents,
including any changes to their systems,
because they already collect and
provide the data necessary to generate
proposed consolidated market data,
including regulatory data, to the
exclusive SIPs and to subscribers of
their proprietary data feeds.
(a) Initial Burden and Costs
The Commission preliminarily
estimates, in order to collect the
information necessary to generate
consolidated market data as required by
proposed Rule 603(b), that a national
securities exchange on which an NMS
stock is traded or national securities
association will require an average of
220 736 initial burden hours of legal,
compliance, information technology,
and business operations personnel time
to prepare and implement such a system
(for a total cost per exchange of
$70,865).737
735 For example, the primary listing exchanges
currently calculate LULD price bands and related
information to generate synthetic LULD price
bands. See Nasdaq, Equity Trader Alert #2016–79:
NASDAQ Announces Improved Protections for
Equity Markets Coming Out of Halts (‘‘Leaky
Bands’’) (Apr. 12, 2016), available at https://
www.nasdaqtrader.com/
TraderNews.aspx?id=ETA2016-79; NYSE, Trader
Update: NYSE and NYSE MKT: Enhanced Limit Up
Limit Down Procedures (Aug. 1, 2016), available at
https://www.nyse.com/trader-update/
history#110000029205; Securities Exchange Act
Release No. 34–78435 (July 28, 2016), 81 FR 51239
(Aug. 3, 2016) (SR–FINRA–2016–028).
736 The Commission based its estimate on the
burden hour estimate provided in connection with
the adoption of Regulation SHO because the
requirements are similar to what a national
securities exchange or national securities
association would need to do to comply with
proposed Rule 603(b). See Commission, Supporting
Statement for the Paperwork Reduction Act
Information Collection Submission for Rule 201 and
Rule 200(g) of Regulation SHO (Sept. 5, 2019).
737 The Commission estimates the monetized
initial burden for this requirement to be $70,865.
The Commission derived this estimate based on per
hour figures from SIFMA’s Management &
Professional Earnings in the Securities Industry
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16807
(b) Ongoing Burden and Costs
The Commission estimates that each
national securities exchange on which
an NMS stock is traded and national
securities association would incur an
annual average burden on an ongoing
basis of 396 hours to collect the
information necessary to generate
proposed consolidated market data
required by proposed Rule 603(b) (for a
total cost per exchange of $128,064).738
E. Collection of Information Is
Mandatory
The collection of information
discussed above would be a mandatory
collection of information.
F. Confidentiality
1. Registration Requirements and Form
CC
As discussed above, under proposed
Rule 614(b)(2), the Commission would
make public via posting on the
Commission’s website each: (i) Effective
initial Form CC, as amended; (ii) order
of ineffectiveness of a Form CC; (iii)
filed Form CC Amendment; and (iv)
notice of cessation.
2. Competing Consolidator Duties and
Data Collection and Maintenance
The collection of information
regarding competing consolidator duties
and data collection and maintenance
relates to the proposed consolidated
market data that competing
consolidators will collect, calculate, and
provide to subscribers.
3. Recordkeeping
The collection of information relating
to recordkeeping would be available to
the Commission and its staff, and to
other regulators.
4. Reports and Reviews
The collection of information
regarding reports and reviews relates to
information that would be published on
competing consolidator websites.
2013, modified by Commission staff to account for
an 1,800-hour work-year and inflation, and
multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead: [(Compliance
Manager at $310 for 105 hours) + (Attorney at $417
for 70 hours) + (Sr. Systems Analyst at $285 for 20
hours) + (Operations Specialist at $137 for 25
hours)] = 220 initial burden hours and $70,865.
738 The Commission estimates the monetized
ongoing, annual burden for this requirement to be
$128,064. The Commission derived this estimate
based on per hour figures from SIFMA’s
Management & Professional Earnings in the
Securities Industry 2013, modified by Commission
staff to account for an 1,800-hour work-year and
inflation, and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead:
[(Compliance Manager at $310 for 192 hours) +
(Attorney at $417 for 48 hours) + (Sr. Systems
Analyst at $285 for 96 hours)] = 336 initial burden
hours and $128,064.
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5. Amendment to the Effective National
Market System Plan(s) for NMS Stocks
Amendments to the effective national
market system plan(s) for NMS stocks
would be required to be filed with the
Commission pursuant to Rule 608. Once
filed, the Commission would publish
the amendments for public comment.
Finally, the annual report of competing
consolidator performance would be
submitted to the Commission.
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6. Collection and Dissemination of
Information by National Securities
Exchanges and National Securities
Associations
As discussed above, the proposed
amendment to Rule 603(b) would
require national securities exchanges
and national securities associations to
collect and provide information to the
competing consolidators and selfaggregators, not to the Commission.
Therefore, no assurances of
confidentiality are necessary because
the information will be made available
to the public for a fee from the
competing consolidators.
G. Revisions to Current Regulation SCI
Burden Estimates
As described above, the Commission
is proposing to expand the definition of
‘‘SCI entities’’ under Regulation SCI to
include ‘‘competing consolidators,’’
which would be defined to have the
same meaning as set forth in the
proposed amendments to Rule
600(b)(16) of Regulation NMS.739 Thus,
under the proposal, competing
consolidators would be subject to the
requirements of Regulation SCI.
The rules under Regulation SCI
impose ‘‘collection of information’’
requirements within the meaning of the
PRA.740 Rule 1001(a) of Regulation SCI
requires each SCI entity to establish,
maintain, and enforce written policies
and procedures for systems capacity,
integrity, resiliency, availability, and
security. Rule 1001(b) requires each SCI
entity to establish, maintain, and
enforce written policies and procedures
to ensure that its SCI systems operate in
a manner that complies with the
Exchange Act, the rules and regulations
thereunder, and the SCI entity’s rules
and governing documents, as
applicable. Rule 1001(c) requires each
SCI entity to establish, maintain, and
enforce written policies and procedures
739 See proposed amendment to Rule 1000 of
Regulation SCI.
740 For a complete analysis of Regulation SCI
under the PRA, see SCI Adopting Release, supra
note 28, at 18141; and Proposed Collection;
Comment Request; Extension: Regulation SCI, Form
SCI; SEC File No. 270–653, OMB Control No. 3235–
0703, 83 FR 34179 (‘‘2018 PRA Extension’’).
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for the identification, designation, and
documentation of responsible SCI
personnel and escalation procedures.
Rule 1002(a) requires each SCI entity to
begin to take appropriate corrective
action upon any responsible SCI
personnel having a reasonable basis to
conclude that an SCI event has
occurred. Rule 1002(b) requires each
SCI entity to notify the Commission of
certain SCI events. Rule 1002(c) requires
each SCI entity, with certain exceptions,
to disseminate information about SCI
events to affected members or
participants, and disseminate
information about major SCI events to
all members or participants. Rule
1003(a) requires each SCI entity to
notify the Commission of material
systems changes quarterly. Rule 1003(b)
requires each SCI entity to conduct
annual SCI reviews. Rule 1004 requires
each SCI entity to designate certain
members or participants for
participation in functional and
performance testing of the SCI entity’s
business continuity and disaster
recovery plans, and to coordinate such
testing with other SCI entities. Rules
1005 and 1007 set forth recordkeeping
requirements for SCI entities. Rule 1006
requires, with certain exceptions, that
each SCI entity electronically file
required notifications, reviews,
descriptions, analysis, or reports to the
Commission on Form SCI.741
In 2018, there were an estimated 42
entities that met the definition of SCI
entity and were subject to the collection
of information requirements of
Regulation SCI (‘‘respondents’’).742 At
that time, an estimate of approximately
2 entities would become SCI entities
each year, one of which would be an
SRO. Accordingly, under these
estimates, over the following three
years, there would be an average of
approximately 44 SCI entities each
year.743
As discussed above, the Commission
preliminarily estimates that, under the
current proposal, there could be 12
competing consolidators that would be
subject to Regulation SCI as SCI
entities.744 As discussed below, some of
these entities may already be SCI
entities and subject to the requirements
of Regulation SCI. While the
741 For further details regarding the requirements
of Regulation SCI, see Regulation SCI Adopting
Release, supra note 28. See also ‘‘Responses to
Frequently Asked Questions Concerning Regulation
SCI,’’ September 2, 2015 (updated August 21, 2019),
available at: https://www.sec.gov/divisions/
marketreg/regulation-sci-faq.shtml.
742 See 2018 PRA Extension, supra note 740, at
34180.
743 Id.
744 See supra Section V.C.
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Commission estimates that the number
of respondents would increase as a
result of this proposal, the Commission
preliminarily believes that its prior
paperwork burden estimates per entity
under Regulation SCI generally would
be applicable to these new competing
consolidators because they would be
subject to the same requirements and
burdens as other SCI entities.745 At the
same time, the Commission
preliminarily believes that burden
estimates also should take into account
the extent to which the entities that may
register to become competing
consolidators already comply with the
requirements of Regulation SCI.
In particular, the Commission
preliminarily believes that 2 of the
estimated 12 competing consolidators
may be the existing exclusive SIPs,
which are currently subject to
Regulation SCI as plan processors.
Because these entities are responsible
for collecting, consolidating, and
disseminating proposed consolidated
market data to market participants and
thus would be operating a substantially
similar business and performing a
similar function in their role as
competing consolidators, the
Commission preliminarily believes that
the current ongoing burden estimates for
existing SCI entities would be
applicable and there would be no
material change in the estimated
paperwork burdens for these entities
under Regulation SCI.746
As stated above, the Commission also
preliminarily believes that 4 of the
entities that may register to become
competing consolidators may be either:
(i) An SRO currently subject to
Regulation SCI; or (ii) an entity affiliated
with an SCI SRO, formerly subject to
Regulation SCI. The burden estimates
for SCI entity respondents include both
initial burdens for new SCI entities and
ongoing burdens for all SCI entities.747
Because these SRO entities that would
become competing consolidators are
current SCI entities and are already
required to implement the requirements
of Regulation SCI with regard to SCI
systems that they operate in their role as
745 See 2018 PRA Extension, supra note 740. As
discussed below, the Commission believes that 6 of
the 12 entities estimated to register as competing
consolidators are currently SCI entities. Thus, the
Commission preliminarily estimates that, if the
proposal were adopted, there would be an average
of approximately 50 SCI entities each year.
746 Id. The burden estimates for SCI entity
respondents included initial burdens for new SCI
entities and ongoing burdens for all SCI entities. For
the reasons discussed herein, the Commission
preliminarily believes that the initial paperwork
burdens for new SCI entities would not be
applicable to these entities.
747 Id.
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SCI SROs, the Commission
preliminarily believes that these entities
would not have initial burdens
equivalent to those estimated for new
SCI entities. At the same time, as
discussed above, the Commission
preliminarily believes that these SROs
may be a national securities association
and/or equities national securities
exchanges that do not currently operate
an exclusive SIP. Because these entities
would be entering an entirely new
business and performing a new function
with new SCI systems, unlike the
current exclusive SIPs who may register
to become competing consolidators
discussed above, the Commission
preliminarily believes that these SRO
entities would have some initial burden
that would be a percentage of that
which entirely new SCI entities have. In
particular, the Commission
preliminarily estimates that the initial
burdens for existing SCI SROs who
register as competing consolidators
would be 50 percent of the estimated
initial burdens for entirely new SCI
entities. For example, the Commission
believes that such SCI SROs would need
to develop and draft the policies and
procedures required by Rule 1001(a) for
new SCI systems utilized in their role as
competing consolidators, but unlike
completely new SCI entities, SCI SROs
would already have existing Rule
1001(a) policies and procedures in place
for other types of SCI systems that they
could utilize as a model and modify as
needed for new SCI systems.748 The
Commission also believes that the
estimated ongoing paperwork burden
estimates for all SCI entities would be
applicable to these entities as well.749
The Commission preliminarily
believes that the remaining 6 estimated
competing consolidators may be entities
that are not currently subject to
Regulation SCI. As discussed above, the
Commission believes that these 6
entities may be market data aggregation
firms, broker-dealers that currently
aggregate market data for internal uses,
and entities that would be entering the
market data aggregation business for the
first time.750 Accordingly, the
Commission preliminarily believes that
748 As an example, the estimate of an initial
recordkeeping burden was 694 hours per new
respondent to comply with the policies and
procedures requirement of Rule 1001(a). Id. at
34180. The Commission preliminarily estimates
that, for an SCI SRO who registers as a competing
consolidator, the initial burden for Rule 1001(a)
would be 50 percent of this estimated amount, or
347 hours.
749 The ongoing paperwork burden estimates in
the PRA Extension do not distinguish between
different categories of SCI entities, but rather
provides an average for all SCI entities.
750 See supra Section V.D.2.
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these entities would have the same
estimated initial paperwork burdens as
those estimated for new SCI entities and
the same ongoing paperwork burdens as
all other SCI entities.751
H. Request for Comments
Pursuant to 44 U.S.C. 3506(c)(2)(B),
the Commission solicits comments to:
156. Evaluate whether the proposed
collections of information are necessary
for the proper performance of the
functions of the agency, including
whether the information shall have
practical utility;
157. Evaluate the accuracy of our
estimates of the burden of the proposed
collection of information;
158. Determine whether there are
ways to enhance the quality, utility, and
clarity of the information to be
collected;
159. Evaluate whether there are ways
to minimize the burden of collection of
information on those who are to
respond, including through the use of
automated collection techniques or
other forms of information technology;
and
160. Evaluate whether the proposed
amendments would have any effects on
any other collection of information not
previously identified in this section.
Persons submitting comments on the
collection of information requirements
should direct them to the Office of
Management and Budget, Attention:
Desk Officer for the Securities and
Exchange Commission, Office of
Information and Regulatory Affairs,
Washington, DC 20503, and should also
send a copy of their comments to
Vanessa Countryman, Secretary,
Securities and Exchange Commission,
100 F Street NE, Washington, DC
20549–1090, with reference to File
Number S7–03–20. Requests for
materials submitted to OMB by the
Commission with regard to this
collection of information should be in
writing, with reference to File Number
S7–03–20 and be submitted to the
Securities and Exchange Commission,
Office of FOIA/PA Services, 100 F Street
NE, Washington, DC 20549–2736. As
OMB is required to make a decision
concerning the collection of information
between 30 and 60 days after
publication, a comment to OMB is best
assured of having its full effect if OMB
receives it within 30 days of
publication.
VI. Economic Analysis
A. Introduction and Market Failures
1. Introduction
Section 3(f) of the Exchange Act
requires the Commission, whenever it
engages in rulemaking and is required to
consider or determine whether an action
is necessary or appropriate in the public
interest, to consider, in addition to the
protection of investors, whether the
action would promote efficiency,
competition, and capital formation.752
In addition, Section 23(a)(2) of the
Exchange Act requires the Commission,
when making rules under the Exchange
Act, to consider the impact such rules
would have on competition.753
Exchange Act Section 23(a)(2) prohibits
the Commission from adopting any rule
that would impose a burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Exchange Act.
Wherever possible, the Commission
has quantified the likely economic
effects of the proposed amendments.
The Commission is providing both a
qualitative assessment and quantified
estimates of the potential economic
effects of the proposed amendments
where feasible. The Commission has
incorporated data and other information
provided by commenters to assist it in
the analysis of the economic effects of
the proposed amendments. However, as
explained in more detail below, because
the Commission does not have, and in
certain cases does not believe it can
reasonably obtain data that may inform
the Commission on certain economic
effects, the Commission is unable to
quantify certain economic effects.
Further, even in cases where the
Commission has some data, it is not
practicable due to the number and type
of assumptions necessary to quantify
certain economic effects, which render
any such quantification unreliable. Our
inability to quantify certain costs,
benefits, and effects does not imply that
such costs, benefits, or effects are less
significant. The Commission requests
that commenters provide relevant data
and information to assist the
Commission in analyzing the economic
consequences of the proposed
amendments.
In general, the Commission
preliminarily believes that the proposed
amendments would result in benefits by
enhancing the consolidated market data
content, reducing the latency of
consolidated market data, and
improving the dissemination of
752 15
751 See
PO 00000
2018 PRA Extension, supra note 740.
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16809
753 15
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consolidated market data. This would
reduce information asymmetries that
exist between market participants who
subscribe to proprietary DOB and other
proprietary products and market
participants who only subscribe to SIP
data, and could allow some market
participants who subscribe to the more
expensive proprietary DOB products to
replace them with potentially cheaper
consolidated market data feeds.
Improvements to the content and
latency of consolidated market data
from the proposed amendments could
also help market participants that
currently rely on SIP data to make more
informed trading decisions, which
would facilitate their ability to trade
competitively and improve their
execution quality, and would facilitate
best execution.
The Commission preliminarily
believes there are three main benefits
from the expanded content of
consolidated market data, which as
noted above includes proposed ‘‘core
data.’’ First, the expanded content of
consolidated market data could allow
market participants that currently only
subscribe to SIP data to get additional
content from expanded consolidated
market data and to experience increased
gains from trade by allowing them to
take advantage of trading opportunities
they may not have been aware of due to
the lack of information in existing SIP
data.754 Second, the expanded content
of consolidated market data could also
allow these market participants to
improve their order routing and order
execution capabilities, potentially
lowering investor transaction costs.
Finally, the expanded consolidated
market data content and associated
changes in how the NBBO and protected
quotes are calculated could result in a
narrower NBBO and wider protected
quote in some stocks. A narrower NBBO
and changes in protected quotes could
affect price improvement that trading
venues, including ATSs, exchanges, and
internalizers, could offer.
The Commission preliminarily
believes that there are costs to
expanding the content of consolidated
market data, including costs to new
competing consolidators related to
upgrading existing infrastructure in
order to handle the dissemination of the
increased message traffic; upgrading
software and trading systems that
754 Here and throughout, the phrase ‘‘gains from
trade’’ is meant to refer to a situation in which two
market participants would each be better off if they
exchanged their respective property. It captures the
idea of a potential welfare benefit that could be
realized if trade was allowed and possible.
Generally in this proposal the relevant property will
be securities and cash.
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consume consolidated market data;
costs to market participants receiving
consolidated market data from
technological investments required to
handle increased content and message
traffic; as well as other costs. Expanding
consolidated market data would also
result in transfers among various market
participants, including transfers from
the current beneficiaries of asymmetric
information associated with the uneven
distribution of market data to market
participants who currently do not have
access to the additional information
contained in proprietary DOB products
and other proprietary products. There
could also be costs to SROs associated
with the dissemination of consolidated
market data.
With respect to the introduction of the
decentralized consolidation model, the
Commission has several reasons to
believe that it is likely that a sufficient
number of firms would be willing to
enter the space of competing
consolidators so that the market would
be competitive. Under this assumption,
the potential economic benefits of the
proposed decentralized consolidation
model would include a reduction in the
latency differential that exists between
SIP data and proprietary data feeds (as
measured at the location of market
participants using the data) and
potential improvements in innovation
and efficiency in the consolidated
market data delivery space. Moreover,
the fees for proposed consolidated
market data could be lower than fees
that market participants pay for similar
depth of book data today because today
market participants would need to
subscribe to both the exclusive SIPs and
proprietary data feeds to receive the
same content that would be included in
proposed consolidated market data.
However, the Commission recognizes
that there is uncertainty in the fees for
proposed consolidated market data
because they would depend on the
structure of fees ultimately proposed for
data content by an effective national
market system plan(s) and on the
ultimate fee structure of competing
consolidators.755 The Commission also
recognizes uncertainty in the fees that
subscribers choosing to receive a subset
of consolidated market data would pay
under the proposed rule and that these
subscribers could pay higher or lower
fees than they do today for equivalent
data.
At the same time, the introduction of
the decentralized consolidation model
would impose direct costs on SROs, the
existing exclusive SIPs, and potential
competing consolidators. It would also
755 See
PO 00000
infra Section VI.C.2(b).
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Fmt 4701
Sfmt 4702
impose indirect costs on the existing
exclusive SIPs and market participants.
The direct costs for potential competing
consolidators (such as SROs, exclusive
SIPs, and current market data
aggregators) would include registration
and compliance costs and
implementation and incremental
infrastructure costs. The Commission,
however, preliminarily believes that
many of the potential competing
consolidators have currently already
invested in this infrastructure for the
existing business services that they
provide (e.g., proprietary data
aggregation services). The indirect costs
to the existing exclusive SIPs would be
a potential loss in revenue to competing
consolidators from no longer being the
exclusive distributors of consolidated
market data. The indirect costs for
market participants would include
implementation costs and potential
effects on prices that market
participants would pay for the proposed
consolidated market data. However,
new fees for the data content of
consolidated market data would need to
be proposed by the effective NMS
plan(s) for NMS stocks and filed with
the Commission.
The Commission preliminarily
believes that there are a number of
economic effects that are only possible
as a result of expanding consolidated
market data and the introduction of the
decentralized consolidation model.
These changes would lead to the
benefits of less expensive alternatives to
proprietary DOB products for market
participants; potential new entrants into
the broker-dealer, market making, and
other latency sensitive trading
businesses; expansion of business
opportunities for market data
aggregators; improved regulatory
oversight from the Consolidated Audit
Trail; and enhancements to the quality
of service data vendors are able to
provide. Further, as noted above, the
Commission preliminarily believes that
the proposal would facilitate best
execution and reduce information
asymmetries. These changes could also
result in a number of costs including
costs to market participants in the form
of lower revenues for SROs; higher costs
for the implementation of the
Consolidated Audit Trail; potentially
higher costs for certain market data
vendors; as well as other costs. Some of
these benefits and costs would result
from transfers among various market
participants.
2. Market Failures
The Commission is proposing to
amend Rules 600 and 603 and to adopt
new Rule 614 of Regulation NMS under
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the Exchange Act to increase the
availability and improve the
dissemination of information regarding
quotations for and transactions in NMS
stocks to market participants. First, the
Commission proposes to define terms
‘‘consolidated market data,’’ ‘‘core
data,’’ ‘‘regulatory data,’’ and
‘‘administrative data,’’ and to enhance
the content of core data to include
certain odd-lot quote information,
certain depth of book data, and
information on orders participating in
auctions. Second, the Commission
proposes to introduce a decentralized
consolidation model whereby
competing consolidators and selfaggregators would assume responsibility
for the collection, consolidation, and
dissemination functions currently
performed by the exclusive SIPs.756
As discussed above,757 currently,
some market participants have stated
their view that they are unable to rely
solely on SIP data to trade competitively
in today’s markets. One reason is that
SIP data does not currently include
some important data elements such as
odd-lot quotations (except, as explained
above,758 to the extent that odd-lots
quotations are aggregated into round
lots pursuant to exchange rules), depth
of book data, and information about
orders participating in auctions.759
Exchanges directly sell these additional
data elements to market participants
and market data aggregation firms as
part of proprietary DOB data products at
significant premiums to SIP products.760
Another reason some market
participants have raised concerns about
SIP data is that there is a substantial
latency differential between market data
provided via the exclusive SIPs and
proprietary data products delivered by
the exchanges directly to market
participants or to market data
aggregators as part of proprietary data
feeds.761 The latency and content
disparity between SIP data feeds and
proprietary DOB data products has the
effect of increasing the market
participants’ demand for proprietary
products to the extent market
participants view acquiring such
products as a competitive necessity.
The Commission understands that
there is an inherent conflict of interest
in that the exchanges, as voting
members of the Equity Data Plan
operating committees, may not be
756 See
supra Sections III, IV.
757 Id.
758 See
supra Section III.C.1(a).
explained above, only limited auctionrelated information is currently included in SIP
data. See supra Section III.C.3(a).
760 See infra Section VI.B.2(a).
761 See infra Section VI.B.2(b).
759 As
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incentivized to improve the content or
latency of SIP data.762 Many of the
exchanges have actively pursued
commercial interests that do not
necessarily further the regulatory
objective to ‘‘preserve the integrity and
affordability of the consolidated data
stream,’’ 763 which is necessary to
ensure that there is a ‘‘comprehensive,
accurate, and reliable source of
information for the prices and volume of
any NMS stock at any time during the
trading day.’’ 764 One example of this
divergence of interest has been the
development by certain exchanges of
proprietary data products with reduced
latency and expanded content (i.e.,
proprietary DOB products), without the
exchanges, in their role as participants
to the Equity Data Plans, similarly
enhancing the data products offered by
the Equity Data Plans.765 These
proprietary DOB products have evolved
to be considered competitive necessities
by many market participants and are
offered at significant premiums to
exclusive SIP products.766 Another
example of the divergence between
commercial interests and regulatory
goals has been the development by
certain exchanges of limited TOB data
products, which are offered at a
discount compared to the SIP data and
marketed to a more price-sensitive
segment of the market, without
corresponding development by the
exclusive SIPs of a less expensive SIP
product for the price-sensitive segment
of the market.767 The exchanges have
continued to develop and enhance their
proprietary market data businesses—
which generate revenue that, unlike SIP
data revenues, do not have to be shared
with the other SROs—while remaining
fully responsible for the governance and
operation of the Equity Data Plans,
including content, infrastructure, and
pricing, as well as data consolidation
and dissemination.768 At the same time,
the operation of the Equity Data Plans
has not kept pace with the efforts of the
exchanges to expand the content of and
to employ technology to reduce the
latency and increase the throughput of
certain proprietary data products.
The Commission preliminarily
believes that there are two additional
762 See supra Section IV.A; supra note 267
(describing an exchange-led initiative to enhance
the SIPs).
763 See Regulation NMS Adopting Release, supra
note 10, at 37503.
764 See Equity Market Structure Concept Release,
supra note 11, at 3600.
765 See Proposed Governance Order, supra note 8,
at Section II.B.1.
766 See id.
767 See id.; supra note 25.
768 See Proposed Governance Order, supra note 8,
at Section II.B.1.
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factors related to the Equity Data Plan
processors that may impede
improvements to the dissemination of
SIP data. First, pursuant to Regulation
NMS, each exclusive SIP has exclusive
rights to collect trade and quotation data
related to NMS stocks from multiple
SROs and then aggregate and
disseminate market data to market
participants.769 This structure may
further impede improvements in the
dissemination of SIP data 770 because
Equity Data Plan participants that
govern exclusive SIPs do not have
incentives to innovate due to the lack of
competition in dissemination of SIP
data.
Second, the exclusive SIPs are either
SROs themselves or affiliates of
SROs.771 This gives them a dual role in
that they serve as both existing plan
processors and as entities selling
directly their own proprietary market
data products that can reach market
participants faster than SIP data, or as
affiliates of entities that do so. As
discussed above, this may create an
additional conflict of interest that could
provide incentives making the Equity
Data Plan participants that oversee the
Equity Data Plans reluctant to improve
the content and latency of the SIP data,
because a divergence in the usefulness
of SIP data provided by the exclusive
SIPs as compared to the proprietary data
feeds increases the value of the
proprietary market data products.
B. Baseline
The Commission has assessed the
likely economic effects of the proposed
amendments, including benefits, costs,
and effects on efficiency, competition,
and capital formation, against a baseline
that consists of the existing regulatory
process for collecting, consolidating,
and disseminating market data, and the
structure of the markets for SIP data
products and for connectivity and
trading services.
1. Current Regulatory Process for Equity
Data Plans and SIP Data
As discussed above,772 the current
regulatory framework for SIP data relies
upon a centralized consolidation model,
whereby the SROs provide certain
quotation and transaction information
for each NMS stock to a single exclusive
SIP, which then consolidates this data
and makes it available to market
participants.773 This SIP data includes
what historically has commonly been
769 See
supra note 21 and accompanying text.
infra Section VI.B.2(b).
771 See supra note 42.
772 See supra Section II.A.
773 Id.
770 See
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referred to as core data, as well as
certain regulatory data related to
Commission and SRO rules and NMS
plan requirements.774
As discussed in more detail below,775
SIP data currently includes transaction
information for both round lot and oddlot sized transactions as well as
quotation information for round lot top
of book quotes for each SRO.
Additionally, several exchanges,
pursuant to their own rules, aggregate
odd-lot orders into round lots and report
such aggregated odd-lot orders as
quotation information to the exclusive
SIPs.776 Thus, SIP data lacks
information on odd-lot quotations at
prices better than the best bid and offer
and on depth of book quotations (i.e.,
limit orders resting at exchanges at
prices outside of the bid and offer).
Additionally, only limited auctionrelated information is included in SIP
data.777
Currently, the operating committees
of the Equity Data Plans, which are
governed exclusively by the SROs,778
select the exclusive SIPs to consolidate
and disseminate market data to market
participants. The selection process for
the exclusive SIPs is organized through
a bidding process, and once selected, an
exclusive SIP has exclusive rights to
consolidate and disseminate market
data for a given Equity Data Plan.779
Currently, SIAC (a NYSE affiliate) is the
exclusive SIP for the CTA and CQ Plans,
and Nasdaq is the exclusive SIP for the
UTP Plan.
As explained above, each exclusive
SIP is physically located in a different
data center.780 The exchanges’ primary
data centers are also located in different
locations. Each exchange and FINRA
must transmit its quotation and
transaction information from its own
data center to the appropriate exclusive
SIP’s data center for consolidation, at
which point SIP data is then further
transmitted to market data end-users,
which are often located in other data
centers. The exclusive SIPs do not
compete with each other in the
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774 Id.
775 See infra Section VI.B.2(a); supra Section
III.C.1.
776 See supra Section III.C.1(a).
777 See supra Section III.C.3.
778 Under the Proposed Governance Order, the
operating committee of the New Consolidated Data
Plan would include non-SRO members. See
Proposed Governance Order, supra note 8.
779 The Nasdaq UTP Plan contains the description
of its approach to the selection and evaluation of
the processor. See Nasdaq UTP Plan, supra note 13,
at 10. The CTA/CQ Plan does not contain a similar
provision. See CTA Plan, supra note 13; CQ Plan,
supra note 13. Historically, exchanges or exchange
affiliates had always been selected to be plan
processors.
780 See supra Section II.A; supra note 43.
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collection, consolidation, or
dissemination of SIP data. As discussed
in more detail below,781 the dispersed
physical locations of exclusive SIPs and
SROs contribute to increased latency in
delivering SIP data to market
participants.
2. Current Process for Collecting,
Consolidating, and Disseminating
Market Data
As discussed above,782 in addition to
the provision of SIP data pursuant to the
Equity Data Plans, the national
securities exchanges separately sell their
individual proprietary market data
products directly to market participants
via proprietary data feeds. Proprietary
data feeds may include SIP data
elements and a variety of additional
data elements and can vary in content
from proprietary top of book products to
proprietary depth of book products.783
In addition, in connection with
proprietary data feed products, the
exchanges offer various connectivity
services (e.g., co-location at primary
data centers, fiber optic connectivity,
wireless connectivity, and point-ofpresence connectivity at third-party data
centers), which may result in higher
speed transmissions.784 Typically,
proprietary data is transmitted directly
from each exchange to the data center of
the subscriber, where the subscriber’s
broker-dealer or vendor (or the
subscriber itself) privately consolidates
such data with the proprietary data of
the other exchanges. This section
describes the current content of SIP data
and proprietary data feeds, current
process of data dissemination, and
current process for costs of generating
SIP data and proprietary data feeds.
(a) Current Content of SIP Data and
Proprietary Data Feeds
As discussed above,785 today SIP data
does not include some of the content
that certain market participants rely on
when handling customer orders and
trading. The Commission preliminarily
believes that while a large portion of
retail investors rely solely on SIP data
for trading decisions,786 a certain
781 See
infra Section VI.B.2(a); supra Section
IV.A.
782 See
supra Section II.A.
supra Section III.C.2.
784 See supra note 51 and accompanying text;
supra Section IV.A.
785 See supra Section III.C.
786 In response to a question about the need for
Nasdaq’s other market data products since the
exclusive SIPs consolidate all market data, Nasdaq
has stated: ‘‘[t]here are a minority of market
participants who want data that go ‘deeper’ than
SIP data, such as pending buy and sell interest at
different price levels. For these customers of market
data, Nasdaq and other firms offer proprietary
783 See
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portion of market participants do not
rely solely on SIP data to trade
competitively in today’s markets and
instead purchase proprietary data from
SROs to supplement or even replace SIP
data.787 In particular, the Commission
understands that approximately 50 to
100 firms purchase all of the DOB
proprietary feeds from the exchanges
and do not rely on the SIP data for their
trading.788 Conversely, the number of
users of the SIP data is much larger (in
the millions),789 suggesting that many
users rely on the exclusive SIPs alone.
This creates significant information
asymmetries between market
participants who rely solely on SIP data
and market participants who also rely
on proprietary data feeds.
As described in Section II.A above,
SIP data consists of certain quotation 790
and transaction data 791 that the SROs
are required to provide to the exclusive
SIPs for consolidation and
dissemination to the public on the
consolidated tapes. Specifically, the SIP
data includes: (1) An NBBO; 792 (2) the
best bids and best offers from each
SRO; 793 and (3) information on trades
such as prices and sizes. The SIP data
also includes certain regulatory data,
products that include so-called ‘depth of book’ and
related auction data from our exchanges.’’ See
Nasdaq, Revenues Trend Down for U.S. Stock
Market Data Backbone (Mar. 14, 2018), available at
https://www.nasdaq.com/articles/revenues-trenddown-us-stock-market-data-backbone-2018-03-14.
787 The Commission preliminarily believes that
when market participants purchase proprietary data
feeds to replace SIP data, they also almost always
purchase SIP data as a back-up system to
proprietary data. See also supra note 101.
788 See supra note 140.
789 As of the fourth quarter of 2018, there were
approximately 2–3 million non-professional and
approximately 0.3 million professional use cases
across the UTP and CTA/CQ SIPs. Additionally,
there were approximately 300 non-display vendor
use cases at each of the exclusive SIPs. The
Commission understands that there is an overlap in
subscribers across the exclusive SIPs. See, e.g., CTA
Plan, Q3 2019 CTA Tape A & B Quarterly
Population Metrics, available at https://
www.ctaplan.com/publicdocs/CTAPLAN_
Population_Metrics_3Q2019.pdf; Nasdaq UTP Plan,
Q3 2019 UTP Quarterly Population Metrics,
available at http://www.utpplan.com/DOC/UTP_
2019_Q3_Stats_with_Processor_Stats.pdf.
790 See Rule 602 of Regulation NMS, 17 CFR
242.602.
791 See Rule 601 of Regulation NMS, 17 CFR
242.601.
792 The national best bid and offer are constructed
from the best bid and offer prices across all
exchanges in which the quoted size is at least one
round lot. See supra Section III.C.1.
793 The best bids and offers on an exchange are
determined by the best prices in which the quoted
size is at least one round lot. Some exchanges
aggregate odd-lot orders at better prices into round
lots and report such aggregated orders as their best
bid or offer at the least aggressive price of the
aggregated orders. Typically, the best bids and
offers on each exchange are protected quotes under
NMS Rule 611 and cannot be traded-through. See
supra Section III.C.1(a).
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such as information required by the
LULD Plan,794 information relating to
regulatory halts and MWCBs,795
information regarding short sale circuit
breakers,796 and other data, such as data
relating to retail liquidity programs,
market and settlement conditions, the
financial condition of the issuer, OTCBB
data, last sale prices for corporate
bonds, and information about
indices.797
The exchanges separately sell their
individual market data directly to
market participants via proprietary data
feeds. For example, the exchanges have
developed proprietary DOB products
that provide greater content (e.g., oddlot quotations, orders at prices above
and below the best prices, and
information about orders participating
in auctions, including auction order
imbalances) at lower latencies,798
relative to the exclusive SIPs, for certain
segments of the data market, such as
automated trading systems. They have
also developed proprietary TOB
products that provide data that is
generally limited to the highest bid and
lowest offer and last sale price
information at a lower price for another
segment of the data market that is less
sensitive to latency (e.g., retail or nonprofessional investors and wealth
managers that access market data
visually).799 Proprietary data feeds are
available as part of exchanges’ standard
offerings. All exchanges, with the
exception of IEX,800 offer for sale as part
of their proprietary DOB products the
complete set of orders at prices above
and below the best prices (e.g., depth of
794 See
supra note 38.
supra note 39.
796 See supra note 40.
797 See supra note 41.
798 See, e.g., Nasdaq Global Data Products, RealTime—NYSE Proprietary Market Data, and Cboe
Equities Exchanges Market Data Product Offerings,
supra note 19 (describing low-latency DOB data
products).
799 Examples of such proprietary TOB products
include NYSE BBO, Nasdaq Basic, and Cboe One
Feed. See supra note 19. NYSE BBO provides TOB
data. Nasdaq Basic and Cboe One’s Summary Feed
provide TOB and last sale information. Nasdaq
Basic also provides Nasdaq Opening and Closing
Prices and other information, including Emergency
Market Condition event messages, System Status,
and trading halt information. Cboe One also offers
a Premium Feed that includes DOB data. Each of
these products is sold separately by the relevant
exchange group. See TD Ameritrade Letter, supra
note 19, at 5–8 (stating that the lower cost of
exchange TOB products, coupled with costs
associated with the process to differentiate between
retail professionals and non-professionals imposed
by the Equity Data Plans, and associated audit risk,
favors retail broker-dealer use of exchange TOB
products).
800 IEX makes proprietary data available but does
not charge for it. See, e.g., IEX, Market Data,
available at https://iextrading.com/trading/marketdata/ (last accessed Jan. 8, 2020); Ramsay Letter II.
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795 See
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book data), complete odd-lot quotation
information, and information about
orders participating in auctions,
including auction order imbalances (for
listing exchanges).801
One notable gap between SIP data and
proprietary DOB data is that SIP data
does not include complete odd-lot
quotation information even though oddlots represent a large share of all trades
in the U.S. stock market and can
represent economically significant
trading opportunities at prices that are
better than the prices of displayed and
disseminated round lots.802 While
several exchanges aggregate odd-lot
orders into round lots and report such
aggregated orders as quotation
information to exclusive SIPs,803 market
participants must purchase proprietary
data feeds, available from the
exchanges, to see the odd-lot quotations
that are priced better than the best bid
or offer.804
Odd-lot transactions make up a
significant proportion of transaction
volume in NMS stocks, including ETPs.
As discussed above,805 based on data
from the SEC’s MIDAS analytics tool,
the daily exchange odd-lot rate (i.e., the
number of exchange odd-lot trades as a
proportion of the number of all
exchange trades) for all corporate stocks
ranged from approximately 29% to 42%
of trades and the daily exchange odd-lot
rate for all ETPs ranged from 14% to
20% of trades in 2018, with the daily
exchange odd-lot rate for all corporate
stocks exceeding 50% several times in
June 2019 (and exceeding 65% several
times for the top decile by price) and
reaching almost 30% for all ETPs in the
same period.
Additionally, the staff analysis,
referenced above, found that a
significant portion of quotation and
trading activity occurs in odd-lots,
particularly for frequently traded, highpriced tickers, and that as stock prices
rise, the difference in spreads calculated
using the different feeds also rises,
indicating that odd-lots are more likely
to set the best quote as stock prices
rise.806 In addition, one commenter
801 See
supra note 335.
Alexander Osipovich, supra note 166.
803 See supra Section III.C.1(a). Exchange rules
specify how the aggregation process works in
different terms and with different levels of
specificity, but many exchanges aggregate odd-lots
across multiple prices and provide them to the
exclusive SIPs at the least aggressive price if the
combined odd-lot interest is equal to or greater than
a round lot. See supra notes 157, 158, 789.
804 See supra note 163.
805 See supra Section III.C.1(b).
806 Id. The staff analysis in Section III.C.1(b)
found that for the 500 top tickers by dollar volume,
odd-lot quotes represented a significant price
improvement over the exclusive SIP quotes. This
802 See
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16813
provided data supporting the findings of
the staff analysis and showing that the
odd-lot quotes provide superior pricing
compared to the SIP data.807 A panelist
at the Roundtable stated that odd-lot
quotation data is needed to make
effective decisions in trading
applications and to fill client orders
effectively.808 The Commission is
unable to differentiate in the data
between original round lot quotes and
odd-lot quotes that were aggregated by
the exchanges to be a round lot quote.
The Commission invites comments on
this issue.
Another gap between SIP data and
proprietary DOB data is that SIP data
currently lacks quotation information in
NMS stocks beyond the top of book 809
even though the decimalization of
securities pricing in 2001 led to a
dispersion of quoted volume away from
the top of book. Consequently, the
NBBO currently shown in SIP data
became less informative and some
market participants have come to view
depth of book data as necessary to their
efforts to trade competitively and to
provide best execution to customer
orders.810 Market participants interested
in such depth of book data must rely
upon the proprietary DOB products
offered by the exchanges that include
varying degrees of depth data.811
A staff review of depth of book
quotations for corporate stocks using
data from July 19, 2019, referenced
above,812 revealed that there is a
substantial amount of quotation volume
at several levels below the best bid.
During active parts of the trading day,
there is quotation interest at every $0.01
increment at least ten levels out for the
most liquid stocks; for the least liquid
stocks, there is a large gap between the
best bid and the next highest bid and
large gaps are generally also present
between the next several bid levels.
The Commission recognizes that
market participants have diverse market
data needs. Depth of book data can
assist SORs and electronic trading
systems with the optimal placement of
orders across markets. Specifically,
depth of book data can help market
participants improve trading strategies
and lower execution costs by placing
liquidity taking orders that are larger
than the displayed best bid or best offer
analysis further found that as the price of the stock
increased, the duration-weighted amount by which
the odd-lot quote improved on the SIP quote
increased as well.
807 See supra note 177 and accompanying text.
808 See supra note 173 and accompanying text.
809 See supra Section III.C.2.
810 See supra Section III.C.2(d).
811 See supra note 270.
812 See supra Section III.C.2(d).
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and achieve queue priority for liquidity
providing orders that post at prices
away from the best bid or offer.813 At
the same time, the depth of book data
may be less valuable to a certain
segment of market participants (e.g.,
retail or non-professional customers).
For example, a relatively small portion
of orders execute at prices outside the
NBBO indicating that some market
participants do not find ‘‘walking the
book’’ useful.814
Finally, yet another gap between SIP
data and proprietary DOB data is that
SIP data includes only limited auctionrelated information even though
auctions, especially opening and closing
auctions, represent a significant
proportion of trading volume on the
primary listing exchanges.815 In
particular, auctions account for
approximately 7% of daily equity
trading volume.816 Auctions are
important for the implementation of
passive investment strategies and
generate prices that are used for a
variety of market purposes, including
setting benchmark prices for index
rebalances and for mutual fund pricing.
As such, the Commission recognizes
that auction information may be
valuable to a certain segment of market
participants (e.g., those market
participants that participate or would
participate in auctions).
Today, some NYSE auction data, such
as pre-opening indicators,817 is
disseminated through the CTA/CQ SIP,
and no auction information generated
by the other primary listing exchanges
is distributed through the exclusive
SIPs, except very limited LULD
information related to auction collar
messages.818 Thus while the exchanges’
proprietary data includes detailed
information on several aspects of their
auctions, only a small subset of the
813 See
id.; infra Section VI.C.1(b)(ii).
is, an order so large that it executes
against all the volume at the top of the book and
then executes against orders behind the top of the
book. See Craig W. Holden and Stacey Jacobsen,
Liquidity Measurement Problems in Fast
Competitive Markets, 69 J. FIN. 1760, at Table I
(2014) (showing that 3.3% of orders clear outside
the NBBO). This does not necessarily mean that
limit orders outside the NBBO are irrelevant. There
are limitations to using the observation of trades at
prices outside the NBBO at the time of trade
execution as an indicator for orders that executed
at prices outside of the NBBO at the time of trade
order (specifically, these events are not necessarily
the same thing).
815 See supra note 330.
816 See supra Section III.C.3(c); supra note 348.
817 See NYSE Rule 15.
818 See supra note 333; UTP Plan, UTP
Participant Input Specification (Dec. 3, 2019),
available at http://www.utpplan.com/DOC/
UtpBinaryInputSpec.pdf.
auction-related information is included
in SIP data.819
While all listing exchanges make
auction information available to market
participants through proprietary data
feeds, only some exchanges offer this
information through specialized feeds
for a lower price than full DOB
products. For instance, NYSE Order
Imbalances is an example of such
proprietary auction data product offered
by NYSE,820 while Nasdaq does not
offer such specialized product.821
Currently, the gap in information
between data in the exclusive SIP and
proprietary DOB products may limit the
current level of price efficiency if
market participants with access to
proprietary DOB products do not
incorporate this information into prices
quickly enough through their trading or
quoting activity.822 However, the
Commission does not know the extent
of this possible effect.
(b) Current Process for Dissemination of
SIP Data and Proprietary Data Feeds
As discussed above,823 today SIP data
is disseminated to investors and market
participants through a centralized
consolidation model with an exclusive
SIP for each NMS stock, centrally
collecting market data transmitted from
the dispersed SRO data centers and then
redistributing the consolidated market
data to market participants who are
often in different locations. The SROs
typically transmit their market data
through fiber optic cables to the SIPs.824
Typically, proprietary data is
transmitted directly from each exchange
to the data center of the subscriber and
does not first travel to a centralized
consolidation location. Furthermore,
unlike the standardized transmission of
SIP data over fiber optic cable,
proprietary data is frequently
transmitted using low-latency wireless
connectivity or other forms of
connectivity (often provided by the
exchanges) that are faster than fiber.825
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819 See, e.g., NYSE, TAQ NYSE Order
Imbalance—Quick Reference Card, available at
https://www.nyse.com/publicdocs/nyse/data/TAQ_
NYSE_Order_Imbalance_QRC.pdf (last accessed
Jan. 8, 2020).
820 See NYSE, Real-Time Data Imbalances,
available at https://www.nyse.com/market-data/
real-time/imbalances (last accessed Jan. 8, 2020)
(describing the NYSE Order Imbalances product).
821 The Nasdaq Net Order Imbalance Indicator is
a feature of Nasdaq’s BookViewer proprietary data
feed product rather than a stand-alone product. See
Nasdaq, Net Order Imbalance Indicator, available at
https://data.nasdaq.com/NOII.aspx (last accessed
Jan. 8, 2020).
822 See infra Section VI.D.1. Price efficiency is
greater when prices reflect current information
faster.
823 See supra Sections I, II.A.
824 See supra Section II.A.
825 Id.
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There is a significant latency
differential between SIP data and the
proprietary market data products that
are delivered directly to market
participants or to market data
aggregators who generally have better
connectivity, communications, and
aggregation technology than the SIPs.826
Specifically, the centralized
consolidation model has three sources
of latency: (a) Geographic latency; (b)
aggregation or consolidation latency;
and (c) transmission or communication
latency. The latency differentials
between SIP data and proprietary data,
in their various forms, are meaningful as
detailed below, and market participants
believe these differentials impact their
ability to trade and their order execution
quality.827
Geographic latency refers to the time
it takes for data to travel from one
physical location to another. Greater
distances usually equate to greater
geographic latency, though geographic
latency is also affected by the mode of
data transmission. The Commission
understands that geographic latency is
typically the most significant
component of the additional latency
that SIP data feeds experience compared
to proprietary data feeds.828 Because
each exclusive SIP must collect data
from geographically-dispersed SRO data
centers, consolidate the data, and then
826 See supra note 397; Bartlett and McCrary,
supra note 418, at 45.
827 See supra note 412 and accompanying text;
Martin Scholtus et al., Speed, algorithmic trading,
and market quality around macroeconomic news
announcements, 38 J. BANKING & FIN. 89 (2014)
(‘‘This paper documents that speed is crucially
important for high-frequency trading strategies
based on U.S. macroeconomic news releases. Using
order-level data on the highly liquid S&P 500 ETF
traded on Nasdaq from January 6, 2009 to December
12, 2011, we find that a delay of 300 ms or more
significantly reduces returns of news-based trading
strategies.’’); Grace Hu et al., Early peek advantage?
Efficient price discovery with tiered information
disclosure, 126 J. FIN. ECON. 399 (2017)
(‘‘Calibrating the speed of price discovery at a finer
scale, we find that the first 200;milliseconds at
9:54:58 accounts for 89% of the one-second return
at 9:54:58 on negative news days, and 85% of the
one-second return at 9:54:58 on positives news
days. In other words, most of the price discovery
happens during the first 200 milliseconds, faster
than the blink of an eye.’’); Tarun Chordia et al.,
Low Latency Trading on Macroeconomic
Announcements (Jan. 2016), available at https://
www.business.unsw.edu.au/About-Site/SchoolsSite/banking-finance-site/Documents/Low-LatencyTrading-on-Macroeconomic-Announcements.pdf
(‘‘Trading in the direction of the announcement
surprise results in average dollar profits (across
market participants) of $19,000 per event for the
S&P500 ETF. Profits are larger for index futures,
roughly $50,000 per event, yet this dollar amount
translates to just two basis points of return relative
to the $80 million of notional value traded in the
direction of the surprise, and our measured profits
do not account for commissions or the expense
incurred in subscribing to real-time data services.’’).
828 See supra Section IV.A.
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disseminate it from its location to endusers, which are often in other
locations, this hub-and-spoke form of
centralized consolidation creates
additional latency.829 The Commission
understands that the geographic latency
of SIP data may be up to a
millisecond.830
Aggregation or consolidation latency
refers to the amount of time an
exclusive SIP takes to aggregate the
multiple sources of SRO market data
into SIP data and includes the time it
takes to calculate the NBBO. This
latency reflects the time interval
between when an exclusive SIP receives
data from an SRO and when it
disseminates consolidated data to the
end-user. Even though in recent years
the exclusive SIPs made improvements
to address aggregation latency, the
related latency differential remains: as
mentioned above, in the second quarter
of 2019, for Tapes A and B average
quote feed and average trade feed
aggregation latencies were 69 and 139
microseconds, respectively.831 In the
same time period, the Tape C
aggregation latency was an average of
16.9 microseconds for quotes and 17.5
microseconds for trades.832 Notably,
these latency differentials remain even
though the Equity Data Plans’ operating
committees have made some
improvements to certain aspects of the
exclusive SIPs and related
infrastructure, including improvements
to address aggregation latency.833
Although exclusive SIPs are tasked
with calculating and disseminating the
NBBO, at each particular instant the
NBBO being used by various market
participants could be different due to
market participants using proprietary
data feeds. In particular, because of
geographic and aggregation latencies,
market participants that aggregate
proprietary data feeds internally or that
purchase proprietary data feeds from
market data aggregators are likely to
have NBBO quotes different from each
other and different from the NBBO
quote distributed by the exclusive SIPs.
Transmission latency refers to the
time interval between when data is sent
(e.g., from an exchange) and when it is
received (e.g., at an exclusive SIP and/
or at the data center of the subscriber),
and the transmission latency between
two fixed points is determined by the
transmission communications
technology through which the data is
conveyed. Transmission latency also
829 Id.
830 See
831 See
supra note 396.
supra Section IV.A.
832 Id.
833 Id.
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varies depending on the geographic
distance between where the data is sent
and where it is received. There are
several options currently used for
transmitting market data, such as fiber
optics, which typically are used by the
exclusive SIPs for receipt and
dissemination of SIP data, and wireless
microwave connections, which the
exchanges offer as an alternative for
their proprietary data feeds but not for
SIP data.834 Fiber optics are generally
more reliable than wireless networks
since the data signal is less affected by
weather. The modes of transmission for
SIP data are typically slower than the
modes of transmission used for
proprietary data. For instance, the
Commission understands that currently
each of the CTA/CQ Plan participants
must transmit its data through
connectivity options that have a roundtrip latency of at least 280
microseconds.835
The Commission preliminarily
believes that the benefits of greater
speed on the timescales at which the
market currently measures latency have
mostly to do with being faster than one’s
competitors. That is, the Commission
understands that a speed increase on the
microsecond timescale is less useful
unless it makes a market participant
faster than its rivals in the market. This
means that in some situations small
latency differentials that leave enough
time for certain market participants to
observe and react to information before
other, slower market participants can be
as costly to slower market participants
as larger latency differentials.836
Currently, some market participants
obtain proprietary data feeds from many
834 Id.
835 See
supra note 410.
literature examines the effects of
trading speed on revenues, adverse selection, and
liquidity. See, e.g., Matthew Baron et al., Risk and
Return in High-Frequency Trading, 54 J.Fin. &
Quantitative Analysis 993 (2019) (testing the
connection between high frequency trading
(‘‘HFT’’) latency and trading performance; the
authors find that relative latency matters and that
‘‘HFT firms exhibit large, persistent cross-sectional
differences in performance, with trading revenues
disproportionally accumulating to a few firms.’’
Furthermore, when HFT firms use their relative
latency advantages to trade on news to create shortterm arbitrage opportunities, they generate adverse
selection on slower traders.); Bruno Biais et al.,
Equilibrium fast trading, 116 J. Fin. Econ. 292
(2015) (arguing that fast trading technology
‘‘provides advance access to value-relevant
information, which creates adverse selection,
lowering welfare,’’ and ‘‘generates a negative
externality’’); Thierry Foucault et al., Toxic
Arbitrage, 30 Rev. Fin. Stud. 1053 (2017) (providing
evidence that ‘‘[a]rbitrage opportunities due to
asynchronicities in the adjustment of prices to news
are toxic because they expose dealers to the risk of
trading with arbitrageurs at stale quotes.’’ The
authors then claim that these toxic arbitrage
opportunities that come with higher trading speed
impair market liquidity.).
836 Academic
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SROs.837 Of these market participants,
some prefer to have consolidated
proprietary data. There are two ways
these market participants can obtain
consolidated data. First, market
participants may independently create
consolidated data by purchasing
individual exchange proprietary market
data products and consolidating that
information for their own use.
Second, market participants may
obtain consolidated data from market
data aggregators, which are mostly firms
that purchase direct access to exchange
data,838 consolidate the data, and
disseminate the data (after various
levels of processing) to market
participants.839 Additionally, some
market data aggregators do not purchase
direct access to exchanges. Instead they
provide hardware and software for
market data aggregation to the parties
that have contractual relationships to
purchase or license the market data.
These market data aggregators offer the
opportunity for market participants to
outsource the significant hardware,
software, and personnel expertise that is
required to consolidate the proprietary
feeds directly. The products provided
by these market data aggregators are
used by many of the most sophisticated
market participants in the market, and
despite the fact that they create an
additional chain link between market
participants and proprietary feeds, the
Commission preliminarily believes that
these firms still deliver the data to the
market participants faster than the
exclusive SIPs.840
(c) Current Costs of Generating SIP Data
and Proprietary Data Feeds
As mentioned above,841 currently the
exclusive SIPs consolidate and
disseminate SIP data to market
participants. The data fees that
exclusive SIPs charge to market
participants for obtaining SIP data are
set by the operating committees of the
Equity Data Plans.842 A portion of the
837 The exchanges, as a subset of SROs, sell
proprietary data feeds to market participants.
838 As mentioned below, even when obtaining
consolidated market data from market data
aggregators, market participants also have to pay
data fees directly to the exchanges. See infra
Section VI.B.2(c).
839 Market participants who consolidate market
data independently may use other market data
aggregators’ products and services such as software.
840 See, e.g., Roundtable Day One Transcript at
128–129 (Mark Skalabrin, Redline Trading
Solutions).
841 See supra Section VI.B.1.
842 Currently, these fees are immediately effective
on filing, although the Commission has the ability
to abrogate them. See Rule 608(b)(3)(i) and (iii), 17
CFR 242.608(b)(3)(i) and (iii). The Commission
recently proposed to amend Rule 608 to rescind the
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SIP data revenues is used to pay for the
cost of maintaining and administering
the exclusive SIP,843 and the remaining
funds are distributed to the SRO
members proportionately to their
trading and quoting activity.844 In the
case of the UTP SIP, there is an
additional FINRA cost for the oversight
of the OTC markets that is also taken out
of the exclusive SIP’s revenues before
distributing funds to the plan
participants.
Exclusive SIP revenues from data fees
totaled more than $430 million in
2017.845 There are three broad
categories of SIP data fees: Access fees,
content fees, and distribution/
redistribution fees.846 An access fee is a
flat monthly fee for physical
connectivity to SIP data and does not
depend on the type of market
participant (e.g., market data vendor vs.
institutional broker).
There are three categories of content
fees that depend on how market
participants access SIP data. First, if SIP
data is displayed for market participants
on computer screens or other devices,
the market participant is charged a
display fee (a professional or a nonprofessional subscriber fee depending
on the type of market participant).
These fees can be per screen displaying
the data, per user as part of the multi
instance single user (MISU) program,
and per application where multiple
applications can run on one screen.
Second, if SIP data is not displayed on
effective-on-filing nature of the fees and make them
subject to the procedures in Rule 608(b)(1) and (2)
for NMS plan amendments. If adopted as proposed,
the Commission would publish a proposed fee and
provide an opportunity for public comment on the
proposed fee, and the proposed fee would not
become effective unless approved by the
Commission. See Effective on Filing Proposal,
supra note 37.
843 Once an exclusive SIP is selected, upgrades to
that processor’s SIP infrastructure are mandated
and funded by the operating committee of the
relevant Equity Data Plan. This comes out of SIP
revenues distributed to the SROs.
844 The market data revenue allocation formula is
summarized at, e.g., UTP Plan, Summary of Market
Data Revenue Allocation Formula, available at
http://www.utpplan.com/DOC/Revenue_
Allocation_Formula.pdf (last accessed Jan. 8, 2020).
FINRA rebates a portion of the SIP revenue it
receives back to broker-dealer internalizers and
ATSs based on the trade volume they report. See
FINRA Rule 7610B. One Roundtable commenter
estimated that from 2013 to 2017, through the
Nasdaq/UTP plan, the FINRA/Nasdaq TRF gave 83
percent of SIP revenue it received to broker-dealers.
See Wittman Letter, supra note 290, at 19.
845 See Proposed Governance Order, supra note 8.
846 See, e.g., CTA Plan, Q3 2019 CTA Quarterly
Revenue Disclosure, available at https://
www.ctaplan.com/publicdocs/Q3_2019_CTA_
Quarterly_Revenue_Disclosure.pdf; Nasdaq UTP
Plan, Q3 2019 UTP Quarterly Revenue Disclosure,
available at http://www.utpplan.com/DOC/UTP_
Revenue_Disclosure_Q32019.pdf; Jones Letter,
supra note 291.
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computer screens and instead is directly
sent to an automated system such as a
trading algorithm or a smart order
router, then the market participant is
charged a non-display fee. Display and
non-display fees are monthly fees and
entitle the subscriber to an unlimited
amount of real-time market information
during the month. In 2018, around 65%
to 75% of total SIP revenue was
accounted for by professional and nonprofessional display fees, and around
8% to 13% of revenue was accounted
for by non-display fees.847 A third type
of content fee is the query quote fee,
which are fees collected from market
participants accessing SIP data on a per
quote basis. Under the per-query fee
structure, subscribers are required to
pay an amount for each request for a
packet of real-time market information.
Around 4% to 10% of total SIP revenue
is accounted for by quote query fees in
2018.848 Finally, exclusive SIPs charge
distribution/redistribution fees when
the market data is delivered to a user
other than the initial purchaser.
Based on the exclusive SIPs’ public
disclosures, as of fourth quarter of 2018
there were approximately 2–3 million
non-professional subscription use cases
and approximately 0.3 million
professional subscription use cases
across the UTP and CTA/CQ SIPs.
Additionally, there were approximately
300 non-display vendor use cases at
each of the exclusive SIPs.849 The
Nasdaq UTP SIP operating expenses
totaled around $7 million in 2017.850
The CTA/CQ SIP operating expenses
totaled around $8.8 million in 2018.
The Commission preliminarily
believes that there is a substantial
difference between the fees market
participants pay for SIP data and the
fees they pay for proprietary DOB data
products. For instance, monthly nondisplay fees charged by the CTA/CQ SIP
is $2,000 for Network A and $1,000 for
Network B,851 while monthly nondisplay fees charged by NYSE as part of
proprietary data feed is $20,000,852
847 Id.
848 Id.
849 See
supra note 789.
expenses for the Nasdaq UTP Plan
represent support costs, paid to the SIP, and are a
pre-determined amount agreed upon by the Nasdaq
UTP Plan’s SRO participants. The Nasdaq UTP SIP
costs do not include the costs of the exchanges
generating the data they send to the Nasdaq UTP
SIP. The UTP Plan also incurs administrative costs
and other miscellaneous expenses, which together
totaled around $3.6 million.
851 See CTA Plan, Schedule of Market Data
Charges (Jan. 1, 2015), available at https://
www.ctaplan.com/publicdocs/ctaplan/
notifications/trader-update/Schedule
%20Of%20Market%20Data%20Charges%20%20January%201,%202015.pdf.
852 See SIFMA Letter.
850 Operating
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which is an order of magnitude larger
than the SIP data fee. Additionally,
proprietary data feed fees have
increased significantly over the past
decade. For instance, SIFMA estimates
that between 2010 and 2018 data fees
charged by some exchanges went up by
three orders of magnitude or more.853 In
comparison, SIP data fees went up by
5% during the same time period.854
Based on Commission staff experience,
the Commission understands that the
number of subscribers to proprietary
market data is relatively small.855 The
Commission understands that the
number of subscribers of proprietary
market data and proprietary market data
revenues vary across exchanges and that
some exchanges obtain a larger
percentage than other exchanges of their
total market data revenue from
proprietary data products (as opposed to
revenue from SIP data products). For
example, the Commission estimates that
in 2018, NYSE collected approximately
5% of its net revenues from selling
proprietary market data products. On
the other hand, according to the
Commission’s estimates, Cboe BYX
collected approximately 9% of its
revenues from selling proprietary
market data products.856
As mentioned above,857 market
participants who purchase proprietary
data feeds from multiple SROs may
853 See
SIFMA Letter.
study submitted in connection with
the Roundtable contained analysis examining the
change in fees that some broker-dealers paid for
CTA SIP data between 2010 and 2018. The analysis
showed that CTA SIP fees for most categories of
data increased by an average of 5% between 2010
and 2018. However, the change in the total amount
each broker-dealer spent on CTA SIP data varied
based on the type of broker-dealer. The analysis
found that the average amount of money spent on
CTA SIP data by retail broker-dealers declined by
4% between 2010 and 2017, but the average amount
spent by institutional broker-dealers increased by
7%. See id. at 21–28.
855 See supra note 140.
856 See infra Section VI.B.2(d). The Commission
estimates are based on NYSE and Cboe BYX’s Form
1 filings and UTP and CTA/CQ revenue metrics.
NYSE’s Form 1 filings disclose $968 million as its
net revenues in 2018. NYSE’s revenues from the SIP
redistribution is approximately $47 million. Note 2
to the exchange’s financial statements states that
NYSE collects market data revenues from the
exclusive SIPs and ‘‘to a lesser extent for (sic) New
York Stock Exchange proprietary data products,’’
indicating that the approximately $47 million in
revenues from SIP data could be a benchmark for
their proprietary market data revenues. NYSE Form
1, available at https://www.sec.gov/Archives/edgar/
vprr/1900/19003689.pdf (last accessed Jan. 29,
2020). Similarly, Cboe BYX Form 1 filings report
$58 million in net revenues. Of this $58 million,
$26 million were market data revenue—
approximately $21 million from SIP data revenues
and $5 million from proprietary market data
revenues. Cboe BYX Form 1, available at https://
www.sec.gov/Archives/edgar/vprr/1900/
19003669.pdf (last accessed Jan. 29, 2020).
857 See supra Section VI.B.2(b).
854 SIFMA’s
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choose to self-aggregate multiple data
feeds, or, alternatively, they can
purchase already consolidated data from
market data aggregators. The exchanges
charge a data fee to any market
participant that purchases exchanges’
data from market data aggregators.858
Therefore, these fees are effectively a
part of the total price that a market
participant must pay when purchasing
data from a market data aggregator. In
some cases, these fees may be so high
that only a subset of market participants
can afford to self-aggregate proprietary
feeds from all exchanges or purchase
market data aggregator products.859 The
Commission preliminarily believes that
more active market makers and some
sophisticated broker-dealers including a
number of HFT firms and some of the
larger banks with proprietary data feed
trading desks either self-aggregate or
purchase aggregation services or
products from third-party vendors.
Based on Commission staff expertise,
the Commission understands that the
data fees the exchanges charge to market
participants that purchase the
exchanges’ data from market data
aggregators may account for a significant
portion of the total price market
participants pay for the market data
aggregators’ data products. However, the
Commission does not have information
on the pricing of market data
aggregators’ data and cannot break down
market data product prices between the
direct data fees charged by the
exchanges and the fees charged by
market data aggregators for their
services; the Commission invites
comments on the issue.
Among other fees, the exchanges
charge fees for various connectivity
services they offer (e.g., co-location,
fiber connectivity, and wireless
connectivity). Connectivity services
permit a customer to access an
exchange’s proprietary market data and/
or its trading and execution systems as
well as SIP data. The purchase and use
of certain connectivity services is
necessary to directly access an
exchange’s market data and to directly
participate in that market, at least for
those market participants that represent
the vast majority of trading activity on
exchanges. Additionally, these
858 Some exchanges charge redistribution fees or
their equivalents to market data aggregators and
separately, one or more data fees (based on different
use cases such as professional or non-professional,
display or non-display) to market participants who
purchase the exchanges’ data from market data
aggregators. See Virtu Letter I, at 16–79 (Exhibit
‘‘A,’’ lists of data and connectivity fees by several
exchanges).
859 See, e.g., Roundtable Day One Transcript at
128–129 (Mark Skalabrin, Redline Trading
Solutions).
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connectivity services may be needed in
order to take advantage of the reduced
latencies offered by the proprietary data
feeds, including when market
participants prefer the contents of SIP
data consolidated from the proprietary
data feeds—rather than delivered by an
exclusive SIP—to avoid additional
latencies.
Connectivity fees can be substantial.
For instance, the annual fiber
connectivity fees per port at the
exchanges’ primary data centers are
$90,000 at Cboe, $120,000 at Nasdaq,
and $168,000 at NYSE.860 Co-location
services may have two components: An
initial fee and an ongoing monthly fee
based on the kilowatt (kW) usage. For
example, at NYSE an initial fee for a
dedicated high-density cabinet that
consumes 9kW per month is $5,000, and
an ongoing monthly fee per kW is
$1,050.861 At Nasdaq, an initial fee is
$3,500, and an ongoing monthly fee is
$4,500.862 Thus, for a year of co-location
in a dedicated cabinet with 9kW power,
these fees add up to over $118,000 for
NYSE and over $57,000 for Nasdaq.
(d) Current Aggregate Exchange
Revenues From Selling Market Data and
Connectivity
The Commission estimates that in
2018 the exchanges earned a total
revenue of approximately $941 million
from selling both proprietary and SIP
market data products and connectivity
services in the equities market. In
addition, the Commission estimates that
the exchanges earned approximately
$596 million of this $941 million
revenue from selling market data
products and approximately $345
million of this revenue from selling
connectivity services. With respect to
the revenue from market data products,
the Commission estimates that in 2018
the exchanges earned approximately
$327 million of the $596 million
revenue from equity SIP data and
approximately $269 million from selling
proprietary data products. Further,
approximately $63 million of the $327
million equity SIP revenue in 2018 was
distributed to FINRA.863
860 See Letter to Brent J. Fields, Secretary,
Commission, from Brad Katsuyama, CEO, Investors
Exchange LLC, at Table 7 (Jan. 29, 2019)
(‘‘Katsuyama Letter II’’) (10Gb fiber connectivity).
861 See NYSE price list 2020, supra note 408.
862 See Nasdaq, Price List—Trading Connectivity,
available at https://www.nasdaqtrader.com/
Trader.aspx?id=PriceListTrading2 (last accessed
Dec. 19, 2019).
863 When taking this $63 million into account,
total SIP revenues shared by SROs were
approximately $390 million in 2018, which is
consistent with the $430 million estimate for 2017
noted in the Proposed Governance Order (which
also included the amount paid to the plan
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16817
The Commission’s estimates above are
mainly based on revenue information
that the exchanges submitted as part of
their Form 1 filings.864 In addition, the
Commission used SIP revenue
information disclosed by the CTA/CQ
Plans and the Nasdaq UTP Plan in their
quarterly revenue disclosures.865
Furthermore, because revenue
information provided by some
exchanges in their Form 1 filings is not
sufficiently detailed for this calculation,
the Commission had to make certain
assumptions in order to derive these
estimates. First, the Form 1 filings for
NYSE and NYSE MKT combine revenue
from connectivity fees with revenue
from market data fees. For these
exchanges, the Commission derived the
revenue earned from connectivity fees
by assuming that the revenue that these
exchanges earn from proprietary data is
slightly smaller than the revenue that
they earn from SIP data (based on notes
in their Form 1 filings which indicate
that SIP revenue exceeds proprietary
data revenue). Second, the Form 1 filing
for Nasdaq combines revenue from
connectivity fees with revenue from
transaction fees. The Commission
derived the revenue that Nasdaq earned
from connectivity fees by assuming that
Nasdaq’s revenues from connectivity
fees and transaction fees were in the
same proportion to one another as
NYSE’s revenues from these two
business lines. Third, Form 1 filings for
exchanges that offer trading in both
equities and options provide revenue
information for these two asset classes
combined. For these exchanges, the
Commission assumed that their
combined revenues from market data
fees and connectivity fees in the equities
market and in the options market were
in the same proportion to one another
as the market data and connectivity
revenues that these exchanges would
have earned in each of these markets
based on their dollar volume market
share (as compared to the dollar volume
market share of the exchanges that trade
only equities or only options).
3. Competition Baseline
This section discusses, as it relates to
this rulemaking, the current state of the
market for core and SIP data products,
the market for proprietary data
processor). See supra note 845 and accompanying
text. This estimate is also consistent with the $387
million estimate for 2017. See Jones Letter, supra
note 291, at 25.
864 See Commission, National Securities
Exchange Periodic Amendments to Form 1
(Modified June 20, 2019), available at https://
www.sec.gov/rules/national-securities-exchangesamendments.htm (providing links to exchanges’
Form 1 filings).
865 See supra note 846.
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products, the market for connectivity
services, and the market for trading
services as well as broker-dealers’
competitive strategies for trading
services.
(a) Current Structure of Market for Core
and SIP Data Products
As discussed above,866 under the
NMS plans, SIP data is collected,
consolidated, processed, and
disseminated by the exclusive SIPs.867
Equity Data Plan operating committees,
which are composed of the SROs, set
the fees the exclusive SIPs charge for
SIP data.868 Any revenue earned by the
exclusive SIPs, after deducting their
operating costs and FINRA’s OTC
oversight costs, is split among the SROs.
FINRA rebates a portion of the exclusive
SIP revenue it receives back to brokerdealer internalizers and ATSs based on
the trade volume they report.869
The fact that Equity Data Plan
operating committees approve all NMS
plan proposed fee changes can create
conflicts of interest for the SROs
because their duties administering NMS
plans that either charge or could charge
fees could potentially come into conflict
with other products the SROs sell or
costs they incur as part of their
businesses. For example, some of the
SROs sell proprietary data products that
are considered by some to be substitutes
for SIP data. This can create a conflict
of interest regarding the three NMS
plans that set fees for SIP data because
the SROs vote to set SIP fees, own and
control the dissemination of data, and
set the prices of some of the proprietary
data products the exclusive SIPs may
compete against.
As discussed in detail above, each
Equity Data Plan selects a single
exclusive SIP through a bidding process
to be the exclusive distributor of the
NMS plan’s data.870 This grants the SIP
a monopoly franchise in the distribution
of the NMS plan’s data, which means
that the SIPs may not be subject to
competitive forces. The Commission
acknowledges that there is uncertainty
about this conclusion. In particular, the
economic literature provides theory and
evidence that could predict either more
efficient or less efficient outcomes
under a monopoly structure. A paper by
Demsetz would predict that the current
monopolistic structure is most
efficient.871 In industries where there
are economies of scale, a monopoly
866 See
872 See
supra Section II.A.
868 See
supra note 842 and accompanying text.
supra note 844.
870 See supra Section IV.A.
871 See Harold Demsetz, Why Regulate Utilities?,
11 J.L. & Econ. 55 (1968) (‘‘Demsetz (1968)’’).
869 See
19:07 Mar 23, 2020
infra note 882 and accompanying text.
e.g., Oliver E. Williamson, Franchise
Bidding for Natural Monopolies—in General and
with Respect to CATV, 7 The Bell J. Econ. 73 (1976)
(discussing why bidding for monopolies may not
work well); Robin A. Prager, Firm behavior in
franchise monopoly markets, 21 Rand J. Econ. 211
(1990).
873 See,
867 Id.
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structure may lead to the most efficient
means of production. This profile
applies to the distribution of core data
because of the high fixed costs.872
Demsetz (1968) argues that just because
an industry has a monopolistic provider
of a service does not mean that it is not
subject to competitive forces. In
particular, Demsetz (1968) argues that if
the monopolistic provider of a service is
subject to competition in the bidding
process it could provide sufficient
competitive incentives to achieve a
competitive outcome. However, many
theories provide examples of situations
in which the monopolistic structure is
less efficient than other structures.873
The Commission does not believe that
the exclusive SIP bidding process
provides sufficient competitive
incentives for three reasons. First, the
bidding process could be subject to
conflicts of interest since some of the
SROs voting to select the exclusive SIP
are also bidding to be the SIP. Second,
the contracts are not bid out regularly,
so there may not be a significant chance
that the current exclusive SIP will be
replaced. Third, historically in some
cases the bidding process may not be
competitive due to the number of
bidders. Therefore, the Commission
does not believe that the bidding
process for exclusive SIPs is likely to
produce the most efficient outcome and
subject the exclusive SIPs to
competitive forces.
The exclusive SIPs have significant
market power in the market for core and
aggregated market data products and are
monopolistic providers of certain
information, which means that for all
such products they would have the
market power to charge
supracompetitive prices. Fees for core
data are paid by a wide range of market
participants, including investors,
broker-dealers, data vendors, and others.
One reason the exclusive SIPs have
significant market power is that,
although some market data products are
comparable to SIP data and could be
used by some core data subscribers as
substitutes for SIP data in certain
situations, these products are not perfect
substitutes and are not viable substitutes
across all use cases. For example, as
mentioned above, some market data
aggregators buy direct depth of book
feeds from the exchanges and aggregate
them to produce products similar to SIP
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data.874 However, these products do not
provide market information that is
critical to some subscribers and only
available through the exclusive SIPs,
such as LULD plan price bands and
administrative messages.875
Additionally, some SROs offer top of
book data feeds, which may be
considered by some to be viable
substitutes for SIP data for certain
applications.876 However, brokerdealers typically rely on the SIP data to
fulfill their obligations under Rule 603
of Regulation NMS, i.e., the ‘‘Vendor
Display Rule,’’ which requires a brokerdealer to show a consolidated display of
market data in a context in which a
trading or order routing decision can be
implemented.877
The purchase of SIP data or
proprietary market data from all
exchanges, either directly or indirectly,
is necessary for all market participants
executing orders in NMS securities.878
SROs have significant influence over the
prices of most market data products. For
example, the exchanges individually set
the pricing of the top of book data feeds
that they sell to market data aggregators
and broker-dealers that self-aggregate
who in turn generate consolidated data.
At the same time, SROs collectively, as
participants in the national market
system plans, decide what fees to set for
SIP data.879 Although market data
aggregators might compete with the
exclusive SIPs by offering products that
provide consolidated data, they
ultimately derive their data from the
exchanges’ direct proprietary data feeds,
whose prices are set by the exchanges,
a subset of SROs.880
874 The feeds produced by market data aggregators
offer additional features, such as lower latency, but
usually cost more than SIP data. See Roundtable
Day One Transcript at 126–129 (Mark Skalabrin,
Redline Trading Solutions).
875 See supra Section III.D, III.E.
876 In the equity markets, the top of book feeds
offered by the SROs are usually cheaper than SIP
data. However, they may only contain information
from one exchange, or one exchange family. See,
e.g., Nasdaq Basic, supra note 19; CBOE One, supra
note 19; NYSE BQT, supra note 19; TD Ameritrade
Letter, supra note 19 (stating that the lower cost of
exchange TOB products, coupled with costs
associated with the process to differentiate between
retail professionals and non-professionals imposed
by the SIP Plans, and associated audit risk, favors
retail broker-dealer use of exchange TOB products).
877 See Vendor Display Rule, Rule 603 of
Regulation NMS; supra Section IV.B.2(a).
878 For example, Rule 611(a) of Regulation NMS
requires trading centers to establish policies and
procedures to prevent trade-throughs. In order to
prevent trade-throughs, executing broker-dealers
need to be able to view the protected quotes on all
exchanges. They can fulfill this requirement by
using SIP data, proprietary data feeds offered by the
SROs, or a combination of both.
879 See supra note 842.
880 Pursuant to Section 19(b) of the Exchange Act
and Rule 19b–4 thereunder, SROs must file with the
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Regarding the level of competition
among non-SRO market data aggregators
that sell consolidated data to market
participants, the Commission currently
does not have a precise estimate of the
number of players in this market and
does not know how specialized these
players are.881 The Commission invites
comments on this issue.
Additionally, the production of both
core data and proprietary data feeds
involves relatively high fixed costs and
low variable costs.882 Fixed costs are
composed of, among others, costs to set
up infrastructure, regulatory approval
costs, software development costs,
administrative costs and overhead costs,
while variable costs include costs to
contract with and establish connectivity
to each customer. Importantly, fixed
costs of the production of both core data
and proprietary data feeds are not
specific to the production of data but
also support the exchanges’ other
services such as intermediating trade. In
such markets, the firms have additional
incentives to increase the number of
their customers in order to spread the
fixed cost across a larger base of
consumers.
(b) Current Structure of Market for
Proprietary Market Data Products
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In addition to SIP data, the exchanges
voluntarily disseminate proprietary data
and charge fees for this data. As noted
above,883 the proprietary DOB products
are generally characterized as fast, low
latency products designed for
automated trading systems that include
additional content, such as depth of
book data, while proprietary TOB
products are limited in content, such as
the exchange’s top of book quotation
information and transaction information
and are designed largely for the nonautomated segment of the market (e.g.,
non-professional investors and wealth
managers that access market data
visually). Proprietary DOB products
typically include odd-lot quotations,
orders at prices above and below the
best prices (i.e., depth of book data), and
information about orders participating
Commission proposed rules, in which they set
prices for their direct feed data. Those prices can
vary depending on the type of end user.
881 The Commission assumes that certain entities
from the list of market data vendors published on
Nasdaq’s website currently perform the market data
aggregator function. See supra note 516.
882 See, e.g., Paul M. Romer, Endogenous
Technological Change, 98 J. Pol. Econ. S71–102
(1990) (pointing out that information is
fundamentally distinct from other goods because it
has a fixed cost of discovery and a near zero cost
of replication).
883 See supra Section II.A.
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in auctions, including auction order
imbalances.
Proprietary data fees have increased
significantly over the past decade, as
suggested by SIFMA estimates that
show that, for some broker-dealers, data
fees charged by some exchanges went
up by three orders of magnitude or more
between 2010 and 2018.884
Correspondingly, exchanges’ revenues
from selling proprietary data and
connectivity services also went up over
the last several years. For example,
Budish, et al. (2019) observe that
exchanges earn significant revenues
from selling proprietary data (as well as
connectivity services).885 According to
NYSE’s Form 1 filings, its revenues from
data services (including connectivity
revenues but excluding SIP data
revenues) increased approximately 93%
from 2014 to 2018. Similarly, Nasdaq’s
Form 1 filings show an approximately
21% increase in their revenues from
data services (excluding revenues from
connectivity services and SIP data
revenues). On the other hand, during
the same period, revenues distributed
back to NYSE by the exclusive SIPs
increased approximately 18% and the
revenues distributed back to Nasdaq
increased approximately 12%. The
exchanges’ differences in their reporting
of these numbers make it difficult to
compare revenue numbers across
exchanges. However, for both of these
exchanges, their revenues from the
proprietary data and connectivity
business have been growing faster than
the revenues they collect from SIP
data.886
Indicia that exchanges may not be
subject to robust competition include
884 See SIFMA Letter; Virtu Letter I, at 4
(discussing double ‘‘dipping’’ on fees by the
exchanges).
885 See Eric Budish et al., supra note 15.
886 According to its 2014 Form 1 filing, NYSE
collected approximately $138 million as market
data revenues, covered under the ‘‘data services
fees’’ income statement line item. According to the
notes to NYSE’s financial statements, these market
data revenues include proprietary data revenues,
SIP data revenues, and revenues from connectivity
services. NYSE’s same revenue line item increased
to approximately $236 million by the end of 2018.
Whereas during this same time period, the revenues
NYSE collected from the exclusive SIPs went from
approximately $40 million to approximately $47
million. Nasdaq’s 2014 Form 1 filing discloses
approximately $206 million in ‘‘information
services’’ line item in its income statement.
According to the footnotes to its financial
statements, this line item includes Nasdaq’s market
data revenues and redistributed SIP revenues but
does not include connectivity service revenues. In
its 2018 Form 1 filing, Nasdaq disclosed $242
million in revenues under the same information
services line item. During the same time period,
Nasdaq’s SIP data revenues went up from
approximately $76 million to $85 million, a smaller
revenue increase relative to its market data
revenues.
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16819
that many broker-dealers state that even
in the face of increasing proprietary data
fees they feel compelled to buy
proprietary data to be able to provide
competitive trading strategies for their
clients.887 Additionally, some academic
research suggests that each particular
exchange’s proprietary data has no
substitutes for some uses of the data and
no perfect substitutes for any uses. For
example, Budish et al. (2019) conclude
that each exchange has market power
with respect to the data products (and
the speed technology) specific to that
particular exchange because of a lack of
substitutes for many applications of
their data.888
(c) Current Structure of Market for
Connectivity Services
Exchanges are exclusive providers of
their own connectivity services, and for
many market participants, effective
trading strategies require connecting to
many if not all of the exchanges, making
their demand for these connectivity
services less elastic (i.e., less sensitive to
price changes). The Commission
examined data on exchange orders that
shows that large broker-dealers (as
measured, for example, by the number
of messages sent to exchanges) connect
to all or almost all exchanges.889 This is
consistent with commenters’ and
Roundtable participants’ stated view
that in order to avoid a competitive
disadvantage, market participants have
little choice but to purchase direct
connectivity services from multiple
SROs.890
As mentioned above, the exchanges
offer different connectivity options to
transmit market data to market
participants. These options may include
fiber optics connections, wireless
microwave connections, and laser
transmission, all of which vary in
speeds and reliability.891 The fastest and
more reliable connections (e.g., laser
transmission) offer market participants
an advantage over other market
participants with slower or less reliable
connections. Therefore, the Commission
preliminarily believes that the
887 See
supra note 598.
Eric Budish et al., supra note 15.
889 Based on the sample of audit trail data made
available to the Commission by FINRA, firms that
are connected to all exchanges account for 76.6%
of the message volume (there are 37 such firms out
of a total of 327 firms in the sample). Firms that
are connected to at least all but one of the
exchanges account for 91.6% of the message
volume (there are 50 such firms). The FINRA data
sample covers the week of December 5, 2016, and
includes messages sent to 11 exchanges (NYSE
National and Chicago Stock Exchange are not part
of this sample).
890 See supra Section III.C.2(c); supra Section
II.A.
891 See supra Section II.A.
888 See
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exchanges have incentives to offer
multiple levels of connectivity so that
the fastest connections have the least
elastic demand and the exchanges could
charger higher prices for these
connections.
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(d) Current Structure of the Market for
Trading Services in NMS Stocks
The market for trading services is
served by exchanges, ATSs, and
liquidity providers. The market relies on
competition to supply investors with
execution services at efficient prices.
These trading venues, which compete to
match traders with counterparties,
provide a framework for price
negotiation and disseminate trading
information. The market for trading
services in NMS stocks currently
consists of 16 national securities
exchanges, as well as off-exchange
trading venues including wholesalers 892
and 33 NMS stock alternative trading
systems.893
Since the adoption of Regulation NMS
in 2005, the market for trading services
has become more fragmented. The
number of exchanges increased from
eight in 2005 to 16 exchanges operating
today.894 Additionally, the market
shares of individual exchanges became
less concentrated, with a shift in market
shares from some of the bigger and older
exchanges to the newer ones.895 For
instance, from 2005 to 2013, there was
a decline in the market share of trading
volume for exchange-listed stocks on
NYSE.896 At the same time, there was an
increase in the market share of newer
national securities exchanges such as
NYSE Arca, Cboe BYX, and Cboe
BZX.897
During the same time period, the
proportion of NMS stocks trading offexchange (which includes both
internalization and ATS trading)
increased; for example, as of August
2018, NMS stock ATSs alone comprised
approximately 14 percent of
892 Wholesalers are broker-dealers that pay retail
brokers for sending their clients’ orders to the
wholesaler to be filled internally (as opposed to
sending the trade orders to an exchange). Typically
a wholesaler promises to provide price
improvement relative to the NBBO for filled orders.
893 As of February 7, 2020, 33 NMS stock ATSs
are operating pursuant to an initial Form ATS–N.
A list of NMS stock ATSs, including access to
initial Form ATS–N filings that are effective, can be
found at https://www.sec.gov/divisions/marketreg/
form-ats-n-filings.htm.
894 See supra note 660.
895 See Letter to Brent J. Fields, Secretary,
Commission, from Edward T. Tilly, Chairman and
Chief Executive Officer, Cboe (May 25, 2018), at
note 9.
896 See Securities Exchange Act Release No.
76474 (Nov. 18, 2015), 80 FR 80998, 81112 (Dec.
28, 2015) (Regulation of NMS Stock Alternative
Trading Systems Proposing Release).
897 Id.
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consolidated volume, and other offexchange volume totaled approximately
21 percent of consolidated volume.898
Aside from trading venues, exchange
market makers provide trading services
in the securities market. These firms
stand ready to buy and sell a security
‘‘on a regular and continuous basis at a
publicly quoted price.’’ 899 Exchange
market makers quote both buy and sell
prices in a security held in inventory,
for their own account, for the business
purpose of generating a profit from
trading with a spread between the sell
and buy prices. Off-exchange market
makers also stand ready to buy and sell
out of their own inventory, but they do
not quote buy and sell prices.900
All of these developments increased
the competitiveness of the market for
trading services in NMS stocks.
However, the Commission recognizes
that while the market is more
competitive, the actual level of
competition that any given trading
venue faces may depend on multiple
factors including the liquidity of a stock
as well as the type of trading venue and
market participant engaging in the trade.
(e) Broker-Dealers’ Competitive
Strategies for Trading Services
While many market participants use
market data to make investment
decisions, not all market participants
are equally competitive in their use of
real-time data. The Commission
understands that while some investors
(including retail investors) may use a
broker-dealer to execute a trade on their
behalf, others, such as the brokerdealers themselves and other latency
sensitive traders, utilize sophisticated
routing tools to strategically decide how
to fill an order on an exchange,
including when and where to submit
the order, how to split a larger order
(i.e., into how many pieces, or ‘‘child
orders’’ 901), how large the child order
sizes should be, and what order type(s)
should be used, e.g., whether to use a
market order, limit order, or some other
order type. The strategies employed by
broker-dealers and other latency
sensitive traders in this regard are
designed to secure the best possible
execution price(s) for an order. For
898 See Securities Exchange Act Release No.
84875 (Dec. 19, 2018), 84 FR 5202, 5255 (Feb. 20,
2019) (Transaction Fee Pilot for NMS Stocks).
899 See Commission, Fast Answers: Market Maker
(modified Mar. 17, 2000), available at http://
www.sec.gov/answers/mktmaker.html.
900 See Laura Tuttle, OTC Trading: Description of
Non-ATS OTC Trading in National Market System
Stocks, Commission (Mar. 2014), available at http://
www.sec.gov/dera/staff-papers/white-papers/otctrading-white-paper-03-2014.pdf.
901 Child order refers to a smaller order that was
a piece of a larger ‘‘parent’’ order.
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example, the Commission understands
that methodologies utilized in trading
orders can impact the price of the stock
being purchased or sold in a manner
that can increase or decrease its
execution cost.
The Commission understands that
broker-dealers in particular compete
with each other to provide the lowest
possible execution costs for their clients
(i.e., high execution quality) as quickly
as possible.
An example of routing tools as noted
above is smart order routing (‘‘SOR’’).
SORs employ the use of algorithms (e.g.,
by broker-dealers on behalf of a client)
designed to optimally send parts of an
order (child orders) to various market
centers (e.g., exchange and ATSs) so as
to optimally access market liquidity
while minimizing execution costs. SORs
help to determine how to quickly access
(‘‘take’’) available market liquidity
before other market participants, and
help to determine how to strategically
place limit orders to optimize queue
priority across various limit order books
among exchanges. The ability to
optimize queue priority facilitates the
ability for a broker to ‘‘capture the
quoted’’ spread, i.e., buy on the bid or
sell on the offer, while also potentially
benefitting from exchange rebates paid
to liquidity providers.
The Commission understands that
data beyond the NBBO with minimal
latency are important inputs to
strategies designed to optimize the
ability to access market liquidity and
minimize execution costs. Further, the
Commission understands that
competing with the most effective SORs
is more difficult without possessing
real-time market data while minimizing
data latency.902 The Commission
understands that those traders who do
not access trading tools that utilize
comprehensive market data with low
latency experience higher execution
costs on average.
4. Request for Comments on Baseline
The Commission requests comments
on its baseline analysis. In particular,
the Commission solicits comment on
the following:
161. Do you agree with the
Commission’s assessment of the market
failures and the need for regulation to
solve market data problems? Why or
why not? Do additional market failures
exist that are not described in this
release? If so, what are they? Please
explain in detail.
902 The Commission preliminarily believes that
there is also a significant personnel and
technological cost to producing a sophisticated,
competitive smart order router.
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162. Do you agree that some market
participants are unable to rely solely on
SIP data to trade competitively in
today’s markets? Why or why not?
Please explain in detail. If so, what
businesses rely on the purchase of
proprietary market data? The
Commission is also seeking information
on the number, type and sizes of market
participants that purchase proprietary
market data products either directly
from exchanges for self-aggregation or
through market data aggregators. The
Commission requests that commenters
provide such information where
available.
163. Do you agree that exchanges are
disincentivized from making
improvements to the content or latency
of SIP data? Why or why not? Please
explain in detail.
164. Does the Economic Analysis
contain all relevant baseline
information? If not, what else should the
baseline contain? Please explain in
detail.
165. How competitive is the selection
process for the exclusive SIPs? How
does the selection process affect the
performance of the SIP? How does past
performance factor into the selection
process? Please explain in detail.
166. The Commission is seeking
information on the number of market
participants that rely solely on SIP data
for their trading needs, and, separately,
on the number of market participants
that do not rely solely on SIP data for
their trading needs. The Commission
requests that commenters provide such
information where available.
167. The Commission is seeking
information on the consequences (both
positive and negative) of the limited
amount of odd-lot quotation information
currently included in SIP data. Please be
specific about exact odd-lot quotation
information that results in these
consequences and provide data analysis
where possible. Do the consequences
vary across stocks and/or exchanges?
Please explain and provide data analysis
where possible.
168. The Commission is seeking
information on the consequences (both
positive and negative) of the lack of
depth of book information currently
included in SIP data. Please be specific
about exact depth of book information
that results in these consequences and
provide data analysis where possible.
Do the consequences vary across stocks
and/or exchanges? Please explain and
provide data analysis where possible.
169. The Commission is seeking
information on the consequences (both
positive and negative) of the lack of
auction-related information currently
included in SIP data. Please be specific
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about exact auction-related information
that results in these consequences and
provide data analysis where possible.
Do the consequences vary across stocks
and/or exchanges? Please explain and
provide data analysis where possible.
170. The Commission requests
comment on the scope and content of
exchange proprietary data feeds. Are the
proprietary data offerings similar across
exchanges? Please explain in detail.
171. What are the consequences of the
differences in latency between the SIP
and proprietary feeds? Please explain in
detail.
172. The Commission requests
comment on the comparison of SIP
versus proprietary data access
experiences and costs. How do the types
of fees and discount programs compare?
Do the exclusive SIPs offer services that
target the same clients as the exchanges
do? Please explain in detail. Do
exclusive SIPs offer services that target
the same clients as third-party
aggregators? Please explain in detail.
173. The Commission is seeking
information on specific revenues and
expenses associated with processing
and disseminating market data by
market data aggregators. The
Commission requests that commenters
provide such information where
available.
174. The Commission is seeking
information on pricing of market data
aggregators’ data and the breakdown of
such product prices between the direct
data fee charged by the exchanges and
the fees charged by market data
aggregators for their services. The
Commission requests that commenters
provide such information where
available.
175. Do you agree with the
Commission’s competition baseline?
Why or why not? Please explain in
detail.
176. Do you agree that the exclusive
SIPs have market power? Why or why
not? Please explain in detail.
177. Do you agree with the
Commission’s assessment of the state of
competition in the market for core and
aggregated market data products in the
equities market? Why or why not?
Please explain in detail. What is the
magnitude of this market? What are the
total expenses incurred by brokerdealers on market data products? What
are the total revenues earned by
exchanges on market data products?
Who else incurs costs or earns revenues
on market data products?
178. The Commission requests that
commenters provide information on the
number of players in the market data
aggregator space, and provide
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16821
information on how specialized these
companies are.
179. To what extent is it necessary for
market participants executing orders in
NMS securities to purchase market data
from all SROs? Please explain in detail.
180. How does the market for
proprietary data differ from the market
for consolidated data? Please explain in
detail.
181. Do you believe that exchanges
have significant market power in the
market for proprietary data products?
Why or why not? Please explain in
detail.
182. In what situations can top of
book data products serve as substitutes
for SIP data in the equities market? In
what situations are top of book data
products not viable substitutes for SIP
data? Please explain in detail.
183. Do you agree with the
Commission’s assessment of the market
for connectivity services? Why or why
not? Please explain in detail. Do you
believe that exchanges have significant
market power with respect to
connectivity services? Why or why not?
Please explain in detail. What is the
magnitude of this market? What are the
total expenses incurred by brokerdealers on connectivity services? What
are the total revenues earned by
exchanges on connectivity services?
Who else incurs costs or earns revenues
on connectivity services?
184. Do you agree with the
Commission’s assessment of the market
for trading services? Why or why not?
Please explain in detail. How does
market data and connectivity relate to
the market for trading services? Can
market power in one market translate
into market power in another? Please
explain in detail.
185. Characterizing competitors as
producers (an entity that creates a good
or service for trade) or intermediaries
(an entity that facilitates the trading of
goods or services produced by others)
could have implications for the
competitive landscape. To what extent
are exchanges producers versus
intermediaries in market data products
and/or other services (e.g., execution
services, connectivity services)? Please
explain in detail.
186. To what extent is market
execution on one exchange a substitute
for execution on another exchange? To
what extent are they complements?
Please explain in detail.
187. To what extent is market data
from one exchange a substitute for
market data from another exchange? To
what extent are they complements?
Please explain in detail.
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C. Economic Effects of the Rule
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1. Core Data and Consolidated Market
Data
The Commission preliminarily
believes that the proposed
enhancements to consolidated data,
namely expanding core data and the
amendments to the definitions of
‘‘national best bid and offer’’ and
‘‘protected bid or protected offer,’’
would result in numerous economic
effects. These economic effects derive
from codifying the definition of core
data, from expanding the content of the
core data, and from changing the prices
that determine the NBBO and the
protected quotes.
The proposed change would have the
benefit of mitigating the influence of
existing conflicts of interest inherent in
the existing exclusive SIP model.903 The
proposed change establishes a required
amount of data to be included in
proposed consolidated market data, and
thus reduces the divergence between
exchanges’ proprietary DOB products
and current SIP data.
(a) Definitions of Consolidated Market
Data, Core Data, Administrative Data,
and Regulatory Data
The Commission’s proposed
definitions of ‘‘consolidated market
data,’’ ‘‘core data,’’ ‘‘regulatory data,’’
‘‘administrative data,’’ and ‘‘exchangespecific program data’’ under Regulation
NMS would specify the quotation and
transaction information in NMS stocks
that must be collected, consolidated,
and disseminated under rules of the
national market system and pursuant to
an effective national market system
plan(s). This definition would codify
the dissemination of certain current SIP
data elements, and would include some
additional data elements, but would not
include some data that the exclusive
SIPs currently disseminate. This section
discusses the secondary economic
effects of this proposed expansion to
core data that would come from
codifying the inclusion of some current
SIP data in ‘‘core data,’’ while the next
section discusses the economic effects
of expanding the content of core data.
These secondary effects are providing
flexibility to the Data Plans for
including new data elements, requiring
that regulatory data would continue to
be provided in the decentralized
consolidation model, cost to update the
national market system plan(s), and
costs to obtain data that is currently in
SIP data but not in proposed
consolidated market data elsewhere.
903 For a discussion of these conflicts of interest,
see supra Section VI.A.2.
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The proposed definitions of
‘‘exchange-specific program data,’’
‘‘regulatory data’’ and ‘‘administrative
data,’’ along with the proposed ability
for the Equity Data Plans to add
elements to these proposed definitions,
promotes regulatory efficiency by
providing flexibility for consolidated
market data to include data elements
beyond those explicitly defined as
‘‘consolidated market data’’ in the
proposal. It provides a mechanism for
the participants in the national market
system plan(s) to propose to add
additional data elements, such as
elements similar to current retail
liquidity programs. This would allow
for organic change in consolidated
market data that may become useful due
to future market and regulatory
developments.
Further, while the underlying data
elements of ‘‘regulatory data’’ are
currently included in disseminated SIP
data, the proposed definition of
‘‘regulatory data’’ would help ensure
that market participants continue to
have access to this information.
The Commission recognizes that
market data plans would incur one-time
initial implementation costs in ensuring
the plans are consistent with the
proposed definitions of ‘‘consolidated
market data,’’ ‘‘core data,’’
‘‘administrative data,’’ ‘‘regulatory
data,’’ and ‘‘exchange-specific program
data,’’ but the plans would not incur
significant ongoing costs as a result of
the codification of these five
definitions.904 These initial
implementation costs would come from
the operating committees needing to
draft revisions to their respective plans
that are consistent with the proposed
definitions.
The Commission preliminarily
believes that not including some data
elements that the exclusive SIPs
currently transmit 905 in the definition
of ‘‘consolidated market data’’ could
have some costs to those market
participants who would want to arrange
to get this data elsewhere. As discussed
above, the UTP SIP offers OTCBB
quotation and transaction feeds for
unlisted stocks, and the CTA Plan
permits the dissemination of
‘‘concurrent use’’ data related to
corporate bonds and indexes.906 As
proposed, these data elements would
not be defined as consolidated market
data or core data elements. However, the
proposal would not preclude the
904 Below in Section VI.C.1(b)(iv), the
Commission discusses the costs of including data
elements to the proposed definition of ‘‘core data’’
that are not currently in SIP data.
905 See supra Section III.B.
906 See supra Section III.C.
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provision of these data elements by the
SROs via proprietary data products to
market participants and investors who
wish to receive them.
(b) Expanding Core Data Content
As discussed above,907 the
Commission proposes to define core
data to include certain odd-lot quote
information, certain depth of book data,
and information on orders participating
in auctions. This section discusses the
economic effects of expanding the core
data content separately for each
additional core data element and then
discusses the additional economic
effects that may accrue to market
participants from the combined new
core data elements, although market
participants may choose not to take in
all of the new core data elements in
every instance. The economic effects
discussed in this section depend on the
fees for core data charged by the
effective national market system plan(s)
for NMS stocks and the competing
consolidators. The fees for new core
data are discussed later.908
(i) Effects of New Round Lot Definition
The Commission proposes to define a
round lot according to a tiered system
based on the price of the stock.909 This
definition would result in the inclusion
of quotes at better prices in core data
that were previously excluded from
being reported because they consisted of
too few shares. These new quotes would
now become visible to anyone who
subscribes to core data, thereby
improving transparency. The
Commission preliminarily believes that
the proposed changes to the round lot
definition would create an economic
benefit for market participants who
currently rely exclusively on SIP data to
obtain market information, and for
market participants who post odd-lot
quotes at prices superior to the NBBO.
These market participants would benefit
from being able to see more information
on these smaller quotes at better prices
before they send in their orders, which
could improve their trading decisions
and order execution quality by
providing an opportunity to realize
gains from trade,910 as discussed below
in this section.911 The proposed change
907 Id.
908 See
infra Section VI.C.1(b)(iv).
supra Section III.C.1(d)(i).
910 See supra note 754.
911 The proposed round-lot definition may benefit
retail investors even without changes to their
decision to submit orders based on seeing the priceimproving quotes. This is because the proposed
round-lot definition would likely cause the NBBO
to become narrower, and this would affect the
execution quality provided by retail wholesalers to
909 See
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could also improve price efficiency.
This is because certain odd-lot
information not currently disseminated
as part of SIP data would be made
available as part of proposed core data;
therefore market participants who use
SIP data who previously did not use the
information contained in odd-lots
would be able to incorporate this
information into their trading decisions.
These trading decisions are integral to
how market prices are formed. Also, the
proposed change could affect order
routing and the share of order flow
received by each exchange, since more
traders will be aware of quotes at better
prices that are currently in odd-lots
sizes, and these may not be on the same
exchange as the one that has the best
100 share quote.
The Commission preliminarily
believes that changing the round lot
definition to include smaller-size orders
would be a significant benefit for market
participants who would have traded
with price-improving odd-lot quotes in
certain stocks but do not do so because
they cannot see information on odd-lot
quotes.912 Under the proposed rule,
some of these quotes at better prices
would be reported as the NBBO in the
new core data. This would mean that
these traders would be able to see the
quotes,913 and make a decision about
whether to trade based on this newly
visible, improved price. This may
benefit traders because they would be
able to realize the gains from trade that
are available in this situation and are
not currently occurring because of the
lack of information. Also, some traders
may wish to exchange an odd-lot
quantity of a stock by posting a limit
order for an odd-lot amount. Currently,
this order’s price is not visible to traders
who rely solely on SIP data, and thus
lotter on DSKBCFDHB2PROD with PROPOSALS2
retail investors. See infra Section VI.C.1(c)(i) for
additional discussion on this point.
912 Currently, some information about odd-lot
quotes ends up in core data through certain
exchanges rolling up odd lot quotes. But even in
this case, the rolled up quote is reported to the
exclusive SIPs at the worst price out of all the oddlots that were rolled up to produce the quote, so the
full amount of price improvement available on that
exchange is still not visible to market participants
relying solely on exclusive SIPs for market data.
913 The traders able to see these quotes as a result
of the proposed round-lot definition would include
retail investors as a result of the Vendor Display
Rule, among others. See supra Section III.C.1(d)(i).
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there may be delays in getting this limit
order filled, since such traders would
not send market orders in. Thus, adding
smaller-size quotes in core data for
certain stocks would result in a benefit
to both the market participants who
would submit the market orders and the
market participants who post the oddlot quotes they execute against.
The magnitude of this benefit
depends on the amount of additional
trading generated by the inclusion of
odd-lot information. In particular, the
Commission preliminarily believes that
to the extent many market participants
who rely solely on SIP data and lack
information on odd-lot quotes would
have traded frequently against odd-lot
quotes had they known about them, the
benefit would be large. However, if it is
uncommon for market participants who
would trade frequently against odd-lot
quotes to rely solely on SIP data and to
lack information on odd-lot quotes, then
the Commission preliminarily believes
that the associated economic benefit
from including odd-lot quotes in core
data would be small. The Commission
preliminarily believes it is not possible
to observe this willingness to trade but
for lack of information with existing
market data, and invites comments on
this issue.
However, the Commission can
quantify the frequency with which the
hypothetical trader discussed above
would see better prices under the new
round lot definition in the current
market environment. Based on this
quantification, the Commission
preliminarily believes that market
participants relying on new core data
would see a significant improvement in
quoted spreads within a large
percentage of the dollar volume of stock
trading. Specifically, Table 4 shows the
percentage of instances in a sample of
MIDAS data that the NBBO provided at
the time by an exclusive SIP 914 was
inferior in price to the price of a round
lot computed according to the new
definition in the proposed rule. For
instance, the table shows that for stocks
with prices of $1,000 or greater, the new
round lot definition would cause a
914 Since the source used for this SIP NBBO is an
exclusive SIP itself, this quote includes quotes the
exchanges produce by aggregating or ‘‘rolling up’’
odd-lots to obtain a round lot-sized quote.
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16823
quote to be displayed that improved on
the current round lot quote 92.2% of the
time. The frequency of this instance of
price improvement appears to increase
uniformly through the round lot tiers in
the sample, starting lower at 9.7% for
the $50.01–$100 tier. This analysis
shows that, within each round lot tier in
which the round lot size would change,
there is a significant number of
instances in which the new round lot
definition would improve the quoted
spread.
The quantity of instances of price
improvement as a result of the new
round lot definition depends on the
volume of stocks in the tiers for which
the round lot size would change. Table
1 above documents the number of stocks
in each tier. It shows that while most
stocks (80.9%) would remain unaffected
by the new round lot definitions, most
of the dollar trading volume, around
68.3%, currently is in stocks that would
have a new round lot definition under
the proposed rule. Based on this
analysis, the Commission preliminarily
believes that a meaningful amount of
dollar volume is concentrated in stocks
that would have significant changes to
the quoted spread displayed under the
new round lot definition.
The amount of price improvement
available in the event that any price
improvement is available, is also a
relevant consideration when deciding
whether to trade. Table 5 quantifies the
average price improvement offered by
the best quote under the new round lot
definition, conditional on the event that
price improvement is available in the
first place. The table shows, for
example, that the new round lot
definition in the $50.01–$100 tier could
yield an 8 basis point reduction in the
spread (conditional on a price
improving quote being available). Since
the average quoted half spread is 31
basis points, this represents a significant
reduction in the half spread. In the case
of the $1000+ tier, the difference of 8.8
basis points represents an even more
significant fraction of the 17 basis point
average half spread. Based on this
analysis, the Commission preliminarily
believes that the size of price
improvement, conditional on it being
available, is also substantial.
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TABLE 4—INSTANCES OF PRICE IMPROVEMENT
Instances of price improvement
(%) 3
Round lot tier 1 2
Best bid
1.
2.
3.
4.
5.
< = $50 .....................................................................................................................................
$50.01–$100 ............................................................................................................................
$100.01–$500 ..........................................................................................................................
$500.01–$1000 ........................................................................................................................
1000.01+ ..................................................................................................................................
Best ask
n/a
5.3
11.5
46.8
73.5
n/a
5.0
11.4
50.1
70.5
Best bid or
best ask
n/a
9.7
20.6
72.8
92.2
1 Tier
based on the stock’s prior calendar month’s average closing price on the primary listing exchange in August 2019.
stocks were excluded due to trading in round lots different than 100 shares (i.e., 1 or 10 shares: Symbols BH, BH.A, BRK.A, DIT,
MKL, NVR, and SEB).
3 Overall frequency of price improving NBBO quotes during September 2019 using the proposed round lot tier criteria versus the current 100
share round lot criteria (see footnote 4 of Table 5 for more details). An instance of a price improving quote is calculated from a sample of MIDAS
data, which consists of hourly snapshots from 10:30 a.m. to 3:30 p.m. for each trading day in September 2019. Calculation is based on the difference between the best bid/best ask calculated under the new round lot tier definition (source: direct feeds) compared to the NBBO based on
the current 100 share round lot criteria (source: SIP).
2 Seven
TABLE 5—SIZE OF PRICE IMPROVEMENT
Round lot
1.
2.
3.
4.
5.
Best bid:
Average price
improvement
($) 3
tier 1 2
< = $50 .................................................................................
$50.01–$100 ........................................................................
$100.01–$500 ......................................................................
$500.01–$1000 ....................................................................
1000.01+ ..............................................................................
Best ask:
Average price
improvement
($) 3
n/a
0.09
0.15
0.79
1.35
Average
difference in
quoted half
spread
(%) 4
n/a
0.12
0.14
0.89
1.36
n/a
0.080
0.044
0.080
0.088
SIP: Average
quoted percent
half spread
(%)
n/a
0.31
0.14
0.22
0.17
1 Tier
based on the stock’s prior calendar month’s average closing price on the primary listing exchange in August 2019.
stocks were excluded due to trading in round lots different than 100 shares (i.e. 1 or 10 shares: Symbols BH, BH.A, BRK.A, DIT, MKL,
NVR, and SEB).
3 Overall frequency of price improving NBBO quotes during September 2019 using the proposed round lot tier criteria versus the current 100
share round lot criteria. Conditional on a the instance of a price improving quote, stock-day average price improvement is calculated from a sample of MIDAS data, which consists of hourly snapshots from 10:30 am to 3:30 pm for each trading day in September 2019. Calculation is based
on the difference between the best bid/best ask calculated under the new round lot tier definition (source: direct feeds) compared to the NBBO
based on the current 100 share round lot criteria (source: SIP).
4 Conditional on a the instance of a price improving quote (bid or ask), stock-day average difference in percent quoted half spread is calculated
by SIP NBBO quoted percent half spread minus the new percent quoted half spread under the proposed round lot tier criteria. Quoted half
spread is defined by: Quoted half-spread = QSit = 100 * (Askit¥Bidit) / (2*Mit), where M is the midpoint between the best bid and best ask.
2 Seven
lotter on DSKBCFDHB2PROD with PROPOSALS2
The Commission preliminarily
believes that the new round-lot
definition would benefit market
participants who utilize strategies
related to order routing, provided that
they do not already obtain information
on odd-lots from proprietary feeds. For
instance, traders who wish to fill an
order at the best possible price,
including at sizes of less than 100
shares, would be better able to do so if
the new round lot sizes are visible to
them, e.g., the exchange with the best
100 share quote may not be the
exchange with the best 10 share
quote.915 The use of this information
could improve order execution quality
915 Battalio, Corwin, and Jennings (2016)
examines the frequency of trading at inferior prices
as compared to available unprotected odd-lot
quotes in a sample of 10 high-priced stocks during
one week in 2015. They find that there was an
unprotected odd-lot limit order available at a better
price for 2.52% of the trades that occurred. See
Robert Battalio et al, Unrecognized Odd Lot
Liquidity Supply: A Hidden Trading Cost for High
Priced Stocks, 12 J. Trading 35 (2016).
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and facilitate best execution for these
traders.916 The Commission
preliminarily believes that many of the
market participants who utilize such
strategies already have access to full
odd-lot information via proprietary
feeds; for these traders the proposal
would not produce a direct benefit.917
Also, the Commission preliminarily
believes that there may be market
participants that would start running
these order routing strategies if the data
were available to them at prices
comparable to SIP data. These market
916 For discussion of order execution quality and
the provision of execution services by brokerdealers, see supra Section VI.B.3(e).
917 The new round-lot definition may benefit
those market participants who already obtain oddlot information by providing them with alternatives
to proprietary feeds. For discussion of this effect,
see infra Section VI.C.4(a). Also, the Commission
preliminarily understands that some market
participants who use proprietary feeds as their main
source of market data also use the SIP feeds as a
backup. For such market participants, the change in
the round lot definition may improve the value of
a core data feed as a backup.
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participants might currently find that
the value of attempting such strategies
without information on odd-lots is too
low to justify running the strategies, but
they might find that access to data on
such orders through the new round-lot
definition would enable them to run
such strategies effectively. To the extent
that such market participants exist, the
change to the round-lot definition
would be a benefit to them as well.918
The Commission preliminarily
believes that the new round lot
definition could improve price
efficiency. The wider availability of
information about smaller-sized quotes
could mean that more market
participants (who currently rely solely
on SIP data) would incorporate the
information contained in those quotes
into their trading decisions. This could
have the effect of improving the
918 For further discussion of new entrants to the
competitive order routing business, see infra
Section VI.C.4(b).
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efficiency with which this information
becomes reflected in prices.919
The Commission preliminarily
believes that the new round lot
definition could cause changes to order
flow as market participants change their
trading strategies to take advantage of
newly visible quotes.920 This could
mean that there would be changes to the
share of order flow each exchange
receives as a result of this rule. The
Commission is uncertain about the
magnitude and direction of this effect,
and invites comments on the issue.
The Commission preliminarily
believes that the use of the previous
calendar month’s average closing price
on the primary listing exchange to
determine the round lot tier for a given
stock balances certain tradeoffs that
should be considered when selecting
such a benchmark. The Commission is
balancing a more up-to-date stock price
estimate against the costs imposed on
market participants from having to
frequently make updates to systems and
practices to account for changes to a
stock’s round lot tier. A more recent
average (e.g., the past week’s average
closing price) may better reflect the
stock’s current price level, and thereby
lead to the stock being placed in the
correct tier more frequently. However,
such a recent estimate may be more
volatile and thus more prone to causing
frequent changes to the stock’s status,
especially if the stock’s price level is
close to a round lot tier cutoff point,
which could then require more frequent
adjustments from market participants,
including SROs and competing
consolidators, to account for what a
stock’s round-lot tier is and what the
NBBO for that stock would be given its
tier.
lotter on DSKBCFDHB2PROD with PROPOSALS2
(ii) Effects of Addition of Depth of Book
Information
The Commission proposes to add
certain depth of book information to the
definition of core data, which would
result in this information becoming
available to anyone who subscribes to
this element of core data. The
Commission preliminarily believes that
this information could be useful in
trading, and therefore disseminating this
919 For additional discussion of the price
efficiency point, see infra Section VI.D.1.
920 For example, currently a market participant,
relying on SIP data, may submit an order to the
exchange with the exclusive SIP NBBO and in the
process trade at an inferior price to an odd-lot quote
that the market participant was not aware of on
another exchange. If the market participant would
have preferred to route to the price-improving oddlot quote, and if that quote would count as a roundlot under the proposal, then under the proposal the
market participant would send the order to the
exchange with the smaller, price improving quote.
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information as an element of core data
could have the effect of causing changes
to the trading strategies of those market
participants who currently rely solely
on SIP data. This could potentially lead
to these traders being able to reduce
their execution costs and facilitate best
execution, changes in order flow to
different exchanges, improvements in
price efficiency of markets, and gains
from trade that are not currently being
realized.
The Commission preliminarily
believes that adding the depth of book
information as an element of core data
would benefit traders who previously
relied exclusively on SIP data and who,
as a result of the proposed rule, would
receive information they previously did
not get. Academic research has found
evidence that valuable trading
information can be obtained from the
full depth of a limit order book.921 As
noted above, market participants also
believe that depth of book information
is valuable.922 Currently, only traders
who subscribe to exchanges’ proprietary
data feeds can receive this information.
As a result of the proposed
amendments, additional depth of book
information would become available to
anyone who subscribes to these
elements of core data. The Commission
preliminarily believes that market
participants that currently rely solely on
SIP data could use the additional depth
of book information to improve trading
strategies and to lower execution costs.
To the extent that the advantage of
having this information depends on
other traders not having it, this
economic effect would represent a
transfer from the current users of depth
of book information to those market
participants who would now get access
to, and would be able to utilize, this
information. In particular, a more
widespread dissemination of depth of
book information may cause market
prices to adjust to this information more
rapidly as more people react to this
information. Once market prices settle
to a level that reflects this information,
the opportunity to profit from having
921 See Lawrence E. Harris and Venkatesh
Panchapagesan, The Information Content of the
Limit Order Book: Evidence from NYSE Specialist
Trading Decisions, 8 J. Fin. Mkts. 25 (2005);
Jonathan Brogaard et al., Price Discovery without
Trading: Evidence from Limit Orders, 74 J. Fin.
1621–1658 (2019); Shmuel Baruch, Who Benefits
from an Open Limit-Order Book?, 78 J. Bus 1267
(2005), available at https://www.jstor.org/stable/
10.1086/430860 (presenting some theoretical results
showing that liquidity takers benefit more from an
open limit order book).
922 See supra Section III.C.2(c) (describing how
market participants have stated that they believe
they need depth of book information in order to run
their businesses).
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16825
additional depth of book information
may be lost.
The Commission preliminarily
believes that market participants who
utilize strategies related to order
routing, order placement, and order
execution, could benefit from the new
depth of book information, provided
that currently they do not already obtain
this information via proprietary data
feeds. For instance, traders may seek to
get priority in the queue at a particular
price level behind the top of book by
posting a limit order. Such a strategy
could benefit from being able to see the
depth at these price levels at multiple
exchanges in order to evaluate which
exchange’s queue would provide the
order with the highest execution
priority. To the extent this is the case,
the Commission believes that the traders
who previously did not have access to
additional depth of book information
would benefit by being able to better run
such strategies. This could improve
order execution quality for these
traders.923 The Commission
preliminarily believes that many of the
market participants who utilize such
strategies already have access to full
depth of book information via
subscriptions to proprietary feeds; for
these traders the rule would not
produce a direct benefit.924 The
Commission is unable to quantify the
number of market participants who
currently run these types of strategies
without using depth of book
information because the Commission
does not have access to information on
specific strategies utilized by individual
traders in the market.925
Also, the Commission preliminarily
believes that there may be market
participants that would start running
these order routing strategies if the data
were available to them at core data
923 For discussion of order execution quality and
the provision of execution services by brokerdealers, see supra Section VI.B.3(e).
924 The inclusion of depth of book information
may benefit those market participants who already
use depth of book information by providing
alternatives to proprietary feeds. For discussion of
this effect, see infra Section VI.C.1(b)(iv). Also, the
Commission preliminarily understands that some
market participants who use proprietary feeds as
their main source of market data also use the
exclusive SIP feeds as a backup. For such market
participants, the expansion of DOB information
may improve the value of a core data feed as a
backup.
925 The Commission preliminarily believes that it
is possible that the inclusion of this information in
the proposed definition of core data, along with
reductions in the latency differential that would
result from the decentralized consolidation model,
could benefit market participants who do not
currently run these strategies but who would
choose to start running them as a result of the
proposed changes. For more discussion on this
possibility, see infra Section VI.C.4(b).
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prices. These market participants might
currently find that the value of
attempting such strategies without DOB
data is too low to justify them, but that
access to additional DOB data through
these elements of new core data would
enable them to run such strategies
effectively. To the extent that such
market participants exist, the additional
DOB data would be a benefit to them as
well.
The revision in trading strategies
discussed above could result in changes
to the decisions traders make about
where to route their orders among the
various exchanges. Market participants
may find that depth of book information
suggests trading opportunities on
exchanges to which they would not
have otherwise routed their orders. The
Commission is uncertain about the
magnitude of this effect or which
exchanges may gain or lose order flow
as a result. The Commission cannot
determine how many market
participants may choose to change
routing strategies as a result of the new
depth of book information, nor to what
extent the new depth of book
information would cause market
participants to change where they route
their orders. The Commission invites
comments on this issue.
Also, the Commission preliminarily
believes that the more widespread
dissemination of depth of book
information could result in more
efficient pricing.926 The Commission
preliminarily believes that as more
traders take advantage of information
contained in the depth of book data,
prices would reflect this information
more quickly. Therefore, more
widespread dissemination of depth of
book information has the potential to
lead to pricing that better reflects
available information. If many current
users of SIP data are capable of utilizing
the information in the new core depth
of book data, this effect may be large,
but if only a few choose to make use of
the new data or are capable of utilizing
it, then this effect would be small. The
size of this effect depends on the
willingness and ability of current
market participants who currently rely
solely on SIP data to make use of the
information in the new depth of book
data, which is unobservable.
The Commission preliminarily
believes that there may be gains from
trade that would be realized as a result
of adding this depth of book information
as an element of core data. The
possibility for this benefit to materialize
relies on the extent to which there exist
926 For further discussion of this point, see infra
Section VI.D.1.
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traders who would be willing to send
orders that ‘‘walk the book’’ 927 but
currently do not do so because they do
not see what is beyond the top of the
book. This situation represents an
economic inefficiency because there are
potential gains from trade that are not
realized because of a lack of
information. This would presumably be
a benefit to both the trader walking the
book and the traders who posted orders
behind the BBO that would be filled as
a result of the trade.
Relatively few orders actually execute
at prices outside the NBBO,928 which
implies that trading against quotes away
from the NBBO on a single exchange,
using a single marketable order, does
not occur frequently. In addition, an
analysis of a sample of trading in ten
stocks on the Nasdaq exchange found
that an average of 0.65% of market
orders walked through the best
displayed price level for these ten
stocks.929 Therefore, the Commission
preliminarily believes that there may be
limited benefits from additional DOB
information in the particular
hypothetical case of traders who
currently rely solely on SIP data for
market information and who would
submit market orders to trade against
limit orders beyond the top of the book
on a single exchange if the depth of
book information were available.
However, the size of the benefit depends
on the willingness of traders to walk the
book after receiving the new DOB
information, as well as their trading
interest, and this is unobservable in the
current market.
(iii) Effects of Addition of Auction
Information
The Commission proposes to add
‘‘auction information’’ as an element of
core data. This proposal would result in
all auction information currently
disseminated by exchanges via
proprietary data feeds being made
available to subscribers of these
elements of core data feeds. The
Commission preliminarily believes that
the addition of auction information as
an element of core data would make this
information more readily available to
anyone who subscribes to these
elements of core data and would have
effects that include changes to market
participants’ trading strategies, gains
from trade as a result of new
927 See
supra note 814.
supra note 814.
929 See Nikolaus Hautsch and Ruihong Huang,
Limit Order Flow, Market Impact and Optimal
Order Sizes: Evidence from NASDAQ TotalViewITCH Data, at 10, Table 3 (Aug. 22, 2011), available
at https://papers.ssrn.com/sol3/
papers.cfm?abstract_id=1914293.
928 See
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participation in auctions, potential
improvements to price discovery in
auctions, changes to order routing
decisions, and a significant reduction in
the value of dedicated proprietary
auction feeds.
As discussed above, some auction
information is currently available to
market participants through specialized
feeds for a lower price than full DOB
feeds,930 and also a limited set of
auction information is available through
the current SIP feeds.931 This enables
access to a limited set of auction
information for some market
participants, at lower prices than full
DOB feeds. To the extent that any
market participants find these auction
feeds sufficient for their trading needs,
the Commission preliminarily believes
that the addition of all auction
information as an element of core data
will have a limited effect on these
market participants. To the extent that
these market participants make up a
large share of the market participants
who would be interested in using
additional auction information, the
Commission preliminarily believes that
the effect of adding auction information
may be limited.932 The Commission
preliminarily believes that the extent of
this limitation is reduced by the fact
that not all auction information is
available to market participants through
such feeds. The Commission does not
have data on the number of market
participants with proprietary feed
subscriptions.
The Commission preliminarily
believes that auction information
contains insights useful to traders in
devising and executing trading
strategies.933 Therefore, the Commission
preliminarily believes that adding this
information as an element of core data
would produce a benefit for those
traders who currently do not access
such information. To the extent that
these traders can exploit this auction
information, the addition of this
information as an element of core data
should enable them to produce better
trading strategies and lower execution
costs, as well as facilitate best
execution. To the extent that the
advantages of possessing auction
information come from exploiting the
930 See
supra Section VI.B.2(a).
supra Section VI.B.2(a).
932 Since the cost to integrate multiple auction
feeds into a single feed is a fixed cost in producing
a market data feed, the Commission preliminarily
believes that there would still be a benefit from the
rule in the form of competing consolidator
integrated auction feeds, which could be cheaper
for market participants than integrating the feeds
themselves.
933 See supra notes 344–346.
931 See
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trading decisions of market participants
who lack this information, this effect
would represent a transfer from those
traders who currently have auction
information to those traders who would
obtain access to it through this rule and
are able to exploit it to improve their
trading strategies. The Commission
preliminarily believes that this auction
information could potentially be used
across all trading venues, including
exchange auctions, continuous
exchange trading, and off-exchange
venues.
The Commission preliminarily
believes that there may be potential
gains from trade that would be realized
through the addition of auction
information as an element of core data.
The Commission believes that there may
be market participants who would trade
in auctions but currently do not trade in
auctions because they do not access
auction data. To the extent such traders
exist, the addition of auction
information as an element of core data
would give them that data. This trade
could benefit both sides of the trade,
thus resulting in an economic benefit.
To the extent that market participants
who start trading in auctions as a result
of gaining access to auction information
possess insights beyond what can be
inferred from auction information,
increasing the number of participants in
auctions as described above should
improve price discovery in the auction
process. The Commission preliminarily
believes that those who do not
participate in auctions because they do
not access auction information are
unlikely to possess insights beyond
what can be inferred from auction
information. This is because any market
participant who has such insights
would find it worthwhile to purchase
auction information and participate in
the auction so as to exploit the value of
the insights. Therefore, this benefit
could be small. The size of this effect
depends on the relative number of
traders who possess such insights to
those who do not who start participating
in auctions as a result of this rule and
the size of their auction traders in that
event, both of which are unobservable
in the current market.
The Commission preliminarily
believes that the addition of auction
information as an element of core data
may affect the order routing decisions of
market participants who currently do
not have access to auction information.
For example, some off-exchange trading
venues cross market-on-close orders
before the closing auction takes place
and later settle the trades at the closing
auction price. Having access to auction
imbalance information may affect
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market participants’ decision to route a
closing order to either an off-exchange
venue or to the closing auction on the
primary listing exchange. For example,
a market participant who gets access to
auction information through a
subscription to these elements of new
core data might decide not to route the
order to an off-exchange venue so as to
be able to participate in the auction
using the new information available.
This auction information could also
affect decisions made during the time
when auction information is
disseminated about whether to send
orders to continuous trading venues
instead of auctions or off-exchange
venues. However, the Commission
preliminarily believes that the overall
effect of auction information on order
routing decisions is uncertain and likely
would vary based on market conditions.
The Commission preliminarily
believes that the value of dedicated
auction feeds would be substantially
reduced as a result of the proposed
addition of auction information to core
data, and that this would result in a loss
of revenue for those exchanges who
offer such feeds. Since the full set of all
auction information currently available
in the market would be included in the
definition of core data proposed by this
rule, the Commission preliminarily
believes that the value of any existing
data product that provides only auction
data 934 that is not currently in the
exclusive SIP feeds would be
substantially reduced. The Commission
expects that many market participants
who are executing a trade, either for
themselves or for a client, have, and
would continue to have, a subscription
to core data. Therefore, when this
subscription includes all available
auction information, the value of
dedicated proprietary auction data feeds
could be substantially reduced.
(iv) General Costs To Expanding
Consolidated Data
The Commission preliminarily
believes that there are three potential
costs to adding the new core data
elements proposed in this rule, which
are common across all these elements.
The first potential cost is the cost to the
new competing consolidators that
would be necessary to implement or
upgrade existing infrastructure and
software in order to handle the
dissemination of the additional core
data message traffic. The second cost is
the technological investments market
participants might have to make in
order to receive the new core data
message traffic. The third cost is the cost
934 See
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16827
to users of certain kinds of trading
strategies that may currently be relying
on the fact that this data is not widely
distributed today.
The Commission preliminarily
believes that the cost for firms that wish
to become competing consolidators to
implement or upgrade infrastructure to
handle the dissemination of new round
lot quotes, depth of book information,
and auction information would be
limited. As discussed in more detail
below,935 the Commission preliminarily
believes that the new competing
consolidators will likely be firms that
already have the technological
infrastructure necessary to process full
depth of book data and to generate the
NBBO using this data. Therefore, for
these firms, requiring the competing
consolidators to be able to process the
new message traffic resulting from the
additional core data may add only a
minimal cost to becoming a competing
consolidator. However, for a firm that
does not currently subscribe to, or
process data from, exchange proprietary
feeds, the new core data message
volume would increase the cost of
becoming a competing consolidator
beyond what it would have cost if the
rule did not propose to expand core
data. In particular, if the existing
exclusive SIPs should decide to enter
the competing consolidator business,
they may incur such costs as they do not
currently disseminate full depth of book
data.936
The Commission preliminarily
believes that there would be limited
infrastructure investment required on
the part of SROs to provide the
information necessary to process and
disseminate new core data. This is
because the SROs currently provide all
elements of new core data over their
proprietary feed infrastructure.937 In
addition, the Commission preliminarily
believes that many competing
consolidators would be firms that
already subscribe to these feeds,938 and
935 See infra Section VI.C.2(a) for a discussion of
the technological capabilities of firms the
Commission preliminarily believes are most likely
to become competing consolidators. It is possible
that the addition of this proposed definition of core
data would make consolidation more difficult for
core data than it is currently, and that this added
difficulty would result in additional latency.
However, the Commission preliminarily believes
that the risk of this is minimal, again because of the
technological capabilities of competing
consolidators and the market forces that will be in
effect in the decentralized consolidation model.
936 These costs are included in the discussion of
costs for current exclusive SIPs to provide
competing consolidator services. See infra Section
VI.C.2(d).
937 See supra Section VI.B.2(a).
938 See infra Section VI.C.2(a).
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thus, the SROs would likely not have a
large amount of new data connections to
service and therefore would not need to
invest in infrastructure to handle them.
However, exchanges, particularly
primary markets, may incur some
infrastructure costs related to the
dissemination of new regulatory data.939
Currently, the new regulatory data
component to the proposed
consolidated market data is distributed
through the SIPs. In order for this
information to be distributed through
the new decentralized consolidation
model, the rule requires the exchanges
to provide a feed to competing
consolidators and self-aggregators that
contains the regulatory data. The
Commission preliminarily believes that
the infrastructure and operational
processes provide such a feed is
currently not completely in place and
would require investment on the part of
exchanges.940
The Commission preliminarily
believes that the costs for infrastructure
investment on the part of market
participants 941 that choose to receive
the new DOB and auction information
components of core data would have
only a limited impact.942 Adding these
components to core data could
substantially increase the total message
traffic in core data,943 and this increase
in message traffic may be accompanied
by costs to market participants to set up
the infrastructure required to handle
this new level of traffic. However, the
proposed amendments would not
require market participants to receive
(or display) the complete set of
proposed consolidated market data, and
competing consolidators would not be
required to deliver all proposed
consolidated market data for each data
product they offer.944 Therefore, those
market participants who do not want to
incur the costs associated with the
expanded core data message traffic due
939 As discussed above, this new regulatory data
would consist of all the same messages as current
regulatory data distributed through the exclusive
SIPs. See supra Section III.D.
940 The costs to SROs to produce a feed for such
regulatory data is included in the numbers for the
general costs to SROs for providing the data
necessary to generate consolidated market data in
Section V.D.6.
941 These market participants would include any
entity that subscribes to the new consolidated
market data.
942 See also supra Section VI.C.1(b)(i).
943 The Commission preliminarily believes that
the addition of DOB information, in particular, may
substantially increase message traffic. See supra
note 294.
944 A market participant that has obligations
under Rule 603(c) would have to receive all data
necessary to generate consolidated market data to
comply with the rule. The specific cost associated
with some of this data is discussed below. See infra
Section VI.C.1(c)(i).
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to additional depth of book information
or auction information would be able to
choose not to receive any such
additional information. Presumably, a
market participant would therefore only
seek to obtain the full set of
consolidated market data if it believed
that the benefits of receiving the data
justified the costs. Thus, the
Commission preliminarily believes that
no market participant who does not
consider this cost of the infrastructure
investments necessary to receive the
new core data worthwhile would have
to incur it. For those market participants
who do wish to incur the cost, the
Commission is unable to estimate the
associated costs because it does not
have access to information about the
infrastructure expenses a market
participant incurs to process market
data and because of the likelihood that
such costs depend on each market
participant’s existing infrastructure.
The Commission preliminarily
believes that adding the depth of book
and auction information to core data
could impose a cost on traders who rely
on strategies that take advantage of the
fact that the information in depth of
book and auction data is not widely
distributed (i.e., those traders who are
beneficiaries of existing informational
asymmetries). To the extent that some of
the value of depth of book and auction
information lies in the fact that they
currently are not observed by a number
of market participants, the Commission
preliminarily believes that the
dissemination of this data would
adversely impact the profitability of
such trading strategies. For traders using
trading strategies based on depth of
book information, the magnitude of the
cost caused by the proposed
amendments would depend on the
extent to which the five aggregated
levels of depth proposed in this rule
approximate the information contained
in the full depth of book information. To
the extent that these strategies exploit
the lack of information on the part of
exclusive SIP-reliant traders, this cost
would represent a partial transfer to
traders who currently rely solely on SIP
data. The Commission is unable to
estimate the size of this effect, since it
does not have a method for detecting the
use of such trading strategies from
market data or determining what the
profit on such strategies would be if
they could be detected. The
Commission invites comments on the
issue.
Regarding the proposed amendment
to change the round lot definition, the
Commission preliminarily believes that
the proposed amendment may
negatively affect certain trading
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strategies, but the associated costs are
likely to be small. First, the Commission
preliminarily believes that there may be
traders who currently attempt not to
display their orders to wide public view
by posting them in odd-lot sizes, in
pursuit of trading strategies that take
advantage of a market’s limited
knowledge of odd-lot size quotes. The
Commission understands that certain
traders (ones who are the most likely to
recognize any advantage being sought in
this manner) obtain proprietary feeds
and so currently can see these odd-lot
quotes. This means that this strategy
cannot be used to hide quotes from
users of proprietary feeds. To the extent
that it is necessary to hide the quotes
from such users in order for the strategy
to work, the benefits of such a trading
strategy are likely to be minimal. If this
is the case, then to the extent that the
new round lot definition makes this
strategy more difficult, the Commission
preliminarily believes that the cost to
these traders of losing such an
opportunity would also be minimal. On
the other hand, if there is some benefit
to posting quotes in odd-lot sizes to hide
them from view (or at least from the
view of exclusive SIP users) despite the
fact that users of proprietary feeds can
still see the quotes, the Commission
preliminarily believes that to the extent
that the new round lot definition makes
this strategy more difficult, there could
be a cost to the traders who use such a
strategy. The Commission cannot
observe whether an odd-lot quote is
being used to hide the order or not but
invites comments on the issue.
Second, there may be costs to those
traders who currently enjoy the position
of being among the traders who can see
odd-lot quotes via proprietary data
feeds. The Commission preliminarily
believes that odd-lot quotes are more
easily taken advantage of by those
traders who can see the quotes.
Currently, this advantage is available
only to those traders who purchase
proprietary data feeds. The Commission
preliminarily believes that this gives
these traders an advantage over other
traders by improving their order
execution costs. Under the proposed
changes to core data, this advantage is
likely to be reduced. If this were to
happen, it would be because other
traders would obtain the advantage as
well and may take advantage of these
quotes before the current direct feed
subscribers do. To the extent that this
happens, this cost to current direct feed
subscribers from losing this advantage
represents a transfer to the traders who
can see the liquidity currently in oddlots. The Commission is uncertain about
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the size of the loss in advantageous
trading opportunities to traders who
subscribe to the proprietary data. To
quantify this requires knowing (among
other things) when an odd-lot quote is
traded with by a participant who had
access to full odd-lot information and
when it was traded with by a participant
who did not know the quote was there,
and this is not observable from available
market data. However, the Commission
invites comments on the issue.
(v) Request for Comments
The Commission requests comments
on its analysis of the economic effects
the proposed amendments regarding
core data and consolidated market data.
In particular, the Commission solicits
comment on the following:
188. Do you agree with the
Commission’s analysis of the economic
effects of creating definitions for
‘‘consolidated market data,’’ ‘‘core
data,’’ ‘‘administrative data,’’ and
‘‘regulatory data’’? Why or why not?
Please explain in detail.
189. Do you agree with the
Commission’s analysis of the economic
effects of expanding the content of core
data? Why or why not? Please explain
in detail.
190. To what extent would the
expansion of core data reduce the value
of current market data products? What
would be the economic effect of any
reduction? Who would benefit and who
would incur costs of any value
reduction? Would the reduced value
result in a net welfare gain or loss?
Please explain in detail and quantify if
possible.
191. To what extent would market
participants who wish to receive
information currently contained in the
exclusive SIP feeds that will not be
included in the proposed definition of
consolidated market data be able to
obtain this information from other
sources? What would be the likely price
of such sources?
192. The Commission requests
comments on the potential uses of
expanded core data content. How would
market participants use the expanded
core data? Which market participants
would be likely to use the additional
depth of book data? To what extent
would the users or uses differ from
current users and uses? What would be
the potential economic effects of the
expanded core data? Please be specific.
193. The Commission requests
comment on the capacity requirements
needed by exchanges, competing
consolidators, and users resulting from
expanded core data. Would any of these
participant types need to upgrade
systems to be able to handle the
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expanded data? If so, what would be the
aggregate one-time and ongoing
expenses of these upgrades? Would
such expenses vary by type of entity or
other factors? If so, what factors might
affect these expenses and what would a
reasonable range of expenses be for
exchanges, competing consolidators,
and users? Would the expansion of core
data increase any data latencies relative
to today? If so, what would be the
economic effect of the increased
latency? Please be specific.
194. The Commission requests that
commenters provide any insights they
may have as to the effect of the addition
of depth of book information, smaller
quotes (from the definition of round lot),
and the inclusion of auction information
on the share of order flow received by
various exchanges, ATSs, and other
trading systems. If you expect the
inclusion of such information to alter
order routing decisions, please explain
the factors that could determine the
winners and losers and whether such
changes would result in net welfare
gains or losses. Please provide estimates
of these potential effects.
195. The Commission requests that
commenters provide any insights they
may have as to the effect of adding the
depth of book, smaller quotes, and
auction information to the core data on
traders who currently benefit from
information asymmetries. Would any
losses to these traders be offset by gains
to others? If so, would there be net
welfare gains or losses? Please explain
in detail and also submit any insights
you may have as to the size this effect.
196. The Commission requests that
commenters provide any insights they
may have as to the effect of the
proposed round lot definition on the
informational advantage currently
possessed by those traders who obtain
odd-lot quotes via proprietary feeds.
Would any transfers between those who
currently have access to this data and
those who do not result in any welfare
gains or losses? What effect would the
proposed round lot definition have on
trading strategies that exploit the hidden
nature of odd-lots? Please explain in
detail.
197. Do you agree with the
Commission’s assessment that the
traders currently reliant on SIP data,
who will be able to see price-improving
odd-lot quotes in certain stocks, could
create additional trades that do not
currently take place? Why or why not?
Please explain in detail.
198. The Commission requests that
commenters provide any insights they
may have as to the effect of including
depth of book information in core data
on trading strategies that exploit the
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16829
information in current depth of book
data products.
199. The Commission requests that
commenters provide any insights they
may have as to the effect of including
depth of book information in core data
on the informational advantage
currently possessed by those traders
who obtain depth of book via
proprietary feeds. Would any transfers
between those who currently have
access to this data and those who do not
result in any welfare gains or losses?
Please explain in detail.
200. The Commission requests that
commenters provide any insights they
may have as to the use of depth of book
information in running strategies that
attempt to establish priority in the
queue at a particular price level behind
the top of book. Are such strategies ever
run without access to depth of book
information? How common are such
strategies in the market?
201. Would the inclusion of depth of
book information in core data strain
current throughput, processing, or
storage capacities? If so, by how much?
How costly would it be and who would
incur the costs of upgrading capacity to
handle depth of book information in
core data?
202. Do you agree that the inclusion
of odd-lot or depth of book information
in core data would result in more
efficient pricing? Why or why not?
Please explain in detail.
203. To what extent would any
benefits of including depth of book
information in core data depend on the
degree to which orders ‘‘walk the
book’’? Which benefits, if any, depend
on this? Please explain how.
204. To what extent would adding all
auction information to core data result
in such information being more widely
disseminated, and what role do existing
dedicated auction feeds play in this? If
so, how would market participants use
this more widely disseminated data and
what would be the economic effect of
this usage? Please explain in detail.
205. Would disseminating auction
information in core data increase
participation in auctions? Why or why
not? What would be the economic effect
of any change in auction participation?
Would this change in auction
participation improve price discovery?
Please explain.
206. What are the initial and ongoing
technology costs that competing
consolidators would incur to collect,
compile, process, and disseminate the
expanded core data? How would these
costs vary across potential competing
consolidators—current exclusive SIPs,
current market data aggregators and selfaggregators, and new entrants? Would
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these costs constitute a significant
barrier to entry to becoming a competing
consolidator? Why or why not? Please
explain and provide quantified costs.
207. What are the initial and ongoing
technology costs that exchanges would
incur to disseminate the expanded core
data to competing consolidators? Please
quantify these costs. Do commenters
agree that these costs would be minimal
to the extent that exchanges are already
disseminating such information in
proprietary data feeds? Why or why not?
Please explain.
208. What would be the initial and
ongoing technology expenses incurred
by market participants to receive and
process the expanded core data for their
intended uses? Please quantify these
expenses. Do you agree that such
technology expenses would be minimal
for those market participants that
currently receive and process such
information from proprietary data feeds?
Why or why not? Do you agree that such
technology expenses would be mitigated
by the fact that only those market
participants that would significantly
benefit from receiving and using such
data would choose to receive it? Why or
why not? Please explain in detail.
209. Do you agree with the
Commission’s range of the potential
increase in message traffic associated
with the expansion of market data?
Please explain and provide alternate
estimates as necessary. How would the
costs incurred by exchanges, competing
consolidators, and data users depend on
the increase in message traffic? Would
the relation between message traffic and
costs for each of these entities be linear,
concave, or something else?
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(c) Amendments to the NBBO and
Protected Quotes and Other Conforming
Changes
The proposal to change the round lot
size for stocks with prices greater than
$50 would mechanically change NBBO
spreads for these stocks, as explained
below. Specifically, almost all stocks
with prices above $50 would experience
narrower NBBO spreads. In addition to
the direct effect of narrower quoted
spreads, the Commission recognizes that
these mechanical changes to the NBBO
may affect other Commission or SRO
rules and regulations. For some of these
rules and regulations, the Commission
is proposing conforming changes, which
themselves can have economic effects.
For other rules and regulations, the
Commission analyzes below the followon economic effects of the mechanical
changes to the NBBO.
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(i) Changes in the National Best Bid and
Offer and Protected Quotes
As discussed in detail above,945 the
proposed amendments would reduce
the number of shares included in the
definition of a round lot for NMS stocks
for which the prior calendar month’s
average closing price on the primary
listing exchange was greater than
$50.00.946 Higher priced stocks would
be grouped into tiers based on their
price and stocks in higher price tiers
would have fewer shares in their
definition of a round lot. In addition,
the proposed amendments would, as
part of the proposed definition of core
data, require that the best bid and offer
and national best bid and offer include
odd-lots that, when aggregated, are
equal to or greater than a round lot and
that such aggregation shall occur across
multiple prices and shall be
disseminated at the least aggressive
price of all such aggregated odd-lots.947
The Commission preliminarily
believes that these amendments could
potentially change the spread between
national best bid and offer for these
higher priced stocks because the NBBO
would now be calculated based off of
the smaller round lot size. To the extent
that odd-lot shares exist in these stocks
at prices that are better than the national
best bid and offer (i.e., at prices higher
than the national best bid and prices
lower than the national best offer), the
new national best bid and offer under
the proposed amendments may be at a
higher/lower price because fewer oddlot shares would need to be aggregated
together (possibly across multiple price
levels) to form a round lot. This could
result in a quoted spread that is
calculated based off of the NBBO being
smaller for these stocks. The
Commission preliminarily believes that
the reduction in spreads would be
greater in higher priced stocks because
stocks in higher priced tiers would have
fewer shares included in the definition
of a round lot.948
The proposed amendments would
also change the definition of a protected
945 See
supra Section III.C.1(d).
round lot size for the twelve stocks that
currently have round lot sizes less than 100 shares
could also change as a result of the proposed
amendments. For some of these stocks, the round
lot size may increase, which could cause the quoted
spread derived from the NBBO to widen. See supra
Section III.C.1.
947 See supra Section III.C.1. Several exchanges
already aggregate odd-lot orders into round lots and
report such aggregated odd-lot orders as quotation
information to the exclusive SIPs. See supra notes
157–158 and accompanying text.
948 See supra Section III.C.1. Also, for additional
analysis of the narrowing of spreads as a result of
the new round lot definition, see supra VI.C.1(b)(i).
946 The
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quote from a round lot to 100 shares.949
This would increase the number of
shares required for a quote to be
protected for the twelve stocks that
currently have round lot sizes of less
than 100 shares.950 Additionally, the
proposed amendments would only
allow odd-lot orders at a single price
point to be aggregated together to form
a protected quote.951 As discussed
above, several exchanges already
aggregate odd-lot orders across different
price levels into round lots and report
such aggregated odd-lot orders as
protected quotes to the exclusive
SIPs.952 To the extent that a stock
currently has odd-lot shares inside the
NBBO, the Commission preliminarily
believes the proposed amendments
could cause the protected quotes to
widen because odd-lot shares at
multiple price levels could no longer be
aggregated together to create a protected
quote.953 Additionally, if stocks have
periods of time when they do not have
100 aggregated shares at the same price
point, then under the proposed
amendments, they could have increased
periods of time during which they might
not have a protected quote. The
Commission cannot quantify to what
extent protected quotes would widen
because the effects would partially
depend on how market participants
adjust their order submissions based on
the new round lot size, which the
Commission is unable to predict.
However, the Commission preliminarily
believes that these effects would vary
based on the price of the stock. For
stocks with prices in the lowest
proposed round lot tier, i.e. stocks with
prices of $50.00 or less, the Commission
preliminarily believes that the effects
would be minimal because the round lot
size would not change for these stocks
and because there is evidence that these
stocks have fewer odd lots inside the
current NBBO.954 The Commission
preliminarily believes that the effect on
protected quotes would be greater for
stocks with higher prices. Since higher
priced stocks appear to have more odd
lots inside the current NBBO,955 the
Commission preliminarily believes that
under the proposed amendments their
protected quotes could widen. The
949 See
supra Section III.C.1(d)(i).
supra notes 141, 251.
951 See supra Section III.C.1.
952 See supra note 85 and accompanying text.
953 Although such a widening of the protected
quote could impact execution quality of orders, the
Commission preliminarily believes that best
execution obligations of broker-dealers may
mitigate this result.
954 See supra Section III.C.1(b) (discussing staff
odd-lot analysis).
955 Id.
950 See
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Commission preliminarily believes that
both the amount by which, and the
proportion of time, the protected quote
would be wider under the proposed
amendments would increase with the
price of the stock.956 The Commission
invites comments and analysis in order
to estimate to what extent the protected
quotes would widen under the proposed
amendments.
The Commission preliminarily
believes that the change in the round lot
and protected quote definition could
have an effect on retail order flow
internalization businesses. Currently,
some wholesalers,957 by arranging to
execute orders on behalf of retail brokerdealers, offer superior prices relative to
the existing NBBO (i.e., price
improvement) to retail investors. As part
of this arrangement, the wholesaler
typically agrees that some percentage of
the broker-dealer’s orders will execute
at prices better than the NBBO and/or
agrees to certain execution quality
metrics. The Commission expects that
the new definition of a round lot will,
at times, make the NBBO narrower for
the affected stocks because the new
definition would include orders that are
at superior prices to the 100 share
NBBO at a size less than 100 shares. As
a result, it may become more difficult
for the retail execution business of
wholesalers to provide price
improvement and execution quality
metrics at levels similar to those
provided under the 100 share round lot
definition today.
It is also possible that by the same
mechanism retail investors could
experience an improvement in
execution quality from these
wholesalers.958 Assuming that the
NBBO has narrowed, and wholesalers
continue to agree to provide a certain
level of price improvement off of the
narrower spread, this would lead to
better execution prices for retail
investors. To the extent that retail
wholesalers are held to similar
execution quality standards by retail
broker-dealers in a narrower spread
environment, this could have a negative
effect on the profitability of the retail
execution business for wholesalers,
given that there would be less ‘‘spread
profit’’ available to the wholesaler in a
956 The Commission preliminarily believes that
under the proposed amendments some high priced
stocks that currently have round lot sizes of less
than 100 shares may not have a protected quote in
place for much of the trading day because they
might have price levels with size greater than or
equal to 100 shares.
957 See supra note 892 for discussion of
wholesalers and retail internalization.
958 This improvement may not be transparent to
the retail investor. See infra note 976 for further
discussion of this point.
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narrow spread environment. This is, in
part, because the wholesaler may often
keep a portion of the spread profit that
is not given as price improvement to the
investor who submitted the order.
Therefore, if the NBBO has narrowed
and price improvement must still be
provided, there would be less revenue
for the wholesaler.959 To the extent this
happens, it would be a transfer from the
wholesaler to retail investors.
To make up for lower revenue per
order filled in a narrower spread
environment, wholesalers could
respond by changing how they conduct
their business in a way that could affect
retail broker-dealers. There are several
possibilities, including but not limited
to, reducing per order costs associated
with their internalization programs,
such as reducing any payments for order
flow or reducing the agreed upon
metrics for price improvement. In the
event that wholesalers reduce payments
for order flow, retail broker-dealers
could respond by changing certain
aspects of their business. The
Commission is uncertain as to how
wholesalers may respond to this
proposal, and, in turn, how retail
broker-dealers may respond to those
changes, and the Commission is
uncertain as to the extent of these
effects.
The effect of lost revenue for
wholesalers discussed above may be
reduced if wholesalers use proprietary
feeds to trade, to the extent they already
see and respond to odd-lot quotations
inside the NBBO and currently provide
execution quality to customers based
upon the superior odd-lot quotations.
The Commission preliminarily
believes that the change in the NBBO
and the protected quote caused by this
proposal could change the share of
order flow captured by each exchange.
Currently, Rule 611 requires that the
trading center on which the order is
executed prevent executions that result
in trade-throughs of protected quotes,960
and exchange rules provide for the
aggregation or ‘‘rolling up’’ of odd-lots
of different prices to produce protected
quotes.961 With the NBBO based off of
the new round lot definition, the
protected quote remaining at 100 share
quotes, and a change in the ‘‘roll up’’
practice for odd-lot quotes, the
Commission preliminarily believes that
there would be changes in how orders
959 The NBBO based off of the new round-lot
definition would be relevant to the spread
considered by the wholesalers because, among
other things, it would be used for Rule 605
execution statistics. See infra Section VI.C.1(c)(iii)
for further discussion of Rule 605 statistics.
960 See supra notes 234–235.
961 See supra note 157.
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16831
are routed to fulfill both best execution
requirements and protected quote
requirements. These changes might not
be uniform across exchanges, and it is
possible that some exchanges would see
an increase in order flow. This
particular effect would represent a
transfer of business (and therefore
transaction fees) between the exchanges.
Also, the Commission preliminarily
believes that changes in the NBBO
caused by the new round lot and
protected quote definitions could also
affect other trading venues, including
exchanges and ATSs.962 Exchanges and
ATSs have a number of order types that
are based off of the national best bid and
offer.963 Changes in the NBBO could
affect how these order types perform
and could also affect other orders they
interact with. Some ATS matching
engines also derive their execution
prices based off of price improvement
measured against the NBBO. Changes in
the definition of the NBBO could affect
execution prices on these platforms.
Overall, the Commission preliminarily
believes that these interactions could
affect order execution quality on
different trading platforms, but it is
uncertain of the direction or magnitude
of these effects.
Changes in execution quality could in
turn affect competition for order flow
between different trading venues, with
trading venues that experience an
improvement/decline in execution
quality attracting/losing order flow.
However, the Commission is uncertain
of the direction or magnitude of these
effects.
The Commission preliminarily
believes that market participants who
currently rely solely on core data to
obtain NBBO feeds would incur some
infrastructure investment costs as a
result of the proposed amendment to
change the definition of a round lot.
This is based on the Commission’s
belief that the proposed amendment
would lead to more frequent updates to
the NBBO and that this would result in
an increase in message traffic for NBBO
feeds.964 The Commission
acknowledges that having an NBBO feed
is an essential component of the brokerdealer business. The Commission is
unable to estimate the associated costs
because it does not have access to
962 See supra Section VI.C.1(c)(iii) for additional
discussion of effects on exchange rules.
963 For example, the apparent price improvement
over the NBBO calculated off of core data that is
offered by a midpoint crossing network would be
reduced as a result of these changes to the NBBO.
964 As discussed previously, this will happen
more in high-priced stocks where the new round lot
definition will have more of an effect. See supra
Section III.C.1(d)(i).
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information about the infrastructure
expenses a broker-dealer incurs to
process market data and because of the
likelihood that such costs vary
substantially according to the existing
infrastructure of broker-dealers, but the
Commission invites comments on the
issue.
For certain core data use cases, the
costs described in the preceding
paragraph are likely to be minimal.
Many broker-dealers, when accessing
data for the purposes of visual display,
currently obtain NBBO quotes from the
exclusive SIPs with a ‘‘per query’’ use
case. This use case is set up so that a
quote is only sent when it is asked for.
The Commission preliminarily believes
that this setup has very little
technological cost associated with it and
that furthermore whatever cost there is
to receiving such a feed would not be
impacted by increasing the number of
times the NBBO is updated over a given
time period. Thus, the Commission
believes that for those broker-dealers
who rely on per query use cases for their
quotes, the upgrade costs resulting from
changing the round lot definition would
be minimal.965
Trading venues and broker-dealers
could also experience implementation
costs from having to modify and
reprogram their systems, including
matching engines and SORs, to account
for the changes in the NBBO and
protected quotes caused by the
proposed amendments. For costs to
trading venues as a result of changes to
the protected quotations, NBBO, and the
new restriction on roll up quotes, the
Commission does not have detailed
information on the operation of
exchange matching engines. However,
the Tick Size Pilot required reprogramming of exchange matching
engines as well. For that pilot, CHX
estimated that total costs for
implementing the pilot were $140,000
per SRO and market center.966 The
Commission preliminarily believes that
this number may provide some sense of
the level of cost associated with the
changes SROs, ATSs, and other offexchange trading venues would have to
make in order to comply with the new
rules regarding protected quotes. In
addition, there could be variation in this
cost between different market centers or
categories of market centers depending
965 This conclusion is contingent on the
assumption that competing consolidators would
choose to offer a per query service to market
participants so that this arrangement could
continue after the rule takes effect.
966 See Letter to Brent J. Fields, Secretary,
Commission, from James G. Ongena, General
Counsel, Chicago Stock Exchange, Inc. (Dec. 22,
2014).
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on the existing state of their
infrastructure. The Commission invites
comments on the reasonableness of this
number as an approximation for the cost
to update matching engines.
Broker-dealers may also incur
implementation costs. For example, a
broker-dealer who runs an SOR off of
core data alone would now have to
adapt this system to keep track of the
NBBO separately from the protected
quote. This is particularly relevant for
the submission of Intermarket Sweep
Orders (‘‘ISOs’’), where the brokerdealer assumes responsibility for
preventing trade-throughs. For ISOs, the
broker-dealer’s SOR would now have to
simultaneously target liquidity available
at the NBBO while keeping track of
protected quotes to prevent tradethroughs. The Transaction Fee Pilot
required re-programming of SORs as
well, and forms a basis for an estimate
of these costs. For that pilot, the
Commission estimated that the costs of
a one-time adjustment to the order
routing systems of a broker-dealer
would $9,000 per broker-dealer.967 The
Commission preliminarily believes that
this number may provide some sense of
the level of cost associated with changes
that broker-dealers, as well as other
entities making real-time order routing
decisions based off of SIP data, would
have to make as a result of the proposed
changes to the NBBO and protected
quote and other implementation costs
discussed below.968 Such costs are
likely to vary substantially across
broker-dealers according to the state of
their existing infrastructure. The
Commission invites comment on the
reasonableness of this number as an
approximation for the costs to update
trading systems to deal with this
implementation cost and the
implementation costs discussed below.
The Commission is also deleting the
reference to ‘‘The Nasdaq Stock Market,
Inc.’’ from the definition of protected
bid or offer and believes that this
changes would have no economic
effects. As explained above in Section
III.C.1(d)(ii), Nasdaq is now a national
securities exchange and is thus
otherwise bound by the definition.
967 See Securities Exchange Act Release No.
84875 (Dec. 19, 2018), 84 FR 5202 (Feb. 20, 2019)
(Transaction Fee Pilot for NMS Stocks).
968 The Commission preliminarily believes that
this $9,000 estimate would cover the changes that
would have to be made as a result of the proposed
distinction between the NBBO and the protected
quote as well as changes that would result from the
effect of the proposal on locked or crossed markets.
These costs are discussed below, see infra Section
VI.C.1(c)(ii).
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(ii) Amendments to Locked/Crossed
Markets
The Commission preliminarily
believes that the proposed amendments
could cause an increase in the frequency
of locked and crossed NBBOs in certain
stocks.969 This is expected to occur due
to the fact that the existing locked and
crossed markets prohibition, as affected
by the proposed amendments, would
only apply to protected quotations (or
the PBBO) and not to the new round lot
sizes, which may often constitute the
NBBO. As described above in Section
III.C.1(d)(ii), Rule 610(d), which
requires trading centers to establish
procedures to prevent orders being
entered that would lock or cross
markets, is based solely on protected
quotations, which, as proposed to be
defined, may not be the NBBO. If a
locked and crossed NBBO is not
prohibited by rule, it is more likely to
occur.
The Commission preliminarily
believes that this increase is unlikely to
have much economic effect. The new
round lot definition may cause the
NBBO to narrow. The Commission
preliminarily understands that it can
sometimes happen that a market
becomes locked or crossed in odd-lot
orders. To the extent that these odd-lots
are included in the new definition of a
round lot, the NBBO will appear locked
or crossed on occasion. The
Commission preliminarily anticipates
that the fact that they will now be
classified as a locked or crossed NBBO
will not make much difference, because
these locked or crossed conditions
already occur in odd-lots. Furthermore,
the effect of having these locked or
crossed quotes visible to market
participants who rely solely on core
data is unlikely to be different from the
general effects discussed for the added
information as a result of the change in
the round lot definition. In particular, to
the extent that these crosses and locks
in odd-lot sizes represent a profitable
trading opportunity to those market
participants who rely solely on
exclusive SIPs, being able to observe the
occurrence of these events as a result of
the proposed change to the round-lot
definition would be a benefit to these
969 Locked and crossed markets already occur
with respect to odd-lot quotes and are observable
to market participants who subscribe to proprietary
feeds. See supra note 256 and accompanying text.
Even if there is no increase in the frequency of
locked and crossed markets, their occurrence may
still be observed by a higher number of market
participants under the proposed amendments
because of the change in the round lot definition.
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market participants.970 Also, to the
extent that market participants who
currently subscribe to proprietary feeds
are able to profit from being the only
market participants to observe crossed
or locked odd-lots, the proposed change
will represent a cost to them.971 To the
extent that the ability to profit from
observing crossed or locked odd-lot
quotes comes from exploiting those
market participants who cannot see the
crosses or locks, this change will
represent a transfer from those who
currently trade on this information to
those who acquire the information
through new core data and are able to
use it effectively.972 It is also possible
that traders avoid sending orders
because of the risk of being exploited if
they cross or lock the market. To the
extent that this happens, and to the
extent that the proposed expansion of
core data addresses this concern, the
increase in trading that would result
would represent a benefit to both sides
of the trade.973
The Commission preliminarily
believes that some crossed or locked
quotes represent traders who are not
aware at the time they post their quote
that the quote could be filled by a
marketable order elsewhere. To the
extent this happens it represents a cost
to this trader since the posted order is
exposed to the risk that it will be
executed with a marketable order at a
price inferior to what is available on the
market to the trader who posted the
order.
Market participants would also
experience implementation costs in
order to modify their systems to account
for locked and crossed NBBOs. The
Commission preliminarily believes that
to the extent that market participants
currently rely on the exclusive SIPs to
keep track of whether trading
restrictions imposed by Rule 610(d)
would apply, their systems would have
to be updated to take into account the
fact that the NBBO is no longer the price
point at which such restrictions are
triggered. Instead, they would have to
keep track of both the NBBO for trading
purposes, and the new protected bid
and offer in order to monitor whether a
610(d) restriction would apply. The
970 See supra Section VI.C.1(b)(i) for further
discussion of such benefits resulting from the new
round-lot definition.
971 See supra Section VI.C.1(b)(iv) for further
discussion of such costs resulting from the new
round-lot definition.
972 See supra Sections VI.C.1(b)(i) and
VI.C.1(b)(iv) for further discussion of transfers
resulting from the changes to the round-lot
definition.
973 See supra Section VI.C.1(b)(i) for further
discussion of such benefits resulting from the new
round-lot definition.
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costs to make such changes are covered
by the estimate provided above for costs
to implement changes that would result
from changes to the NBBO and
protected quote, since that estimate is
related to trading system
adjustments.974 Such costs are likely to
vary substantially across market
participants depending on their existing
infrastructure.
An increase in the frequency of
locked and crossed markets could also
have additional economic effects. As
discussed above, it could cause a change
in order routing behavior and order flow
between trading venues. Furthermore,
as discussed below, it could also affect
the calculation of Rule 605 execution
statistics.
(iii) Other Rules and Regulations
The changes to core data, particularly
the changes to the definition of
‘‘national best bid and national best
offer’’ affect how other rules and
regulations operate. In particular, this
change affects which orders determine
the reference price for numerous rules,
including rules under the Exchange Act,
SRO rules, and NMS plans. The
Commission discussed many of these
above in Section III.C.1(d)(i).
Specifically, the Commission
preliminarily believes that the changes
to the NBBO may present changes to the
benchmark prices used in Regulation
SHO, LULD, retail liquidity programs,
market maker obligations, and certain
exchange order types and recognizes
that the change in the benchmark price
could result in economic effects.
Further, changing the NBBO would alter
the estimation mechanics for Rule 605
metrics, resulting in implementation
costs. In addition, the proposed round
lot definition would result in economic
effects through its impact on the Rule
606 compliance. Finally, the
Commission preliminarily believes that
the proposed rules, though appearing to
change the requirements of several other
rules and regulations, would not
necessarily have an economic impact
through these other rules and
regulations.
For Rule 201 of Regulation SHO, the
reference bid for the execution of a short
sale transaction could be higher under
that proposal than it is currently,
potentially slightly increasing the
burdens on short selling. Currently, after
the Short Sale Circuit Breaker triggers,
short sales can only execute at prices
greater than the NBB. While short sales
are currently permitted to execute
against any odd-lot quotations that exist
above the NBB, the proposed round lot
974 See
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16833
definition would reduce the instances of
such odd-lot quotations. Therefore, the
proposal could result in a higher NBB
and thus result in a slightly higher
benchmark price for short sale
executions in stocks priced more than
$50, reducing the fill rate of short sales
or increasing the time to fill for short
sales.
In addition, a potentially higher NBB
price or potentially lower protected best
bid could marginally affect the trigger of
the Short Sale Circuit Breaker. In
particular, the proposal could result in
slight delays in or a reduction in the
number of Short Sale Circuit Breaker
triggers, or it could have the opposite
effect. In particular, an NBB that
includes smaller round lots could result
in a higher-priced execution relative to
an NBB that does not include smaller
round lots. This higher-priced execution
could be above the price that would
trigger the Short Sale Circuit Breaker
whereas an execution on a 100-share
quote would have triggered the circuit
breaker. This could delay the trigger if
the price continues downward, such
that the circuit breaker still triggers, or
the circuit breaker may not trigger at all
if the price rebounds after such an
execution. On the other hand, if the
proposal results in a lower protected
bid, it could have the opposite effect on
circuit breaker triggers: Triggering
sooner and more often.
The Commission preliminarily
believes that the economic effects of the
potential impact on the Short Sale
Circuit Breaker are unlikely to be
significant. These effects should not
create implementation costs, and the
Short Sale Circuit Breaker should
continue to function consistent with its
stated purpose. Notably, if the proposal
would result in not triggering as many
Short Sale Circuit Breakers, it could
reduce ongoing compliance costs in
situations in which the price rebounds
despite the lack of a price test on short
sales.
Similarly, a potentially higher bid
price or lower offer price could affect
the trigger of a Limit State under the
LULD Plan. A lower-priced NBO or a
high-priced NBB could result in that
quote being more likely to touch a price
band, thus triggering a Limit State,
when it otherwise would not have.
Depending on whether the quote would
have otherwise rebounded, this could
increase the number of Limit States and/
or Trading Pauses or could merely
trigger such Limit States or Trading
pauses sooner. As in the case of the
Short Sale Circuit Breaker, the effects
should not create implementation costs,
and LULD should continue to function
consistent with its stated purposes. In
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addition, the economic effects of this
potential marginal change depends
largely on how often odd-lot quotations
lead price declines or lead price
increases.
As discussed above,975 a number of
Rule 605 execution quality statistics are
benchmarked to the NBBO. Under the
proposed amendments, the NBBO
would be based on the proposed tiered,
price-based round lot sizes, which
means any Rule 605 execution quality
statistics that rely on the NBBO as a
benchmark would reflect the modified
definition of the NBBO. This could
cause certain execution quality statistics
to change in higher priced stocks. As
discussed above, the Commission
preliminarily believes that the NBBO
would become narrower for some stocks
in higher price tiers. This could cause
execution quality statistics that are
measured against the NBBO to change
because they would be measured against
the new, narrower NBBO. For example,
execution quality statistics on price
improvement for higher priced stocks
may show a reduction in the number of
shares of marketable orders that
received price improvement because
price improvement would be measured
against a narrower NBBO. However, the
Commission preliminarily believes that
some of these changes may cause some
Rule 605 statistics to more accurately
reflect actual execution quality because
the NBBO based on the new definition
for round lots may now take into
account more liquidity that the current
NBBO ignores.976 The Commission
preliminarily believes that these effects
would be larger for stocks in higher
price tiers because their new round lot
definition would include fewer shares.
In addition, the NBBO midpoint in
stocks priced higher than $50 could be
different under the proposal than it
otherwise would be, resulting in
changes in the estimates for Rule 605
statistics calculated using NBBO
midpoint, such as effective spreads. In
particular, at times when bid odd-lot
quotations exist within the current
975 See
supra Section III.C.1(d)(i).
the hypothetical case of a stock in which
there are often valuable odd-lot quotes, brokerdealers trading in this stock can currently use these
odd-lot quotes to improve on the NBBO, and this
improvement might be reflected in Rule 605
statistics. Under the proposed change, if this stock
is priced over $50 per share, then some of these
odd-lot quotes could end up being defined as round
lots under the new definition and thereby end up
the basis for the NBBO. With these quotes as the
NBBO, the broker-dealer would no longer appear to
be improving over the NBBO in its execution, and
Rule 605 statistics may appear to indicate a
decrease in execution quality. However, they
would, in fact, merely be reflecting a more accurate
picture of the market circumstances at the time of
execution.
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976 In
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NBBO but no odd-lot offer quotations
exist (and vice versa), the midpoint of
the proposed NBBO would be higher
than the current NBBO midpoint. For
example, if the NBB is $60 and the NBO
is $60.10, the NBBO midpoint is $60.05.
Under the proposal a 50 share buy
quotation at $60.02 would increase the
NBBO midpoint to $60.06. Using this
proposed midpoint, effective spread
calculations for buy orders would be
lower but would be higher for sell
orders. More broadly, the proposal
would have these effects whenever the
new round lot bids do not exactly
balance the new round lot offers.
However the Commission does not
know to what extent or direction that
odd-lot imbalances in higher priced
stocks currently exist, so it is uncertain
of the extent or direction of the change.
Additionally, a change in the rate of
locked and crossed markets could also
affect how Rule 605 execution quality
statistics are calculated. The
Commission preliminarily believes that
orders received when the NBBO is
crossed for more than 30 seconds are
generally not included in Rule 605
execution statistics. To the extent the
changes in the definitions of round lots
and protected quotes cause an increase
in the frequency or length of crossed
markets, more orders could end up
being excluded from Rule 605 execution
statistics, which could cause some Rule
605 execution statistics to less
accurately reflect actual execution
quality.
Finally, the Commission recognizes
that such changes could force market
centers (or their third-party service
providers) to revise their processes for
estimating the Rule 605 execution
statistics. Such changes would result in
implementation costs.
The Commission recognizes that the
NBBO serves as a benchmark in SRO
rules in addition to Exchange Act rules
and NMS plans. For example, the NBBO
acts as a benchmark for various retail
liquidity programs on exchanges, for
exchange market maker obligations, for
some order types, and for potentially
many other purposes.977 As such,
including smaller quotes in the NBBO
would change how these rules operate
and these changes could have economic
effects. For example, having to post
more aggressive limit orders into retail
liquidity programs could reduce the
already low volume by reducing the
liquidity available but could result in
977 For a discussion of the effect of changes to the
NBBO on order types and to exchange odd-lot ‘‘rollup’’ practices for protected quotes, see supra
Section VI.C.1(c)(i). For discussion related to
changes to round lot size for stocks with round lots
of less than 100 shares, see supra note 946.
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better prices for those retail investors
able to execute against that liquidity. In
addition, a narrower NBBO could
effectively increase some market maker
obligations, which could improve
execution quality for investors and/or
provide a disincentive to being a market
maker on the margin. Alternatively, the
exchanges with such retail liquidity
programs, order types, or market maker
obligations could elect to propose rule
changes to maintain the current
operation of these rules. Such proposals
could mitigate any follow-on economic
effects (both benefits and costs) but
would require exchanges to incur the
expenses associated with proposing
amendments to their rules. The
Commission understands that the
proposed changes to the NBBO could
affect numerous other SRO rules and
requests comment on any significant
follow-on economic effects.
As discussed above,978 the proposed
definition of round lot could result in an
increase in the number of indications of
interest in higher priced stocks that
would be required to be included in
606(b)(3) reports. Depending on the
number of potential indications of
interest included as a result of the
proposed rule, the Commission
preliminarily believes that these
changes could increase the benefits of
Rule 606(b)(3) with little to no effect on
costs.979 In particular, the inclusion
could result in clients receiving
information on order routing for more of
their orders, with the resulting benefits.
Further, because the incremental cost of
adding orders to the reports is low, the
Commission does not expect that adding
additional indications of interest to the
reports would significantly increase
costs.
In addition, the Commission
preliminarily believes that the proposal
may result in some rules appearing to
change but such changes might not
result in economic effects. For example,
the proposed amendments may impact
the compliance with Rules 602(a),
602(b), 604(a)(1), 604(a)(2), and Rule
610(c). It is unclear whether these
impacts would have economic effects.
For example, exchanges may already
have procedures to collect and make
available their best bids and offers to
vendors, regardless of the size of those
best bids and offers. Further, brokerdealers may already treat all bids and
offers as firm quotes regardless of size
and may already display all customer
limit orders regardless of size. Finally,
978 See supra Section III.C1 (discussion of how
the definition impacts Rule 606).
979 See 606 Adopting Release, supra note 227, for
a discussion of the benefits of 606(b)(3).
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exchanges may already pay the same
rebates or charge the same access fees
regardless of order size. To the extent
that these practices are in place, there
would be no economic effect from these
changes. To the extent that these
practices are not in place, the proposal
may result in some additional
compliance costs. The Commission
invites comments on the impact of the
proposal with compliance cost for Rules
602(a), 602(b), 604(a)(1), 604(a)(2), and
Rule 610(c).
(iv) Request for Comments
The Commission requests comments
on its analysis of the economic effects
of the proposed amendments to the
NBBO, protected quotes, and other
conforming changes. In particular, the
Commission solicits comment on the
following:
210. Effectively, the proposed round
lot definition reduces the minimum
quotation size for the NBBO, depending
on the price of the security. The
Commission requests that commenters
provide any insights they may have as
to the economic effects of priceimproving odd-lot quotes being reported
as the NBBO in the new core data.
211. Do you agree with the
Commission’s data analysis of the
potential frequency of improvements to
the NBBO and the magnitude of
improvements to the NBBO spread?
Why or why not? Please provide
additional data analysis as needed to
support your answer.
212. What would be the economic
effects of the proposed changes to the
PBBO? For the twelve stocks that
currently have a round lot defined as
one share, how often would such
securities not have a protected best bid
(‘‘PBB’’) or protected best offer (‘‘PBO’’)?
What would be the economic effects of
not having a PBB or PBO in these
stocks? For stocks that tend to have a
significant number of odd-lots that are
rolled-up into the current PBBO, the
proposed changes to the PBBO could
widen the PBBO spread. What would
the magnitude of this increased spread
be and how often would the PBBO be
wider? Would a wider PBBO necessarily
result in higher transaction costs for
investors? If so, by how much would
transaction costs increase? Please
explain and provide any data analysis
needed to support your answer.
213. How do exchanges currently
calculate their protected quotes? If the
proposal were to allow odd-lots to be
rolled up across prices to create a
protected quote, how would the PBBO
be different than the proposed PBBO?
Would the economic effects of such a
change be different than the economic
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effects of the proposed protected
quotes? Please explain.
214. How would the changes to the
NBBO and protected quotes affect offexchange executions? What benchmark
price would ATSs, internalizers, and
other off-exchange venues use to price
transactions? Would this differ from
current practice? Please explain. What
would be the effect of this on
transaction costs of off-exchange
executions? How large would any
change in transaction costs be?
215. How would the proposed
changes to the NBBO and protected
quotes affect transaction costs incurred
by various investor types—e.g., active
institutional investors, passive
institutional investors, and retail
investors? Please explain. How large
would any change in transaction costs
be for each investor type? Please
provide any data analysis needed to
support your answer.
216. How would the proposed
changes to the NBBO and PBBO affect
order routing decisions and the share of
order flow captured by each exchange
and off-exchange venue? Would some
exchanges or other venues gain order
flow while others lose order flow? What
are the factors that could determine a
gain or loss in order flow? Can you
quantify this change in order flow?
What would be the economic effects of
any changes in order flow? Would such
changes result in net welfare gains or
losses? Please explain in detail.
217. Under the proposed NBBO, what
would ATSs and other off-exchange
venues use as a benchmark to price
executions on their system? How would
this affect execution quality for
investors? How would the proposed
NBBO affect the operation of certain
orders types on ATSs? Please explain.
218. To what extent would the
proposed NBBO result in additional
message traffic for those market
participants who currently rely on SIP
data and, under the proposal, would
receive and use NBBO but not depth of
book information? Would these market
participants incur significant initial
costs to prepare to receive and use such
additional message traffic? Would these
market participants incur significant
ongoing costs in receiving and using
such additional message traffic? Do you
agree that most such broker-dealers
currently pay for SIP NBBO data on a
‘‘per query’’ basis and, therefore, would
not incur significant initial or ongoing
costs as a consequence of any increase
in message traffic? Please explain.
219. To what extent would the
proposal result in exchanges and other
trading venues incurring costs to
reprogram their matching engines to
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16835
account for changes in the NBBO and
protected quotes?
220. Do you agree with the
Commission’s assessment about the
implementation costs for implementing
a definition of the protected quote that
differs from the NBBO? Why or why
not? Please also submit any insights you
may have as to the size and scope of the
effect of this change.
221. Would the change to the NBBO
result in an increase in the proportion
of time in which the market is locked or
crossed? Why or why not? If so, what
would be the economic effects of this
increase? Would this effect vary across
securities? Please explain in detail.
222. How often do locks or crosses
occur between odd lot orders today?
Please provide any data analysis needed
to support your answer.
223. Would an increase in locked or
crossed markets result in market
participants incurring additional
implementation costs to account for this
increase? If so, what would be the
magnitude of the additional
implementation costs? Please quantify.
Do you agree with the Commission’s
assessment of the relevant costs?
224. Do you agree that the proposed
definition of the NBBO could change
the benchmark price for short sale
executions following a trigger of Rule
201 of Regulation SHO? What would be
the economic effects of the changes in
the benchmark? Would the proposal
significantly increase the burdens on
short selling following a trigger? Please
explain.
225. Do you agree that the proposed
definition of the NBBO could reduce the
frequency of triggers of Rule 201 of
Regulation SHO? Would such a
reduction have significant economic
effects? Why or why not? Please
explain.
226. How would the proposal alter the
operation of Rule 605? If so, would such
changes have any economic effects?
Would execution quality appear better
or worse for all market participants or
would it affect the relative appearance
of execution quality? Would the changes
result in actual changes to execution
quality or just apparent changes in
execution quality? Would the changes
result in fewer orders being included in
the Rule 605 statistics? Please explain.
227. The proposed changes to the
NBBO and Protected Quotes likely affect
the operation of numerous SRO rules.
Please provide information on the
number and type of SRO rules that rely
on the NBBO or protected quotes.
Assuming the SROs do not propose
amendments to these rules, what would
be the effect of the proposed changes to
the NBBO and protected quotes on the
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operation of these SRO rules and the
likely resulting economic effects? How
much would SROs expend in proposing
to amend their rules, assuming the SROs
choose to amend their rules? Please
provide estimates of such costs.
2. Decentralized Consolidation Model
This section focuses on the economic
effects pertaining to the proposed
decentralized consolidation model. The
section first discusses relevant broad
economic considerations and economic
benefits and costs of the proposed
model with regards to competing
consolidators, then addresses economic
benefits and costs for self-aggregators,
and concludes with the discussion of
conforming changes.
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(a) Broad Economic Considerations
About the Decentralized Consolidation
Model
The economic analysis of the effects
of the decentralized consolidation
model assumes that upon the
introduction of the model, a sufficient
number of competing consolidators
would enter the market so that
competitive market forces would have a
significant effect on their behavior.
Several factors affect the reasonableness
of this assumption: Competing
consolidators’ ability to offer
differentiated products, barriers to entry
into the competing consolidator space,
the fees for data content and
consolidation and dissemination
services, and the uncertainty regarding
connectivity charges for proposed
consolidated market data. While the
Commission recognizes uncertainty in
these factors and that certain economic
impacts depend on this assumption, the
Commission believes that the risk of few
or zero competing consolidators is low.
Further, the Commission notes that it
would consider the state of the market
and the general readiness of the
competing consolidator infrastructure in
determining whether to approve an
NMS plan amendment that would
effectuate a cessation of the operation of
the existing exclusive SIPs.
(i) Factors
This section discusses the factors
affecting the reasonableness of the
assumption that a sufficient number of
competing consolidators would enter
the market.
a. Competing Consolidators’ Ability To
Offer Differentiated Products
The first factor that may affect the
number of firms willing to register as
competing consolidators is firms’ ability
to offer differentiated products. Market
participants’ demand for proposed
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consolidated market data is likely to be
heterogeneous because there are many
different investor types (e.g., retail
investors, small banks, market
participants focused on value
investment) that have differing
investment strategies. The ability of
competing consolidators to attract
different investor types would depend
on fees set by the national market
system plan(s) and competing
consolidators’ ability to differentiate
among themselves.980
Competing consolidators’ ability to
differentiate may be necessary to ensure
multiple competing consolidators are
serving the market for the following
reasons. As discussed above, the
production of consolidated data
involves relatively higher fixed costs
and lower variable costs.981 In such
markets, the firms have additional
incentives to increase the number of
their customers in order to spread the
fixed cost across a larger base of
consumers. Therefore, due to the fixedcost nature of the market and resulting
economies of scale, without
differentiation, the competing
consolidator market could consist of
only one competing consolidator
because the largest competing
consolidator would be able to offer the
most competitive price.
However, the Commission
preliminarily believes that the
competing consolidators would be able
to differentiate among themselves by
product customization; by focusing on
different segments of demand; and/or by
offering varying levels of other services
such as customer service, ease of user
interface, analytics, data reformatting
and normalization services, and latency
rates. Competing consolidators could
offer different consolidated data
products that range from full
consolidated market data to subsets of
consolidated market data such as top of
book products. In addition, because
exchanges offer different connectivity
options, some competing consolidators
could differentiate themselves by
specializing in lower latency data. Other
competing consolidators could target
data users who might prefer not to have
the lowest latency product if the higher
latency products came with a lower
price or additional analytics. Competing
consolidators could offer a range of user
interfaces and analytics (e.g., various
ways to display consolidated data, or
provide forecasting services) that appeal
to different data users or could even
980 See infra Section VI.C.2(a)(iii) for a discussion
of the influence of fees on the ability to
differentiate.
981 See supra Section VI.B.3(a).
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offer an analytical environment to
customize analytics (e.g., offer software
tools allowing market participants to
analyze and summarize consolidate
data). Differentiation along these
dimensions would allow competing
consolidators to offer different services
at potentially different prices to
different types of end users. Therefore,
the market would be able to sustain
multiple competing consolidator
businesses, and this would encourage
further entry into the market.
b. Barriers to Entry
The second factor that would affect
the number of competing consolidators
is the barriers to entry into the
competing consolidator space. Potential
entrants into the competing consolidator
business could incur two types of
barriers to entry: Business
implementation costs that emerge from
the technical necessities of becoming a
competing consolidator and regulatory
compliance costs. The business
implementation costs would include
creation or modification of technical
systems to receive, consolidate, and
disseminate the proposed consolidated
market data. Competing consolidators
would need to have systems and
connections in place to receive data
content from all SROs and then to
disseminate the proposed consolidated
market data to a variety of market
participants who would purchase their
products. Further, based on the
proposed rule, potential entrants would
need to satisfy two compliance
requirements to become competing
consolidators. The first is the Regulation
SCI requirements 982 that would be
applicable to competing consolidators
because the proposed rule amends Rule
1000 of Regulation SCI to expand the
definition of ‘‘SCI entity’’ and include
competing consolidators. The second is
the proposed Rule 614 requirements,
including the Form CC requirements.983
There would be both initial
implementation and ongoing costs to
comply with these two regulatory
requirements. Both the business
implementation and regulatory
compliance costs would differ based on
the entrant type. As discussed above,984
the Commission preliminarily believes
that five types of entities may register to
become competing consolidators: (1)
Market data aggregation firms, (2)
broker-dealers that currently aggregate
market data for internal uses, (3) the
existing exclusive SIPs, (4) new nonSRO entrants, and (5) SROs. The
982 See
supra Section IV.B.2(e)(ii).
supra Section IV.B.2(e).
984 See supra Section V.D.2.
983 See
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barriers to entry would differ across
these five types of entities.
The Commission preliminarily
believes that the existing market data
aggregation firms and some brokerdealers that currently aggregate market
data for internal uses could face large
barriers to entry to become competing
consolidators. Because they currently
collect, consolidate, and, in some cases,
disseminate market data to their
customers, much like competing
consolidators would, the Commission
preliminarily believes that firms and
broker-dealers that currently aggregate
proprietary market data would not have
to extensively modify their systems.
However, the Commission preliminarily
believes that each of these firms and
broker-dealers would incur costs to
expand their bandwidth and purchase
hardware to receive information that is
not currently disseminated in the
exchange proprietary market data feeds,
such as the proposed regulatory data
and administrative data. Further, based
on the proposed rule, current market
data aggregators and broker-dealers that
currently aggregate market data for
internal uses would incur new
compliance costs to satisfy the two
regulatory compliance requirements to
become competing consolidators. As
discussed below,985 these costs could be
large and therefore may affect entry and
the benefits of the decentralized
consolidation model.
The Commission preliminarily
believes that barriers to entry for
exclusive SIPs to become competing
consolidators are low and are likely
lower than the barriers to entry of the
existing market data aggregation firms
and some broker-dealers that currently
aggregate market data for internal uses.
The Commission preliminarily believes
that the existing exclusive SIPs may
choose to become competing
consolidators due to their years of
experience in collecting, consolidating,
and disseminating market data. Because
the systems used by the exclusive SIPs
already collect information in
quotations and transactions from the
SROs, aggregate it, and disseminate it,
the Commission preliminarily believes
that the exclusive SIPs would not have
to extensively modify their systems.986
The Commission preliminarily believes
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985 See
infra Section VI.C.2(e)(ii).
on Commission staff expertise, the
Commission understands that existing exclusive
SIPs’ protocols for receiving direct data from
exchanges are not standardized and introduce
additional operational complexities. However, the
operators of exclusive SIPs, the exchanges, have
figured out how to aggregate direct feeds for the
purposes of their exchange matching engines, so
they have the technology that would be deployable
in the new decentralized consolidation model.
986 Based
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that each exclusive SIP would incur
costs to expand their bandwidth and
connections to consume and
disseminate the expanded consolidated
data as well as to transmit it with lower
latency, and to program feed handlers to
receive and normalize the different
formats of the data feeds developed by
the exchanges. Additionally, the
exclusive SIPs would have some
compliance costs. The exclusive SIPs
already are required to satisfy
Regulation SCI requirements since they
are currently SCI entities. And they also
have experience with the consolidated
market data business. Thus, any
exclusive SIP entering the competing
consolidator business would only have
ongoing Regulation SCI and initial and
ongoing compliance costs. The
Commission preliminarily believes that
the difference between compliance costs
to satisfy these requirements and
current exclusive SIP compliance costs
are small.987
The Commission anticipates that
firms without prior experience in the
market data aggregation business may
become competing consolidators but
that they would have the highest
barriers to entry because they would
have to build new systems to comply
with the proposed rules. The new
entrants would incur costs to program
feed handlers to be able to receive and
normalize exchange data in different
formats, and purchase bandwidth and
connections to exchanges and
colocation. These costs increase the
fixed costs of participating as a
competing consolidator in the market,
further contributing to the barriers to
entry. New entrants would also have the
highest compliance costs among all
potential entrants, since they would
have to build compliance systems from
scratch to satisfy both Regulation SCI
and proposed Rule 614, including Form
CC, requirements. Therefore, the
Commission preliminarily believes that
there may be a limited number of firms
that could enter the market data
aggregation business for the first time.
The Commission anticipates that
SROs may choose to become competing
consolidators. Although SROs may be
able to leverage existing systems in
developing a system compliant with the
proposed rules, the Commission
preliminarily believes that SROs would
likely have to build at least some new
systems and thus may incur initial
costs.988 At the same time, despite
higher initial costs, the Commission
preliminarily believes that the barriers
to entry for SROs are relatively low due
987 See
988 See
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supra Section V.D.2(e).
Frm 00113
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16837
to their current unique position in the
industry and their particular
infrastructure and expertise. Similar to
the existing exclusive SIPs, SROs
already are required to comply with
Regulation SCI. SROs that have
experience in the consolidated market
data business (e.g., exchanges that
currently operate an exclusive SIP)
would only incur ongoing Regulation
SCI and initial and ongoing Form CC
compliance costs. SROs that do not have
experience in consolidated market data
business would incur some initial
Regulation SCI costs in addition to the
ongoing Regulation SCI costs. These
SROs would also incur initial and
ongoing proposed Rule 614, including
Form CC, compliance costs. The
Commission preliminarily believes that
SROs that wish to become competing
consolidators could find it convenient
to arrange an affiliate to do this work so
as to avoid having their competing
consolidator business subject to the
same regulatory regime as an SRO.989
c. Fees for Consolidated Market Data
Another factor that would affect the
number of competing consolidators
relates to the fees that the effective
national market system plan(s) would
set for the proposed consolidated
market data content and the price
competing consolidators would charge
market participants for consolidation
and dissemination services.990 If these
fees are set too high or have the effect
of limiting product differentiation,991
they could limit the opportunities for
competing consolidators to build
profitable businesses.
Regarding the fees for the proposed
consolidated market data content, the
Commission recognizes uncertainty in
these fees. The fees charged by the
effective national market system plan(s)
for the data content necessary to create
proposed consolidated market data
would be proposed by the operating
committee(s) of the national market
system plan(s) and filed with the
Commission.992 Because such fees
depend on future action by the effective
national market system plan(s), the
Commission cannot be certain of the
level of those fees or whether such fees
would provide discounts for those end
users who wish to receive subsets of
989 As explained above, SROs that wish to act as
competing consolidators would not be required to
register with the Commission on Form CC. See
supra note 537.
990 See infra Section VI.C.2(b) (discussing
economic analysis of data content, consolidation,
and dissemination, and connectivity fees).
991 See supra Section VI.C.2(a)(i)a. (discussing
potential dimensions of product differentiation by
competing consolidators).
992 See supra Section IV.B.2(c).
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consolidated market data.993 As
discussed further below, while these
fees would not be set by competition,
they must be fair and reasonable and not
unreasonably discriminatory. Assuming
that such fees would be reasonably
related to costs,994 the Commission
believes the resulting data content fees
could be set at a level that could help
sustain the competing consolidator
business. Further, if the national market
system plan(s) choose(s) to offer
discounts for subsets of consolidated
market data, competing consolidators
would have greater opportunity to offer
differentiated products to market
participants. Likewise, exchanges
continuing to offer connectivity at
different latencies would further
promote product differentiation by
competing consolidators. The
Commission preliminarily believes that
the national market system plan(s)
could propose such discounts because
at least one exchange has suggested
tiered SIP data products.995
The fees charged by competing
consolidators to market participants
would also determine how many
competing consolidators could
profitably exist. Given the high fixedcost nature of the business, with
multiple competing consolidators each
competing consolidator’s fixed costs
would be spread over fewer customers
than the costs with just one or few
competing consolidators. However, the
market for consolidated market data is
relatively large enough 996 that the
Commission preliminarily believes that
the average cost per customer is likely
to be reasonable enough to support
multiple competing consolidators.
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d. Connectivity
The fourth factor affecting the number
of competing consolidators is the
uncertainty regarding connectivity
charges for proposed consolidated
market data and their effects on the
viability of the decentralized model.
The data connectivity fees would
continue to be set forth in the
exchanges’ fee schedules.997
Connectivity fees for the provision of
consolidated market data would be a
fixed input cost for competing
993 See infra Section VI.C.2(b)(ii) for further
discussion.
994 See supra note 439. (The Commission has
previously stated that similar fees can be shown to
be fair and reasonable if they are reasonably related
to costs.)
995 See supra note 316 (citing an NYSE proposal
to enhance the exclusive SIPs by offering depth of
book, odd-lot quotes, and primary auction
imbalance information in three new tiers of service,
each of which with different levels of data content).
996 See supra Section VI.B.2(c).
997 See supra note 440.
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consolidators, and, therefore, the level
of connectivity fees for proposed
consolidated market data may affect the
economies of scale and the resulting
number of competing consolidators. The
Commission invites comments on the
likely effects of connectivity fees for
consolidated market data on the
proposed competing consolidator
business.
(ii) Impact on Economic Effects of
Decentralized Consolidation Model
As discussed in the previous section,
there are several factors that may affect
the number of competing consolidators
entering the market. While the
Commission recognizes uncertainty in
some of these factors, the Commission
preliminarily believes that the risk of
few competing consolidators entering
the market is low. The Commission also
preliminarily believes that the risk of
zero competing consolidators is even
lower because the possibility of being
the only consolidator in the market for
proposed consolidated market data
could represent a substantial business
opportunity—especially given market
participants’ different preferences for
data content and latency—thus leading
to entry into the competing consolidator
market space. In particular, a
monopolist in the market for proposed
consolidated market data would be able
to charge high prices for the service fee
portion of the overall price 998 and thus
capture supra-competitive profits from
all market participants.999 Based on the
discussion above, the Commission
preliminarily believes that entry into the
competing consolidator market space
will continue until competing
consolidators’ profits decrease to
competitive levels.
The assumption that there would be
a sufficient number of competing
consolidators entering the market affects
some economic effects of the
decentralized consolidation model.
Generally, many of the benefits and
competitive considerations below
depend on this assumption. For
example, the Commission preliminarily
believes that a higher number of
competing consolidators would lead to
lower fees paid by market participants
for proposed consolidated market
data,1000 larger gains in efficiency in the
delivery of proposed consolidated
market data and market data
communication innovations,1001 as well
as a reduction in data consolidation and
998 See
infra Sections VI.C.2(b) and VI.C.2(c).
profits are profits above
what can be sustained in a competitive market.
1000 See infra Section VI.C.2(b).
1001 See infra Section VI.C.2(c).
999 Supra-competitive
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dissemination latencies.1002 In addition,
some of the costs discussed below also
depend on this assumption. For
example, the transition to a competing
consolidator model would decrease
regulatory compliance costs imposed by
Regulation SCI on existing exclusive
SIPs that may register as competing
consolidators, by changing their status
from ‘‘critical SCI systems’’ to standard
‘‘SCI systems.’’ 1003
While the Commission preliminarily
believes that the risk of few competing
consolidators is low, as discussed
above,1004 in determining whether to
approve an NMS plan amendment that
would effectuate a cessation of the
operation of the existing exclusive SIPs,
the Commission would consider the
state of the market and the general
readiness of the competing consolidator
infrastructure. Examples of some of the
things that the Commission could
consider include the status of
registration, testing, and operational
capabilities of multiple competing
consolidators, self-aggregators, and
market participants; capabilities of
competing consolidators to provide
monthly performance metrics and other
data required to be published pursuant
to proposed Rule 614(d)(5)-(6); and the
consolidated market data products
offered by competing consolidators.
Therefore, the Commission believes the
economic analysis below represents a
reasonable assessment of the potential
economic effects of the proposal
notwithstanding the assumption of
sufficient competing consolidators.
(b) Analysis of the Impact on Data Fees
This section discusses potential
effects of the introduction of the
decentralized consolidation model on
prices market participants pay for
consolidated market data. When
comparing data fees for proposed
consolidated market data with current
data fees, this economic analysis holds
data content constant. In other words,
the fee comparison in this analysis is
between what market participants
would pay under the proposed rule
versus what they currently would have
to pay to access the same content of the
proposed consolidated market data.
After analyzing how fees could change
for the same data content, the analysis
then considers the costs to various
market participants, including those
market participants who are likely to
expand the content of data from that
1002 Id.
1003 See infra Section VI.C.2(e)(ii) (discussing
heightened requirements for ‘‘critical SCI systems’’
versus standard requirements for ‘‘SCI systems’’).
1004 See supra Section IV.B.6.
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they currently utilize. This last analysis
is critical to understanding the potential
for many of the benefits and costs
discussed above in Section VI.C.1 and
below in Section VI.D.1.
The Commission preliminarily
believes that the fees for consolidated
market data could be lower than fees
that market participants pay for
equivalent data today, but recognizes
significant uncertainty. The
Commission also recognizes uncertainty
in the fees that subscribers choosing to
receive a subset of consolidated market
data would pay under the proposed rule
and that these subscribers could pay
higher or lower fees than they do today
for equivalent data.
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(i) Fees for Proposed Consolidated
Market Data Content
The Commission first considers the
effect of the proposed rule on fees
market participants would pay for
proposed consolidated market data
versus what they currently would have
to pay to access the same content of the
proposed consolidated market data. The
Commission preliminarily believes that
fees for proposed consolidated market
data could be lower than fees for
equivalent data today, but recognizes
significant uncertainty about how the
effective national market system plan(s)
would set the fees for the data content
and how SROs would set the fees for
connectivity necessary to create
proposed consolidated market data as
well as how the competing
consolidators would price their services.
For the purposes of this section, the
Commission assumes that the effective
national market system plan(s) would
set fees for the proposed consolidated
market data content that are reasonably
related to costs.1005
The Commission preliminarily
believes that three sets of fees may be
affected as a result of the proposed rule:
fees for the data content necessary to
create proposed consolidated market
data, fees for the consolidation and
dissemination of proposed consolidated
market data, and fees for the
connectivity services necessary to
receive the components of proposed
consolidated market data from the
SROs. Regarding the SIP data, the first
two fees are currently bundled into a
single fee, which covers SROs’ data and
the exclusive SIPs’ operations such as
consolidation and dissemination of
data. The proposed rule would
unbundle these two components and
1005 See supra note 439. (The Commission has
previously stated that similar fees can be shown to
be fair and reasonable if they are reasonably related
to costs.)
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would allow competing consolidators to
provide the data consolidation and
dissemination services. Under the
proposed rule, the fee for data content
would be set by the effective national
market system plan(s).1006 The
operating committee(s) of the effective
national market system plan(s) would
propose the data content fees for the
SROs’ data required to create proposed
consolidated market data and would
then file the proposed fees with the
Commission for consideration pursuant
to Rule 608.1007 Competing
consolidators would charge a second fee
for their consolidation and
dissemination services, which could
also include associates costs for data
access at exchanges and transmission of
data between data centers. The fees for
data consolidation and dissemination
would be determined by competition
among competing consolidators.
Finally, SROs currently charge
connectivity fees for both exclusive SIP
and proprietary data feeds. Under the
proposal, SROs could charge
connectivity fees to competing
consolidators and self-aggregators,
which must be consistent with statutory
standards.1008 Competing consolidators
could charge connectivity fees to end
users, which would be subject to
competitive forces.
First, the Commission preliminarily
believes that how the proposed rule
would affect the fees for the data
content used to create proposed
consolidated market data is uncertain,
primarily because they depend on
future action by the effective national
market system plan(s), but the
Commission preliminarily believes that
such fees would likely be lower than
today’s fees for the equivalent data.
Currently, market participants who
would like to access content equivalent
to the data content of the proposed
consolidated market data would need to
separately purchase SIP data and
additional data elements via proprietary
data feeds. Under the proposed rule,
market participants would be able to
receive substantially similar content
from one source.1009 Further, market
1006 See supra note 96 (discussing amendments to
the provision regulating NMS plan(s) fee filings).
1007 See supra Section IV.B.4; supra note 433.
1008 Currently, connectivity fees are charged to
the market participants that connect to the
exchange and not to end users. See infra note 1017.
1009 Currently, fees for SIP data and proprietary
data are generally charged based on the number and
type of end user of the data. For example, the CTA/
CQ Plan Schedule of Charges distinguishes fees by
professional and non-professional subscribers and
the number of devices. See CTA Plan, Schedule of
Market Data Charges, supra note 851. The Nasdaq
UTP Plan, Exhibit 2 provides separate fees for nonprofessionals and per device fees. See Nasdaq UTP
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16839
participants would pay the data content
fees set by the effective national market
system plan(s) for NMS stocks, which
would be filed with the Commission
under Rule 608 and be subject to public
comment.1010 Therefore, the analysis of
the potential impact on data content
fees depends on, among other things,
whether the current fees for the
proprietary data content that will be
included in the newly defined
consolidated market data are fair and
reasonable and on how costs are likely
to change. As discussed above, the
Commission does not believe that the
proposal would significantly increase
SRO costs specifically for distributing
data.1011 The proposal could, on the
other hand, increase the allocation of
fixed exchange costs to consolidated
market data because the data content
would expand.1012 However, the
Commission lacks the necessary
information to ascertain those
impacts.1013
The Commission can deduce,
however, that data content fees for the
proposed consolidated market content
are unlikely to increase. As discussed
above,1014 the Commission understands
that SRO proprietary feeds for depth of
book data are significantly more
expensive than the exclusive SIP feeds.
The effective national market system
plan(s) for NMS stocks would be
unlikely to implement fees for the
proposed consolidated market data
content that are higher than the current
fees for equivalent data unless it is
demonstrated that the higher proposed
fees are justified under the applicable
legal standard.
Plan, supra note 13. Similar user distinctions are
made in proprietary data products. See Nasdaq,
Price List—U.S. Equities, available at
www.nasdaqtrader.com/
Trader.aspx?id=DPUSdata#tv (last accessed Jan. 30,
2020) (showing Nasdaq TotalView usage fees,
which provide fees for professional and nonprofessional subscribers); NYSE Proprietary Market
Data Fees (as of Nov. 4, 2019), available at https://
www.nyse.com/publicdocs/nyse/data/NYSE_
Market_Data_Fee_Schedule.pdf (showing the NYSE
Integrated Feed fee schedule, which distinguishes
between professional and non-professional users).
1010 Rule 608 of Regulation NMS, 17 CFR 242.608.
1011 See supra Section VI.C.1(b)(iv).
1012 See infra Section VI.C.4(a) for a discussion of
the likely effects of the proposal on the revenues
exchanges receive for proprietary data.
1013 In a comment letter, IEX provided data that
the SRO markups on proprietary data may be large.
In particular, IEX compared its own costs of
providing proprietary market data with the fees
charged by other exchanges for comparable
produces and found markups of 900–1,800 percent.
See Katsuyama Letter II; Letter to Brent J. Fields,
Secretary, Commission, from John Ramsay, Chief
Market Policy Officer, Investors Exchange LLC (Feb.
4, 2019) (discussing the ‘‘all-in’’ cost to trade
concept advocated by other exchanges).
1014 See supra Section VI.B.2(c).
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The Commission preliminarily
believes that the proposal is likely to
reduce data content fees. The
Commission expects that unless the
Commission approves a filing for data
content fees that would set fees at a
level that the effective national market
system plan(s) has shown is consistent
with statutory standards, the fees for the
proposed consolidated market data—
which is equivalent to the existing
exclusive SIP data plus additional
proprietary DOB data product
elements—would remain at current SIP
data fee levels and thus would be lower
than the current fees for the equivalent
data.1015 Absent information on data
costs, the Commission, at this time,
recognizes that such fees could be lower
than current exclusive SIP fees, similar
to current exclusive SIP fees, greater
than current exclusive SIP fees but less
than the fees for the current equivalent
of proposed consolidated market data,
or similar to the current equivalent of
proposed consolidated market data.
However, the Commission preliminarily
believes that such data content fees
would be lower than current fees for
equivalent data because, between 2010
and 2018, the proprietary data feed
portion of the current fees for equivalent
data appears to have increased at a rate
that seems unlikely that costs have
matched.1016
Second, the Commission
preliminarily believes that data
consolidation and dissemination fees for
proposed consolidated market data
would be lower than consolidation and
dissemination fees market participants
currently pay to receive equivalent data.
Consolidation and dissemination fees
that competing consolidators would
charge would cover several associated
costs, including fixed costs of hardware
and software; processing to take in data;
processing for consolidation (including
compiling the NBBO and protected
quotes); distribution of the data; and
connectivity fees paid to exchanges to
acquire the data for consolidation. The
variable costs of the competing
consolidators would be minor in
comparison because additional data
users would have a minimal impact on
the costs of competing consolidators.
The fixed costs of the competing
consolidators could be spread out
among its subscribers, including
subscribers utilizing other proprietary
data services provided by competing
1015 See supra note 96 (noting the Commission’s
proposal to rescind the provision of Rule 608 that
allows a proposed amendment to an effective
national market system plan(s) to become effective
upon filing if the proposed amendment establishes
or changes a fee or other charge).
1016 See supra Section VI.B.2(c).
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consolidators that are not covered by the
fees established by the effective national
market system plan(s).
To receive data equivalent to
proposed consolidated market data
today, market participants would have
to pay separately for a portion of
exclusive SIPs’ cost to perform
consolidation and dissemination of
market data and a fee for consolidation
and dissemination of additional data
elements of proposed consolidated
market data that are available via thirdparty providers of proprietary market
data, who face competitive pressures.
As discussed above,1017 exclusive SIPs
are not constrained by competition and
thus have lower incentives to reduce
their costs. By comparison, the
Commission preliminarily expects that
the competition among competing
consolidators would put downward
pricing pressure on these service fees.
The Commission recognizes that the
stronger the competition among
competing consolidators, the harder it
would be for any given competing
consolidator to increase its
consolidation and dissemination fees
and make supra-competitive profits
from these services.1018 Further, because
having more subscribers could help
competing consolidators spread their
fixed costs out, any increase in the
number of subscribers of current market
data aggregators who would become
competing consolidators would reduce
the service fees of those aggregators in
equivalent data. For these reasons, the
Commission preliminarily believes that
the competition among competing
consolidators would lead to lower
consolidation and dissemination fees for
proposed consolidated market data as
compared to these fees for equivalent
data today.
Third, the Commission preliminarily
believes that connectivity fees charged
by competing consolidators for
proposed consolidated market data
would also be lower than connectivity
fees market participants would
currently have to pay to receive
equivalent data. To receive data
equivalent to proposed consolidated
market data today, market participants
currently have to pay separately a
connectivity fee to the exchanges to
access SIP data and a connectivity fee to
the exchanges or market data
aggregators to access additional data
elements of proposed consolidated
market data that are not part of SIP data.
Under the proposed rule, the
Commission expects that market
participants would pay only one
1017 See
1018 See
PO 00000
supra Section VI.A.2.
supra Section VI.C.2(c).
Frm 00116
Fmt 4701
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connectivity fee for proposed
consolidated market data, set by
competing consolidators, and this
connectivity fee would be subject to
competition among competing
consolidators. By contrast, current
exchange connectivity fees are not as
competitive because an exchange has
sole control over its own connectivity
charge for its proprietary market data.
Therefore, the Commission
preliminarily believes that connectivity
fees that would be charged by
competing consolidators for proposed
consolidated market data would be
lower than the connectivity fees for
equivalent data today.
The Commission recognizes that
SROs would charge connectivity fees to
competing consolidators and selfaggregators. The exchanges could
continue to set connectivity fees for data
feeds as part of their SRO fee schedules
and these fees must continue to meet
statutory standards.1019 The exchanges’
connectivity fees are not currently based
on the number of end users, and
therefore the Commission preliminarily
believes that the connectivity fees for
proposed consolidated market data
would not be directly passed through to
the end users. SRO connectivity fees
would be fixed costs incurred by selfaggregators and by competing
consolidators, a cost the latter could
spread out among their end users as a
part of the consolidation and
dissemination fees.
Additionally, because the total fees
for the equivalent of proposed
consolidated market data are likely to
decline as a result of the proposal, some
market participants may choose to
purchase more consolidated market data
content than they purchase today, such
as purchasing the expanded core data.
The likelihood of this outcome would
depend on the difference between total
fees for proposed consolidated market
data and current total fees for equivalent
data content. The economic effect of
more market participants purchasing
expanded core data is discussed above
in Section VI.C.1(b).
(ii) Fees for the Content of Current SIP
Data
The Commission also considers the
effect of the proposed rule on fees
market participants currently pay for
SIP data content versus what they
would pay for equivalent content under
the decentralized consolidation model.
1019 For example, under Section 6(b)(4) of the
Exchange Act, the rules of an exchange must
‘‘provide for the equitable allocation of reasonable
dues, fees, and other charges among its members
and issuers and other persons using its facilities.’’
15 U.S.C. 78f(b)(4).
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The Commission recognizes that a
significant proportion of market
participants currently purchase only SIP
data and/or the unconsolidated
equivalent of SIP data.1020 Under the
proposed rule and conditional on fees
for proposed consolidated market data,
while some of these market participants
would choose to purchase more data
than they purchase today, other market
participants would continue to purchase
content equivalent to current SIP data
(e.g., NBBO and TOB). The Commission
preliminarily believes that data fees
paid for equivalent data content could
be higher than current SIP data fees or
could be lower than current SIP data
fees. Whether the fees are higher or
lower depends on several factors: the
data content fee structure proposed by
the effective national market system
plan(s) for NMS stocks, how competing
consolidators allocate their costs of
processing (i.e., receiving,
consolidating, and disseminating)
consolidated market data, and any
connectivity fees charged by competing
consolidators for consolidated market
data.
The Commission preliminarily
believes that the data content fee
structure proposed by the effective
national market system plan(s) for NMS
stocks under the decentralized
consolidation model is an important
factor in determining whether total data
fees (i.e., the sum of data content fees,
consolidation and dissemination fees,
and connectivity fees) for the equivalent
of current SIP data could be higher or
lower under the proposed rule.1021 The
Commission recognizes that because of
the expanded scope of proposed
consolidated market data relative to the
current SIP data, the data content fee
market participants would pay for data
necessary to create proposed
consolidated market data might be
higher than the portion of current SIP
data fees that accounts for the data
content. Until the effective national
market system plan(s) propose fees for
the data content necessary to create
proposed consolidated market data, the
Commission is unable to determine
whether this fee structure would charge
lower fees for end users who wish to
receive subsets of consolidated market
data from competing consolidators. In
other words, the Commission is unable
to determine whether the effective
national market system plan(s) for NMS
stocks would propose a fee structure
reflecting different tiers of data content
for the proposed consolidated market
data. Without such a structure, all
1020 See
1021 See
supra Section VI.B.2(a).
supra Section VI.B.2(c).
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subscribers to consolidated market data
would pay the same data content fee
regardless of whether they wish to
receive all or a subset of consolidated
market data. As a result, the proposal
could increase the content fees for the
equivalent of SIP data. This potential
outcome is highly dependent on the
effective national market system data
plan(s) and fee proposals.1022
The fees for data consolidation and
dissemination depend on how
competing consolidators allocate fixed
costs among subscribers receiving
different subsets of data. As discussed
above,1023 the Commission expects
competing consolidators to offer a menu
of products and services, regardless of
the data structure of the effective
national market system plan(s).
Competing consolidators could elect to
charge lower consolidation and
dissemination fees to subscribers
receiving subsets of data compared to
fees charged to subscribers receiving all
consolidated market data. In fact, the
Commission preliminarily believes that
competitive pressure could result in
such a fee structure. As a result, the data
consolidation and dissemination
component of total fees charged to those
who purchase content equivalent to SIP
data could be lower than this
component of current SIP data fees
today.
The fees for connectivity services paid
by end users are likely to decline for
some users but could increase for
others. Currently, some SIP data users
connect to the exchanges that are the
administrators of exclusive SIPs and pay
connectivity fees to access the SIP data.
These connectivity fees are paid directly
to the exchanges and do not go to the
exclusive SIPs. There are also SIP data
users that do not connect to the
exchanges and thus do not pay SRO
connectivity fees for SIP data, but may
pay fees to other market data service
providers. Under the proposed rule,
both types of current SIP data
subscribers may be charged a
connectivity fee by competing
consolidators when they subscribe to
proposed consolidated market data. The
Commission acknowledges that there is
uncertainty over whether the competing
consolidator connectivity fees would be
larger or smaller than what some of the
SIP data users currently pay in
connectivity fees. The overall
connectivity fees under the proposed
rule may be larger if competing
consolidators are not constrained by
competition such that they can charge
higher connectivity fees without
concern for subscribers’ scope of
content. On the other hand, as discussed
above 1024 and given the potential
connectivity options available, the
Commission preliminarily believes
competing consolidators will be under
competitive pressure, and as such, they
may offer a range of connectivity fees,
including based on market participants’
scope of data content and speed choice.
In that case, SIP data subscribers who
currently pay connectivity fees to the
exchanges may see their connectivity
fees decline.
(c) Benefits of the Decentralized
Consolidation Model Pertaining to
Competing Consolidators
As discussed above,1025 currently SIP
data is collected, calculated, and
disseminated to market participants
through a centralized consolidation
model with an exclusive SIP for each
NMS stock. Even though current
exclusive SIPs are selected through a
bidding process,1026 the Commission
preliminarily believes that a competitive
marketplace is more capable of
producing the benefits that come from
competitive forces than the process of
soliciting bids for exclusive
contracts.1027 In particular, the
Commission preliminarily believes that
the decentralized consolidation model
would have three potential benefits for
market participants. First, the
Commission believes that the
decentralized consolidation model
offers the potential for more gains in
efficiency in the delivery of
consolidated market data, which may
include cost savings that could be
passed on to market participants, to
emerge over time. Second, the
Commission believes the model would
enable consolidated market data
delivery to continue to keep up with
market data communication innovations
in the future, in a way that the current
centralized consolidation model has
not. Third, the Commission
preliminarily expects the new model
would significantly reduce the various
types of content and latency
differentials that currently exist between
SIP data and proprietary data
products.1028
The Commission preliminarily
believes that introducing competition
into the provision of consolidated
1024 See
supra Section VI.C.2(b)(i).
supra Sections IV.A, VI.B.2(b).
1026 See supra Section VI.B.1.
1027 See supra Section VI.A.2; infra Section
VI.D.2.
1028 See supra Section VI.B.2(b).
1025 See
1022 The Commission has proposed an order to
modernize the governance of the data plans. See
supra note 8.
1023 See supra Section VI.C.2(a).
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market data and dissemination services
would present more incentives for
reducing costs and lowering prices for
those services,1029 and innovating on
product offerings more tailored to the
needs of the consumers. It is therefore
the Commission’s preliminary
expectation that the decentralized
consolidation model would result in a
meaningful increase in investments
intended to lower costs and/or improve
quality in the provision of consolidated
market data. This represents an
economic benefit for the industry, some
of which would be kept by competing
consolidators as profit, and some of
which would be received by market
participants in the form of lower fees
and/or improved quality for competing
consolidator services.
As discussed above,1030 some market
participants may benefit as a result of
the introduction of the decentralized
consolidation model because of the
lower price for proposed consolidated
market data relative to today’s price for
consolidated market data holding data
content constant. These market
participants are likely interested in
expanded consolidated market data, and
currently would have to pay to obtain
additional data elements via proprietary
data feeds. Therefore, these market
participants could pay a lower price for
expanded consolidated market data
under the decentralized consolidation
model.
The Commission preliminarily
believes that the decentralized
consolidation model would provide a
benefit to market participants by
increasing the amount of innovation in
the consolidation and dissemination of
consolidated market data. This is a
benefit because it represents an
improvement over the current system
for dissemination of SIP data, in which
the lack of competitors reduces the
incentives of the exchanges that govern
SIPs to innovate.1031 As mentioned
above, the Commission preliminarily
believes that the current system of
disseminating SIP data through
exclusive SIPs, which are managed by
Equity Data Plans’ operating
committees, is not well suited to keep
up with the pace of innovation in data
processing and communication in the
market.1032 The decentralized
consolidation model would place the
task of determining the method of
consolidation and dissemination to free
market forces, which the Commission
preliminarily believes would make it
1029 See
infra Section VI.D.2.
supra Section VI.C.2(b).
1031 See supra Section VI.A.2.
1032 Id.
1030 See
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easier to innovate rapidly and maintain
competitive parity with other market
participants. The end result of this
improved efficiency in investment
decisions by consolidators would be to
improve the quality and reliability of
market data consolidation and
dissemination services, which would
result in market participants having
better data to make trading
decisions.1033 The Commission
preliminarily believes this would lead
to better trading decisions, lower
execution costs, and would help reduce
information asymmetries between
market participants that currently solely
rely on SIP data and market participants
who purchase the exchanges’
proprietary data products. The
Commission preliminarily believes that
the magnitude of this benefit depends
on the assumption that there would be
a sufficient number of competing
consolidators entering the market.
The Commission preliminarily
believes that another benefit of the
decentralized consolidation model
would be to substantially reduce the
latency differential between proposed
consolidated market data and
proprietary data. This belief is based
upon the Commission’s assumption that
the business practices of current market
data aggregators, some of which will
likely become competing consolidators,
would serve as a model for how
competing consolidators would operate
under the decentralized consolidation
model.1034 Current market data
aggregators have achieved connectivity,
transmission, consolidation, and
distribution speeds that are
meaningfully faster than SIP data even
as they process larger amounts of data
than SIP data.1035 Therefore, the
Commission believes that competition
among competing consolidators would
keep market data consolidation and
distribution feeds close to the speeds
achieved in the private market
currently.
The Commission preliminarily
believes that all forms of latency
discussed previously—geographic,
consolidation, and transmission
latency 1036—have the potential to be
the source of these reductions in the
latency differential. The Commission
1033 See
infra Section VI.D.1.
supra Section VI.C.2(a).
1035 The Commission preliminarily believes that
if the existing exclusive SIPs choose to become
competing consolidators in the decentralized
consolidation model, the competition with other
competing consolidators will incentivize them to
improve their connectivity, transmission,
consolidation, and distribution speeds to the levels
of other competing consolidators.
1036 See supra Section VI.B.2(b).
1034 See
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understands that the existing market
data aggregator business does not rely
on the single-instance consolidator
model but instead produces a separate
consolidated feed at each data center.
This has the potential to substantially
reduce geographic latency for data
centers that are not co-located with one
of the existing exclusive SIPs because it
means new information at a data center
can be used immediately at that data
center instead of being returned to the
processing center first. The Commission
therefore expects that the decentralized
consolidation model would serve to
substantially reduce geographic latency
in the same way for market participants.
For instance, the existing market data
aggregators already have infrastructure
in place to consolidate market data in
the described way. And if the existing
exclusive SIPs become competing
consolidators, they would also have to
produce separate consolidated feeds at
each data center to be able to compete
with other competing consolidators.
Therefore, the Commission
preliminarily believes that the
geographic latency reduction in the
decentralized consolidation model can
be achieved even if one existing market
data aggregator enters the competing
consolidator business. Therefore, the
benefit of the decentralized
consolidation model with regard to
geographic latency would not rely
heavily on the assumption that a large
number of consolidators would enter
the market.1037 Importantly, as
discussed above,1038 geographic latency
is the biggest cause of latency
differentials between current SIP data
distributed by exclusive SIPs and
current proprietary data feeds.
Also, the Commission understands
that many current market data
aggregators rely on wireless
communications to receive data from
various exchange data centers, using
fiber connections as a backup in case of
bad weather. To the extent that wireless
communications are faster than current
transmission methods for SIP data, the
Commission expects the decentralized
consolidation model to reduce
transmission latency as well. In
addition, to the extent that existing
market aggregators have developed
faster consolidation methods, the
Commission expects that the
decentralized consolidation model
would also reduce consolidation
latency. The Commission preliminarily
believes that the effect of the
decentralized consolidation model on
the consolidation and transmission
1037 See
1038 See
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latencies depends on robust competition
among competing consolidators going
forward. The Commission preliminarily
believes that to the extent that the
benefits of faster access to market data
come from the ability to engage in more
timely participation in the provision of
liquidity, this effect represents an
economic benefit to the equity market
generally because it would provide
more fair and equal access to market
data and would reduce information
asymmetries among market participants.
In particular, to the extent that the
existing advantages of having access to
fast proprietary data feeds are derived
from trading strategies exploiting
differentials in the speed of access to
market data (i.e., exploiting traders in
the market who currently rely solely on
slower SIP data), this benefit would
represent a transfer from current users
of faster proprietary data to the users of
proposed consolidated market data in
the decentralized consolidation model
that would now also have access to
faster data.1039
In order for both economic benefits
and transfers to be realized, at least
some market participants that are new
users of fast and more content-rich
consolidated market data would need to
possess the technological capability to
take advantage of the speed
improvements the decentralized
consolidation model is likely to provide.
It is the Commission’s preliminary
understanding that such technological
capabilities are expensive to acquire,
and this fact would reduce the amount
of benefit and the degree to which
individual market participants can
profit (through the transfers mentioned
above) from the decrease in data
latency.
If even a small delay remains between
the typical competing consolidator’s
consolidated market data feed and
proprietary data feeds, then the benefits
of increased consolidated market data
delivery speed described above are
likely to be smaller. This belief is based
on the Commission’s preliminary
understanding that speed gains at these
timescales only matter insofar as to help
a market participant react to new
information faster than other market
participants.1040
Additionally, the Commission notes
two other potential benefits of the
proposed amendments. First, market
participants could potentially save on
the cost of consolidated market data
1039 See also Don Bollerman, A NYSE Speed
Bump You Weren’t Aware Of, IEX available at
https://iextrading.com/about/press/op-ed/ (last
accessed Jan. 8, 2020) (discussing the effect of speed
differentials on trading).
1040 See supra Section VI.B.2(b).
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because they will only need to subscribe
to one competing consolidator instead
of two exclusive SIPs (i.e., Nasdaq UTP
and CTA/CTQ). To the extent market
participants can subscribe to one
competing consolidator, they could save
money by not having to pay the costs of
processing consolidated market data to
two different providers. Additionally,
market participants may also save on
their infrastructure costs if they have the
ability to customize their data purchases
and receive, for example, narrower data
content than proposed consolidated
market data. Market participants may
achieve this if competing consolidators
offer tiered levels of service with
different data contents and different
service fees based on the needs of
specific types of investors similar to
what one SIP proposed recently.1041
Second, expanding Regulation SCI to
include competing consolidators would
help ensure that competing
consolidators’ systems involved in the
collection, consolidation, and
dissemination of proposed consolidated
market data are able to maintain their
operational capability, including the
ability to maintain effective operations,
minimize or eliminate the effect of
performance degradations, and have
sufficient backup and recovery
capabilities. The Commission
preliminarily believes that competing
consolidators being subject to the
Regulation SCI requirements would lead
to, among other things, fewer
interruptions in the data delivery
process and, thus, may result in better
trading decisions.1042
(d) Costs of the Decentralized
Consolidation Model Pertaining to
Competing Consolidators
The Commission preliminarily
believes that the proposed amendments
that introduce a decentralized
consolidation model are likely to have
both direct and indirect costs on
potential competing consolidators,
SROs, existing exclusive SIPs, and
market participants, as detailed below.
As explained below, the Commission
preliminarily estimates that the direct
costs to each potential competing
consolidator would be between around
$5.12 MM and $5.13 MM in ongoing
annual costs, and total one-time costs of
up to between approximately $897,000
and $2.40 MM, depending on entity
type.1043 Further, the Commission
preliminarily estimates that costs to
1041 See
supra Section VI.C.2(b); supra note 267.
infra Section VI.C.2(e)(i).
1043 These costs do not include the costs of
compliance with expanded Regulation SCI, which
are discussed below. See infra Section VI.C.2(e)(ii).
1042 See
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each SRO from the proposed
amendments regarding the
decentralized consolidation model
include up to around $246,000 in the
direct one-time costs, and around
$128,000 in the ongoing annual costs.
The Commission expects, however, that
the proposed amendments that
introduce a decentralized consolidation
model would have additional indirect
costs. Some of these direct and indirect
costs are likely to be passed on to
investors.
As discussed above,1044 the
Commission preliminarily believes that
five types of entities may register to
become competing consolidators and
would have to build systems, or modify
existing systems, that comply with the
proposed rules: (1) Market data
aggregation firms, (2) broker-dealers that
currently aggregate market data for
internal uses, (3) the existing exclusive
SIPs, (4) new entrants, and (5) SROs.
The Commission preliminarily
estimates that all direct ongoing annual
costs and some one-time costs would be
common among all competing
consolidators and that some one-time
costs would vary depending on entity
type.
For purposes of the PRA,1045 the
Commission preliminarily estimates
that direct ongoing costs for each
competing consolidator, except for
SROs, would be $5,126,167 and consist
of the following costs: Costs of $5,744 to
amend Form CC prior to the
implementation of material changes to
pricing, connectivity, or products as
well as to correct inaccurate or
incomplete information; 1046 costs of
$25 to obtain digital IDs for the
purposes of signing the Form CC
annually,1047 costs of around $5.07 MM
associated with operating and
maintaining a competing consolidator
system; 1048 costs of $120 to ensure that
it has posted the correct direct URL
hyperlink to the Commission’s website
on its own website; 1049 costs of $4,360
of recordkeeping; 1050 and costs of
1044 See
supra Sections V.D.2, VI.C.2(a).
costs cited in this section are
quantified from estimates in the PRA. See supra
Section V.
1046 See supra Section V.D.1(b); supra note 671.
1047 See supra Section V.D.1(b).
1048 These costs are composed of labor costs of
$176,250, external costs of $123,725 to operate and
maintain systems to comply with Rules 614(d)(1)–
(d)(4), external costs of $168,000 to purchase market
data from the SROs, and an additional annual
ongoing external cost of $4,602,720 to co-locate
itself at four exchange data centers. See supra
Section V.D.2(f).
1049 See supra Section V.D.2(h); supra note 724.
1050 See supra Section V.D.3(b).
1045 Direct
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$45,222 to prepare and make publicly
available a monthly report.1051
The Commission preliminarily
estimates that direct ongoing costs for
each SRO as a competing consolidator
would be $5,120,398 and would consist
of the same costs as for all other
competing consolidators excluding the
costs of $5,744 to amend Form CC prior
to the implementation of material
changes to pricing, connectivity, or
products as well as to correct inaccurate
or incomplete information, and the costs
of $25 to obtain digital IDs for the
purposes of signing the Form CC.1052
The Commission preliminarily
estimates that direct one-time costs that
are common across all competing
consolidators would be $89,348 and
consist of the following costs: Costs of
$120.50 to publicly post the
Commission’s direct URL hyperlink to
its website upon filing of the initial
Form CC; 1053 costs of $8,720 to keep
and preserve at least one copy of all
documents made or received by it in the
course of its business and in the
conduct of its business; 1054 and costs of
$80,507 to produce the monthly
reports.1055
The Commission preliminarily
estimates that the total direct costs to
each market data aggregation firm or
each broker-dealer that currently
aggregate market data for internal uses
that would decide to register as a
competing consolidator would include
$5,126,167 in ongoing annual costs, as
discussed above, and total one-time
costs of $896,542. The one-time costs
are composed of costs of $93,540 to
complete the initial Form CC; 1056 costs
of $50 to obtain digital IDs for the
purposes of signing the initial Form
CC; 1057 costs of $5,604 to file two
amendments to Form CC; 1058 labor
costs of $293,750; 1059 external costs of
$206,250 to modify its systems to
comply with Rules 614(d)(1)–(d)(4),
external costs of $14,000 to purchase
market data from the SROs, an
additional initial external cost of
$194,000 to co-locate itself at four
exchange data centers; 1060 as well as
$89,348 in costs that are common to all
1051 See
supra Section V.D.4(b); supra note 732.
costs are excluded because SROs are
not required to file Form CC. See supra Section
V.D.1(a).
1053 See supra Section V.D.2(g); supra note 721.
1054 See supra Section V.D.3(a); supra note 726.
1055 See supra Section V.D.4(a); supra note 727.
1056 See supra Section V.D.1(a); supra note 664.
1057 See supra Section V.D.1(a).
1058 Id.
1059 See supra Sections V.D.2(a), V.D.2(b); supra
notes 676, 683.
1060 See supra Sections V.D.2(a), V.D.2(b).
competing consolidators, as described
above.
The Commission preliminarily
estimates that the total direct costs to
each existing SIP that would decide to
register as a competing consolidator
would include $5,126,167 in ongoing
annual costs, as discussed above, and
total one-time costs of $1,396,542. The
one-time costs per existing SIP are
composed of costs of $93,540 to
complete the initial Form CC; 1061 costs
of $50 to obtain digital IDs for the
purposes of signing the initial Form
CC; 1062 costs of $5,604 to file two
amendments to Form CC; 1063 labor
costs of $587,500; 1064 external costs of
$412,500 to modify its systems to
comply with Rules 614(d)(1)–(d)(4),
external costs of $14,000 to purchase
market data from the SROs, an
additional initial external cost of
$194,000 to co-locate itself at four
exchange data centers; 1065 as well as
$89,348 in costs that are common to all
competing consolidators, as described
above.
The Commission preliminarily
estimates that the total direct costs to
each new entrant in the competing
consolidator space would include
$5,126,167 in ongoing annual costs, as
discussed above, and total one-time
costs of $2,396,542. The one-time costs
are composed of costs of $93,540 to
complete the initial Form CC; 1066 costs
of $50 to obtain digital IDs for the
purposes of signing the initial Form
CC; 1067 costs of $5,604 to file two
amendments to Form CC; 1068 labor
costs of $1.175 MM,1069 external costs of
$825,000 to build its systems to comply
with Rules 614(d)(1)–(d)(4), external
costs of $14,000 to purchase market data
from the SROs, an additional initial
external cost of $194,000 to co-locate
itself at four exchange data centers; 1070
as well as $89,348 in costs that are
common to all competing consolidators,
as described above.
The Commission preliminarily
estimates that the total direct costs to
each SRO that would decide to register
as a competing consolidator would
include $5,120,398 in ongoing annual
costs, as discussed above, and total onetime costs of $2,297,348. The one-time
costs are composed of labor costs of
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1061 See
1062 See
supra Section V.D.1(a); supra note 664.
supra Section V.D.1(a).
1063 Id.
1064 See
supra Section V.D.2(c); supra note 691.
supra Section V.D.2(c).
1066 See supra Section V.D.1(a); supra note 664.
1067 See supra Section V.D.1(a).
1068 Id.
1069 See supra Sections V.D.2(d), V.D.2(e); supra
notes 698, 705.
1070 See supra Sections V.D.2(d), V.D.2(e).
1065 See
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$1.18 MM; 1071 external costs of
$825,000 to build systems to comply
with Rules 614(d)(1)–(d)(4), external
costs of $14,000 to purchase market data
from the SROs, an additional initial
external cost of $194,000 to co-locate
itself at four exchange data centers,1072
as well as $89,348 in costs that are
common to all competing consolidators,
as described above.
Separately, the Commission
preliminarily estimates that the total
direct costs to each SRO would include
$128,064 in ongoing annual costs, and
total one-time costs of $246,005. The
ongoing annual costs are composed of
costs to collect the information
necessary to generate proposed
consolidated market data required by
proposed Rule 603(b).1073 The total onetime direct costs include up to $175,140
to prepare an amendment to the
effective national market system plan
for NMS stocks,1074 and labor costs of
$70,865 of legal, compliance,
information technology, and business
operations personnel to collect the
information necessary to generate
consolidated market data as required by
proposed Rule 603(b).1075
The Commission preliminarily
believes that the proposed amendments
that introduce a decentralized
consolidation model are likely to have
indirect costs to existing exclusive SIPs,
some market participants, and investors.
The Commission preliminarily believes
that the proposed amendments may
impose a substantial cost for existing
exclusive SIPs in terms of loss of
business because exclusive SIPs would
no longer be exclusive consolidators
and disseminators of consolidated
market data, and at least one of the
exclusive SIPs—Nasdaq UTP—would
no longer be paid out of the NMS plan
for its processing costs.1076 The
Commission preliminarily believes that
this loss of business would be mitigated
by the opportunity for the exclusive
SIPs to become competing
consolidators. If exclusive SIPs decide
1071 See supra Sections V.D.2(d), V.D.2(e); supra
notes 698, 705.
1072 See supra Sections V.D.2(d), V.D.2(e).
1073 See supra Section V.D.2(f).
1074 Half of these costs, or $87,570, would be
incurred to comply with the timestamps required
by the proposed rule, including a review and any
applicable change of the respondent’s technical
systems and rules. A quarter of these costs, or
$43,785, would be incurred to compose the form of
annual report on competing consolidator
performance. Additionally, $8,340 would be
incurred to compile and confirm the primary listing
exchange for each NMS stock. See supra Section
V.D.5; supra note 734.
1075 See supra Section V.D.6; supra note 737.
1076 This does not apply to CTA/CQ Plan that, as
discussed above, is paid differently. See supra
Section VI.B.2(c).
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to become competing consolidators,
they would compete for business with
each other and with other competing
consolidators. This competition may
lead to revenue that is lower than their
current revenue. This potential decrease
in revenue would represent a transfer of
resources to other competing
consolidators and to market participants
potentially increasing social welfare. On
the other hand, the exclusive SIPs have
the benefit of having been in this
business for a long time. The exclusive
SIPs have significant connectivity to
market participants and vendors and
can leverage their existing customer
base and established relationships with
vendors and purchasers at firms. If the
exclusive SIPs decide to become
competing consolidators, their
experience with this market may give
them a competitive advantage and help
mitigate their potential revenue losses.
Some market participants may also
incur indirect costs as a result of the
introduction of the decentralized
consolidation model. First, as discussed
above,1077 the price that some market
participants would pay for proposed
consolidated market data may be higher
than today’s price for consolidated
market data, holding data content
constant. These market participants are
likely interested in the current scope of
SIP data, and, therefore, may have to
pay a higher price for expanded data
content that they are not interested in.
Second, the Commission
preliminarily believes that there would
be an implementation cost for market
participants to switch from using
current exclusive SIP providers or
proprietary data feeds to using
competing consolidators. This cost is
likely to vary among types of market
participants; for instance, existing
purchasers of proprietary DOB data
products are likely to assume limited
additional costs while new customers of
proposed consolidated market data from
competing consolidators would need,
for example, to establish new
connectivity and integrate a larger set of
data into their operations. This
implementation cost would include
administrative costs for subscribing to a
new provider of the data, as well as any
infrastructure investments that may be
needed to handle the data as delivered
by the competing consolidator. The
Commission is uncertain about the size
of these costs but notes that these costs
and the magnitude of their effect may
vary by market participant.
Additionally, one of the current
exclusive SIPs, SIAC, processes and
disseminates the academic TAQ dataset.
1077 See
supra Section VI.C.2(b).
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If SIAC discontinues its SIP business,
there may be interruptions to the
availability of this data, which would
create a cost for both the academic
community and investors that otherwise
benefit from regulators’ use of this
dataset. Other data vendors also provide
comprehensive historical data products
that may become more readily available
from competing consolidators.1078 The
Commission is unable to quantify the
incremental social welfare cost of the
interruption of availability of the TAQ
dataset and invites comments on this
issue.
Finally, the Commission preliminarily
believes that the decentralized
consolidation model may result in
multiple NBBO quotes observed by
different market participants due to
different aggregation methods used by
competing consolidators. As discussed
above,1079 currently market participants
may already observe multiple NBBO
quotes. Therefore, the Commission
preliminarily believes that the
decentralized consolidation model
would result in no meaningful
difference in practice with respect to the
existence of multiple NBBOs.
The proposed amendments would
impose a cost for SROs from losing SIP
fees. However, the Commission
preliminarily believes that this loss of
fees would be offset by the data content
and access fees paid to SROs by
competing consolidators.
(e) Economic Effects of Competing
Consolidators Being Subject to
Regulation Systems Compliance and
Integrity
The proposed rule amends Rule 1000
of Regulation SCI by expanding the
definition of ‘‘SCI entities’’ to include
‘‘competing consolidators.’’ 1080 Under
the proposed rule, competing
consolidators would be subject to the
standard requirements of Regulation SCI
(i.e., requirements for SCI systems that
are not critical SCI systems).1081 The
Commission preliminarily believes that
expanding Regulation SCI to include
competing consolidators would help
prevent market disruptions due to one
or more competing consolidators’
systems issues and reduce the severity
and duration of any effects that may
result if a systems issue were to occur
for a competing consolidator. But
expanding Regulation SCI to include
1078 See, e.g., MayStreet, Market Data, available at
http://maystreet.com/products/market-data/ (last
accessed Jan. 2, 2020).
1079 See supra Section VI.B.2(b).
1080 See supra Section IV.B.2(f) and note 557 and
accompanying text.
1081 See supra Section IV.B.2(f) and note 563 and
accompanying text.
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competing consolidators would also
impose costs on various entities, most
significantly on competing
consolidators. Competing consolidators
would incur a number of direct and
indirect compliance costs, such as
initial and on-going paperwork burdens
as well as competing consolidators’
potential switching costs to find
vendors that can satisfy the Regulation
SCI requirements. Additionally,
Regulation SCI would impose some
indirect costs on other market
participants because of their specific
business relationships with competing
consolidators. For example, third-party
vendors employed by competing
consolidators to provide services used
in their SCI systems would incur
Regulation SCI compliance costs similar
to those incurred by competing
consolidators.
(i) Benefits To Expanding Regulation
SCI To Include Competing
Consolidators
Currently, the exclusive SIPs are SCI
entities and the benefits discussed in
Regulation SCI already apply to them
and to market participants.1082 Under
the proposed amendments, competing
consolidators would also be considered
SCI entities and the benefits of
Regulation SCI would apply to them
and would continue to apply to market
participants, i.e., maintain the status
quo, if the exclusive SIPs cease
operating as exclusive plan processors.
This section discusses the benefits that
would apply to competing consolidators
and would continue to apply to market
participants from adding competing
consolidators to the list of SCI
entities.1083
The Commission preliminarily
believes that at least three benefits
would continue to apply by expanding
Regulation SCI to include competing
consolidators.1084 First, imposing the
requirements of Regulation SCI on
competing consolidators would help
1082 See Regulation SCI Adopting Release, supra
note 28, at 72404.
1083 More specifically, the benefits discussed in
this section are not measuring a change from the
baseline but are discussing the benefits that would
continue to apply from including competing
consolidators in the list of SCI entities.
1084 As discussed in detail above, the Commission
preliminarily believes that a number of entities who
would become competing consolidators are already
subject to Regulation SCI. The Commission
preliminarily believes that many of the benefits
described below would not apply to these entities,
because they already have systems that meet the
requirements for Regulation SCI. Instead, the
Commission preliminarily believes that many of the
benefits from extending Regulation SCI to include
competing consolidators would come from new
entities who become competing consolidators who
are not currently subject to Regulation SCI. See
supra Section V.G.
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prevent market disruptions due to one
or more competing consolidators’
systems issues. Second, it would help
reduce the severity and duration of any
effects that may result if a systems issue
were to occur for one of these competing
consolidators, which could also help
prevent potential catastrophic events
that might start out as a minor systems
problem but then quickly spread across
the national market system, potentially
causing damage to market participants,
including investors. Third, expanding
the Regulation SCI framework would
help ensure more effective Commission
oversight of competing consolidators’
systems.
The Commission preliminarily
believes that adding competing
consolidators to the list of SCI entities
would help prevent market disruptions
by strengthening the infrastructure and
improving the resiliency of the systems
of new competing consolidators who are
not currently SCI entities. The proposed
amendments to Regulation SCI would
help new competing consolidators who
are not currently SCI entities establish
robust systems that are less likely to
experience a system disruption by
requiring these competing consolidators
to establish, maintain and enforce
written policies and procedures
reasonably designed to ensure that their
SCI systems have levels of capacity,
integrity, resiliency, availability, and
security, adequate to maintain the SCI
entity’s operational capability and
promote the maintenance of fair and
orderly markets.1085 The Commission
preliminarily believes that some
potential new competing consolidators
may already have policies and
procedures in place to maintain and test
critical systems. However, the
Commission preliminarily believes that
the requirements of Regulation SCI
would strengthen these policies and
procedures, which would help improve
the robustness of critical systems.
The Commission preliminarily
believes that complying with the
provisions of Regulation SCI would help
reduce the severity and duration of any
effects that may result if a systems issue
were to occur for one of the new
competing consolidators who are not
currently SCI entities. For example,
Rule 1002(a), which requires an SCI
entity to take corrective action if an SCI
event occurs, could reduce the length of
systems disruptions, systems
compliance issues, and systems
intrusions, and thus reduce the negative
effects of those interruptions on the
competing consolidator and market
participants. Additionally, each SCI
1085 See
supra Section IV.B.2(f).
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entity must establish, maintain and
enforce business continuity and disaster
recovery plans that include maintaining
backup and recovery capabilities
sufficiently resilient and geographically
diverse and that are reasonably designed
to achieve next business day resumption
of trading and two-hour resumption of
critical SCI systems following a widescale disruption. These plans would
help competing consolidators restore
their systems more quickly in the event
of a disruption.
The Commission also preliminarily
believes that the requirement for
competing consolidators to establish
procedures to disseminate information
about SCI events to responsible SCI
personnel, competing consolidator
subscribers, and the Commission would
help reduce the duration and severity of
any system distributions that do occur
for one of the new competing
consolidators who are not currently SCI
entities. The procedures would help
these competing consolidators quickly
provide the affected parties with critical
information in the event that it
experiences a system disruption. This
could allow the affected parties to
respond more quickly and more
appropriately to the incident, which
could help shorten the duration and
reduce the effects of a system event.
This could also potentially help prevent
an event that might start out as a minor
systems issue from becoming a
catastrophic problem that quickly
spreads across the national market
system, potentially causing damage to
market participants, including investors.
Additionally, the Commission
believes that the requirement for a
competing consolidator to conduct
testing of its business continuity and
disaster recovery plans with its
designated participants and other
industry SCI entities would help detect
and improve the coordination of
responses to system issues that could
affect multiple market participants in
the NMS stock market. This testing
should help prevent these system
disruptions from occurring and help
reduce the severity of their effects, if
they do occur.
The Commission preliminarily
believes expanding Regulation SCI to
include competing consolidators would
help ensure more effective Commission
oversight of new competing
consolidators who are not currently SCI
entities. As SCI entities, these
competing consolidators would have to
immediately notify the Commission
upon the occurrence of an SCI event
(unless de minimis) and, each quarter,
would have to inform the Commission
of any planned material changes to its
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SCI systems and the security of indirect
SCI systems, as well as any SCI events
that had a de minimis impact on its
operations or on market participants.
Each year these competing consolidators
would also have to provide the
Commission with an SCI review of their
compliance with Regulation SCI. This
information would help ensure more
effective Commission oversight by
enhancing the Commission’s review of
these competing consolidators and
helping make the Commission aware of
potential areas of weakness in the
competing consolidator’s systems that
may pose risk to the entity or the market
as a whole, as well as areas of noncompliance with Regulation SCI.
Additionally, the Commission
preliminarily believes that the exclusive
SIPs could realize an incremental
benefit relative to the baseline from
lower SCI-related costs. Because the
Commission assumes that enough
competing consolidators would enter
the market to provide for multiple
viable sources of consolidated market
data,1086 the Commission preliminarily
believes that if the exclusive SIPs
become consolidators then they would
be considered SCI entities subject to the
standard obligations of Regulation SCI,
rather than subject to the additional
costs associated with being subject to
the heightened requirements applicable
to ‘‘critical SCI systems.’’
(ii) Costs of Expanding Regulation SCI
To Include Competing Consolidators
Competing consolidators would incur
both paperwork and non-paperwork
related direct and indirect compliance
costs as SCI entities. Because Regulation
SCI imposes some indirect requirements
on other market participants interacting
with SCI entities (e.g., vendors
providing SCI systems to SCI entities),
those market participants would also
incur indirect costs from competing
consolidators being defined as SCI
entities.
The Commission preliminarily
believes that the 2018 estimates of
initial paperwork burdens for new SCI
entities and ongoing paperwork burdens
for all SCI entities under Regulation SCI
are largely applicable to potential
entrants into the competing consolidator
business.1087 The 2018 PRA Extension
includes estimates distinguishing
between new versus existing SCI
entities. The Commission preliminarily
believes that, using the same new versus
existing SCI entity framework, the 12
estimated entrants into the competing
1086 See supra Section VI.C.2(a) for a discussion
of this assumption.
1087 See supra note 740.
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consolidator business could be divided
into three groups: Entrants that are
existing SCI entities with experience in
the consolidated market data business
(e.g., exclusive SIPs or exchanges or
entities affiliated with an exchange that
currently operate an exclusive SIP);
entrants that are existing SCI entities but
with no experience in the consolidated
market data business and needing to
performing a new function with new
SCI systems (e.g., a national securities
association or national securities
exchanges that do not currently operate
an exclusive SIP); and finally, entrants
that are entirely new SCI entities that
are not currently subject to Regulation
SCI (e.g., third-party aggregators that are
not currently subject to Regulation SCI).
As discussed above,1088 the Commission
preliminarily believes that the existing
SCI entities in the first category would
not have any initial burden, whereas the
existing SCI entities in the second
category would incur approximately
50% of the Commission’s initial burden
estimates for an entirely new SCI entity.
Further, the 2018 ongoing burden
estimates for existing SCI entities in
both of these categories would continue
to be applicable. Similarly, the
Commission preliminarily believes that
new SCI entities in the third category
would have the same estimated initial
paperwork burdens as those estimated
for new SCI entities and the same
ongoing paperwork burdens as all other
SCI entities.
As SCI entities, competing
consolidators would also incur nonpaperwork related direct compliance
costs. In 2014, the Regulation SCI
adopting release estimated that an SCI
entity would incur an initial cost of
between approximately $320,000 and
$2.4 million.1089 Additionally, an SCI
entity would incur an annual ongoing
cost of between approximately $213,600
and $1.6 million.1090 The Commission
preliminarily believes that similar to the
paperwork burden estimates, these nonpaperwork related costs are also largely
applicable to competing consolidators.
But the Commission is uncertain about
the actual level of costs competing
consolidators would incur, because
these costs could differ based on the
type of potential entrant into the
competing consolidator business. The
Commission preliminarily believes that
there are two reasons why competing
consolidators’ costs are likely to be on
the lower end of these cost estimates.
supra Section V.G.
SCI Adopting Release, supra note
28, at notes 1943–1944.
1090 Id. at notes 1945–1946.
First, these cost estimates include
costs of having part of an SCI entity’s
system be a ‘‘critical SCI system,’’ and
therefore be subject to certain
heightened resilience and information
dissemination provisions of Regulation
SCI. For instance, as discussed
above,1091 the existing exclusive SIPs
currently represent single points of
failure and are subject to heightened
requirements for ‘‘critical SCI systems.’’
Under the proposed rule, competing
consolidators’ systems are not included
within the scope of ‘‘critical SCI
systems.’’ The Commission
preliminarily believes that if competing
consolidators’ systems are subject to the
standard requirements of Regulation
SCI, they would not incur compliance
costs of the heightened requirements for
‘‘critical SCI systems.’’ To the extent
that the incremental costs of being
subject to the heightened requirements
for ‘‘critical SCI systems’’ versus the
standard requirements for ‘‘SCI
systems’’ is small, these cost savings
could be low.
Second, among all of the SCI entities,
competing consolidators have relatively
simpler systems and fewer functions,
and thus would have compliance costs
closer to the lower end of the above cost
estimates. The above cost estimates
provide an average for all SCI entities,
without distinguishing between
different categories of SCI entities.
However, the Regulation SCI adopting
release explains that compliance costs
would depend on the complexity of SCI
entities’ systems and they would be
higher for SCI entities with more
complex systems.1092 Competing
consolidators would likely have simpler
systems and fewer functions relative to
some of the other SCI entities, such as
exchanges. As a result, the Commission
preliminarily believes that competing
consolidators’ compliance costs are
likely to be on the lower end of the
average cost estimates for all SCI
entities.
Additionally, the Commission
preliminarily believes that some of
competing consolidators’ subscribers
associated with the testing of business
continuity and disaster recovery plans
would incur Regulation SCI-related
connectivity costs. Rule 1004 of
Regulation SCI sets forth the
requirements for testing an SCI entity’s
business continuity and disaster
recovery plans with its designated
members or participants.1093 Competing
consolidators and their designated
1088 See
1091 See
1089 Regulation
1092 Regulation
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supra Section IV.B.2(f).
SCI Adopting Release, supra note
28, at 634.
1093 Id.; Rule 1004.
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subscribers would be subject to these
same costs. The Regulation SCI adopting
release estimated connectivity costs as
part of these business continuity and
disaster recovery plans to be
approximately $10,000 per SCI entity
member or participant.1094 The
Commission preliminarily believes that
these connectivity cost estimates would
also be applicable to competing
consolidators’ designated subscribers.
The Commission preliminarily
believes that competing consolidators
and various other market participants
would incur certain indirect costs
related to compliance requirements for
competing consolidators as SCI entities.
The Commission preliminarily
believes that the costs to comply with
Regulation SCI discussed above would
also fall on third-party vendors
employed by competing consolidators to
provide services used in their SCI
systems. Regulation SCI requires that
any system provided by a vendor to an
SCI entity and used by that entity in its
SCI system must also comply with
Regulation SCI requirements. The
Commission preliminarily believes that
all costs discussed above for competing
consolidators to comply with Regulation
SCI would also fall on third-party
vendors employed by competing
consolidators in the course of providing
consolidated market data. Examples of
such vendors may include
communications firms employed by
competing consolidators to transport
data from exchanges to the competing
consolidator’s aggregation servers at
various data centers. If many third-party
vendors are employed by potential
competing consolidators in their
consolidated market data business, the
size of this cost could be significant.
The Commission invites comment on
the issue.
Additionally, the Commission
preliminarily believes there is the
potential for these costs to cause the
vendors to end existing business
relationships with market participants
who become competing consolidators. It
is possible that third-party vendors
would not want to incur the costs that
competing consolidators may impose to
assure that the competing consolidator
can comply with Regulation SCI
requirements, and as a result be
unwilling to provide services to the
competing consolidator’s consolidated
market data business. To the extent that
this happens, competing consolidators
would incur costs from having to find
new vendors, form a new business
relationship, and adapt their systems to
the infrastructure of the new vendor.
1094 Id.
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Competing consolidators may also elect
to perform the relevant functions
internally. To the extent that competing
consolidators either find new vendors or
perform the functions internally, it
would represent an increased
inefficiency in the market, since
presumably the current market data
vendors are the most efficient means of
performing these functions.
The Commission preliminarily
believes that the technology supporting
some of the services provided by
vendors to current data aggregators
(notably communications, such as
microwave transmission) require
significant expertise in order to be
competitive and are difficult to
replicate. To the extent this is the case,
and to the extent that Regulation SCI
requirements prevent competing
consolidators from using these vendors,
the ability of competing consolidators to
provide consolidated market data in a
manner that rivals current third-party
aggregation practices could be
significantly reduced.
consolidated market data, in which case
they would be additionally charged for
the proprietary data and connectivity
services pursuant to the individual
exchange fee schedules. In this case, the
potential price gain would be limited to
the price decline for the portion of the
data corresponding to the proposed
consolidated market data. The
Commission is uncertain about the
extent of this effect.
Market participants that currently
effectively act as self-aggregators and
that would choose to become selfaggregators under the proposed
decentralized consolidation model may
incur some switching costs, especially if
the exchanges provide components of
the consolidated market data with feeds
and connections other than what these
market participants currently use.
However, since these market
participants already have the
infrastructure to receive the proprietary
data products from the exchanges, the
Commission expects these switching
costs to be minimal.
(f) Economic Effects of the Decentralized
Consolidation Model Pertaining to SelfAggregators
As discussed above,1095 a number of
market participants currently purchase
proprietary data products from the
exchanges and consolidate this data for
their internal use. To permit selfaggregation under the proposed
decentralized consolidation model, the
Commission proposes to define a selfaggregator as a broker or dealer that
would receive information from the
exchanges necessary to generate
consolidated market data solely for
internal use.1096
Market participants that currently
effectively self-aggregate and that decide
to become self-aggregators under the
proposed decentralized consolidation
model will have two choices regarding
the use of the exchanges’ proprietary
data products. First, they may decide to
limit the use of exchange data to the
creation of proposed consolidated
market data, in which case they would
be charged for proposed consolidated
market data pursuant to the fee
schedules of the effective national
market system plan(s) for NMS stocks.
In this case, market participants would
likely benefit from lower data fees as
compared to current fees they pay for
proprietary data and connectivity
products.1097
Second, they may decide they need
data beyond the scope of proposed
(g) Other Conforming Changes
The Commission is proposing
conforming changes for some of the
previous Commission or SRO rules and
regulations, which themselves can have
economic effects. This section discusses
the conforming changes and
corresponding economic effects.
1095 See
supra Section IV.B.2(e)(iii).
(i) Amendments to Regulation SHO
As described above in section III.D.1,
the Commission is proposing
amendments to Regulation SHO to
adjust the process of determining
whether a Short Sale Circuit Breaker has
been triggered and disseminating such
trigger information. First, the primary
listing exchange would decide how to
obtain the consolidated data necessary
to determine whether a Short Sale
Circuit Breaker should be triggered.
Second, the primary listing exchange
would be responsible for notifying
competing consolidators and selfaggregators rather than a single plan
processor. The first change allows the
primary listing exchange to select the
most cost-effective means of fulfilling its
responsibilities. The second change
could entail some compliance costs for
competing consolidators but is
necessary to ensure that all competing
consolidators are on a level playing
field. The resulting compliance costs for
exchanges are included in the
Commission’s general compliance
estimate above.1098 The resulting
compliance costs for competing
consolidators are included in the
1096 Id.
1097 See
Commission’s estimate of the general
costs to becoming a competing
consolidator above.1099
In addition, the Commission is
proposing to define ‘‘primary listing
exchange’’ in Regulation NMS and to
amend the definition of ‘‘listing market’’
in Regulation SHO to refer to the
proposed definition of primary listing
exchange. The Commission
preliminarily believes that this change
would have no direct economic effects,
other than harmonizing Regulation SHO
with Regulation NMS.
(ii) Effective Changes to Responsibilities
Under the Limit Up Limit Down Plan
and Market Wide Circuit Breaker Rules
The proposed definition of
‘‘regulatory data’’ requires the primary
listing exchange to be the entity
responsible for monitoring, calculating,
and disseminating certain information
necessary to implement the LULD Plan
and the MWCB rules. These functions
are currently the responsibility of a
single exclusive SIP, however, the
Commission is proposing that the
primary listing exchanges be
responsible for disseminating
information regarding Price Bands and
Limit States and the primary listing
exchange with the largest portion of S&P
500 Index stocks be responsible for
determining whether an MWCB has
been triggered. While the Commission
preliminarily believes that these
amendments could result in
implementation and ongoing costs for
primary listing markets that currently
do not operate a SIP, these amendments
ensure a single set of Price Bands and
a consistent message that MWCBs have
triggered. The Commission
preliminarily believes that the
additional cost of calculating the
information necessary to implement the
LULD Plan and WMCB rules would be
minimal. The cost imposed on these
primary listing markets is included in
the general compliance cost the
Commission has estimated for SROs
above.1100
(h) Request for Comments
The Commission requests comments
on its analysis of the economic effects
pertaining to the proposed decentralized
consolidation model. In particular, the
Commission solicits comment on the
following:
228. Do you agree with the
reasonableness of the Commission’s
assumption that the proposed
amendments would lead to multiple
competing consolidators participating in
1099 See
infra Section VI.C.4.
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1100 See
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the consolidated market data business
and distributing data to market
participants? Why or why not? Please
explain in detail.
229. Are you an organization that
would want to provide the competing
consolidator service described? If so,
please include an estimate of how much
effort would be required for you to begin
providing this service in the market. If
you are willing to provide price
estimates, please do so as well.
230. What factors are likely to
influence the decision of various market
participants to become competing
consolidators? How large would be the
barriers to entry to becoming a
competing consolidator? Would there be
any sources of barriers to entry other
than building the technological
infrastructure, filing Form CC, and
complying with the other regulatory
requirements associated with being a
competing consolidator?
231. Which market participants
would be likely to become competing
consolidators? Are the current exclusive
SIPs likely to become competing
consolidators? Why or why not? Would
existing market aggregation firms
become competing consolidators? Why
or why not? Would any other types of
firms likely become competing
consolidators? Why or why not?
232. How would the Commission’s
assessment of the economic effects of
the rule be affected by too few
competing consolidators? Please be
specific.
233. To what extent would the
adoption of the various proposals in
Section III independently respond to
some or all of the issues the proposed
competing consolidator model is
intended to address?
234. Do you agree with the
Commission’s assessment of the
potential effect of the proposal on data
fees? In particular, do commenters agree
with the Commission’s conclusion that
the proposal could reduce overall data
fees? What is the likely effect of the
proposal on each of the components of
the overall data fees, fees for
consolidated market data, fees for
proprietary market data, and fees for
connectivity? What are some of the
important factors that could result in fee
increases and decreases? Please explain
in detail.
235. The Commission requests that
commenters provide any insights or
data they may have as to potential
changes in connectivity fees and the
effect of these new connectivity fees on
the proposed competing consolidator
business.
236. Do you agree that there would be
three potential benefits from the
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increased competition provided by the
decentralized consolidation model:
Efficiency gains in the delivery of
consolidated market data,
improvements in technological
innovation in consolidated market data,
and reductions in latency? Why or why
not? If not, which benefits do you
disagree with? Please explain.
237. What are the benefits of
expanding Regulation SCI to define
competing consolidators as ‘‘SCI
entities’’? What are the costs of
expanding Regulation SCI to define
competing consolidators as ‘‘SCI
entities’’? Please explain and provide
cost estimates, if available.
238. The Commission requests that
commenters provide relevant data and
analysis to assist in analyzing how the
total price of proposed consolidated
market data (including the data fee paid
to the operating committee(s) of the
effective national market system plan(s)
for NMS stocks and service fees paid to
competing consolidators) in the
decentralized consolidation model
would compare to current pricing of SIP
data. More specifically, how would the
aggregate fees paid by various types of
market participants under the
decentralized consolidation model
likely compare to the aggregate fees paid
by the same types of market participants
for the same data today, assuming the
content of the data consumed by market
participants remains constant but the
providers of that data change? Would
any market participant types be likely to
expand the data they purchase if such
data is included in the definition of
consolidated market data? Please
explain. How would the aggregate fees
paid by such market participants under
the decentralized consolidation model
likely compare to the aggregate fees paid
by them today, assuming such market
participants expand the data they
purchase? Please quantify if possible.
239. Do you agree with the
Commission’s assessment of the costs
incurred by potential competing
consolidators as a result of the proposal?
Specifically, do you agree that potential
competing consolidators would incur
initial costs of $0.6 million to $3.9
million and ongoing costs of $2 million
and $2.6 million? Why or why not?
Please provide revised cost estimates, if
possible. How would these costs vary
across the types of entities likely to
become competing consolidators? What
costs would be common across
competing consolidators?
240. Do you agree with the
Commission’s assessment of the costs to
each SRO of amending effective national
market system plan(s) for NMS stocks to
implement the proposed decentralized
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16849
consolidation model? Why or why not?
Please explain and provide alternative
cost estimates, if possible.
241. Would existing SIPs and
exchanges lose business as a result of
the proposed decentralized
consolidation model? If so, what is the
nature and potential magnitude of the
business they would lose? Could any
exclusive SIPs or exchanges gain
business as a result of the decentralized
consolidation model? Please explain.
242. Would the proposed
decentralized consolidation model
result in more NBBOs than could be
viewed today? If so, would this increase
the complexity of our markets? Why or
why not? Please describe any economic
effects resulting from an increase in
multiple NBBOs.
243. Do you agree with the
Commission’s assessment of the costs to
data users of potentially switching from
purchasing market data from exclusive
SIPs and/or exchanges to purchasing
market data from competing
consolidators? Why or why not? Please
explain. Do you agree that these costs
are likely to vary among types of market
participants?
244. Would the proposed
amendments result in the interruption
of data available for research by the
academic community and investors,
such as TAQ data? If so, the
Commission requests that commenters
provide relevant data and analysis to
assist us in determining the incremental
social welfare cost of such interruption
of data to the academic community and
investors.
245. How costly would be the
proposed changes to the entities
responsible for requirements of
Regulation SHO, LULD and MWCB for
listing exchanges? What is the
magnitude of such costs that derive
from implementing processes to
continuously calculate and track data
metrics for compliance with the
proposed changes? What is the
magnitude of such costs that derive
from notifying the competing
consolidators and others of price bands
and triggers? Does the magnitude of
such costs depend on the number of
competing consolidators?
246. Do you agree with the
Commission’s assessment of the benefits
of subjecting competing consolidators to
Regulation SCI requirements? Why or
why not?
247. Do you agree with the
Commission’s assessment of the costs of
subjecting competing consolidators to
Regulation SCI requirements? Why or
why not? Do you agree with the
Commission’s estimates of the costs
involved? Please explain in detail.
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248. Are geographically diverse
backup systems a standard practice
among firms likely to become competing
consolidators today? What effect does
the answer to this question have on the
likely cost for competing consolidators
to maintain geographically diverse
backup systems?
249. Do you agree with the
Commission’s assessment on the impact
of Regulation SCI requirements on thirdparty vendors employed by competing
consolidators? Why or why not? To
what extent do potential competing
consolidators contract with third-party
vendors for systems that would meet the
definition of an SCI system? What is the
magnitude of costs to third-party
vendors who operate these systems to
make sure these systems meet the
requirements of Regulation SCI? What
effect will this impact have on the
ability of competing consolidators to
provide reliable data products? Please
explain and provide estimates, if
possible.
250. Do you believe that the
amendments to Regulation SCI could
reduce innovation among new
competing consolidators? Please
explain. If so, which provisions of
Regulation SCI affect innovation the
most and how? Please explain.
251. How significant is the barrier to
entry provided by Regulation SCI
requirements on potential competing
consolidators? Do you believe this will
have a significant impact on the number
of entities who enter the competing
consolidator business? Why or why not?
3. Economic Effects of Form CC
As discussed above in Section IV.B,
the proposed amendments would not let
a person, other than an SRO, act as a
competing consolidator, i.e., generating
proposed consolidated market data for
dissemination to non-affiliated persons,
unless that person files with the
Commission an initial Form CC and the
initial Form CC has become effective.
The proposed amendments would
require the public disclosure of Form
CC, which requires a number of
disclosures about a competing
consolidator’s services and fees and
operations, and metrics related to the
performance of competing
consolidators. As a result, the proposed
amendments would provide
transparency for investors who might
purchase the products and services of a
competing consolidator. The
Commission preliminarily believes that
the information provided in Form CC
and the resulting transparency would
help market participants make betterinformed decisions about which
competing consolidator to subscribe to
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in order to achieve their trading or
investment objectives.
Additionally, the Commission
preliminarily believes that the process
for the Commission to declare an initial
Form CC ineffective would improve the
quality of information the Commission
receives from competing consolidators,
which would allow the Commission to
better protect investors from potentially
incomprehensible or incomplete
disclosures that would misinform
market participants about the operations
and services of a competing
consolidator.
(a) Public Disclosure of Form CC and
Other Competing Consolidator
Information
The proposed Form CC would require
competing consolidators to publicly
disclose four sets of information on the
Commission website.1101 First,
proposed Form CC would require
competing consolidators to disclose
general information, along with contact
information. Second, proposed Form CC
would require competing consolidators
to disclose information regarding their
business organizations. Third, proposed
Form CC would require competing
consolidators to disclose information
regarding their operational capabilities.
Fourth, proposed Form CC would
require competing consolidators to
disclose information regarding their
services and fees. The proposed rule
also includes requirements for
amendments under defined
circumstances and a notice of cessation
of operations at least 30 business days
before the date the competing
consolidator ceases to operate as a
competing consolidator. Proposed Form
CC, any amendments to it, and any
notices of cessation would be made
public via posting on the Commission’s
website. The proposed rule also has a
disclosure requirement about competing
consolidators’ performance metrics on
their own websites. Additionally, the
proposed rule would require competing
consolidators to disclose operational
information on their websites related to
vendor alerts, data quality and systems
issues, and clock drift in the clocks they
use to create timestamps. Generally,
these requirements promote
transparency and competition among
competing consolidators and effective
regulatory oversight within a
streamlined approach to avoid
significant barriers to entry.
The business organization disclosures
would give market participants a
window into the ownership as well as
the organizational structures of
1101 See
PO 00000
supra Section IV.B.2(e).
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competing consolidators. The
Commission preliminarily believes that
this information would help market
participants make better-informed
decisions about which competing
consolidator to subscribe to as well as
how to avoid any potential conflicts of
interest. For example, if a broker-dealer
is considering subscribing to a
competing consolidator for consolidated
data and any other potential additional
services such as analytics, they may
search for a competing consolidator that
is not owned by a competitor or an
affiliate of a competitor in the brokerdealer space. Purchases of data and
additional market intelligence services
between two competitors could
potentially create conflicts of interest.
Thus, the required disclosure of a
competing consolidator’s business
organization—which would, for
example, clarify the ownership
information—would provide
transparency on its potential conflicts of
interest.
The information on operational
capabilities would provide market
participants detailed information about
each competing consolidator’s product
portfolio and technical capabilities.
Since market participants vary in their
data and technical capability needs,
information on competing consolidators
operational capabilities would allow the
market participants to make betterinformed purchase decision. For
example, market participants who trade
frequently and who need robust backup
systems might choose competing
consolidators with those capabilities.
Whereas other market participants who
have longer term investment strategies
with potentially less frequent trades
might prefer competing consolidators
with less aggressive backup systems.
Proposed Form CC disclosures would
facilitate a better match between market
participants’ needs and competing
consolidators’ offerings, and would also
help to ensure consistent disclosures
between competing consolidators.
With the consistent disclosures on
services and fees, market participants
could compare and contrast the various
services provided and the
corresponding fees asked by competing
consolidators. Market participants could
then make better purchase decisions,
based on their individual needs.
Additionally, the service and fee
transparency resulting from these
disclosures would promote competition
in similar products and/or services
across different competing
consolidators, which could result in
similar prices, and would help to
protect market participants from unfair
and unreasonable prices.
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The Commission preliminarily
believes that the proposed requirement
for competing consolidators to amend
Form CC prior to implementing material
changes to their pricing, products, or
connectivity options would provide
transparency into changes in the
operations of competing consolidators
and better inform subscribers and other
market participants about significant
changes in the fees and services offered
by a competing consolidator. This
would allow subscribers to a competing
consolidator to better evaluate if it
would continue to serve their business
needs. Additionally, it would facilitate
effective oversight by the Commission.
Similarly, the Commission
preliminarily believes that the
requirement for a notice of cessation
would also benefit subscribers to the
competing consolidator, because it
would give them advanced notice before
the competing consolidator ceases to
operate. Thus those subscribers would
have more time to find another
competing consolidator to supply them
with consolidated market data.
The fact that the information on Form
CC would be in a single location instead
of dispersed across the competing
consolidators’ own websites would aid
market participants by introducing only
minimal search costs when evaluating
and comparing potential competing
consolidators to decide which one best
suits their business interests.
As discussed above,1102 the
Commission preliminarily believes the
proposed rule would cause each
competing consolidator, except for
SROs, to incur an approximately
$93,540 in implementation compliance
cost in order to collect the information
required to fill out and file an initial
Form CC as well as $5,744 in ongoing
costs in order to file amendments to an
effective Form CC. The Commission
believes these requirements are
streamlined to include only what is
necessary to achieve the benefits
discussed above without creating
significant barriers to entry that would
discourage entities from becoming
competing consolidators.
Competing consolidators would also
experience implementation costs
because initial Form CC and any
amendments to Form CC would be
required to be filed electronically with
the Commission. The Commission
preliminarily believes that requiring
Form CC to be filed electronically
would reduce filing costs compared to
requiring the competing consolidator to
file paper forms.
1102 See supra Sections V.D.1(a), VI.C.2(d); supra
note 664.
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To file a form CC, competing
consolidators would need to access the
Commission’s EFFS system. Each
competing consolidator would have to
submit an application and register each
individual who would access the EFFS
system on behalf of the competing
consolidator. The Commission believes
that each competing consolidator would
initially designate two individuals to
access the EFFS system, with each
application taking 0.15 hours for a total
of 0.3 hours per competing consolidator.
On an ongoing basis, each competing
consolidator will add one individual to
access the EFFS system for
amendments, adding 0.15 hours per
competing consolidator. To make a
submission into the EFFS system, the
competing consolidator must download
a proprietary viewer; however, the
Commission would cover the cost of the
license for all competing consolidators,
as it currently does for other filers that
use the EFFS system.
Because the EFFS system is not
available to the public, when the
Commission makes an effective Form
CC available to the public, the
Commission will transform the data into
an unstructured format, meaning that it
is not machine-readable. Market
participants that would use the Form CC
data to evaluate and compare competing
consolidators would bear the costs of
locating, comparing, and evaluating the
information on the Commission’s
website and take steps to put the
information ‘‘side by side’’ for
comparison purposes.
The Commission preliminarily
believes that the public disclosure of
performance metrics and additional
information would introduce
transparency to the operations of
competing consolidators. These metrics
would allow subscribers and potential
subscribers to better evaluate the
performance and current and future
capabilities of a competing consolidator.
Market participants, based on their
individual needs, could review
competing consolidators’ performance
statistics and choose ones that would
best serve their trading needs. While the
requirements to post the monthly
performance metrics and operational
information on websites would
introduce transparency, it would not
completely eliminate costs incurred
when market participants want to
compare competing consolidators
because collecting the information
would involve market participants
expending some resources to go to each
competing consolidator’s website.
Competing consolidators would also
incur implementation and ongoing
compliance costs in order to setup and
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16851
maintain systems required to calculate
and produce the information for the
performance metrics as well as other
information the competing consolidator
would be required to post to its website.
Each month, competing consolidators
would be required to post the monthly
performance metrics and operational
information on their own websites.
Excluding the cost of preparing the
information, the Commission estimates
an average competing consolidator
would incur a one-time cost of $2,651
(6 hours (for website development) ×
$308.50 per hour (blended rate for a
senior systems analyst ($285) and senior
programmer ($332)) + $800 for an
external website developer to develop
the web page = $2,651) for posting the
required information to a website, and
would incur an ongoing annual cost of
up to $3,702 (1 hour (for website
updates) × $308.50 per hour (blended
rate for a senior systems analyst ($285)
and senior programmer ($332)) × 12
monthly postings = $3,702) to update
the relevant web page each month.
Because the monthly performance
metrics and operational information
may be posted in any format the
competing consolidator finds most
convenient, market participants that
would use the data to evaluate and
compare competing consolidators
would bear the costs of locating,
comparing, and evaluating the
information on each competing
consolidator’s website. The Commission
preliminarily believes that the
operational information that competing
consolidators would be required to
publicly disclose on their websites
would create a mechanism for market
participants to hold competing
consolidators accountable for any
systems issues they may experience.
One strong accountability mechanism
market participants have is their
purchasing power. The disclosure
requirements would alert market
participants to any system breaches or
any data quality or systems issues a
competing consolidator experiences.
Market participants could hold
competing consolidators accountable by
abandoning competing consolidators
that repeatedly experience system issues
and gravitating toward competing
consolidators that demonstrate more
reliable systems through their
disclosures. This demand shift could
cause competing consolidators with less
reliable systems to exit the market.
In addition to the requirements of
Regulation SCI promoting competing
consolidators to develop resilient
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systems,1103 the requirement that
competing consolidators publicly
disclose information on systems issues
as well as performance metrics
regarding system availability could also
encourage competing consolidators to
make investments that would ensure the
resiliency of their systems. These
disclosures would help market
participants determine which
competing consolidators have more
reliable systems. Competing
consolidators who display more reliable
systems with greater system availability
would attract more subscribers. This
should incentivize competing
consolidators to invest in better backup
systems or other technology that would
improve the resiliency of their systems
and increase their system uptime.
The Commission preliminarily
believes that information from the
disclosures in Form CC and the
performance metrics and operational
information competing consolidators
would provide on their websites would
promote effective regulatory oversight of
competing consolidators and increased
investor protection by providing the
Commission and relevant SROs with
information about competing
consolidators. With this information,
the Commission and the SROs could
identify competing consolidators that
are not properly complying with the
proposed amendments or parts of them.
The Commission and SROs, then, could
utilize this information to help
prioritize examinations and possibly
help identify potential issues.
The Commission preliminarily
believes that the public disclosure of the
information in Form CC and the
performance metrics and operational
information competing consolidators
would provide on their websites could
also increase competition between
competing consolidators and also
expose some competing consolidators to
certain competitive effects. If the public
disclosures show that certain competing
consolidators have higher fees or poorer
performance, it may result in those
competing consolidators losing
subscribers and earning lower revenues.
Similarly, competing consolidators who
display lower prices or superior system
performance may be able to attract more
subscribers and earn more revenue. The
public disclosure of the fee and
performance information on the
Commission and competing
consolidator websites would facilitate
competing consolidator comparison and
would also promote competition.
Greater competition between competing
consolidators could in turn incentivize
1103 See
supra Section VI.C.2(e)(i).
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competing consolidators to innovate—
particularly in terms of their
technology—so that they can attract
more subscribers.1104
Therefore, the Commission
preliminarily believes that a competing
consolidator would be incentivized to
submit Form CC disclosures that are
complete and comprehensive to avoid
bearing the costs of resubmitting a Form
CC filing or of having its Form CC
declared ineffective.
The Commission recognizes that the
registration process would create
uncertainty about whether the form
would be declared ineffective. This
uncertainty could create a disincentive
for entities to become competing
consolidators, which could potentially
reduce competition in the competing
consolidator market.1105
(b) Commission Review and Process for
Declaring Initial Form CC Ineffective
The Commission preliminarily
believes that the process of reviewing an
initial Form CC would allow the
Commission to evaluate, among other
things, the completeness and
comprehensibility of the competing
consolidators’ disclosures and, if
necessary, declare the Form CC
ineffective. To be a consolidated market
data provider, a competing consolidator
is required to have a Form CC that has
become effective pursuant to proposed
Rule 614(a)(1)(v). Thus, for competing
consolidators that submit low quality
and potentially inaccurate data, the
Commission’s review and declaration of
their Form CC ineffective could start an
iterative cycle of increasingly better
information provision, until the
competing consolidator can have an
effective Form CC. The Commission
preliminarily believes that this public
disclosure and review process would
improve the quality of information the
Commission receives from competing
consolidators, which would allow the
Commission to better protect investors
from potentially incomprehensible or
incomplete disclosures that would
misinform market participants about the
operations of the competing
consolidator. Additionally, an entity
cannot operate as a competing
consolidator without an effective Form
CC. The Commission’s review would be
designed to ensure that the competing
consolidators serving the investors
would be the ones that meet the
Commission’s qualification
requirements.
The Commission preliminarily
believes that the filing requirements of
Form CC and the Commission review
period could impose costs on competing
consolidators. The Commission
preliminarily believes that declaring a
Form CC ineffective could impose costs
on a competing consolidator—such as
delaying the start of operations while
the competing consolidator resubmits
its Form CC—and could impose costs on
individual market participants and the
overall market for competing
consolidators resulting from a potential
reduction in competition. However,
competing consolidators and market
participants would not incur these costs
unless the competing consolidator
submitted a deficient Form CC.
(c) Request for Comments
The Commission requests comments
on its analysis of the economic effects
of proposed Form CC. In particular, the
Commission solicits comment on the
following:
252. Do you agree that Form CC
would help market participants make
better-informed decisions about which
competing consolidators to subscribe to
in order to achieve their trading or
investment objectives? Why or why not?
253. Do you agree that the process for
the Commission to declare an initial
Form CC ineffective would promote the
quality of information the Commission
receives from competing consolidators?
Do you agree that the quality would
affect the ability of the Commission to
protect investors? Why or why not?
254. Do you agree with the
Commission’s assessment of the costs of
Form CC? Please explain and provide
cost estimates, if available.
255. Do you agree that filing initial
Form CC and amendments to Form CC
electronically with the Commission
through the EFFS system would reduce
filing costs and increase benefits
compared to filing paper forms? Please
explain.
256. The Commission has provided
cost estimates that competing
consolidators would incur for accessing
and filing using the Commission’s EFFS
system. Do you believe these cost
estimates are accurate? If not, please
explain. Do you believe there are other
costs potential competing consolidators
would incur related to using the EFFS
system that the Commission should
consider?
257. Do you agree that the proposed
performance metrics would create
operational transparency of competing
consolidators and allow subscribers and
potential subscribers to evaluate and
compare the performance of competing
1104 See infra Section VI.D.2 (discussing the
potential effects of the proposal on competition).
1105 See infra Section VI.D.2 (discussing the
potential effects of the proposal on competition).
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consolidators? Please explain. Do you
agree that posting the monthly
performance metrics on the websites of
the competing consolidators would
limit the ability to compare competing
consolidators relative to posting or filing
the metrics in a central location? Please
explain.
258. How costly would it be for
competing consolidators to calculate
and post the performance metrics?
Please explain and provide cost
estimates.
259. The Commission has provided
cost estimates that competing
consolidators would incur for posting
monthly statistics on their websites. Do
you believe these cost estimates are
accurate? If not, please explain. Do you
believe there are other costs competing
consolidators would incur related to
posting monthly statistics on their
websites that the Commission should
consider? Please explain.
260. Do you agree with the
Commission’s assessment of the costs
imposed by the process for declaring an
initial Form CC ineffective, including
the uncertainty it would create? Please
explain.
4. Economic Effects From the
Interaction of Changes to Core Data and
the Decentralized Consolidation Model
The Commission preliminarily
believes that the proposed amendments
would have a number of economic
effects that are only possible as a result
of a combination of the expanded
content of core data and latency
reductions due to the introduction of
the decentralized consolidation
model.1106 Specifically, the Commission
preliminarily believes that the
combination of these factors would
affect proprietary data feed business;
market participants who choose to
engage in market making, smart order
routing, and other latency sensitive
trading businesses; the Consolidated
Audit Trail; and data vendor business.
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(a) Economic Effects on the Proprietary
Data Feed Business
The Commission preliminarily
believes that the expanded content of
core data and latency reduction due the
introduction of the decentralized
consolidation model could make
proposed consolidated market data a
reasonable alternative to exchange
proprietary data feeds for some market
participants. This would have the effect
of providing these market participants
with a potentially lower cost option
1106 See supra Section VI.C.2(c) (discussing the
effect of the decentralized consolidation model on
consolidated market data latency).
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(relative to proprietary feeds) for low
latency, high content market data. The
lower cost of either self-aggregating
proposed consolidated market data or
obtaining a competing consolidator’s
data feed would come at the expense of
losing the full set of data currently
available via proprietary feeds, because
the proposed consolidated market data
definition does not include all data
elements currently available via
proprietary data feeds. Nevertheless,
some market participants may find that
the expanded content of core data
makes the trade-off worth it and may
choose to drop their proprietary feed
subscriptions in favor of the proposed
consolidated market data.
This effect would represent a transfer
from exchanges who sell proprietary
data feeds to the market participants
who would save money by either selfaggregating proposed consolidated
market data or subscribing to a
competing consolidator’s data feed. In
the latter case, a portion of the benefit
is also transferred to the competing
consolidator in the form of additional
business. The Commission preliminarily
believes that a transfer from the
exchanges to market participants may
help market participants enhance their
product and service offerings to their
customers. Additional business and
revenues for competing consolidators
may enhance competing consolidators’
efforts to offer higher quality products
and a wider range of product
offerings.1107
It is possible that changes to the
pricing and customer base of core and
proprietary data feeds may not have a
uniform impact across all exchanges.
Some exchanges currently have more
proprietary feed revenue than others,
and some exchanges may currently rely
more on revenue from SIP data fees than
other exchanges. To the extent that an
exchange receives a large share of
revenue from its proprietary feed
business, the impact of these potential
reductions in proprietary feed
subscriptions could be large for that
exchange. To the extent that an
exchange receives only a small portion
of its revenue from proprietary feed
subscriptions, the impact of these
potential reductions in subscriptions
could be small for that exchange. The
Commission invites comment on the
issue.
The Commission also notes that the
exchanges’ revenues from connectivity
services may increase or decrease,
depending on any new data
connectivity fees that the exchanges
may propose for data content use cases.
1107 See
PO 00000
The connectivity fees for proposed
consolidated market data must be fair
and reasonable and not unreasonably
discriminatory.1108 If these new
connectivity fees are higher than current
fees, there is a possibility that the
exchanges’ overall revenue from
connectivity services would increase. It
is also possible that exchanges could
lose revenue from existing customers
reducing the number of ports or the
amount of bandwidth they purchase as
they switch to competing consolidators
for some use cases. The overall effect on
the exchanges’ connectivity revenues is
uncertain, and the impact on
connectivity revenues could differ
across different exchanges.
The Commission preliminarily
believes that these competitive
pressures on the exchange proprietary
feed and connectivity business could
also have the effect of causing the
exchanges to lower the fees they charge
for these services in an effort to stay
competitive with the proposed
consolidated market data. This effect
represents a transfer from the exchanges
to the customers of these services. To
the extent that existing customers of
these services invest the money saved
from lower fees in new products (such
as expanding brokerage services) this
effect will also have benefit of
encouraging the creation of new
products and services. To the extent that
the lower fees for these services enable
new market participants to subscribe to
these feeds and offer the services that
these feeds are required for (such as
high quality execution brokerage
services), this effect will also represent
a benefit in the form of new competition
in the broker-dealer business.
The Commission preliminarily
believes, however, that if a small latency
differential between competing
consolidator feeds and the proprietary
data feeds remains, then the above
effects are likely to be small, owing to
the nature of high speed
competition.1109 However, this
limitation would only be for the case
where current subscribers to proprietary
data feeds switch to using a competing
consolidator feed. In the case of those
proprietary feed subscribers who
become self-aggregators, the
Commission preliminarily believes that
it is unlikely that this would result in
a latency differential compared to
receiving proprietary data.1110 It is also
1108 See
supra note 620.
supra Section VI.B.2(b).
1110 More generally, the proposed rule would
enable some reduction in the latency differential
between current market participants to the extent
that such market participants would be willing to
1109 See
supra Section VI.C.2(c).
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possible that the data that would remain
exclusive to proprietary feeds would
also reduce the incentives for market
participants to switch to using
consolidated market data only, further
reducing the size of the above effects.
In the event that proprietary data feed
subscribers are willing to switch to
receiving new consolidated market data
and a latency differential remains
between these feeds and feeds provided
by competing consolidators, the effects
discussed in this section would apply
only to those market participants who
become self-aggregators. The
Commission preliminarily believes that
the set of current subscribers of
proprietary feeds willing to become selfaggregators may be smaller than the set
of current subscribers willing to switch
to using a competing consolidator, as it
is possible that subscribing to a
competing consolidator would be more
convenient or less costly. To the extent
this is the case, the size of the effects
described in this section will be
reduced. Furthermore, these selfaggregators may continue to enjoy a
latency advantage over customers of
competing consolidators.
To the extent that the changes to
proprietary feed subscriptions described
above are realized, the exchanges would
have corresponding losses in revenue or
profit from the provision of proprietary
data. Since the Commission is unable to
determine how many broker-dealers or
other market participants would no
longer want to use proprietary data
feeds as a result of this rule, it is unable
to determine the size of this potential
reduction in revenue or profit.
(b) New Entrants Into the Market
Making, Broker-Dealer and Other
Latency Sensitive Trading Businesses
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The Commission preliminarily
believes that proposed amendments
may lead to new market participants
entering the market making, smart order
routing broker-dealer, and other latency
sensitive trading businesses. For
instance, it is possible that currently
there are broker-dealers who would try
to compete in the business of
sophisticated order routing but choose
not to because of the cost of the market
data necessary to be competitive. To the
extent that the expanded content of new
core data and the latency reductions due
make the necessary technology and personnel
investments to take advantage of the latency
reductions provided by the decentralized
consolidation model. Thus, while some differences
in latency may remain, the barriers to entry for
market participants to compete in the latency
sensitive businesses at various levels of
sophistication and competitiveness would be
reduced.
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to the introduction of the decentralized
consolidation model make consolidated
market data a viable data product for
smart order routing, the Commission
preliminarily believes that these
changes could induce these brokerdealers to enter the business.1111 This
would have the benefit of increasing
competition in the sophisticated order
routing broker-dealer business.
The Commission preliminarily
believes that access to this new, faster
consolidated market data could
encourage new entrants into the
automated market maker business. This
would not only improve the
competitiveness of this business but
also may increase liquidity in the
corresponding markets.
The Commission preliminarily
believes that if these new entrants
would want to use a competing
consolidator, and if a small latency
differential between competing
consolidator feeds and the proprietary
data feeds remains, then this effect is
likely to be small.1112 If instead these
potential new entrants were to become
self-aggregators, then this limitation
would be reduced, because the
Commission preliminarily believes that
there is unlikely to be a significant
latency differential between being a selfaggregator and using proprietary data
feeds. However, if self-aggregation is
required to be a new entrant in these
businesses, the number of potential new
entrants could be small, since using a
competing consolidator may be more
convenient or less costly than selfaggregating.1113 It is also possible that
potential participants in the
sophisticated SOR, automated market
making, and other latency sensitive
trading businesses find that they cannot
compete effectively without using the
data that would remain exclusive to
proprietary feeds. To the extent this is
the case, the effects discussed above
would be further limited.
(c) Effects From the Interaction With the
Consolidated Audit Trail
(i) CAT Baseline
Rule 613 of Regulation NMS requires
the national securities exchanges and
national securities associations (‘‘selfregulatory organizations’’) to jointly
develop and submit to the Commission
1111 These would be broker dealers who have not
entered these businesses because, currently, the
only way to obtain the benefits associated with the
new, expanded core data and decentralized
consolidation model is to subscribe to proprietary
data feeds, which the Commission preliminarily
expects to remain more expensive than core data.
1112 See supra Section VI.B.2(b).
1113 For related discussion on latency advantages,
see supra note 1110.
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a national market system plan to create,
implement and maintain a consolidated
audit trail (‘‘CAT’’).1114 At the time of
adoption, and even today, trading data
was and is inconsistent across the selfregulatory organizations and certain
market activity is difficult to compile
because it is not aggregated in one,
directly accessible consolidated audit
trail system. The goal of Rule 613 was
to create a system that provides
regulators with more timely access to a
sufficiently comprehensive set of
trading data, enabling regulators to more
efficiently and effectively reconstruct
market events, monitor market behavior,
and identify and investigate
misconduct. Rule 613 thus aims to
modernize a reporting infrastructure to
oversee the trading activity generated
across numerous markets in today’s
national market system.
On November 15, 2016, the
Commission approved the national
market system plan required by Rule
613 (‘‘CAT NMS Plan’’ or ‘‘Plan’’) that
was submitted by the self-regulatory
organizations.1115 In the CAT NMS
Plan, the Participants described the
numerous elements they proposed to
include in the CAT, including, (1)
requirements for the plan processor
responsible for building, operating and
maintaining the Central Repository,1116
(2) requirements for the creation and
functioning of the Central Repository,
(3) requirements applicable to the
reporting of CAT Data by plan
participants and their members. ‘‘CAT
Data’’ is defined in the CAT NMS Plan
as ‘‘data derived from Participant Data,
Industry Member Data, SIP Data, and
such other data as the Operating
Committee may designate as ‘CAT Data’
from time to time.’’ 1117
The CAT NMS Plan requires plan
participants and their members to
record and report various data regarding
orders by 8:00 a.m. the day following an
order event.1118 The Plan requires
industry members to record timestamps
for order events in millisecond or finer
increments with a clock
synchronization standard of within 50
milliseconds.1119 The CAT NMS Plan
Processor, FINRA CAT, is then required
to process the order data into a uniform
format, link the entire lifecycle of each
order, and combine it with other CAT
1114 See
supra note 624.
id.
1116 The Central Repository is the repository
responsible for the receipt, consolidation, and
retention of all information reported to the CAT.
See CAT NMS Plan, supra note 624, at Section 1.1.
1117 See id. The Operating Committee is the
governing body of the CAT NMS Plan.
1118 See id. at Sections 6.3 and 6.4.
1119 See id. at Section 6.8.
1115 See
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Data such as SIP Data.1120 The Plan
Processor is also required to store the
CAT Data to allow the ability to return
results of queries on the status of order
books at varying time intervals.1121
Regulators, such as the Commission and
SROs will use the resulting CAT Data
only for regulatory purposes such as
reconstructing market events,
monitoring market behavior, and
identifying and investigating
misconduct.1122 At this time, the
Commission has little information about
what specific data, in addition to CAT
Data, such as proprietary depth of book
and auction data, the SROs currently
intend to include in their enhanced
surveillance systems.1123
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(ii) Economic Effects on CAT
The Commission recognizes that the
proposal could affect the Consolidated
Audit Trail, resulting in benefits to
investors from improved regulatory
oversight, costs to CAT from potentially
switching from a current SIP to a
competing consolidator, costs to CAT
from integrating consolidated market
data into the CAT Data model, and costs
to SROs of updating their enhanced
surveillance systems to use consolidated
market data provided by the CAT.1124
Specifically, the Plan Processor for the
Consolidated Audit Trail, FINRA CAT,
is required to incorporate all data from
SIPs or pursuant to an NMS plan into
the Consolidated Audit Trail. If the
Commission were to approve these
amendments, the CAT NMS Plan
Operating Committee could choose to
purchase such data from a different
entity and would be required to
purchase the expanded consolidated
data.
The Commission believes that the
incorporation of the expanded data into
CAT would improve regulatory
oversight to the benefit of investors. As
explained in the Approval order for the
Consolidated Audit Trail, the expected
benefits of the CAT include
‘‘improvements in regulatory activities
such as the analysis and reconstruction
of market events, in addition to market
analysis and research . . ., as well as
market surveillance, examinations,
investigations, and other enforcement
functions,’’ and derive from
improvements in four data qualities:
Accuracy, completeness, accessibility,
1120 See
id. at Section 6.5.
id. at Section 6.5(c)(ii).
1122 See id. at Section 6.5(g); CAT NMS Plan
Approval Order, supra note 624, at 84833–4.
1123 See Rule 613(f) of Regulation NMS.
1124 See supra Section IV.B.5 for a more detailed
discussion of how the proposal would alter the
requirements of the Consolidated Audit Trail NMS
Plan.
1121 See
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and timeliness.1125 Accuracy refers to
whether the data about a particular
order or trade is correct and reliable.
Completeness refers to whether a data
source represents all market activity of
interest to regulators, and whether the
data is sufficiently detailed to provide
the information regulators require.
Accessibility refers to how the data is
stored, how practical it is to assemble,
aggregate, and process the data, and
whether all appropriate regulators could
acquire the data they need. Timeliness
refers to when the data is available to
regulators and how long it would take
to process before it could be used for
regulatory analysis.
The Commission believes that the
expanded consolidated data from the
proposal could improve the
completeness and accessibility of CAT
Data.1126 In particular, the proposal
would improve the completeness of
CAT Data because CAT Data would
contain quotes smaller than 100 shares,
depth of book information, and auction
information. While the CAT will
contain query functionality capable of
recreating limit order books, the depth
of book information would allow
regulators to see the displayed order
books that others see around the time of
the order events. While the Commission
does not know if SROs plan to
incorporate depth of book and auction
information into their enhanced
surveillance systems or other regulatory
activities using CAT Data, the proposal
would improve the accessibility of
consolidated market data for SRO and
Commission CAT-related uses because
SROs would have access to such data in
a standardized format through the
Consolidated Audit Trail instead of
through the variety of formats currently
used in proprietary data. The proposal
would also improve accessibility
because the SROs and Commission
1125 See CAT Approval Order, supra note 624, at
84802–3.
1126 The Commission believes the proposal would
not affect the accuracy or timeliness of CAT Data.
The Commission does not believe that the proposal
would alter the accuracy of timestamps of trades
and quotes. While some competing consolidators
might offer data that more accurately represents the
data observed by certain market participants at the
time of an order event, the Commission does not
expect that all market participants would observe
the exact same data at that order event, much like
the case today. In addition, industry member clock
synchronization and timestamps on the order
events in CAT Data are not fine enough for the
latency improvements to affect the accuracy of
assigning an order event to the consolidated market
data likely observed at the time of the order event.
Finally, the order data in CAT is not required to be
reported until 8:00 a.m. the day following an order
event. Hence, because latency improvements from
the proposal would be measured in microseconds,
the Commission does not believe that the proposal
would improve the timeliness of CAT Data.
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16855
would have such data on the same
system as CAT Data.
The Commission believes that the
potential improvements in
completeness and accessibility would
facilitate more efficient regulatory
activities using CAT Data that would
benefit investors. In particular, the
proposal could make broad-based
market reconstructions using CAT Data
more efficient by increasing the depth of
information that could be incorporated
into such reconstructions with CAT
Data alone. The Commission believes
that depth of book information, quote
information in sizes less than 100
shares, and auction information are all
valuable in a broad-based market
reconstruction. Further, the
improvements would allow for more
targeted surveillances and risk-based
examinations using CAT Data alone. For
example, the depth of book information
would be valuable when building
surveillances to detect spoofing or in
investigating spoofing because spoofing
often involves creating a false
impression of depth at prices outside of
the best bid or offer. In addition, the
auction information would facilitate
auction market reconstruction to
evaluate manipulation concerns and
inform policy. Quote information in
sizes less than 100 shares would
facilitate analysis by regulators of
broker-dealers’ best execution practices
by providing potential execution prices
that are better than the current
NBBO.1127
The Commission recognizes that the
interaction between the proposal and
the Consolidated Audit Trail could also
create additional costs. Such additional
costs are likely to be borne by SROs and
their members. These costs could
include switching costs, additional data
costs, and data storage and processing
costs. The proposal would result in
switching costs if the CAT Central
Repository has to obtain the data from
a different source. The source of the
switching costs could be from changing
data input formats and technical
specifications, which would require
one-time implementation costs. The
Commission recognizes that the SIP
technical specifications change a few
times a year such that the switching
costs associated with the proposal
would be the costs in excess of the
regular costs incurred when the SIP
technical specifications change.1128 The
1127 See supra Section VI.C.1(b)(i) for data
showing that odd-lot quotes in higher priced
securities often improve upon the current NBBO.
1128 See CTA, Technical Documents, available at
https://www.ctaplan.com/tech-specs (last accessed
Jan. 30, 2020) (showing the SIP tech specs version
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Commission at this time, cannot judge
whether switching data providers would
result in higher or lower on-going data
intake costs but data intake costs
presumably could be factored into the
selection of a competing consolidator.
The Commission recognizes that
increasing the amount of data managed
and analyzed by CAT would increase
the costs of data storage and processing
to integrate the expanded data with
other CAT Data. However, the
Commission does not expect the
proposal to substantially increase the
costs of operating the CAT because any
marginal increase in cost associated
with consolidated market data would be
dwarfed by the processing costs already
incurred by CAT, which includes
processing for all options quotation
activity among other order lifecycle
events and is significantly larger in size
than consolidated market data.
The Commission recognizes that the
proposal would result in SROs incurring
costs to integrate additional CAT Data
into their surveillances. Even if the
SROs would otherwise include depth of
book and auction information in the
CAT-related surveillances, they would
incur costs in changing their
surveillances to use the data in CAT
rather than using data from proprietary
feeds.
The Commission also considered
whether the requirements in CAT would
impose costs as a result of CAT’s effect
on the competition among competing
consolidators. Because the Commission
does not believe CAT would
significantly affect the competition
among competing consolidators,1129 it
would not impose additional costs
resulting from this effect.
The Commission preliminary believes
that CAT implementation milestones
will not be impacted by the
infrastructure proposal given that
sufficient lead time would be available
and integration efforts could be
scheduled as part of standard release
planning. The Commission believes that
switching market data providers and
expanding consolidated market data
within CAT would require limited
resources relative to the current
implementation activities. Further, any
resources devoted by SROs to updating
their surveillances are separate from the
efforts to implement CAT.
history, which identifies the changes over the
years); UTP Data Feed Services Specification, supra
note 142 (showing the SIP tech specs version
history, which identifies the changes over the
years).
1129 See infra Section VI.D.2 for a discussion of
the interaction between the proposal and CAT on
competition among competing consolidators.
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(d) Effects on Data Vendors
The Commission preliminarily
believes that the proposed amendments
would have an effect on the broad
financial data services industry. To the
extent that the amendments lead to
cheaper (relative to proprietary data
feeds) and higher content consolidated
market data, the Commission
preliminarily expects that costs to data
vendors would go down and the ability
of such vendors to grow their customer
base would increase. It is also possible
that data vendors may increase the
range and quality of products they offer
using the new expanded core data and
that new firms enter the data vendor
business. To the extent that the risk of
price increases for core data is realized
instead, the Commission believes these
businesses could potentially face higher
costs, which when passed on to clients
could cause their customer base to
shrink. In the event that these outcomes
are severe, it is possible that some data
vendors could exit the market. The
Commission is uncertain about the
potential size and scope of these effects
because it is unable to determine both
the role of these costs in producing the
products supplied by the data services
industry and the extent to which the
enhanced quality of new core data could
play a role in the quality of their
products. The Commission invites
comments on the issue.
(e) Request for Comments
The Commission requests comments
on its analysis of the economic effects
from the interaction of changes to core
data and the decentralized
consolidation model. In particular, the
Commission solicits comment on the
following.
261. Do you agree with the
Commission’s analysis of the effect of
the proposal on the proprietary data
business? Why or why not? Please
explain in detail.
262. Would exchanges lose
proprietary data business as a result of
the proposed decentralized
consolidation model? Why or why not?
Please explain. Would any market
participants still elect to purchase
proprietary data feeds from exchanges?
If so, which market participants? Please
explain in detail. What would be the net
effect of any changes in this business?
263. The Commission invites
comment on the role of SIP data revenue
and proprietary feed revenue in the
overall data revenue of exchanges. To
what extent do exchanges rely on each
source of revenue? Please explain in
detail.
264. Do you agree with the
Commission’s analysis of the effects of
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the proposed amendments on the broad
financial industry data services
industry? Why or why not? Please
explain in detail. Would the proposal
lead to new broker-dealers developing
SORs, new market makers, or other new
latency sensitive traders? If so, what
would be the economic effect of these
new players? Please explain in detail.
265. Do you agree with the
Commission’s analysis of the effects of
the interaction between the proposal
and the Consolidated Audit Trail? Why
or why not? Please explain.
266. Would the proposal result in
more complete and/or accessible CAT
Data? Please explain. How would
regulators use the additional CAT Data
resulting from the proposal and how
would investors benefit from this usage?
Please explain.
267. To what extent would the
proposal alter the SROs enhanced
surveillances using CAT Data? Please
explain. Would the proposal result in
SROs incorporating more depth of book
and auction information into their
surveillances? What would be the costs
and benefits of doing so? Please explain.
268. If the proposal resulted in FINRA
CAT switching data providers, what
would be the switching costs? How
would the proposed amendments affect
the implementation and ongoing costs
of CAT? Please provide estimates if
possible.
269. Do you agree that the proposal
would not affect the implementation of
CAT? Please explain.
270. Do you agree with the
Commission’s analysis of the effects of
the proposal on data vendors? Why or
why not? Please explain.
5. Request for Comments on the
Economic Effects of the Proposed Rule
The Commission requests comment
on its analysis of the economic effects
of the proposed amendments. In
particular, the Commission solicits
comment on the following:
271. Do you believe the Commission’s
analysis of the potential economic
effects of the proposed amendments is
reasonable? Why or why not? Please
explain in detail.
272. Do you believe the proposed
amendments may have unintended
consequences that are not captured by
the Commission’s analysis of the
potential economic effects? Why or why
not? Please explain in detail.
273. Do you agree with the
Commission’s analysis of the benefits of
the proposed amendments? Why or why
not? Please explain in detail.
274. Do you agree with the
Commission’s analysis of the costs of
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the proposed amendments? Why or why
not? Please explain in detail.
275. The Commission requests that
commenters provide relevant data and
analysis to assist us in determining the
economic consequences of the proposed
amendments. In particular, the
Commission requests data and analysis
regarding the costs SROs, exclusive
SIPs, and market participants may
incur, and benefits they may receive,
from the proposed amendments.
D. Impact on Efficiency, Competition,
and Capital Formation
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1. Efficiency
The Commission preliminarily
believes that the proposed amendments
would have a number of different effects
on efficiency. In particular, the
Commission preliminarily believes that
the proposed amendments would: Lead
to more efficient gains from trade,
improve the efficiency of order
execution for some market participants,
improve price efficiency, and affect how
efficiently core data is distributed. The
rest of this section discusses these
different effects of the proposed
amendments on efficiency in detail. The
Commission solicits comments whether
the proposed amendments might have a
significant impact on other forms of
efficiency.
As discussed above, the Commission
preliminarily believes that the
expansion of core data under the
proposed amendments would increase
transparency for market participants
who do not currently access proprietary
DOB feeds and allow them to more
easily find liquidity that they can trade
against.1130 Currently, some of these
market participants may not trade
because they cannot see the quotes
available to them, either through a lack
of information about odd-lots, depth of
book, or auction information. The
Commission preliminarily believes that
the proposed amendments would
alleviate some of this information
shortage and would allow traders to
more easily find counterparties. This
may result in more voluntary trades
occurring between market participants,
which could lead to more efficient gains
from trade, since these are trades which
currently do not take place only because
of a lack of information.1131 However, if
the inclusion of additional odd-lot,
depth of book, or auction information
does not induce additional voluntary
trading from market participants who do
not currently access proprietary DOB
feeds, then the proposed amendments
1130 See
supra Section VI.C.1(b).
1131 Id.
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may not produce more efficient gains
from trade.1132
The Commission preliminarily
believes that the expansion of core data
could also improve the efficiency with
which some market participants, or
their broker-dealers, execute orders. As
discussed above, by adding odd-lot,
depth of book, and auction information
to core data, the proposed amendments
would reduce information asymmetry
between broker-dealers and other
market participants who subscribe to
proprietary data feeds and users of
current SIP data. This could improve
the ability of broker-dealers and other
market participants who currently do
not have access to this information to
trade against those market participants
who do. As a result, this could improve
the efficiency with which they execute
their orders by allowing them to select
a better trading venue or method of
executing their order. Furthermore, for
market participants who currently rely
on exclusive SIPs for their order
executions, the reduction in latency
provided by the decentralized
consolidation model could reduce the
risk that their orders are picked off,
which could reduce their adverse
selection costs. This could potentially
reduce their transaction costs and allow
them to more efficiently achieve their
investment or trading objectives or those
of their clients.1133
As discussed previously, the
Commission preliminarily believes that
there is some potential for new brokerdealers to become competitive in the
market for sophisticated order execution
as a result of this rule because they may
be able to use the expanded content and
lower latency of core data to develop
SORs or other tools that allow them to
compete more effectively with brokerdealers who currently base order
execution decisions off of proprietary
DOB data.1134 To the extent that this
happens, the clients of these brokerdealers could see their orders executed
more efficiently and their execution
costs reduced.
The current lack of certain odd-lot
quote, depth of book, and auction
information in SIP data could affect
price efficiency. The gap in information
between data provided by exclusive
SIPs and proprietary data products may
cause prices in some securities to be less
efficient, i.e., to deviate further from
fundamental values, if market
participants with access to proprietary
data products do not incorporate this
information into prices quickly enough
19:07 Mar 23, 2020
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through their trading or quoting activity.
However, the Commission does not
know the extent of this possible effect,
but it preliminarily believes the effect
could be larger in less actively traded
securities where the gap in information
between SIP data and proprietary data
products is larger.
The Commission preliminarily
believes that, to the extent that there is
information in the new core data
elements that is not currently reflected
in market prices, the proposed
amendments may improve price
efficiency.1135 In particular, the
proposed introduction of odd-lot quote,
depth of book, and auction information
into core data could result in the
information becoming impounded in
prices more rapidly and accurately as a
result of the more widespread
dissemination of this information. As
the Commission understands that the
most sophisticated traders already have
access to this information and likely
already compete to profit from it, the
Commission expects that the size of this
gain in price efficiency would be small
because this information is already
impounded quickly into prices.
Finally, under the current rule, the
exclusive SIPs operate like public
utilities in their consolidation and
distribution of the NMS stock data.1136
The proposed changes would unbundle
the data fees for consolidated market
data from the fees for its consolidation
and distribution.1137 The decentralized
consolidation model would subject the
fees charged by competing consolidators
for the consolidation and distribution of
consolidated market data to
competition. The Commission
preliminarily believes that the proposed
decentralized consolidation model
would lead to consolidated market data
being distributed in a more timely,
efficient, and cost-effective manner. The
Commission preliminarily believes that
the proposed changes to the
consolidation and distribution of
consolidated data is economically
similar to the restructuring of public
utilities and may have an impact on the
efficiency with which the consolidation
and distribution is carried out. In
particular, as discussed above, the
proposed decentralized consolidation
model is anticipated to produce better
investment to lower costs and improve
quality in the consolidation and
distribution of consolidated market
data, as well as promote better price
competition (all of which translates into
a more efficient allocation of capital)
1132 Id.
1135 See
1133 Id.
1136 See
1134 See
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supra Section VI.B.2(a).
supra note 390.
1137 See supra Section VI.C.2(c).
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than the bidding process currently in
place.1138
The Commission acknowledges the
uncertainty in this conclusion. The
literature on the economics of
restructuring of public utilities does not
provide clear guidance. Some papers
show efficiency gains from regulatory
restructuring,1139 yet others claim no
efficiency gains or efficiency declines
after regulatory restructuring of public
utilities.1140 The likely impact of the
proposed changes rests on the strengths
and weaknesses of the existing
exclusive SIP model.
The Commission preliminarily
believes that the existing exclusive SIP
model has an important weakness: It
does not provide sufficient competitive
incentives.1141 SIPs have significant
market power in the market for core and
aggregated market data products and, as
a result, do not need to compete hard to
capture demand for their products. The
Commission preliminarily believes that
the adoption of the decentralized
consolidation model would open up the
consolidation and distribution services
to data consolidators that would need to
vigorously compete to capture some
demand for the data they provide. This
need to compete for market share would
create incentives to reduce costs. As
discussed above, the Commission
preliminarily believes that this
competition could incentivize
competing consolidators to pass on
some of those cost savings to customers
by charging lower service fees in order
to capture market share.1142 The focus
to capture market share might also lead
to technological improvements for
competing consolidators to be able to
differentiate themselves in the eyes of
the customers and generate demand.1143
1138 See
id.
e.g., Kira R. Fabrizio et al., Do Markets
Reduce Costs? Assessing the Impact of Regulatory
Restructuring on US Electric Generation Efficiency,
97 a.m. ECON. REV. 1250 (2007).
1140 See, e.g., Severin Borenstein, The Trouble
with Electricity Markets: Understanding California’s
Restructuring Disaster, 16 J. ECON. PERSP. 191
(2002).
1141 See supra Section VI.B.3(a) (discussing SIPs
market power).
1142 See supra Section VI.C.2(b). However, the
Commission also acknowledges the possibility that
fees for the consolidation and distribution of
consolidated market data may remain the same or
increase, because consolidated market data will
contain more information and/or there might not be
enough competition among competing
consolidators.
1143 Several studies found evidence of efficiency
gains and technological improvements from
restructuring in the public utilities sector. In the
electricity industry, for example, the introduction of
competition to the electricity generation services
created strong incentives to become more cost
efficient and technologically advanced to improve
operating performance. If a plant could not become
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1139 See,
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The Commission preliminarily believes
that these improvements in data
provision technology and the
introduction of competitive forces on
fees for the consolidation and
distribution of consolidated market data
could result in a more efficient
allocation of capital.
Additionally, the decentralized
consolidation model could allow market
participants to receive consolidated
market data more efficiently. Instead of
having to receive separate consolidated
market data feeds from two exclusive
SIP plan processors, UTP and CTA/CQ
Plans, market participants would have
the option to receive all of their
consolidated market data from one
competing consolidator.1144 This could
allow market participants to achieve
efficiencies in the design and in making
modifications to their systems for the
intake of consolidated market data
because they would only have to
configure their systems to intake
consolidated market data from one
source.
2. Competition
As discussed previously, the
Commission preliminarily believes this
proposed rule would have a substantial
impact on competition. The
Commission preliminarily identifies
seven markets or areas of the market for
which the proposed rule would have a
substantial impact on competition. The
Commission acknowledges that the
seven markets or areas may not be a
comprehensive list of all markets or
areas for which the proposed rule might
have an impact on competition.
However, the Commission preliminarily
believes that competition in these seven
markets or areas are most likely to be
impacted substantially by the proposed
rule. The Commission solicits
comments regarding whether the
efficient enough to compete, it would lose business
and have to exit the market. Craig and Savage
(2013) establish a 9% increase in efficiency in
investor-owned electricity plants in response to the
restructuring and increasing competition in the
electricity sector. Similarly, Davis and Wolfram
(2012) argue that electricity market restructuring is
associated with a 10 percent increase in operating
performance for nuclear plants generating
electricity. The authors state that increasing
competition led to managers focusing more
attention on financial costs of outages. See J. Dean
Craig and Scott J. Savage, Market Restructuring,
Competition and the Efficiency of Electricity
Generation: Plant-level Evidence from the United
States 1996 to 2006, 34 ENERGY J. 1 (2013); Lucas
W. Davis and Catherine D. Wolfram, Deregulation,
Consolidation, and Efficiency: Evidence from US
Nuclear Power, Am. Econ. J.: Applied Econ. (Oct.
2012), at 194.
1144 The Commission acknowledges that market
participants may subscribe to more than one
competing consolidator for different core data
products or as a backup feed.
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proposed rule might have a substantial
impact on competition in other markets
or areas of the market.
First, the proposed rule introduces a
competitive marketplace for the
consolidation and dissemination of
consolidated market data to replace the
centralized consolidation model, which
is not currently subject to competitive
pressures.1145 Under the proposed
amendments multiple competing
consolidators would be able to
distribute consolidated market data to
market participants. The Commission
preliminarily believes that, since market
participants could freely select the
competing consolidator that charged the
lowest distribution fee or offered better
quality (i.e., lower latency, a more
reliable system, etc.), the competing
consolidators would be subject to
competitive forces and the marketplace
for the consolidation and dissemination
of proposed consolidated market data
would be competitive if enough
competing consolidators enter the
market.1146 As discussed above, the
Commission preliminarily believes that
this introduction of competition could
reduce the prices competing
consolidators charge for the
consolidation and distribution of
consolidated market data and improve
the quality of consolidated market
access.1147 The Commission recognizes
the risk that there could be too few
competing consolidators to realize these
benefits fully, in which case the
proposed competitive changes may have
a number of costs,1148 including higher
prices for the consolidation and
dissemination of consolidated market
data, which could increase the overall
prices market participants pay for
consolidated market data.1149
The Commission recognizes that the
extension of Regulation SCI to include
competing consolidators could impact
competitive dynamics in the competing
consolidator market. The Commission
preliminarily believes the costs
associated with being an SCI entity
could raise the barriers to entry for firms
seeking to become competing
consolidators who are not already SCI
entities, including market data
aggregation firms.1150 Exclusive SIPs
and SROs who seek to become
competing consolidators could gain a
1145 See
supra Sections IV.B.2, VI.B.3(a).
Commission assumes that enough
competing consolidators will enter the market in
order to make it competitive. See supra Section
VI.C.2(a).
1147 See supra Sections VI.C.2(a), VI.C.2(b),
VI.C.2(c).
1148 See supra Sections VI.C.2(a), VI.C.2(d).
1149 See supra Section VI.C.2(a).
1150 See supra Sections VI.C.2(a)(i)b., VI.C.2(e)(ii).
1146 The
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competitive advantage over these firms
because they would face lower barriers
to entry since they are currently SCI
entities and already incur many of these
costs.1151 Therefore, the extension of
Regulation SCI to competing
consolidators could result in fewer firms
seeking to become competing
consolidators which could lead to less
competition in the competing
consolidator market. Less competition
and less innovation would reduce the
incentives of competing consolidators to
reduce the costs and improve the speed
and quality of their consolidated market
data aggregation and dissemination
services.
Additionally, the Commission
preliminarily believes that the public
disclosure of the information in Form
CC and the performance metrics and
operational information competing
consolidators would provide on their
websites would enhance competition
between competing consolidators.1152
The public disclosure of competing
consolidator fees and performance
metrics would allow market participants
to more easily compare competing
consolidators and select the ones that
charged the lowest fees or offered the
best performance. This could enhance
competition between competing
consolidators. For example, if the public
disclosures show that certain competing
consolidators have higher fees or poor
performance, it may result in those
competing consolidators losing
subscribers and earning lower revenues.
Similarly, competing consolidators who
display lower prices or superior system
performance may be able to attract more
subscribers and earn more revenue. This
in turn could enhance competition by
incentivizing competing consolidators
to lower fees and/or innovate and make
investments in their systems in order to
improve system performance in order to
attract more subscribers. In theory, the
Commission acknowledges that the
public disclosure of Form CC could
harm competition by making firms
reluctant to enter the competing
consolidator market and reducing the
incentives of competing consolidators to
innovate if it discloses certain
information that a competing
consolidator might view as a ‘‘trade
secret’’ or giving it a competitive
advantage. However, the Commission
believes that these effects are not likely
to occur because it preliminarily
believes that the disclosures on Form
CC are not detailed enough to allow
other market participants to reproduce a
competing consolidator’s ‘‘trade secret.’’
Additionally, the Commission
preliminarily believes that the delayed
public disclosure of material
amendments to Form CC should prevent
another competing consolidator from
replicating a competing consolidator’s
innovations before it has a chance to
implement them.1153
The Commission recognizes that the
registration process for Form CC could
create uncertainty about whether a Form
CC would be declared ineffective. This
could potentially harm competition in
the market for competing consolidators
by raising the barriers to entry and
creating a disincentive for entities to
become competing consolidators.
However, the Commission preliminarily
believes that these effects will not be
significant because the Commission
would not declare a Form CC ineffective
without notice and opportunity for
hearing. Additionally, entities whose
Form CC is declared ineffective would
still have the opportunity to file a new
Form CC with the Commission.
The Commission considered the effect
of the interaction between the proposal
and the CAT NMS Plan on competition
among competing consolidators, but
believes that this interaction would not
have a significant effect on the
competitive landscape. In particular, the
Commission considered two effects:
First, the effect in the event that there
is a bias toward an exchange-operated
competing consolidator over other
competing consolidators and second,
any competitive advantage for the
competing consolidator selected for the
CAT NMS Plan. In relation to any bias,
the Commission notes that the CAT
NMS Plan would be only one of many
potential customers of the competing
consolidator, so this bias is not likely to
affect the market unless the selection
produces a competitive advantage. In
particular, a competing consolidator
could enjoy a competitive advantage
only if broker-dealers believe that
market surveillances would be less
likely to appear to show violations if the
broker-dealers made trading decisions
using the same data used in SRO
surveillances. However, the latency
differences across the competing
consolidators are likely to measure in
the microseconds while the clock
synchronization requirements for
industry members in the CAT NMS Plan
is 50 milliseconds for electronic order
flow.1154 Therefore, the Commission
does not believe the CAT’s choice of
competing consolidator would confer
any regulatory value on the competing
1153 See
1151 See
supra Sections V.G.,ViC.2(a)(i)b.
1152 See supra Section VI.C.3.
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supra Sections IV.B.2(e), VI.C.3.
CAT NMS Plan, supra note 624, at
Section 6.8.
1154 See
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16859
consolidator or their broker dealer
clients.
Second, the Commission
preliminarily believes that the expanded
content and reduced latency of
consolidated market data would make it
a more viable substitute for proprietary
data feeds.1155 The Commission
preliminarily believes that this would
increase competition between
consolidated market data and exchange
proprietary data feeds. These
competitive pressures could lead to
lower prices for proprietary data feeds
and may reduce the data costs that
market participants pay, at the expense
of the SROs who charge the fees.1156
The Commission recognizes the risk that
the extension of Regulation SCI to
include competing consolidators could
lead to less competition in the
competing consolidator market, which
could reduce the incentives of
competing consolidators to reduce the
cost and improve the speed and quality
of consolidated market data. If this
occurs, it could make consolidated
market data less of a viable substitute
for proprietary data feeds, which would
reduce the competitive pressures
consolidated market data would impose
on proprietary data feeds.
Third, the Commission preliminarily
expects the new decentralized
consolidation model for proposed
consolidated market data to create
competitors to market data aggregators
for two reasons. First, the potential
revenues from becoming a competing
consolidator may cause new firms to
enter the market for the consolidation
and distribution of market data. Second,
some market participants who currently
use market data aggregators may switch
to getting proposed consolidated market
data from a competing consolidator.
This could have two effects: The
competition could lead to lower prices
and higher quality in the market data
aggregator business, but it could also
lead to fewer market data aggregators if
the competition from the proposed
consolidated market data system makes
it no longer viable for some market data
aggregators to offer their services.1157
1155 However, consolidated market data would
not be a perfect substitute for the proprietary data
feeds because it would not contain all the
information in proprietary data feeds. For example,
the expanded core data would not include full
depth of book information or information on all
odd-lots. See supra Section VI.C.4.
1156 See supra Section VI.C.4(a).
1157 The Commission acknowledges that fewer
competitors could decrease or increase efficiency in
the market data aggregator business. On the one
hand, fewer competitors could reduce the
incentives for market data aggregators to innovate,
which could reduce efficiency. On the other hand,
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The latter could lead to higher prices in
the market data aggregator space.1158 In
addition, some of these market data
aggregators may choose to become
competing consolidators, which could
have two effects: It could cause market
data aggregators to leave the proprietary
feed aggregation space thereby reducing
the competition in that space, or it
could cause market data aggregators to
use the economies of scale and the
additional profits they derive from being
a competing consolidator to improve
their offerings as a market data
aggregator of proprietary feeds.
Depending on which effect dominates,
competition in the market data
aggregator space could increase or
decrease, which in turn could lead to
lower or higher prices, respectively. The
Commission recognizes that the
extension of Regulation SCI to include
competing consolidators could diminish
the ability of market data aggregators
who become competing consolidators to
compete in the market data aggregator
space. If a market data aggregator
becomes a competing consolidator, the
requirements of being an SCI entity
could also extend to their aggregation of
proprietary market data.1159 These
requirements could raise their costs,
which could reduce their ability to
compete with other market data
aggregators that are not competing
consolidators.
Fourth, the Commission preliminarily
expects that the expanded content and
reduced latency of core market data
provided by this proposed rule may
increase competition in the brokerdealer business by improving the ability
of some broker-dealers who currently
access core data to execute orders.1160 It
is the Commission’s understanding that
some broker-dealers that do not
subscribe to all of the current
proprietary DOB feeds rely solely on the
exclusive SIPs today and that this makes
them uncompetitive in the market for
offering execution services to the most
transaction-cost-sensitive market
participants. The new decentralized
consolidation model with expanded
core data would reduce the latency and
expand the information delivered to
broker-dealers who subscribe to core
fewer competitors could also improve efficiency if
the firms that exited the market did not aggregate
market data as efficiently as the firms that
remained.
1158 As discussed above, consolidated market data
would not be a perfect substitute for proprietary
data feeds, so there would still be demand for
proprietary data. Since not all firms aggregate
proprietary data themselves, there would still be a
demand for third-party aggregators to perform this
function.
1159 See supra Section VI.C.2(e)(ii).
1160 See supra Section VI.C.4(b).
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data, possibly without raising data
prices. This in turn would allow brokerdealers that subscribe to consolidated
data to improve their order execution
services and compete more effectively
with broker-dealers who subscribe to
proprietary DOB feeds. This would lead
to greater competition between brokerdealers, which could benefit investors
by resulting in lower prices for and
higher quality of broker-dealer
execution services.1161
Fifth, the Commission preliminarily
believes that the proposed rule could
affect competition between exchanges.
As discussed above, the proposed
enhancements to core data could
increase competition between proposed
consolidated market data and
proprietary data feeds, which could lead
to exchanges charging lower fees for
proprietary market data.1162 If these
lower fees do not result in more
subscribers to proprietary market data, it
would lead to a decline in revenues
from proprietary market data for
SROs.1163 Additionally, the proposed
amendments could affect competition in
the market for exchange data
connectivity. If some current subscribers
to proprietary market data decide to
only receive consolidated market data
from competing consolidators, they
could also reduce the exchange
connectivity services that they currently
use. In turn, this could reduce the
revenue that some exchanges earn from
connectivity services. Additionally, new
connectivity fees may be proposed for
core data use cases, which could
potentially increase or decrease the
revenue exchanges earn from
connectivity.1164 It is the Commission’s
understanding that revenues from
proprietary market data and
connectivity services are a substantial
portion of overall revenues for many
exchanges.1165 The Commission
recognizes that it is possible that an
exchange group could close some or all
of its exchanges if the revenues from
proposed consolidated market data did
not increase and revenues from
proprietary market data and
connectivity services were to decline to
a level that a given exchange or
exchange group is no longer able to
cover operating expenses. The
Commission is unable to quantify the
1161 See
supra Sections VI.B.3(e), VI.C.4(b).
supra Section VI.C.4(a).
1163 In addition to adjusting fees, SROs could also
redesign their proprietary market data product lines
to try and increase revenue. However, it is possible
that demand for these new products would not be
sufficient to offset the decline in revenues from
proprietary market data.
1164 See supra Section VI.C.4(a).
1165 See supra Section VI.B.3(b).
1162 See
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likelihood that an exchange will cease
operating because it would depend on
the fees and revenue allocation for
consolidated market data. However, the
Commission preliminarily believes that
it is unlikely exchanges will be forced
to leave the market.
Even if an exchange were to exit, the
Commission does not believe this would
significantly impact competition in the
market for trading services because the
market is served by multiple
competitors, including off-exchange
trading venues. Consequently, if an
exchange were to exit the market,
demand is likely to be swiftly met by
existing competitors. The Commission
recognizes that small exchanges may
have unique business models that are
not currently offered by competitors, but
the Commission preliminarily believes a
competitor could create similar business
models if demand were adequate, and if
they did not do so, it seems likely new
entrants would do so if demand were
sufficient.
Sixth, the Commission preliminarily
believes that the proposed rule would
affect competition between traders.1166
The Commission preliminarily believes
that traders will be affected differently
based on the type of market data they
use when making trading decisions.
Traders who subscribe to different types
of market data can broadly be grouped
into three categories: (1) Traders who
use proprietary DOB feeds received
directly from the SROs and selfaggregate, (2) traders who use market
data aggregators to aggregate proprietary
DOB feeds, and (3) traders who use core
data (currently from the exclusive SIPs
and, under the proposed rule,
competing consolidators).1167 The
Commission preliminarily believes that
under the proposed rule the core data
would be of higher quality, and thus the
value to traders from acquiring
proprietary DOB data would
decrease.1168 As a result, it would be
harder for traders who use proprietary
DOB feeds (both self-aggregators and
traders who use market data aggregators)
to generate profits and the competition
between those traders would increase.
For traders who use core data, the
Commission believes that the
1166 In this context the term traders could refer to
either proprietary traders executing orders on their
own behalf or broker-dealers executing orders on
behalf of their clients.
1167 Traders who currently subscribe to
proprietary DOB feeds may also subscribe to the
exclusive SIPs as part of their backup systems.
However, the Commission preliminarily believes
that these traders primarily rely on proprietary DOB
feeds when making trading decisions because
proprietary DOB feeds contain more information
and have lower latency than the exclusive SIPs.
1168 See supra Section VI.C.4(a).
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competition between those traders
would increase because the proposed
amendments would reduce the latency
and expand the information included in
core data, which would allow those
traders to devise better trading strategies
with bigger profit potential. The
Commission preliminarily believes that
the most substantial change in
competition would occur between
traders who use proprietary DOB feeds
(both self-aggregators and traders who
use market data aggregators) and traders
who use core data. As described, the
proposed rule expands the information
and reduces the latency of core data,
thereby closing the gap between core
data and proprietary DOB feeds. This
would allow traders who use core data
to compete on a more level playing field
with traders who use proprietary DOB
feeds. The Commission preliminarily
believes that this would lead to a
transfer of profits from traders who use
proprietary DOB feeds to traders who
use proposed consolidated market data.
Seventh, the Commission
preliminarily believes that the proposed
rule changes would affect competition
between off-exchange trading venues
and exchanges in the market for trading
services. As discussed above, the
Commission preliminarily believes that
the proposed amendments would
reduce the latency of core data.1169 This
could improve the competitive positions
of some off-exchange trading venues in
the market for trading services. Offexchange trading venues that currently
rely on the exclusive SIPs to calculate
the NBBO would benefit from the
latency reductions in the distribution of
core data provided by the competing
consolidators.1170 These venues would
now receive a more timely view of the
NBBO, which could improve the
execution quality of trades that take
place on these venues. This could make
them more attractive venues to trade on
and they could attract more order flow,
from both exchanges and other offexchange venues. Off-exchange trading
venues that currently subscribe to
proprietary data feeds could also see
their competitive positions improve. If
the new core data represents a viable
alternative to the proprietary data feeds
for their order executions, they could
substitute core data for proprietary data,
which could lower their costs. They
might be able to pass along these cost
reductions as reduced fees to
subscribers, which could improve their
competitive position relative to
exchanges and other off-exchange
trading venues. Reductions in the fees
1169 See
supra Section VI.C.2(c).
1170 Id.
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charged by these off-exchange trading
venues could in turn potentially benefit
investors if broker-dealers who
subscribe to these venues passed along
these cost savings by, in turn, reducing
their fees.1171
3. Capital Formation
The Commission preliminarily
believes the proposed amendments
would have only a modest impact on
capital formation. However, the
Commission is unable to quantify the
effects on capital formation because, as
discussed above, it is unable to quantify
the additional gains from trade and the
effects of improvements in order routing
that may be realized from the proposed
amendments.1172 However, in the
section below the Commission provides
a qualitative description of the effects it
preliminarily believes the proposed
amendments would have on capital
formation and invites comments on the
subject.
As discussed above, the Commission
preliminarily believes that the addition
of information about odd-lot quotes,
depth of book, and auction information
to core data may result in more
voluntary trades occurring between
market participants, which could lead to
more efficient gains from trade.1173
Improved gains from trade may result in
a more efficient allocation of capital,
which would improve capital formation.
Additionally, the Commission
preliminarily believes that the proposed
amendments would improve order
execution for market participants who
currently rely upon SIP data, which may
lower their transaction costs.1174 Lower
transaction costs could reduce firms’
cost of raising capital.1175 This, in turn
could improve capital formation.
4. Request for Comments on Impact on
Efficiency, Competition, and Capital
Formation
The Commission requests comments
on its analysis of the impact of the
proposed amendments on efficiency,
competition, and capital formation. In
particular, the Commission solicits
comment on the following:
1171 Broker-dealer subscribers could potentially
pass along the cost savings from the reduction in
off-exchange trading venue fees to investors either
directly, if they reduced fees for investors who were
clients of the broker-dealer, or indirectly, if they
reduced fees for institutional clients, such as
mutual funds, who, in turn, passed along the cost
savings to their end investors.
1172 See supra Sections VI.C.1(b), VI.D.1.
1173 See supra Section VI.D.1.
1174 See supra Sections VI.C.1(b), VI.D.1.
1175 See Yakov Amihud and Haim Mendelson,
Asset Pricing and the Bid—Ask Spread, 17 J. Fin.
Econ. 223 (1986).
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16861
276. Do you agree with the
Commission’s analysis of the effects the
proposed amendments might have on
efficiency, competition and capital
formation? Why or why not? Please
explain in detail.
277. Do you believe the proposed
amendments may have unintended
consequences that are not captured by
the Commission’s analysis of the effects
the proposed amendments may have on
efficiency, competition and capital
formation? Why or why not? Please
explain in detail.
278. Do you agree that the proposed
amendments would lead to gains from
trade? Do you agree that the proposed
amendments would improve the
efficiency or order execution? Do you
agree that the proposed amendments
would improve price efficiency? Do you
agree that the proposed amendments
would improve the efficiency of how
core data is distributed? Please explain.
279. To what extent does the gap in
information between SIP data and
proprietary DOB products affect price
efficiency? Are these effects larger in
less actively traded securities where the
gap in information between SIP data
and proprietary DOB products is larger?
Please explain in detail.
280. Do you believe the proposed
amendments would have effects on
efficiency that the Commission has not
recognized? Please explain in detail.
281. Do you agree with the
Commission’s analysis that the proposal
will have a substantial impact on
competition in several markets? In
particular, do you agree that the
decentralized consolidation model
improves the competition in the market
to distribute consolidated market data?
Do you agree that the decentralized
consolidation model creates more viable
substitutes for proprietary exchange
data? Do you agree that the proposal
increases competition to provide smart
order routing? Do you agree that the
proposal could affect competition
among exchanges to provide transaction
services? Do you agree that the proposal
could affect competition among traders?
Do you agree that the proposal could
affect competition among exchanges and
off-exchange trading venues? Please
explain in detail.
282. Do you agree that the public
disclosure of Form CC and the
performance metrics promote
competition more than if such
information were not disclosed? Please
explain.
283. Do you agree that the extension
of Regulation SCI to include competing
consolidators could raise the barriers to
entry for competing consolidators and
reduce competition in the competing
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consolidator market? Why or why not?
Please explain in detail.
284. Do you agree that the purchase
of consolidated market data from a
competing consolidator by the CAT
would not have a significant effect on
competition among competing
consolidators? Why or why not? Please
explain in detail.
285. Would the public disclosure of
Form CC or the performance metrics
risk revealing any trade secrets that
could harm competition? Please
explain.
286. Do you believe the proposed
amendments would have effects on
competition that the Commission has
not recognized? Please explain in detail.
287. Do you agree that the proposal
would only have a modest impact on
capital formation? Why or why not?
Please explain in detail.
288. Do you believe the proposed
amendments would have effects on
capital formation that the Commission
has not recognized? Please explain in
detail.
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E. Alternatives
The Commission considered potential
alternatives to the proposed
amendments that broadly fall into two
categories: Introduce the decentralized
consolidation model and make
alternative changes to the core data
definition, and make changes in the core
data definition as proposed in the
amendments and consider alternative
models of SIP competition.
1. Introduce Decentralized
Consolidation Model With Additional
Changes in Core Data Definition
The Commission considered an
alternative that would introduce the
decentralized consolidation model and
expand core data more than the
proposal does. For example, the
Commission considered expanding core
data to include information on
quotations and aggregate size at all
prices in the limit order book (‘‘full
depth of book’’) in addition to the depth
of book information contained in the
proposal, i.e., five price levels from the
protected quotes.1176 Alternatively, the
Commission considered expanding core
data to include information on all oddlot sized quotes instead of only
information on quotes at or above the
proposed round lot size.1177 Under both
alternatives, the definition of a round lot
for the purposes of determining the
NBBO and a protected quote would
remain the same as in the proposed
amendments, which means the costs
1176 See
1177 See
supra Section III.C.2.
supra Section III.C.1.
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and benefits associated with the changes
in the definition of the NBBO and
protected quotes would be similar to the
proposal.1178
Relative to the proposal, full depth of
book information would provide market
participants who currently do not access
proprietary DOB feeds, as well as
market participants who currently
access proprietary DOB feeds and would
have switched to using consolidated
market data under the proposal, with
additional information on liquidity
provision across more price levels. To
the extent that these market participants
can utilize full depth of book
information, the Commission
preliminarily believes that this
alternative could result in increased
benefits to such market participants
relative to the proposal.1179 Certain
commenters on the Roundtable stated
that without full depth of book
information, broker-dealers may not be
able to provide best execution to their
clients,1180 indicating that full depth of
book information would provide
valuable information to market
participants. However, as discussed
above, the Commission preliminarily
believes that the marginal benefit of
including additional information on
price levels further away from the best
quotes may decrease as the price level
moves away from the best quote because
orders at these price levels are less
likely to execute.1181
Relative to the proposal, the inclusion
of full depth of book information in core
data would increase the ability of
market participants to use it as a
substitute for proprietary DOB feeds.1182
Currently, market participants
interested in full depth of book data rely
on proprietary DOB feeds offered by
exchanges, which provide varying
degrees of the depth of book
information. To the extent that there are
market participants who utilize full
depth of book information via
proprietary DOB feeds in trading, this
alternative could increase the benefits
for some of these market participants
1178 See
supra Section VI.C.1(c).
alternative could increase costs relative
to the proposal for market participants that access
full depth of book information and execute trading
that earn profits at the expense of other market
participants who do not access this information. As
discussed above, this cost would represent a partial
transfer from traders who currently have access to
depth of book to those who do not. See supra
Section VI.C.1(b)(iv).
1180 See supra notes 284–285.
1181 See supra Sections VI.C.1(b)(ii), III.C.2.
1182 Including full depth of book information in
core data would not make it a perfect substitute for
all proprietary DOB feeds. For example, some
proprietary DOB feeds contain more detailed
information than full depth of information, such as
messages on individual orders.
1179 This
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relative to the proposal by potentially
reducing their data costs if they would
switch to using core data under this
alternative but would not have done so
under the proposal. Subscribers of
proprietary DOB feeds would realize
these cost savings if they switched to
receiving proposed consolidated market
data through a competing consolidator
or if they registered as a selfaggregator.1183
The Commission preliminarily
believes that the alternative to include
full depth of the book in core data
would result in greater costs for
exchanges than would the proposal. To
the extent that the alternative results in
fewer market participants subscribing to
proprietary DOB data or purchasing
connectivity services from the
exchanges than under the proposal,
exchanges’ business for their proprietary
feeds and connectivity services could be
less profitable.1184 Additionally, to the
extent that not all exchanges sell full
depth of book, certain exchanges would
incur additional costs to set up systems
and produce full depth of book
information to be included in the core
data. However, the Commission is
unable to quantify this cost because it
lacks information on the modifications
exchanges would need to make to their
systems in order to provide full depth
of book information, but the
Commission invites comments on the
issue.
Compared to the proposal, this
alternative could result in additional
costs for competing consolidators to
create infrastructure and expand
capacity to distribute full depth of book
information.1185 The costs are likely to
vary substantially according to the
existing infrastructure of the entity
seeking to be a competing consolidator.
The Commission preliminarily believes
that these incremental costs for market
data aggregators and existing exclusive
SIPs will be small, because they already
work with proprietary DOB data.
However, the Commission invites
comments on the issue.
Additionally, including full depth of
book information would require market
participants who subscribed to core data
and wished to receive the additional
depth of book information to make more
extensive upgrades to their systems than
1183 See
supra Section VI.C.2(b).
broadly, this could have differential
effects between exchanges who derive significant
revenue from proprietary data feeds and those who
derive significant revenue primarily from SIP
revenue. These effects would also depend on the
NMS plan(s) fees for consolidated market data as
well as their method for allocating revenue received
from consolidated market data among the SROs. See
supra Section VI.C.4(a).
1185 See supra Section VI.C.2(d).
1184 More
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under the proposal. However, the
Commission is unable to estimate the
associated costs because it does not
have access to information about the
infrastructure expenses a market
participant incurs to process market
data and because of the likelihood that
such costs vary substantially according
to the existing infrastructure of the
market participant, but the Commission
invites comments on the issue. To the
extent that some market participants
who subscribe to the exclusive SIPs do
not need full depth of book information,
they would not need to expand their
own proprietary technology or that of a
third-party vendor to process the full
depth of the book data. Therefore, this
alternative would not result in
additional costs for these market
participants compared to the proposal.
In addition to the alternative of
adding full depth of book information,
the Commission also considered
expanding core data to include
information on all odd-lot sized quotes
instead of only information on quotes at
or above the proposed round lot
size.1186 The proposed rule is
specifically designed to leave out oddlot quotes for low priced stocks. Under
this alternative, market participants who
subscribe to core data would have oddlot information for low priced stocks.
Furthermore, compared to the proposal,
this alternative would provide market
participants who subscribe to core data
with more detailed information about at
which prices odd-lot liquidity exists
(i.e., instead of rolling up odd-lot quotes
at different prices to the highest price)
for higher priced stocks. To the extent
that market participants who currently
do not have access to this information
utilize the more detailed odd-lot
information in order routing and
execution, this alternative could
improve their execution quality relative
to the proposal.1187 However, as
discussed above,1188 Commission and
commenter analysis shows that there is
a higher percentage of odd-lot trades in
higher priced stocks. This could imply
that there are fewer odd-lot quotes
present in low priced stocks, which
could mean that the marginal benefit of
including odd-lot information in low
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1186 See
supra Section III.C.1.
alternative could increase costs relative
to the proposal for market participants that access
all odd-lot quotes and execute trading that earn
profits at the expense of other market participants
who do not access this information. As discussed
above, this cost would represent a partial transfer
from traders who currently have access to all oddlot quotes to those who do not. See supra Section
VI.C.1(b)(iv).
1188 See supra note 178 and accompanying text.
1187 This
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priced stocks may be smaller than
including it in stocks with higher prices.
The Commission preliminarily
believes that the inclusion of all odd-lot
data would not significantly change the
processing costs for competing
consolidators relative to the proposal.
Under the current proposal, competing
consolidators would already be
processing all odd-lot data in order to
calculate exchange round lot BBOs and
the round lot NBBO that would be
contained in the proposed core market
data. Competing consolidators may
incur some additional infrastructure
expenses in order to disseminate the
additional message volume associated
with all odd-lot information to market
participants. These costs are likely to
vary according to the existing
infrastructure of the entity seeking to be
a competing consolidator, but the
Commission preliminarily believes that
these additional infrastructure costs are
likely to be small.1189 However, the
Commission invites comments on the
issue.
Additionally, the Commission
preliminarily estimates that market
participants and data vendors would
need to make additional upgrades to
their systems beyond the proposal in
order to receive the additional odd-lot
data. However, the Commission does
not have access to information about the
infrastructure expenses a market
participant incurs to process market
data and because of the likelihood that
such costs vary substantially according
to the existing infrastructure of market
participants, but the Commission invites
comments on the issue.
2. Introduce Changes in Core Data and
Introduce a Distributed SIP Model
The Commission considered an
alternative that would expand the core
data as proposed and would introduce
a distributed SIP model whereby the
current exclusive SIP processors would
establish multiple instances of their
systems in multiple data centers.1190 As
some commenters and panelists
suggested at the Roundtable,1191 this
alternative would achieve a similar
reduction in exclusive SIP geographic
latency to the proposal by allowing
firms to consume data under the current
structure without making any changes
or to consume data at the nearest
exclusive SIP instance depending on the
firms’ latency concerns. However, this
alternative would still provide exclusive
rights to one operator to provide
exclusive SIP services for a given tape.
This Commission preliminarily
believes that this alternative would
produce lower benefits compared to the
proposed decentralized consolidation
model.1192 Under this alternative, the
exclusive SIPs would not be subject to
the same competitive forces that
competing consolidators may be subject
to under the decentralized consolidation
model.1193 This lack of competition
would reduce the incentives to innovate
and would not improve efficiency or
reduce the transmission and aggregation
latencies of core data as much as the
proposal. If core data does not achieve
the same overall latency reduction as
under the proposal, then market
participants would be less likely to
substitute using core data for
proprietary data than they would be
under the proposal. This could mean
that the decline in profits from
exchanges’ proprietary data fees may
not be as large as they would be under
the proposal.1194
Under this alternative, the exclusive
SIPs would still need to make upgrades
to their systems to account for the
expansion of core data and would still
need to install systems in multiple data
centers. The Commission preliminarily
believes that the costs of these SIP
system upgrades would be similar to
those under the proposal.1195 However,
under this alternative, market
participants may experience higher
costs to access core data compared to
the proposal. Instead of having the
option to receive all core data from one
competing consolidator, as they would
under the proposal, market participants
would still need to receive data from
both exclusive SIP plan processors.1196
This means that under this alternative,
the total price market participants
would pay to access core data may be
greater than under the proposal because
it would include the costs of the two
plan processors to aggregate and
transmit the data. Under the proposal,
the total price market participants
would pay to receive core data may only
include the costs of one processor,
because market participants would have
the option to receive all of their core
data from one competing
consolidator.1197
1192 See
supra Sections VI.C.2, IV.C.1.
supra Sections VI.C.2, VI.D.2.
1194 See supra Section VI.C.4(a).
1195 See supra Section VI.C.2(d).
1196 See supra Section VI.B.2.
1197 See supra Section VI.C.2(c).
1193 See
1189 See
supra Section VI.C.2(d).
also a discussion about a single SIP
alternative, supra Section IV.C.2.
1191 See supra Section IV.C.1(a).
1190 See
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3. Require Competing Consolidators’
Fees B e Subject to the Commission’s
Approval
The Commission considered an
alternative to the decentralized
consolidation model that would require
competing consolidators’ fees to be
subject to the Commission’s regulatory
approval.
The Commission preliminarily
believes that, relative to the proposal,
this alternative would potentially
reduce the risk and uncertainty
surrounding the total price of
consolidated market data. This
alternative would provide for
Commission review and approval of the
fees of competing consolidators.
Therefore, compared to the proposal,
this alternative could reduce the risk
that market participants are exposed to
unreasonable fees, which could reduce
the risk that some market participants or
data vendors would no longer provide
services in the equity market because
the price of consolidated market data
becomes too high.1198
The Commission preliminarily
believes, however, that this alternative
would impose additional regulatory
burdens on the competing consolidator
business compared to the proposal, and
may inhibit competing consolidators
from being able to respond effectively
and quickly to free market forces. These
burdens would reduce the incentive for
firms to become competing
consolidators and lead to less robust
competition in the decentralized
consolidation model than under the
proposal.1199 With less competitive
forces to discipline competing
consolidators’ service fees, competing
consolidators’ would have less incentive
to innovate in their consolidating
business. Moreover, less competing
consolidators in the market would
reduce the extent to which the pricing
is based on market forces.
4. Do Not Extend Regulation SCI To
Include Competing Consolidators
The Commission considered an
alternative that would not extend
Regulation SCI to include competing
consolidators. Under this alternative,
the Commission would have required
competing consolidators to establish,
maintain, and enforce written policies
and procedures reasonably designed to
ensure that its systems involved in the
collection, consolidation, and
dissemination of consolidated market
data have levels of capacity, integrity,
resiliency, availability, and security
adequate to maintain operational
capability and to assure the prompt,
accurate, and reliable delivery of
consolidated market data. These
policies and procedures could address,
among other things, data security and
integrity; reasonable current and future
capacity estimates; business continuity
and disaster recovery plans; periodic
capacity stress tests of critical systems;
procedures to review and keep current
system development and testing
methodology; periodic reviews to assess
the vulnerability of its systems and
operations to internal and external
threats, physical hazards, and natural
disasters; and an annual independent
audit to ensure that these requirements
are satisfied, together with a review by
senior management of a report
containing the commendations and
conclusions of the independent review.
The Commission preliminarily believes
that this alternative would reduce some
of the benefits as well as some of the
costs compared to extending Regulation
SCI to include competing
consolidators.1200
The Commission preliminarily
believes that this alternative could
result in some competing consolidators
producing systems that would be less
secure and resilient than they would be
under the proposed amendments
because they would not be subject to all
of the requirements of being an SCI
entity.1201 If competing consolidators
produce less secure and resilient
systems compared to if they were SCI
entities, then there could be a greater
risk of more market disruptions due to
systems issues in competing
consolidators compared to the proposed
amendments.1202 Additionally, if a
competing consolidator does experience
a systems issue, it could result in more
severe and longer disruptions compared
to the proposed amendments. However,
the increase in competing consolidator
systems issues compared to the proposal
may not be significant. Under this
alternative, competing consolidators
would still have to establish policies
and procedures to ensure that their
systems have levels of capacity,
integrity, resiliency, availability, and
security adequate to maintain
operational capability. They would also
still need to post information on
systems issues on their websites as well
as monthly reports containing statistics
on their capacity and systems
availability.1203 This would place
competitive pressure on competing
consolidators to ensure that their
1200 See
1201 See
1198 See
1199 See
1202 Id.
supra Section VI.C.2(d).
supra Section VI.C.2(a).
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supra Section VI.C.2(e).
supra Section VI.C.2(e)(i).
1203 See
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systems are reliable and resilient.
Otherwise, they could lose subscribers
to competing consolidators that had
more reliable and resilient systems.
The Commission preliminarily
believes that this alternative would
result in lower costs for some competing
consolidators compared to the proposed
amendments. Under this alternative,
competing consolidators would not
incur the costs that are associated with
SCI entities that are discussed
above.1204 Instead, the Commission
preliminarily estimates that requiring a
competing consolidator to establish,
maintain, and enforce written policies
and procedures reasonably designed to
ensure that its systems involved in the
collection, consolidation, and
dissemination of consolidated market
data have levels of capacity, integrity,
resiliency, availability, and security
adequate to maintain operational
capability and to assure the prompt,
accurate, and reliable delivery of
consolidated market data would require
an average initial expense of $68,710
per competing consolidator.1205 The
Commission based these estimates upon
those it used with regards to
establishing similar policies and
procedures for Security-Based Swap
Data Repository Registration, Duties and
Core Principles.1206 Once these policies
and procedures are established, the
Commission preliminarily estimates
that, on average, a competing
consolidator will incur an ongoing cost
of $21,810 annually to maintain these
policies and procedures.1207
1204 See
supra Section VI.C.2(e)(ii).
Commission estimates a total of 210
initial burden hours per competing consolidator.
The Commission estimates a total monetized initial
burden of $68,710 per competing consolidator. The
Commission derived this estimate based on per
hour figures from SIFMA’s Management &
Professional Earnings in the Securities Industry
2013, modified by Commission staff to account for
an 1,800-hour work-year and inflation, and
multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead: [(Compliance
Manager at $310 for 80 hours) + (Attorney at $417
for 80 hours) + (Sr. Systems Analyst at $285 for 25
hours) + (Operations Specialist at $137 for 25
hours)] = 210 initial burden hours per competing
consolidator and $68,710.
1206 See Securities Exchange Act Release No.
74246, supra note 554, at 14523; 17 CFR 242.13n–
6.
1207 The Commission preliminarily estimates that
it will take, on average, 60 annual hours to maintain
these policies and procedures per competing
consolidator. The Commission estimates the
monetized burden for this requirement to be
$21,810. The Commission derived this estimate
based on per hour figures from SIFMA’s
Management & Professional Earnings in the
Securities Industry 2013, modified by Commission
staff to account for an 1,800-hour work-year and
inflation, and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead:
[(Compliance Manager at $310 for 30 hours) +
1205 The
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The Commission preliminarily
believes that, compared to the proposed
amendments, this would lower the
barriers to entry for new competing
consolidators who are not currently SCI
entities, including market data
aggregators.1208 This could result in
more firms becoming competing
consolidators and could increase
competition in the competing
consolidator market compared to the
proposal. Increased competition could
lower the costs and increase the speed
and quality of consolidated market data
compared to the proposed amendments.
This, in turn, could make consolidated
market data a more viable substitute for
proprietary data feeds and result in
greater competition between
consolidated market data and
proprietary data feeds compared to the
proposed amendments.
5. Require Competing Consolidators To
Submit Form CC in the EDGAR System
Using the Inline XBRL Format
The Commission considered the
alternative of requiring competing
consolidators to submit Form CC using
the Commission’s EDGAR system and
using the Inline XBRL format. Requiring
this could create benefits for market
participants by enabling more efficient
retrieval, aggregation and analysis of
disclosed information and facilitating
comparisons across competing
consolidators. This alternative also
could allow a competing consolidator to
efficiently benchmark key aspects of its
operations (e.g., operational capabilities
or fee structures) against the rest of the
potential competing consolidator
population. However, the benefits to
market participants of efficient
aggregation and comparison and the
benefits to potential competing
consolidators of efficient benchmarking
depend on the number of competing
consolidators that ultimately register
with the Commission, which we
estimate to be relatively low at twelve.
Additionally, many potential
competing consolidators may not be
familiar with Inline XBRL and thus
could incur increased costs if they need
to learn Inline XBRL compared to the
proposal’s requirement to submit Form
CC and various exhibits through EFFS—
a system with which we believe many
potential competing consolidators are
already familiar. However, to the extent
that potential competing consolidators
already have experience filing
information in EDGAR in an XML
format, costs associated with learning a
(Attorney at $417 for 30 hours)] = 60 annual burden
hours per competing consolidator and $21,810.
1208 See supra Sections VI.C.2(a)(i)b., VI.D.2.
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new system and format may be
mitigated. We request comment on the
specific benefits and costs of filing Form
CC in EDGAR using the Inline XBRL
format.
6. Require Competing Consolidators To
Submit Monthly Disclosures in the
EDGAR System Using the Inline XBRL
Format
The Commission considered the
alternative of requiring competing
consolidators to submit their monthly
performance metrics and operational
information using the Commission’s
EDGAR system and using the Inline
XBRL format. This alternative could
create benefits for market participants
by having the monthly information of
each competing consolidator in a
centralized location. Additionally, it
could allow for more efficient retrieval,
aggregation and analysis of disclosed
information and facilitate comparisons
across competing consolidators and
time periods. To the extent there are a
small number of potential competing
consolidators, the magnitude of such
benefits would be reduced.
Additionally, competing
consolidators would incur increased
costs to file the information with the
Commission compared to the proposal’s
requirement to post the monthly
information on the competing
consolidator’s website in any format.
The difference in costs would likely
vary across competing consolidators,
depending on the systems and processes
they currently have in place, such as for
internal reporting, posting of website
updates, and submission of regulatory
filings, and the manner in which
competing consolidators currently
maintain data required for the
additional disclosures.
In addition, similar to submitting
Form CC information on EDGAR using
the Inline XBRL format, competing
consolidators may need to learn Inline
XBRL. We request comment on the
specific benefits and costs of filing the
monthly disclosures in EDGAR using
the Inline XBRL format.
7. Prescribing the Format of NMS
Information
The Commission considered an
alternative in which it would prescribe
a single format that SROs would use to
provide NMS information to competing
consolidators and self-aggregators. Each
SRO would still be required to make all
methods of access available to
competing consolidators and selfaggregators as such SRO makes available
to any other person.1209 Each SRO
would still be able to offer proprietary
data products in other formats.
By prescribing the format, the
Commission could better ensure
consistency of the data. Compared to the
proposal, a standard format could
reduce the costs for competing
consolidators and self-aggregators to
aggregate the data to create consolidated
market data. However, the Commission
preliminarily believes that these costs
may not be significantly reduced. As
discussed above, the SROs currently use
a variety of formats for their proprietary
data feeds and some broker-dealers,
market data aggregators, and the SIPs
are already adept and experienced in
aggregating and normalizing the data
across different formats.1210 Therefore,
some potential competing consolidators
and self-aggregators may not experience
significant cost reductions relative to
the proposal if the Commission required
that SROs provide NMS information in
a prescribed format.
Requiring a single format for SROs to
deliver NMS information to competing
consolidators and self-aggregators
would also increase the costs to SRO’s
compared to the proposal. SROs would
incur a greater cost to conform their
existing data to a format they do not
already use. It could also increase the
costs of exchanges making future
changes to their data because they may
need to make alterations to both their
proprietary data products and to data in
the standard format they would supply
to competing consolidators and selfaggregators, assuming the changes
would need to be included in
consolidated market data. Additionally,
compared to the proposal, this increased
cost could reduce the likelihood that the
effective NMS plan(s) for NMS stocks or
SROs introduce additional elements
into consolidated data in the future.1211
Requiring the SROs to deliver data to
competing consolidators and selfaggregators in a single format could also
impact the latency between
consolidated market data and aggregated
proprietary DOB feeds. On the one
hand, receiving all of the data in a single
format should expedite the aggregation
and normalization process for
consolidated data. This could
potentially reduce the latency
differential between consolidated
market data and aggregated proprietary
data feeds compared to the proposal.
However, it is possible that the format
of certain proprietary data feeds may
allow for faster aggregation initially than
the single format specified by the
Commission because of certain SROs’
1210 See
1209 See
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existing familiarity with its format. If
this occurred, it could increase the
latency differential compared to the
proposal.
In addition, if the SROs are required
to transform their existing data to a
different format, it could hinder the
timeliness of the data competing
consolidators receive compared to data
delivered via the proprietary feeds. Any
changes in the timeliness with which
the competing consolidators receive the
data or any difference in latency
between consolidated core data and
proprietary data feeds would affect the
viability of consolidated core data as a
substitute for proprietary data feeds and
affect many of the benefits of the
decentralized consolidation model.1212
If the latency differential is reduced,
more market participants may substitute
consolidated market data for proprietary
data feeds and the benefits of the
decentralized consolidation model
could increase compared to the
proposal. If competing consolidators
receive less timely data or the latency
differential increases, fewer market
participants would switch to
consolidated market data and the
benefits would be smaller than under
the proposal.
8. Request for Comments on
Alternatives
The Commission requests comments
on its analysis of alternatives to the
proposed amendments. In particular,
the Commission solicits comment on
the following:
289. Should the Commission adopt an
alternative approach? Why or why not?
What alternatives should the
Commission consider? What are the
benefits and costs of such an approach?
Please explain in detail.
290. Do you agree with the
Commission’s analysis of the alternative
to further increase the content of core
data to include the full depth of book
and/or all odd-lot quotes? Would
additional depth of book information,
beyond what is include in the proposal,
be valuable? Why or why not? How
much larger would consolidated market
data be if it included the full depth of
book and/or all odd-lots? How much
larger than the proposal would the costs
of this alternative be for exchanges,
competing consolidators, and other
market participants? Please provide
estimates, if possible.
291. Do you agree with the
Commission’s analysis of the distributed
SIP alternative? Why or why not? Please
explain. How would the competitive
effects of the distributed SIP alternative
1212 See
supra Section VI.C.2(c).
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compare to the competitive effects of the
proposed decentralized consolidated
model? As such, how would the benefits
of the distributed SIP model compare to
the benefits of the decentralized
consolidation model? How would the
costs of the distributed SIP model
compare to the costs of the
decentralized consolidation model?
How would the distributed SIP model
affect aggregate data fees paid by market
participants for market data? How
would the distributed SIP model affect
the types of products and services
available to purchase consolidated data?
292. Do you agree with the
Commission’s analysis of the relative
economic effects of the alternative to not
extend Regulation SCI to include
competing consolidators? Why or why
not? Please explain. Would this
alternative increase the risk of a
competing consolidator experiencing a
system disruption? If so, how
economically significant would this
increase be? Would this alternative
lower the barriers to entry for competing
consolidators compared to the proposed
amendments? Would this alternative
result in more new competing
consolidators? Would this alternative
increase competition among competing
consolidators? Would this alternative
increase innovation in the competing
consolidator market? Would this
alternative increase competition
between consolidated market data and
proprietary depth of book feeds? Please
explain and provide estimates if
possible.
293. Do you agree with the
Commission’s analysis of the relative
economic effects of the alternative to
require that competing consolidator fees
be subject to Commission approval?
Why or why not? Please explain. Should
the Commission be concerned that the
proposal does not require an approval
process for competing consolidators’
market data fees? What is the risk and
how large is that risk? Would the
alternative reduce this risk? If so, how
economically significant would this
reduction be? How burdensome would
it be for competing consolidators to
have to obtain Commission approval for
their fees? Please explain and provide
cost estimates if possible.
294. Do commenters agree with the
Commission’s analysis of the alternative
to require all disclosures be filed in the
EDGAR system using the Inline XBRL
format? Why or why not? Please explain
in detail. Would the alternative further
help market participants evaluate and
compare the merits of competing
consolidators? Would the alternative
promote consistency relative to the
proposal? Would the disclosures be
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more accessible in EDGAR than if they
were on the Commission’s website or on
competing consolidators’ websites?
Please explain in detail. What are the
costs of using EDGAR and the Inline
XBRL format relative to the proposal?
Please explain and provide estimates if
possible.
295. Do you agree with the
Commission’s analysis of the relative
economic effects of the alternative in
which the Commission would prescribe
a single format that SROs would use to
provide NMS information to competing
consolidators and self-aggregators? Why
or why not? Please explain. What effects
would the Commission prescribing
NMS information be provided in a
single format have on the costs of SROs,
competing consolidators, and selfaggregators? How economically
significant would these effects be? What
effects would the alternative have on the
latency of consolidated market data
compared to aggregated proprietary data
feeds? What effects would the
alternative have on the timeliness of the
data competing consolidators and selfaggregators would receive? Please
explain and provide estimates if
possible.
296. Are there other reasonable
alternatives for the proposed
amendments to Regulation NMS to
update the content of the consolidated
market data and introduce competition
into the distribution of that consolidated
market data? If so, please provide
additional alternatives and how their
costs and benefits, as well as their
potential impacts on the promotion of
efficiency, competition, and capital
formation, would compare to the impact
of the proposed amendments.
297. Is the competing consolidator
approach necessary to achieve the
economic benefits of the proposal
related to expanding consolidated
market data? Are there alternatives to
the decentralized consolidation model
with competing consolidators that
would achieve the Commission’s
objectives at lower cost? If so, how
would their costs and benefit compare
to the proposed decentralized
consolidation model? Please explain
and provide estimates if possible.
F. Request for Comments on the
Economic Analysis
The Commission is sensitive to the
potential economic effects, including
the costs and benefits, of the proposed
amendments to Regulation NMS to
update the content of core data and
introduce the decentralized
consolidation model into the
distribution of consolidated market
data. The Commission has identified
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above certain costs and benefits
associated with the proposal and
requests comment on all aspects of its
preliminary economic analysis,
including with respect to the specific
questions posed above. The Commission
encourages commenters to identify,
discuss, analyze, and supply relevant
data, information, or statistics regarding
any such costs or benefits.
VII. Consideration of Impact on the
Economy
For purposes of the Small Business
Regulatory Enforcement Fairness Act of
1996 (‘‘SBREFA’’),1213 the Commission
requests comment on the potential effect
of the proposed amendments on the
United States economy on an annual
basis. The Commission also requests
comment on any potential increases in
costs or prices for consumers or
individual industries, and any potential
effect on competition, investment, or
innovation. Commenters are requested
to provide empirical data and other
factual support for their views to the
extent possible.
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VIII. Regulatory Flexibility
Certification
The Regulatory Flexibility Act
(‘‘RFA’’) 1214 requires Federal agencies,
in promulgating rules, to consider the
impact of those rules on small entities.
Section 603(a) 1215 of the Administrative
Procedure Act,1216 as amended by the
RFA, generally requires the Commission
to undertake a regulatory flexibility
analysis of all proposed rules, or
proposed rule amendments, to
determine the impact of such
rulemaking on ‘‘small entities.’’ 1217
Section 605(b) of the RFA states that
this requirement shall not apply to any
proposed rule or proposed rule
amendment which, if adopted, would
not have a significant economic impact
on a substantial number of small
entities.1218
The proposed rule would apply to
national securities exchanges registered
with the Commission under Section 6 of
the Exchange Act, national securities
associations registered with the
1213 Public Law 104–121, Title II, 110 Stat. 857
(1996) (codified in various sections of 5 U.S.C., 15
U.S.C., and as a note to 5 U.S.C. 601).
1214 5 U.S.C. 601 et seq.
1215 5 U.S.C. 603(a).
1216 5 U.S.C. 551 et seq.
1217 Although Section 601(b) of the RFA defines
the term ‘‘small entity,’’ the statute permits agencies
to formulate their own definitions. The Commission
has adopted definitions for the term ‘‘small entity’’
for purposes of Commission rulemaking in
accordance with the RFA. Those definitions, as
relevant to this proposed rulemaking, are set forth
in Rule 0–10, 17 CFR 240.0–10.
1218 See 5 U.S.C. 605(b).
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Commission under Section 15A of the
Exchange Act, and competing
consolidators. None of the exchanges
registered under Section 6 that would be
subject to the proposed amendments are
‘‘small entities’’ for purposes of the
RFA.1219 There is only one national
securities association, and the
Commission has previously stated that
it is not a small entity as defined by 13
CFR 121.201.1220 For purposes of the
Commission rulemaking in connection
with the RFA 1221 as it relates to
competing consolidators, a small entity
includes a SIP that ‘‘(1) Had gross
revenues of less than $10 million during
the preceding fiscal year (or in the time
it has been in business, if shorter); (2)
Provided service to fewer than 100
interrogation devices or moving tickers
at all times during the preceding fiscal
year (or in the time that it has been in
business, if shorter); and (3) Is not
affiliated with any person (other than a
natural person) that is not a small
business or small organization under
this section.’’ 1222 The Commission
preliminarily believes that no
competing consolidators would be
‘‘small entities’’ for purposes of the
RFA.
For the above reasons, the
Commission certifies that the proposed
amendments to Rules 600 and 603 and
the new Rule 614, if adopted, would not
have a significant economic impact on
a substantial number of small entities
for purposes of the RFA.
The Commission invites commenters
to address whether the proposed rules
would have a significant economic
impact on a substantial number of small
entities, and, if so, what would be the
nature of any impact on small entities.
The Commission requests that
commenters provide empirical data to
support the extent of such impact.
IX. Statutory Authority
Pursuant to the Exchange Act, and
particularly Sections 3(b), 5, 6, 11A, 15,
17, and 23(a) thereof, 15 U.S.C. 78c, 78e,
78f, 78k–1, 78o, 78q, and 78w(a), the
Commission proposes to amend
Sections 240.3a51–1, 240.13h–1,
242.105, 242.201, 242.204, 242.600,
242.602, 242.603, 242.611, and 242.1000
of Chapter II of Title 17 of the Code of
Federal Regulations and proposes Rule
614, as set forth below.
List of Subjects
17 CFR Part 240
Brokers, Dealers, Registration,
Securities.
17 CFR Part 242 and 249
Brokers, Reporting and recordkeeping
requirements, Securities.
For the reasons stated in the
preamble, the Commission is proposing
to amend title 17, Chapter II of the Code
of Federal Regulations as follows:
PART 240—GENERAL RULES AND
REGULATIONS, SECURITIES
EXCHANGE ACT OF 1934
1. The authority citation for part 240
continues to read in part as follows:
■
Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f,
78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m,
78n, 78n–1, 78o, 78o–4, 78o–10, 78p, 78q,
78q–1, 78s, 78u–5, 78w, 78x, 78ll, 78mm,
80a–20, 80a–23, 80a–29, 80a–37, 80b–3, 80b–
4, 80b–11, 7201 et seq., and 8302; 7 U.S.C.
2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C.
1350; Pub. L. 111–203, 939A, 124 Stat. 1376,
(2010); and Pub. L. 112–106, sec. 503 and
602, 126 Stat. 326 (2012), unless otherwise
noted.
*
*
*
*
§ 240.3a51–1
*
[Amended].
2. In § 240.3a51–1, amend paragraph
(a) by removing the text
‘‘§ 242.600(b)(48)’’ and adding in its
place ‘‘§ 242.600(b)(55)’’.
■
1219 See 17 CFR 240.0–10(e). Paragraph (e) of Rule
0–10 states that the term ‘‘small business,’’ when
referring to an exchange, means any exchange that
has been exempted from the reporting requirements
of Rule 601 of Regulation NMS, 17 CFR 242.601,
and is not affiliated with any person (other than a
natural person) that is not a small business or small
organization as defined in Rule 0–10. Under this
standard, none of the exchanges subject to the
proposed amendment to Rule 608 is a ‘‘small
entity’’ for the purposes of the RFA. See also
Securities Exchange Act Release Nos. 82873 (Mar.
14, 2018), 83 FR 13008, 13074 (Mar. 26, 2018) (File
No. S7–05–18) (Transaction Fee Pilot for NMS
Stocks Proposed Rule); 55341 (May 8, 2001), 72 FR
9412, 9419 (May 16, 2007) (File No. S7–06–07)
(Proposed Rule Changes of Self-Regulatory
Organizations Proposing Release).
1220 See, e.g., Securities Exchange Act Release No.
62174 (May 26, 2010), 75 FR 32556, 32605 n.416
(June 8, 2010) (‘‘FINRA is not a small entity as
defined by 13 CFR 121.201.’’).
1221 See supra note 1217.
1222 17 CFR 240.0–10(g).
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§ 240.13h–1
[Amended].
3. In § 240.13h–1, amend paragraph
(a)(5) by removing the text
‘‘§ 242.600(b)(47)’’ and adding in its
place ‘‘§ 242.600(b)(54)’’.
■
PART 242—REGULATIONS M, SHO,
ATS, AC, NMS, AND SBSR AND
CUSTOMER MARGIN REQUIREMENTS
FOR SECURITY FUTURES
4. The authority citation for part 242
continues to read as follows:
■
Authority: 15 U.S.C. 77g, 77q(a), 77s(a),
78b, 78c, 78g(c)(2), 78i(a), 78j, 78k–1(c), 78l,
78m, 78n, 78o(b), 78o(c), 78o(g), 78q(a),
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78q(b), 78q(h), 78w(a), 78dd–1, 78mm, 80a–
23, 80a–29, and 80a–37.
§ 242.105
[Amended].
5. Amend § 242.105 by:
a. In paragraph (b)(1)(i)(C) removing
the text ‘‘§ 242.600(b)(23)’’ and adding
in its place ‘‘§ 242.600(b)(29)’’ and
■ b. In paragraph (b)(1)(ii) removing the
text ‘‘§ 242.600(b)(68)’’ and adding in its
place ‘‘§ 242.600(b)(76)’’.
■
■
§ 242.201
[Amended].
6. Amend § 242.201 by:
a. In paragraph (a)(1) removing the
text ‘‘§ 242.600(b)(48)’’ and adding in its
place ‘‘§ 242.600(b)(55)’’;
■ b. In paragraph (a)(2) removing the
text ‘‘§ 242.600(b)(23)’’ and adding in its
place ‘‘§ 242.600(b)(29)’’;
■ c. Amending paragraph (a)(3) by
removing the text ‘‘the term ‘‘listing
market’’ as defined in the effective
transaction reporting plan for the
covered security’’ and adding in its
place ‘‘the term ‘‘primary listing
exchange’’ as defined in
§ 242.600(b)(67)’’;
■ d. In paragraph (a)(4) removing the
text ‘‘§ 242.600(b)(43)’’ and adding in its
place ‘‘§ 242.600(b)(50)’’;
■ e. In paragraph (a)(5) removing the
text ‘‘§ 242.600(b)(51)’’ and adding in its
place ‘‘§ 242.600(b)(58)’’;
■ f. In paragraph (a)(6) removing the text
‘‘§ 242.600(b)(59)’’ and adding in its
place ‘‘§ 242.600(b)(66)’’;
■ g In paragraph (a)(7) removing the text
‘‘§ 242.600(b)(68)’’ and adding in its
place ‘‘§ 242.600(b)(76)’’; and
■ h. In paragraph (a)(9) removing the
text ‘‘§ 242.600(b)(82)’’ and adding in its
place ‘‘§ 242.600(b)(93)’’.
■ i. Amending paragraph (b)(1)(ii) by
removing the text ‘‘by a plan processor’’;
■ j. Amending paragraph (b)(3) by
removing the text ‘‘notify the single plan
processor responsible for consolidation
of information for the covered security
pursuant to § 242.603(b). The single
plan processor must then disseminate
this information’’ and adding in its
place ‘‘make such information available
as provided in § 242.603(b)’’.
■
■
§ 242.204
[Amended].
7. In § 242.204, paragraph (g)(2) is
amended by removing the text
‘‘§ 600(b)(68) of Regulation NMS (17
CFR 242.600(b)(68))’’ and adding in its
place ‘‘§ 600(b)(76) of Regulation NMS
(17 CFR 242.600(b)(76))’’.
■ 8. Amend § 242.600 by:
■ a. Redesignating paragraphs (b)(72)
through (87) as paragraphs (b)(83)
through (98);
■ b. Adding new paragraphs (b)(81) and
(82);
■ c. Redesignating paragraphs (b)(69)
through (71) as paragraphs (b)(78)
through (80);
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■
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d. Adding new paragraph (b)(77);
e. Redesignating paragraphs (b)(60)
through (68) as paragraphs (b)(68)
through (76);
■ f. Adding new paragraph (b)(67);
■ g. Redesignating paragraphs (b)(26)
through (59) as paragraphs (b)(33)
through (66);
■ h. Adding new paragraph (b)(32);
■ i. Redesignating paragraphs (b)(20)
through (25) as paragraphs (b)(26)
through (31);
■ j. Adding new paragraph (b)(25);
■ k. Redesignating paragraphs (b)(16)
through (19) as paragraphs (b)(21)
through (24);
■ l. Adding new paragraphs (b)(19) and
(20);
■ m. Redesignating paragraphs (b)(14)
and (15) as paragraphs (b)(17) and (18);
■ n. Adding new paragraph (b)(16);
■ o. Redesignating paragraphs (b)(4)
through (13) as paragraphs (b)(6)
through (15);
■ p. Adding new paragraph (b)(5);
■ q. Redesignating paragraphs (b)(2) and
(3) as paragraphs (b)(3) through (4);
■ r. Adding new paragraph (b)(2); and
■ s. Revising newly redesignated
paragraphs (b)(50) and (69).
The additions and revisions read as
follows:
■
■
§ 242.600 NMS security designation and
definitions.
(b) * * *
(2) Administrative data means
administrative, control, and other
technical messages made available by
national securities exchanges and
national securities associations pursuant
to the effective national market system
plan or plans required under
§ 242.603(b) or the technical
specifications thereto as of [date of
Commission approval of this proposal].
*
*
*
*
*
(5) Auction information means all
information specified by national
securities exchange rules or effective
national market system plans that is
generated by a national securities
exchange leading up to and during an
auction, including opening, reopening,
and closing auctions, and disseminated
during the time periods and at the time
intervals provided in such rules and
plans.
*
*
*
*
*
(16) Competing consolidator means a
securities information processor
required to be registered pursuant to
Rule 614 or a national securities
exchange or national securities
association that receives information
with respect to quotations for and
transactions in NMS stocks and
generates consolidated market data for
dissemination to any person.
*
*
*
*
*
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(19) Consolidated market data means
the following data, consolidated across
all national securities exchanges and
national securities associations:
(i) Core data;
(ii) Regulatory data;
(iii) Administrative data;
(iv) Exchange-specific program data;
and
(v) Additional regulatory,
administrative, or exchange-specific
program data elements defined as such
pursuant to the effective national market
system plan or plans required under
§ 242.603(b).
(20) Core data means the following
information with respect to quotations
for, and transactions in, NMS stocks.
For purposes of the calculation and
dissemination of core data by competing
consolidators, and the calculation of
core data by self-aggregators, the best
bid and best offer, national best bid and
national best offer, and depth of book
data shall include odd-lots that when
aggregated are equal to or greater than
a round lot; such aggregation shall occur
across multiple prices and shall be
disseminated at the least aggressive
price of all such aggregated odd-lots. For
purposes of the calculation and
dissemination of core data by competing
consolidators, and the calculation of
core data by self-aggregators, protected
quotations shall include odd-lots at a
single price that when aggregated are
equal to or greater than 100 shares:
(i) Quotation sizes;
(ii) Aggregate quotation sizes;
(iii) Best bid and best offer;
(iv) National best bid and national
best offer;
(v) Protected bid and protected offer;
(vi) Transaction reports;
(vii) Last sale data;
(viii) Odd-lot transaction data
disseminated pursuant to the effective
national market system plan or plans
required under § 242.603(b) as of [date
of Commission approval of this
proposal].
(ix) Depth of book data; and
(x) Auction information.
*
*
*
*
*
(25) Depth of book data means all
quotation sizes at each national
securities exchange, aggregated at each
price at which there is a bid or offer that
is lower than the best bid down to the
protected bid and higher than the best
offer up to the protected offer; and all
quotation sizes at each national
securities exchange, aggregated at each
of the next 5 prices at which there is a
bid that is lower than the protected bid
and offer that is higher than the
protected offer.
*
*
*
*
*
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(32) Exchange-specific program data
means: (i) Information related to retail
liquidity programs specified by the rules
of national securities exchanges and
disseminated pursuant to the effective
national market system plan or plans
required under § 242.603(b) as of [date
of Commission approval of this
proposal]; and
(ii) Other exchange-specific
information with respect to quotations
for or transactions in NMS stocks as
specified by the effective national
market system plan or plans required
under § 242.603(b).
*
*
*
*
*
(50) National best bid and national
best offer means, with respect to
quotations for an NMS stock, the best
bid and best offer for such stock that are
calculated and disseminated on a
current and continuing basis by a
competing consolidator or calculated by
a self-aggregator and, for NMS securities
other than NMS stocks, the best bid and
best offer for such security that are
calculated and disseminated on a
current and continuing basis by a plan
processor pursuant to an effective
national market system plan; provided,
that in the event two or more market
centers transmit to the plan processor, a
competing consolidator or selfaggregator identical bids or offers for an
NMS security, the best bid or best offer
(as the case may be) shall be determined
by ranking all such identical bids or
offers (as the case may be) first by size
(giving the highest ranking to the bid or
offer associated with the largest size),
and then by time (giving the highest
ranking to the bid or offer received first
in time).
*
*
*
*
*
(67) Primary listing exchange means,
for each NMS stock, the national
securities exchange identified as the
primary listing exchange in the effective
national market system plan or plans
required under § 242.603(b).
*
*
*
*
*
(69) Protected bid or protected offer
means a quotation in an NMS stock that:
(i) Is displayed by an automated
trading center;
(ii) Is disseminated pursuant to an
effective national market system plan;
and
(iii) Is an automated quotation that is
the best bid or best offer of at least 100
shares of a national securities exchange,
or the best bid or best offer of at least
100 shares of a national securities
association.
*
*
*
*
*
(77) Regulatory data means:
(i) Information required to be
collected or calculated by the primary
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listing exchange for an NMS stock and
provided to competing consolidators
and self-aggregators pursuant to the
effective national market system plan or
plans required under § 242.603(b),
including, at a minimum:
(A) Information regarding Short Sale
Circuit Breakers pursuant to § 242.201;
(B) Information regarding Price Bands
required pursuant to the Plan to
Address Extraordinary Market Volatility
(LULD Plan);
(C) Information relating to regulatory
halts or trading pauses (news
dissemination/pending, LULD, MarketWide Circuit Breakers) and reopenings
or resumptions;
(D) The official opening and closing
prices of the primary listing exchange;
and
(E) An indicator of the applicable
round lot size.
(ii) Information required to be
collected or calculated by the national
securities exchange or national
securities association on which an NMS
stock is traded and provided to
competing consolidators and selfaggregators pursuant to the effective
national market system plan or plans
required under § 242.603(b), including,
at a minimum:
(A) Whenever such national securities
exchange or national securities
association receives a bid (offer) below
(above) an NMS stock’s lower (upper)
LULD price band, an appropriate
regulatory data flag identifying the bid
(offer) as non-executable; and
(B) Other regulatory messages
including subpenny execution and
trade-though exempt indicators.
(iii) For purposes of paragraph (i)(C)
of this definition, the primary listing
exchange that has the largest proportion
of companies included in the S&P 500
Index shall monitor the S&P 500 Index
throughout the trading day, determine
whether a Level 1, Level 2, or Level 3
decline, as defined in self-regulatory
organization rules related to MarketWide Circuit Breakers, has occurred,
and immediately inform the other
primary listing exchanges of all such
declines.
*
*
*
*
*
(81) Round lot means:
(i) For any NMS stock for which the
prior calendar month’s average closing
price on the primary listing exchange
(or the IPO price if the prior month’s
average closing price is not available)
was $50.00 or less per share, an order
for the purchase or sale of an NMS stock
of 100 shares;
(ii) For any NMS stock for which the
prior calendar month’s average closing
price on the primary listing exchange
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16869
(or the IPO price if the prior month’s
average closing price is not available)
was $50.01 to $100.00 per share, an
order for the purchase or sale of an NMS
stock of 20 shares;
(iii) For any NMS stock for which the
prior calendar month’s average closing
price on the primary listing exchange
(or the IPO price if the prior month’s
average closing price is not available)
was $100.01 to $500.00 per share, an
order for the purchase or sale of an NMS
stock of 10 shares;
(iv) For any NMS stock for which the
prior calendar month’s average closing
price on the primary listing exchange
(or the IPO price if the prior month’s
average closing price is not available)
was $500.01 to $1,000.00 per share, an
order for the purchase or sale of an NMS
stock of 2 shares; and
(v) For any NMS stock for which the
prior calendar month’s average closing
price on the primary listing exchange
(or the IPO price if the prior month’s
average closing price is not available)
was $1,000.01 or more per share, an
order for the purchase or sale of an NMS
stock of 1 share.
(82) Self-aggregator means a broker or
dealer that receives information with
respect to quotations for and
transactions in NMS stocks, including
all data necessary to generate
consolidated market data, and generates
consolidated market data solely for
internal use. A self-aggregator may not
make consolidated market data, or any
subset of consolidated market data,
available to any other person.
*
*
*
*
*
§ 242.602
[Amended].
9. Amend § 242.602 by:
a. In paragraph (a)(5)(i) removing the
text ‘‘§ 242.600(b)(77)’’ and adding in its
place ‘‘§ 242.600(b)(88)’’ and
■ b. In paragraph (a)(5)(ii) removing the
text ‘‘§ 242.600(b)(77)’’ and adding in its
place ‘‘§ 242.600(b)(88)’’.
■ 10. Amend § 242.603 by revising
paragraph (b) to read as follows:
■
■
§ 242.603 Distribution, consolidation, and
display of information with respect to
quotations for and transactions in NMS
stocks.
*
*
*
*
*
(b) Dissemination of information.
Every national securities exchange on
which an NMS stock is traded and
national securities association shall act
jointly pursuant to one or more effective
national market system plans for the
dissemination of consolidated market
data. Every national securities exchange
on which an NMS stock is traded and
national securities association shall
make available to all competing
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consolidators and self-aggregators its
information with respect to quotations
for and transactions in NMS stocks,
including all data necessary to generate
consolidated market data, in the same
manner and using the same methods,
including all methods of access and the
same format, as such national securities
exchange or national securities
association makes available any
information with respect to quotations
for and transactions in NMS stocks to
any person.
*
*
*
*
*
§ 242.611
[Amended].
11. In § 242.611, amend paragraph (c)
by removing the text ‘‘§ 242.600(b)(31)’’
and adding in its place
‘‘§ 242.600(b)(38)’’.
■ 12. Add § 242.614 to read as follows:
■
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§ 242.614 Registration and responsibilities
of competing consolidators.
(a) Competing consolidator
registration. (1) Initial Form CC. (i)
Filing and effectiveness requirement. No
person, other than a national securities
exchange or a national securities
association,
(A) May receive directly from a
national securities exchange or national
securities association information with
respect to quotations for and
transactions in NMS stocks; and
(B) Generate consolidated market data
for dissemination to any person unless
the person files with the Commission an
initial Form CC and the initial Form CC
has become effective pursuant to
paragraph (a)(1)(v) of this section.
(ii) Electronic filing and submission.
Any reports to the Commission required
under this Rule 614 shall be filed
electronically on Form CC (17 CFR
249.1002), include all information as
prescribed in Form CC and the
instructions thereto, and contain an
electronic signature as defined in
§ 240.19b–4(j).
(iii) Commission review period. The
Commission may, by order, as provided
in paragraph (a)(1)(v)(B) of this section,
declare an initial Form CC filed by a
competing consolidator ineffective no
later than 90 calendar days from the
date of filing with the Commission.
(iv) Withdrawal of initial Form CC
due to inaccurate or incomplete
disclosures. During the review by the
Commission of the initial Form CC, if
any information disclosed in the initial
Form CC is or becomes inaccurate or
incomplete, the competing consolidator
shall promptly withdraw the initial
Form CC and may refile an initial Form
CC pursuant to paragraph (a)(1).
(v) Effectiveness; Ineffectiveness
determination. (A) An initial Form CC
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filed by a competing consolidator will
become effective, unless declared
ineffective, no later than the expiration
of the review period provided in
paragraph (a)(1)(iii) of this section and
publication pursuant to paragraph
(b)(2)(i) of this section.
(B) The Commission shall, by order,
declare an initial Form CC ineffective if
it finds, after notice and opportunity for
hearing, that such action is necessary or
appropriate in the public interest, and is
consistent with the protection of
investors. If the Commission declares an
initial Form CC ineffective, the
competing consolidator shall be
prohibited from operating as a
competing consolidator. An initial Form
CC declared ineffective does not prevent
the competing consolidator from
subsequently filing a new Form CC.
(2) Form CC Amendments. A
competing consolidator shall amend a
Form CC:
(i) Prior to the implementation of a
material change to the pricing,
connectivity, or products offered
(‘‘Material Amendment’’); and
(ii) No later than 30 calendar days
after the end of each calendar year to
correct information that has become
inaccurate or incomplete for any reason
and to provide an Annual Report as
required under Form CC (each a ‘‘Form
CC Amendment’’).
(3) Notice of cessation. A competing
consolidator shall notice its cessation of
operations on Form CC at least 30
business days prior to the date the
competing consolidator will cease to
operate as a competing consolidator.
The notice of cessation shall cause the
Form CC to become ineffective on the
date designated by the competing
consolidator.
(4) Date of filing. For purposes of
filings made pursuant to this section:
(i) The term business day shall have
the same meaning as defined in
§ 240.19b–4(b)(2).
(ii) If the conditions of this section
and Form CC are otherwise satisfied, all
filings submitted electronically on or
before 5:30 p.m. Eastern Standard Time
or Eastern Daylight Saving Time,
whichever is currently in effect, on a
business day, shall be deemed filed on
that business day, and all filings
submitted after 5:30 p.m. Eastern
Standard Time or Eastern Daylight
Saving Time, whichever is currently in
effect, shall be deemed filed on the next
business day.
(b) Public disclosures. (1) Every Form
CC filed pursuant to this section shall
constitute a ‘‘report’’ within the
meaning of sections 11A, 17(a), 18(a),
and 32(a) of the Act (15 U.S.C. 78k–1,
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78q(a), 78r(a), and 78ff(a)), and any
other applicable provisions of the Act.
(2) The Commission will make public
via posting on the Commission’s
website, each:
(i) Effective initial Form CC, as
amended;
(ii) Order of ineffective initial Form
CC;
(iii) Form CC Amendment. The
Commission will make public the
entirety of any Form CC Amendment no
later than 30 calendar days from the
date of filing thereof with the
Commission; and
(iv) Notice of cessation.
(c) Posting of hyperlink to the
Commission’s website. Each competing
consolidator shall make public via
posting on its website a direct URL
hyperlink to the Commission’s website
that contains the documents
enumerated in paragraph (b)(2) of this
section.
(d) Responsibilities of competing
consolidators. Each competing
consolidator shall:
(1) Collect from each national
securities exchange and national
securities association, either directly or
indirectly, the information with respect
to quotations for and transactions in
NMS stocks as provided in Rule 603(b).
(2) Calculate and generate
consolidated market data as defined in
Rule 600(b)(19) from the information
collected pursuant to paragraph (d)(1) of
this section.
(3) Make consolidated market data, as
defined in Rule 600(b)(19), as
timestamped as required by paragraph
(d)(4) of this section and including the
national securities exchange and
national securities association data
generation timestamp required to be
provided by the national securities
exchange and national securities
association participants by paragraph
(e)(1)(ii) of this section, available to
subscribers on a consolidated basis on
terms that are not unreasonably
discriminatory.
(4) Timestamp the information
collected pursuant to paragraph (d)(1) of
this section (i) upon receipt from each
national securities exchange and
national securities association; (ii) upon
receipt of such information at its
aggregation mechanism; and (iii) upon
dissemination of consolidated market
data to subscribers.
(5) Within fifteen [15] calendar days
after the end of each month, publish
prominently on its website monthly
performance metrics, as defined by the
effective national market system plan(s)
for NMS stocks, that shall include at
least the following. All information
must be publicly posted in
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downloadable files and must remain
free and accessible (without any
encumbrances or restrictions) by the
general public on the website for a
period of not less than three years from
the initial date of posting.
(i) Capacity statistics;
(ii) Message rate and total statistics;
(iii) System availability;
(iv) Network delay statistics; and
(v) Latency statistics for the following,
with distribution statistics up to the
99.99th percentile:
(A) When a national securities
exchange or national securities
association sends an inbound message
to a competing consolidator network
and when the competing consolidator
network receives the inbound message;
(B) When the competing consolidator
network receives the inbound message
and when the competing consolidator
network sends the corresponding
consolidated message to a subscriber;
and
(C) When a national securities
exchange or national securities
association sends an inbound message
to a competing consolidator network
and when the competing consolidator
network sends the corresponding
consolidated message to a subscriber.
(6) Within fifteen [15] calendar days
after the end of each month, publish
prominently on its website the
following information. All information
must be publicly posted and must
remain free and accessible (without any
encumbrances or restrictions) by the
general public on the website for a
period of not less than three years from
the initial date of posting.
(i) Data quality issues;
(ii) System issues;
(iii) Any clock synchronization
protocol utilized;
(iv) For the clocks used to generate
the timestamps described in paragraph
(d)(4) of this section, the clock drift
averages and peaks, and the number of
instances of clock drift greater than 100
microseconds; and
(v) Vendor alerts.
(7) Keep and preserve at least one
copy of all documents, including all
correspondence, memoranda, papers,
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books, notices, accounts and such other
records as shall be made or received by
it in the course of its business as such
and in the conduct of its business.
Competing consolidators shall keep all
such documents for a period of no less
than five years, the first two years in an
easily accessible place;
(8) Upon request of any representative
of the Commission, promptly furnish to
the possession of such representative
copies of any documents required to be
kept and preserved by it.
(e) Amendment of the effective
national market system plan(s) for NMS
stocks. (1) The participants to the
effective national market system plan(s)
for NMS stocks shall file with the
Commission, pursuant to Rule 608, an
amendment that includes the following
provisions within 60 calendar days from
the effective date of Rule 614:
(i) Conforming the effective national
market system plan(s) for NMS stocks to
reflect provision of information with
respect to quotations for and
transactions in NMS stocks that is
necessary to generate consolidated
market data by the national securities
exchange and national securities
association participants to competing
consolidators and self-aggregators;
(ii) The application of timestamps by
the national securities exchange and
national securities association
participants on all consolidated market
data, including the time that
consolidated market data was generated
as applicable by the national securities
exchange or national securities
association and the time the national
securities exchange or national
securities association made the
consolidated market data available to
competing consolidators and selfaggregators;
(iii) Assessments of competing
consolidator performance, including
speed, reliability, and cost of data
provision and the provision of an
annual report of such assessment to the
Commission;
(iv) A list that identifies the primary
listing exchange for each NMS stock.
■ 13. Amend § 242.1000 by:
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16871
a. In the definition of ‘‘Critical SCI
systems,’’ removing the text
‘‘consolidated market data’’ in
paragraph (1)(v) and adding in its place
‘‘market data by a plan processor’’;
■ b. Adding in alphabetical order the
definition of ‘‘Competing consolidator’’;
■ c. In the definition of ‘‘Plan
processor’’ removing the text
‘‘§ 242.600(b)(59)’’ and adding in its
place ‘‘§ 242.600(b)(66)’’.
■ d. In the definition‘‘SCI entity’’
removing the period and adding at the
end of the definition ‘‘, or competing
consolidator.’’
The addition to read as follows:
■
§ 242.1000
Definitions.
*
*
*
*
*
Competing consolidator has the
meaning set forth in § 242.600(b)(16).
*
*
*
*
*
PART 249—FORMS, SECURITIES
EXCHANGE ACT OF 1934
14. The general authority citation for
part 249 continues to read in part as
follows:
■
Authority: 15 U.S.C. 78a et seq. and 7201
et seq.; 12 U.S.C. 5461 et seq.; 18 U.S.C. 1350;
Sec. 953(b), Pub. L. 111–203, 124 Stat. 1904;
Sec. 102(a)(3), Pub. L. 112–106, 126 Stat. 309
(2012); Sec. 107, Pub. L. 112–106, 126 Stat.
313 (2012), and Sec. 72001, Pub. L. 114–94,
129 Stat. 1312 (2015), unless otherwise
noted.
*
*
*
*
*
15. Add § 249.1002 to Subpart K to
read as follows:
■
§ 249.1002 Form CC, for application for
registration as a competing consolidator or
to amend such an application or
registration.
This form shall be used for
application for registration as a
competing consolidator, pursuant to
section 11A of the Securities Exchange
Act of 1934 (15 U.S.C. 78k–1) and
§ 242.614 of this chapter, or to amend
such an application or registration.
Note: The text of Form CC does not, and
the amendments will not, appear in the Code
of Federal Regulations.
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Federal Register / Vol. 85, No. 57 / Tuesday, March 24, 2020 / Proposed Rules
Securities and Exchange Commission
Washington, DC 20549
FORM CC
INTENTIONAL MISSTATEMENTS OR OMISSIONS OF FACTS MAY
CONSTITUTE CRIMINAL VIOLATIONS.
Section I - Form Filing Information
Page 1 of _ _
File No: FORMCC-[acronym]-YYYY-####
{Name of Competing Consolidator} is making the filing pursuant to Rule 614 under the
Securities Exchange Act of 1934
Submission Type (select one)
□
Rule 614(a)(l)
Initial Form CC
□
Rule 614(a)(2)(i)
Material Amendment
□
Rule 614(a)(2)(ii)
Annual Report
□
Rule 614(a)(3)
Notice of Cessation
o
Date competing consolidator will cease to operate (mm/dd/yyyy).
Section II - General Information
□
Check Box if there is a change in information previously filed.
1)
Legal name of applicant: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
2)
DBA if operating under a different name than above: _ _ _ _ _ _ _ _ __
3)
Primary Street Address (Do not use a P.O. Box)
4)
Street: - - - - - - - - - - - - - - - - - - - - - - - - - -
5)
City- - - - - - - - - - - - - State- - - - - Zip Code- - - -
6)
Mailing Address:
Same as above
City _ _ _ _ _ _ _ _ _ _ _ _ _, State_ _ _ _ _ Zip Code_ _ __
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Street: - - - - - - - - - - - - - - - - - - - - - - - - - -
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7)
Business Telephone(###) __-_ __
8)
Provide the website URL of the registrant: _ _ _ _ _ _ _ _ _ _ __
9)
Is the applicant a broker-dealer or affiliated with a broker-dealer registered with the
16873
Commission (yes/no)
a) If yes, provide the full name of the registered broker-dealer as stated on Form BD:
b) SEC File No: _ _ __
c) CRD No: _ _ _ __
10)
If applicant is a successor (within the definition of Rule 12b-2 under the Securities Exchange
Act of 1934) to a previously registered competing consolidator, please complete the
following:
a) Date of Succession: mm/dd/yyyy
b) Full name/address of predecessor registrant: _ _ _ _ _ _ _ _ _ _ __
11)
Legal Status (select one):
a.
Sole Proprietorship
b. Corporation
c. Partnership
d. Limited Liability Company
e. Other (Specify): _ _ _ _ _ _ _ _ __
If other than a sole proprietor, please provide the following:
f.
Date entity obtained legal status~' date of incorporation) (mm/dd/yyyy).
g. State/country of formation: {pick list}
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h. Statute under which entity was organized _ _ _ _ _ _ _ _ __
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Section III: Business Organization
□
All Exhibits-Consolidated Document Attachment: The competing consolidator may
choose to provide a consolidated document containing all Exhibits or individual documents
for each Exhibit. If providing individual documents, use the attachment buttons in the
Exhibit Table. If providing a consolidated document, please use the attachment buttons here:
12)
Attach as Exhibit A to this application a list of any person as defined in Section 3(a)(9) of
the Securities Exchange Act of 1934 (see also Section 3(a)(19) of the Securities Exchange
Act of 1934) who owns 10 percent or more of applicant's stock or who, either directly or
indirectly, through agreement or otherwise, in any other manner, may control or direct the
management or policies of the competing consolidator. Include the full name and title of
each such person and attach a copy of the agreement or, if there is none written, describe the
agreement or basis upon which such person exercises or may exercise such control or
direction. Alternatively, if applicant is a broker-dealer, or is affiliated with a broker-dealer,
you may provide the Schedule A of Form BD relating to direct owners and executive
officers.
□
In lieu of filing this Exhibit A (or providing Schedule A of Form BD), [name of entity]
certifies that the information requested under this Exhibit is available at the Internet
website below and is accurate as of the date of this filing.
URL- - - - - - - - - - - - - - - - - - - - -
13)
Attach as Exhibit B to this application a list of the present officers, directors, governors (and,
grouped by committee), or persons performing functions similar to any of the foregoing, of
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in the case of an applicant that is not a corporation, the members of all standing committees
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16875
the competing consolidator. For each person provide (a) Name (last, first, middle); (b) Title
(if any) and area ofresponsibility; (c) Length of time each present officer, director, or
governor has held the same office or position, and (d) Any other business affiliations in the
securities industry or securities information processing industry. Alternatively, if applicant is
a broker-dealer, or is affiliated with a broker-dealer, you may provide the Schedule B of
Form BD relating to indirect owners.
□
In lieu of filing this Exhibit B (or providing Schedule B of Form BD), [name of
entity] certifies that the information requested under this Exhibit is available at the Internet
website below and is accurate as of the date of this filing.
URL- - - - - - - - - - - - - - - - - - - - 14)
Attach as Exhibit C to this application a narrative or graphic description of the
organizational structure of the applicant. Note: If the securities information processing
activities of the competing consolidator are conducted primarily by a division, subdivision, or
other segregable entity within the applicant corporation or organization, describe the
relationship of such division, subdivision, or other segregable entity within the overall
organizational structure and attach as part of this Exhibit only such description as applies to
the division, subdivision, or other segregable entity.
15) Attach as Exhibit D to this application a list of all affiliates (within the definition of Rule
12b-2 under the Securities Exchange Act of 1934) of the competing consolidator and indicate
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the general nature of the affiliation.
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Section IV: Operational Capability
16) Attach as Exhibit E to this application a narrative description of each consolidated market
data service or function, including connectivity and delivery options for the subscribers, and
a description of all procedures utilized for the collection, processing, distribution, publication
and retention of information with respect to quotations for, and transactions in, securities.
Section V - Services and Fees
17) Attach as Exhibit F to this application a description of all market data products with respect
to consolidated market data or any subset of consolidated market data that are provided to
subscribers.
18) Attach as Exhibit G to this application a description and identification of any fees or charges
for use of the competing consolidator with respect to consolidated market data or any subset
of consolidated market data, services, including the types of fees(~, subscription,
connectivity), the structure of the fee(~, fixed, variable), variables that impact the fees,
pricing differentiation among the types of subscribers, and range of fees (high and low).
19) Attach as Exhibit H to this application a description of any co-location and related services,
the terms and conditions for co-location, connectivity, and related services, including
connectivity and throughput options offered. Describe any other means besides co-location
and related services to increase the speed of communication, including a summary of the
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terms and conditions for its use.
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20)
16877
Attach as Exhibit I to this application a narrative description, or the functional
specifications, of each consolidated market data service or function, including connectivity
and delivery options for the subscribers.
Section VI: Contact Information
Provide the following information of the contact employee at {the name of the competing
consolidator} prepared to respond to questions for this submission:
First Name:
Last Name:
Title:
E-Mail:
Telephone:
Section VII: Signature Block and Consent to Service
The {Entity Name} consents that service of any civil action brought by, or notice of any
proceeding before, the SEC in connection with the competing consolidator's activities may be
given by registered or certified mail or e-mail to the competing consolidator's contact employee
at the primary street address or e-mail address, or mailing address if different, given in Section II
above. The undersigned, being first duly sworn, deposes and says that he/she has executed this
form on behalf of, and with the authority of, said competing consolidator. The undersigned and
{Entity Name} represent that the information and statements contained herein, including
exhibits, schedules, or other documents attached hereto, and other information filed herewith, all
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of which are made a part hereof, are current, true, and complete.
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Federal Register / Vol. 85, No. 57 / Tuesday, March 24, 2020 / Proposed Rules
Date {auto fill}
{Entity Name}
By:---------
Title- - - - - - - - - - -
(Digital signature)
Form CC General Instructions
A. Use of the Form
Form CC is the form a competing
consolidator must file to notify the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) of its
activities pursuant to Rule 614 of
Regulation NMS, § 242.614 et seq.
Filings submitted pursuant to Rule 614
shall be filed in an electronic format
through an electronic form filing system
(‘‘EFFS’’), a secure website operated by
the Commission. Documents attached as
exhibits filed through the EFFS system
must be in a text-searchable format
without the use of optical character
recognition. If, however, a portion of a
Form CC submission (e.g., an image or
diagram) cannot be made available in a
text-searchable format, such portion
may be submitted in a non-text
searchable format.
B. Need for Careful Preparation of the
Completed Form, Including Exhibits
A competing consolidator must
provide all of the information required
by Form CC, including the exhibits, and
must provide disclosure information
that is accurate, current, and complete.
The information in the exhibits must be
provided in a clear and comprehensible
manner. A filing that is incomplete or
similarly deficient may be returned to
the competing consolidator. Any filing
so returned shall for all purposes be
deemed not to have been filed with the
Commission. See also Rule 0–3 under
the Securities Exchange Act of 1934 (17
CFR 240.0–3).
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C. When To Use the FORM CC
Form CC is comprised of 4 types of
submissions to the Commission
required pursuant to Rule 614 of
Regulation NMS. In filling out the Form
CC, a competing consolidator shall
select the type of filing and provide all
information required by Rule 614 of
Regulation NMS. The types of
submissions are:
(1) Rule 614(a)(1) Initial Form CC:
Prior to commencing operations, a
competing consolidator shall file an
initial Form CC and the initial Form CC
must become effective.
(2) Rule 614(a)(2)(i) Material
Amendment: The competing
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consolidator shall file an amendment on
Form CC prior to implementing a
material change to the pricing,
connectivity, or products offered of the
competing consolidator.
(3) Rule 614(a)(2)(ii) Annual Report:
The competing consolidator shall file an
Annual Report on Form CC correcting
any information contained in the initial
Form CC or in any previously filed
amendment that has been rendered
inaccurate or incomplete for any reason,
and that has not previously been
reported to the SEC, no later than 30
calendar days after the end of each
calendar year in which the competing
consolidator has operated. Competing
consolidators filing the Annual Report
must file a complete form, including all
pages and answers to all items, together
with all exhibits. The competing
consolidator must indicate which items
have been amended since the last
Annual Report.
(4) Rule 614(a)(3) Notice of Cessation:
The competing consolidator shall file a
notice of cessation of operations at least
30 business days prior to the date upon
ceasing to operate as a competing
consolidator.
D. Documents Comprising the
Completed Form
The completed form filed with the
Commission shall consist of Form CC,
responses to all applicable items, and
any exhibits required in connection
with the filing. Each filing shall be
marked on Form CC with the initials of
the competing consolidator, the fourdigit year, and the number of the filing
for the year (e.g., FormCC–acronym–
YYYY–XXX).
E. Contact Information; Signature; and
Filing of Completed Form
Each time a competing consolidator
submits a filing to the Commission on
Form CC, the competing consolidator
must provide the contact information
required by Section VI of Form CC. The
contact employee must be authorized to
receive all contact information,
communications and mailings and must
be responsible for disseminating that
information within the competing
consolidator’s organization.
In order to file Form CC through the
EFFS, a competing consolidator must
request access to the Commission’s
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External Application Server. Initial
requests will be received by contacting
the Division of Trading & Markets at
(202) 551–5777. An email will be sent
to the requestor that will provide a link
to a secure website where basic profile
information will be requested.
A duly authorized individual of the
competing consolidator shall
electronically sign the completed Form
CC as indicated in Section VII of the
form.
F. Paperwork Reduction Act Disclosure
Form CC requires a competing
consolidator subject to Rule 614 of
Regulation NMS to provide the
Commission with certain information
regarding the operation of the
competing consolidator, material and
other changes to the operation of the
competing consolidator, and notice
upon ceasing operation of the
competing consolidator.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid
control number. Sections 3(b), 11A(a),
11A(c), 15(c), 17(a), 23(a) and 36(a)
authorize the Commission to collect
information on this Form CC from
competing consolidators that are subject
to Rule 614. See 15 U.S.C. 78c(b), 78k–
1(a), 78k–1(c), 78o(c), 78q(a), 78w(a) and
78mm(a).
It is estimated that a competing
consolidator will spend approximately
200.3 hours completing the initial
operation report on Form CC,
approximately 6.15 hours preparing
each amendment to Form CC, and
approximately two (2) hours preparing a
cessation of operations report on Form
CC. Any member of the public may
direct to the Commission any comments
concerning the accuracy of the burden
estimate on the facing page of Form CC
and any suggestions for reducing this
burden.
Form CC is designed to enable the
Commission to determine whether a
competing consolidator subject to Rule
614 of Regulation NMS is in compliance
with Rule 614 and other federal
securities laws. It is mandatory that a
competing consolidator subject to Rule
614 file an initial Form CC, file an
amendment to Form CC prior to making
a material change, file Annual Reports
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to Form CC to reflect changes not
previously reported, and file notice on
Form CC upon ceasing operation of the
competing consolidator.
All reports provided to the
Commission on Form CC are subject to
the provisions of the Freedom of
Information Act, 5 U.S.C. 522 (‘‘FOIA’’)
and the Commission’s rules thereunder
(17 CFR 200.80(b)(4)(iii)).
This collection of information has
been reviewed by the Office of
Management and Budget (‘‘OMB’’) in
accordance with the clearance
requirements of 44 U.S.C. 3507. The
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applicable Privacy Act system of records
is SEC–2 and the routine uses of the
records are set forth at 40 FR 39255
(August 27, 1975) and 41 FR 5318
(February 5, 1976).
G. Definitions
Unless the context requires otherwise,
all terms used in this form have the
same meaning as in the Securities
Exchange Act of 1934, as amended, and
in the rules and regulations of the
Commission thereunder.
■ 16. Revise subpart T, consisting of
§ 249.1900 to read as follows:
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16879
Subpart T—Form SCI, for filing notices
and reports as required by Regulation
SCI.
§ 249.1900. Form SCI, for filing notices and
reports as required by Regulation SCI.
Form SCI shall be used to file notices
and reports as required by Regulation
SCI (§§ 242.1000 through 242.1007).
Note: The text of Form SCI does not, and
the amendments will not, appear in the Code
of Federal Regulations.
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Federal Register / Vol. 85, No. 57 / Tuesday, March 24, 2020 / Proposed Rules
Securities and Exchange Commission
Washington, DC 20549
Form SCI
Page1of _ __
File No. SCI-{name}-YYYY-###
SCI Notification and Reporting by: {SCI entity name}
Pursuant to Rules 1002 and 1003 of Regulation SCI under the Securities Exchange Act of 1934
□
□
Initial
Withdrawal
SECTION I:
Rule 1002 -Commission Notification of SCI Event
A. Submission Type {select one only)
□
□
Rule 1002(b)(1) Initial Notification of SCI event
Rule 1002(b)(2) Notification of SCI event
□
Rule 1002(b)(3) Update of SCI event: ####
Rule 1002(b)(4) Final Report of SCI Event
□
Rule 1002(b)(4) Interim Status Report of SCI event
If filing a Rule 1002(b)(1) or Rule 1002(b)(3) submission, please provide a brief description:
□
B. SCI Event Type{s) {select all that apply)
□
Systems compliance issue
□
Systems disruption
□
Systems intrusion
C. General Information Required for {b){2) filings.
1) Has the Commission previously been notified of the SCI event pursuant to 1002(b)(1)? yes/no
2) Date/time SCI event occurred: mm/dd/yyyy hh:mm am/pm
3) Duration of SCI event: hh:mm, or days
4) Please provide the date and time when a responsible SCI personnel had reasonable basis to
conclude the SCI event occurred:
hh:mmam/pm
mm/dd/yyyy
5) Has the SCI event been resolved? yes/no
a) If yes, provide date and time ofresolution:
mm/dd/yyyy
hh:mmam/pm
6) Is the investigation of the SCI event closed? yes/no
7) Estimated number of market participants potentially affected by the SCI event:
####
8) Is the SCI event a major SCI event (as defined in Rule 1000)? yes/no
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a) If yes, provide date of closure: mm/dd/yyyy
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16881
D. Information about impacted systems:
Name(s) of system(s):
Type(s) of system(s) impacted by the SCI event (check all that apply):
□
Trading
D
Clearance and settlement
D
Order routing
□
Market data
D
Market regulation
D
Market surveillance
□
Indirect SCI systems (please describe):
Are any critical SCI systems impacted by the SCI event (check all that apply)? Yes/No
1)
2)
Systems that directly support functionality relating to:
□ Clearance and settlement systems of clearing agencies
□
Openings, reopenings, and closings on the primary listing market
□
Trading halts
□
Initial public offerings
□
The provision of market data by a plan processor
□
Exclusively-listed securities
□
Systems that provide functionality to the securities markets for which the availability of alternatives is
significantly limited or nonexistent and without which there would be a material impact on fair and
orderly markets (please describe):
SECTION II: Periodic Reporting {select one only)
A. Quarterly Reports: For the quarter ended: mm/dd/yyyy
□
Rule 1002(b)(5)(ii): Quarterly report of systems disruptions and systems intrusions with no or a
de minimis impact.
□
Rule 1003(a)(1): Quarterly report of material systems changes
□
Rule 1003(a)(2): Supplemental report of material systems changes
B. SCI Review Reports
□
Rule 1003(b)(3): Report of SCI review, together with any response by senior management
Date of completion of SCI review: mm/dd/yyyy
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Date of submission of SCI review to senior management: mm/dd/yyyy
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SECTION III: Contact Information
Provide the following information of the person at the {SCI entity name} prepared to respond to questions
for this submission:
First Name:
Last Name:
Title:
E-Mail:
Telephone:
Fax:
Additional Contacts {Optional)
Last Name:
First Name:
Title:
E-Mail:
Telephone:
Fax:
First Name:
Last Name:
Title:
E-Mail:
Fax:
Telephone:
SECTION IV: Signature
Confidential treatment is requested pursuant to Rule 24b-2(g). Additionally, pursuant to the
requirements of the Securities Exchange Act of 1934, {SCI Entity name} has duly caused this
{notification}{report} to be signed on its behalf by the undersigned duly authorized officer:
Date:
By(Name)
Title~----------~
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"Digitally Sign and Lock Form"
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16883
Within 24 hours of any responsible SCI personnel having a reasonable basis to conclude
that the SCI event has occurred, the SCI entity shall submit a written notification pertaining
to such SCI event to the Commission, which shall be made on a good faith, best efforts basis
and include:
Exhibit :1:
Rule :1002(b)(2)
Notification of SCI Event
Add/Remove/View
(a)
a description of the SCI event, including the system(s) affected; and
(b) to the extent available as of the time of the notification: the SCI entity's current
assessment of the types and number of market participants potentially affected by
the SCI event; the potential impact of the SCI event on the market; a description of
the steps the SCI entity has taken, is taking, or plans to take, with respect to the
SCI event; the time the SCI event was resolved or timeframe within which the SCI
event is expected to be resolved; and any other pertinent information known by
the SCI entity about the SCI event.
Exhibit 2:
Rule :1002(b)(4)
Final or Interim Report of SCI
Event
Add/Remove/View
When submitting a final report pursuant to either Rule 1002(b)(4)(i)(A) or Rule
1002(b)(4)(i)(B)(g), the SCI entity shall include:
(a)
a detailed description of: the SCI entity's assessment of the types and number of
market participants affected by the SCI event; the SCI entity's assessment of the
impact of the SCI event on the market; the steps the SCI entity has taken, is taking,
or plans to take, with respect to the SCI event; the time the SCI event was resolved;
the SCI entity's rule(s) and/or governing document(s), as applicable, that relate to
the SCI event; and any other pertinent information known by the SCI entity about
the SCI event;
(b) a copy of any information disseminated pursuant to Rule 1002(c) by the SCI entity
to date regarding the SCI event to any of its members or participants; and
(c)
an analysis of parties that may have experienced a loss, whether monetary or
otherwise, due to the SCI event, the number of such parties, and an estimate of the
aggregate amount of such loss.
When submitting an interim report pursuant to Rule 1002(b)(4)(i)(B)(!), the SCI entity
shall include such information to the extent known at the time.
Exhibit 3:
Rule :1002(b)(5)(ii)
Quarterly Report of De
Minimis SCI Events
Add/Remove/View
The SCI entity shall submit a report, within 30 calendar days after the end of each calendar
quarter, containing a summary description of systems disruptions and systems intrusions
that have had, or the SCI entity reasonably estimates would have, no or a de minimis
impact on the SCI entity's operations or on market participants, including the SCI systems
and, for systems intrusions, indirect SCI systems, affected by such SCI events during the
applicable calendar quarter.
When submitting a report pursuant to Rule 1003(a)(1), the SCI entity shall provide a report,
within 30 calendar days after the end of each calendar quarter, describing completed,
ongoing, and planned material changes to its SCI systems and the security of indirect SCI
systems, during the prior, current, and subsequent calendar quarters, including the dates or
expected dates of commencement and completion. An SCI entity shall establish reasonable
written criteria for identifying a change to its SCI systems and the security of indirect SCI
systems as material and report such changes in accordance with such criteria.
Exhibit 4:
Rule :1003 (a)
Quarterly Report of Systems
Changes
Add/Remove/View
When submitting a report pursuant to Rule 1003(a)(2), the SCI entity shall provide a
supplemental report of a material error in or material omission from a report previously
submitted under Rule 100'.l(a)(1).
Exhibit 5:
Rule :1003(b)(3)
Report of SCI review
Add/Remove/View
The SCI entity shall provide a report of the SCI review, together with any response by senior
management, within 60 calendar days after its submission to senior management of the SCI
entity.
This exhibit may be used in order to attach other documents that the SCI entity may wish to
submit as part of a Rule 1002(b)(1) initial notification submission or Rule 1002(b)(3)
update submission.
BILLING CODE 8011–01–C
General Instructions for Form SCI
A. Use of the Form
Except with respect to notifications to
the Commission made pursuant to Rule
1002(b)(1) or updates to the Commission
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made pursuant to Rule 1002(b)(3), any
notification, review, description,
analysis, or report required to be
submitted pursuant to Regulation SCI
under the Securities Exchange Act of
1934 (‘‘Act’’) shall be filed in an
electronic format through an electronic
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form filing system (‘‘EFFS’’), a secure
website operated by the Securities and
Exchange Commission (‘‘Commission’’).
Documents attached as exhibits filed
through the EFFS system must be in a
text-searchable format without the use
of optical character recognition. If,
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Exhibit 6:
Optional Attachments
Add/Remove/View
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however, a portion of a Form SCI
submission (e.g., an image or diagram)
cannot be made available in a textsearchable format, such portion may be
submitted in a non-text searchable
format.
B. Need for Careful Preparation of the
Completed Form, Including Exhibits
This form, including the exhibits, is
intended to elicit information necessary
for Commission staff to work with SCI
self-regulatory organizations, SCI
alternative trading systems, plan
processors, exempt clearing agencies
subject to ARP, and competing
consolidators (collectively, ‘‘SCI
entities’’) to ensure the capacity,
integrity, resiliency, availability,
security, and compliance of their
automated systems. An SCI entity must
provide all the information required by
the form, including the exhibits, and
must present the information in a clear
and comprehensible manner. A filing
that is incomplete or similarly deficient
may be returned to the SCI entity. Any
filing so returned shall for all purposes
be deemed not to have been filed with
the Commission. See also Rule 0–3
under the Act (17 CFR 240.0–3).
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C. When to Use the Form
Form SCI is comprised of six types of
required submissions to the
Commission pursuant to Rules 1002 and
1003. In addition, Form SCI permits SCI
entities to submit to the Commission
two additional types of submissions
pursuant to Rules 1002(b)(1) and
1002(b)(3); however, SCI entities are not
required to use Form SCI for these two
types of submissions to the
Commission. In filling out Form SCI, an
SCI entity shall select the type of filing
and provide all information required by
Regulation SCI specific to that type of
filing.
The first two types of required
submissions relate to Commission
notification of certain SCI events:
(1) ‘‘Rule 1002(b)(2) Notification of
SCI Event’’ submissions for notifications
regarding systems disruptions, systems
compliance issues, or systems
intrusions (collectively, ‘‘SCI events’’),
other than any systems disruption or
systems intrusion that has had, or the
SCI entity reasonably estimates would
have, no or a de minimis impact on the
SCI entity’s operations or on market
participants; and
(2) ‘‘Rule 1002(b)(4) Final or Interim
Report of SCI Event’’ submissions, of
which there are two kinds (a final report
under Rule 1002(b)(4)(i)(A) or Rule
1002(b)(4)(i)(B)(2); or an interim status
report under Rule 1002(b)(4)(i)(B)(1)).
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The other four types of required
submissions are periodic reports, and
include:
(1) ‘‘Rule 1002(b)(5)(ii)’’ submissions
for quarterly reports of systems
disruptions and systems intrusions
which have had, or the SCI entity
reasonably estimates would have, no or
a de minimis impact on the SCI entity’s
operations or on market participants
(‘‘de minimis SCI events’’);
(2) ‘‘Rule 1003(a)(1)’’ submissions for
quarterly reports of material systems
changes;
(3) ‘‘Rule 1003(a)(2)’’ submissions for
supplemental reports of material
systems changes; and
(4) ‘‘Rule 1003(b)(3)’’ submissions for
reports of SCI reviews.
Required Submissions for SCI Events
For 1002(b)(2) submissions, an SCI
entity must notify the Commission
using Form SCI by selecting the
appropriate box in Section I and filling
out all information required by the form,
including Exhibit 1. 1002(b)(2)
submissions must be submitted within
24 hours of any responsible SCI
personnel having a reasonable basis to
conclude that an SCI event has
occurred.
For 1002(b)(4) submissions, if an SCI
event is resolved and the SCI entity’s
investigation of the SCI event is closed
within 30 calendar days of the
occurrence of the SCI event, an SCI
entity must file a final report under Rule
1002(b)(4)(i)(A) within five business
days after the resolution of the SCI event
and closure of the investigation
regarding the SCI event. However, if an
SCI event is not resolved or the SCI
entity’s investigation of the SCI event is
not closed within 30 calendar days of
the occurrence of the SCI event, an SCI
entity must file an interim status report
under Rule 1002(b)(4)(i)(B)(1) within 30
calendar days after the occurrence of the
SCI event. For SCI events in which an
interim status report is required to be
filed, an SCI entity must file a final
report under Rule 1002(b)(4)(i)(B)(2)
within five business days after the
resolution of the SCI event and closure
of the investigation regarding the SCI
event. For 1002(b)(4) submissions, an
SCI entity must notify the Commission
using Form SCI by selecting the
appropriate box in Section I and filling
out all information required by the form,
including Exhibit 2.
Required Submissions for Periodic
Reporting
For 1002(b)(5)(ii) submissions, an SCI
entity must submit quarterly reports of
systems disruptions and systems
intrusions which have had, or the SCI
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entity reasonably estimates would have,
no or a de minimis impact on the SCI
entity’s operations or on market
participants. The SCI entity must select
the appropriate box in Section II and fill
out all information required by the form,
including Exhibit 3.
For 1003(a)(1) submissions, an SCI
entity must submit its quarterly report
of material systems changes to the
Commission using Form SCI. The SCI
entity must select the appropriate box in
Section II and fill out all information
required by the form, including Exhibit
4.
Filings made pursuant to Rule
1002(b)(5)(ii) and Rule 1003(a)(1) must
be submitted to the Commission within
30 calendar days after the end of each
calendar quarter (i.e., March 31st, June
30th, September 30th and December
31st) of each year.
For 1003(a)(2) submissions, an SCI
entity must submit a supplemental
report notifying the Commission of a
material error in or material omission
from a report previously submitted
under Rule 1003(a). The SCI entity must
select the appropriate box in Section II
and fill out all information required by
the form, including Exhibit 4.
For 1003(b)(3) submissions, an SCI
entity must submit its report of its SCI
review, together with any response by
senior management, to the Commission
using Form SCI. A 1003(b)(3)
submission is required within 60
calendar days after the report of the SCI
review has been submitted to senior
management of the SCI entity. The SCI
entity must select the appropriate box in
Section II and fill out all information
required by the form, including Exhibit
5.
Optional Submissions
An SCI entity may, but is not required
to, use Form SCI to submit a notification
pursuant to Rule 1002(b)(1). If the SCI
entity uses Form SCI to submit a
notification pursuant to Rule 1002(b)(1),
it must select the appropriate box in
Section I and provide a short
description of the SCI event. Documents
may also be attached as Exhibit 6 if the
SCI entity chooses to do so. An SCI
entity may, but is not required to, use
Form SCI to submit an update pursuant
to Rule 1002(b)(3). Rule 1002(b)(3)
requires an SCI entity to, until such time
as the SCI event is resolved and the SCI
entity’s investigation of the SCI event is
closed, provide updates pertaining to
such SCI event to the Commission on a
regular basis, or at such frequency as
reasonably requested by a representative
of the Commission, to correct any
materially incorrect information
previously provided, or when new
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material information is discovered,
including but not limited to, any of the
information listed in Rule 1002(b)(2)(ii).
If the SCI entity uses Form SCI to
submit an update pursuant to Rule
1002(b)(3), it must select the appropriate
box in Section I and provide a short
description of the SCI event. Documents
may also be attached as Exhibit 6 if the
SCI entity chooses to do so.
D. Documents Comprising the
Completed Form
The completed form filed with the
Commission shall consist of Form SCI,
responses to all applicable items, and
any exhibits required in connection
with the filing. Each filing shall be
marked on Form SCI with the initials of
the SCI entity, the four-digit year, and
the number of the filing for the year
(e.g., SCI Name–YYYY–XXX).
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E. Contact Information; Signature; and
Filing of the Completed Form
Each time an SCI entity submits a
filing to the Commission on Form SCI,
the SCI entity must provide the contact
information required by Section III of
Form SCI. Space for additional contact
information, if appropriate, is also
provided.
All notifications and reports required
to be submitted through Form SCI shall
be filed through the EFFS. In order to
file Form SCI through the EFFS, SCI
entities must request access to the
Commission’s External Application
Server by completing a request for an
external account user ID and password.
Initial requests will be received by
contacting (202) 551–5777. An email
will be sent to the requestor that will
provide a link to a secure website where
basic profile information will be
requested. A duly authorized individual
of the SCI entity shall electronically sign
the completed Form SCI as indicated in
Section IV of the form. In addition, a
duly authorized individual of the SCI
entity shall manually sign one copy of
the completed Form SCI, and the
manually signed signature page shall be
preserved pursuant to the requirements
of Rule 1005.
F. Withdrawals of Commission
Notifications and Periodic Reports
If an SCI entity determines to
withdraw a Form SCI, it must complete
Page 1 of the Form SCI and indicate by
selecting the appropriate check box to
withdraw the submission.
G. Paperwork Reduction Act Disclosure
This collection of information will be
reviewed by the Office of Management
and Budget in accordance with the
clearance requirements of 44 U.S.C.
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3507. An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid
control number. The Commission
estimates that the average burden to
respond to Form SCI will be between
one and 125 hours, depending upon the
purpose for which the form is being
filed. Any member of the public may
direct to the Commission any comments
concerning the accuracy of this burden
estimate and any suggestions for
reducing this burden.
Except with respect to notifications to
the Commission made pursuant to Rule
1002(b)(1) or updates to the Commission
made pursuant to Rule 1002(b)(3), it is
mandatory that an SCI entity file all
notifications, reviews, descriptions,
analyses, and reports required by
Regulation SCI using Form SCI. The
Commission will keep the information
collected pursuant to Form SCI
confidential to the extent permitted by
law. Subject to the provisions of the
Freedom of Information Act, 5 U.S.C.
522 (‘‘FOIA’’), and the Commission’s
rules thereunder (17 CFR
200.80(b)(4)(iii)), the Commission does
not generally publish or make available
information contained in any reports,
summaries, analyses, letters, or
memoranda arising out of, in
anticipation of, or in connection with an
examination or inspection of the books
and records of any person or any other
investigation.
H. Exhibits
List of exhibits to be filed, as
applicable:
Exhibit 1: Rule 1002(b)(2)—
Notification of SCI Event. Within 24
hours of any responsible SCI personnel
having a reasonable basis to conclude
that the SCI event has occurred, the SCI
entity shall submit a written notification
pertaining to such SCI event to the
Commission, which shall be made on a
good faith, best efforts basis and
include: (a) A description of the SCI
event, including the system(s) affected;
and (b) to the extent available as of the
time of the notification: The SCI entity’s
current assessment of the types and
number of market participants
potentially affected by the SCI event; the
potential impact of the SCI event on the
market; a description of the steps the
SCI entity has taken, is taking, or plans
to take, with respect to the SCI event;
the time the SCI event was resolved or
timeframe within which the SCI event is
expected to be resolved; and any other
pertinent information known by the SCI
entity about the SCI event.
Exhibit 2: Rule 1002(b)(4)—Final or
Interim Report of SCI Event. When
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16885
submitting a final report pursuant to
either Rule 1002(b)(4)(i)(A) or Rule
1002(b)(4)(i)(B)(2), the SCI entity shall
include: (a) A detailed description of:
The SCI entity’s assessment of the types
and number of market participants
affected by the SCI event; the SCI
entity’s assessment of the impact of the
SCI event on the market; the steps the
SCI entity has taken, is taking, or plans
to take, with respect to the SCI event;
the time the SCI event was resolved; the
SCI entity’s rule(s) and/or governing
document(s), as applicable, that relate to
the SCI event; and any other pertinent
information known by the SCI entity
about the SCI event; (b) a copy of any
information disseminated pursuant to
Rule 1002(c) by the SCI entity to date
regarding the SCI event to any of its
members or participants; and (c) an
analysis of parties that may have
experienced a loss, whether monetary or
otherwise, due to the SCI event, the
number of such parties, and an estimate
of the aggregate amount of such loss.
When submitting an interim report
pursuant to Rule 1002(b)(4)(i)(B)(1), the
SCI entity shall include such
information to the extent known at the
time.
Exhibit 3: Rule 1002(b)(5)(ii)—
Quarterly Report of De Minimis SCI
Events. The SCI entity shall submit a
report, within 30 calendar days after the
end of each calendar quarter, containing
a summary description of systems
disruptions and systems intrusions that
have had, or the SCI entity reasonably
estimates would have, no or a de
minimis impact on the SCI entity’s
operations or on market participants,
including the SCI systems and, for
systems intrusions, indirect SCI
systems, affected by such SCI events
during the applicable calendar quarter.
Exhibit 4: Rule 1003(a)—Quarterly
Report of Systems Changes. When
submitting a report pursuant to Rule
1003(a)(1), the SCI entity shall provide
a report, within 30 calendar days after
the end of each calendar quarter,
describing completed, ongoing, and
planned material changes to its SCI
systems and the security of indirect SCI
systems, during the prior, current, and
subsequent calendar quarters, including
the dates or expected dates of
commencement and completion. An SCI
entity shall establish reasonable written
criteria for identifying a change to its
SCI systems and the security of indirect
SCI systems as material and report such
changes in accordance with such
criteria. When submitting a report
pursuant to Rule 1003(a)(2), the SCI
entity shall provide a supplemental
report of a material error in or material
omission from a report previously
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submitted under Rule 1003(a); provided,
however, that a supplemental report is
not required if information regarding a
material systems change is or will be
provided as part of a notification made
pursuant to Rule 1002(b).
Exhibit 5: Rule 1003(b)(3)—Report of
SCI Review. The SCI entity shall provide
a report of the SCI review, together with
any response by senior management,
within 60 calendar days after its
submission to senior management of the
SCI entity.
Exhibit 6: Optional Attachments. This
exhibit may be used in order to attach
other documents that the SCI entity may
wish to submit as part of a Rule
1002(b)(1) initial notification
submission or Rule 1002(b)(3) update
submission.
I. Explanation of Terms
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Critical SCI systems means any SCI
systems of, or operated by or on behalf
of, an SCI entity that: (a) Directly
support functionality relating to: (1)
Clearance and settlement systems of
clearing agencies; (2) openings,
reopenings, and closings on the primary
listing market; (3) trading halts; (4)
initial public offerings; (5) the provision
of market data by a plan processor; or
(6) exclusively-listed securities; or (b)
provide functionality to the securities
markets for which the availability of
alternatives is significantly limited or
nonexistent and without which there
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would be a material impact on fair and
orderly markets.
Indirect SCI systems means any
systems of, or operated by or on behalf
of, an SCI entity that, if breached, would
be reasonably likely to pose a security
threat to SCI systems.
Major SCI event means an SCI event
that has had, or the SCI entity
reasonably estimates would have: (a)
Any impact on a critical SCI system; or
(b) a significant impact on the SCI
entity’s operations or on market
participants.
Responsible SCI personnel means, for
a particular SCI system or indirect SCI
system impacted by an SCI event, such
senior manager(s) of the SCI entity
having responsibility for such system,
and their designee(s).
SCI entity means an SCI selfregulatory organization, SCI alternative
trading system, plan processor, or
exempt clearing agency subject to ARP,
or competing consolidator.
SCI event means an event at an SCI
entity that constitutes: (a) A systems
disruption; (b) a systems compliance
issue; or (c) a systems intrusion.
SCI review means a review, following
established procedures and standards,
that is performed by objective personnel
having appropriate experience to
conduct reviews of SCI systems and
indirect SCI systems, and which review
contains: (a) A risk assessment with
respect to such systems of an SCI entity;
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and (b) an assessment of internal control
design and effectiveness of its SCI
systems and indirect SCI systems to
include logical and physical security
controls, development processes, and
information technology governance,
consistent with industry standards.
SCI systems means all computer,
network, electronic, technical,
automated, or similar systems of, or
operated by or on behalf of, an SCI
entity that, with respect to securities,
directly support trading, clearance and
settlement, order routing, market data,
market regulation, or market
surveillance.
Systems Compliance Issue means an
event at an SCI entity that has caused
any SCI system of such entity to operate
in a manner that does not comply with
the Act and the rules and regulations
thereunder or the entity’s rules or
governing documents, as applicable.
Systems Disruption means an event in
an SCI entity’s SCI systems that
disrupts, or significantly degrades, the
normal operation of an SCI system.
Systems Intrusion means any
unauthorized entry into the SCI systems
or indirect SCI systems of an SCI entity.
By the Commission.
Dated: February 14, 2020.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020–03760 Filed 3–23–20; 8:45 am]
BILLING CODE 8011–01–P
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| File Modified | 2020-03-24 |
| File Created | 2020-03-24 |