On October 16, 2018, the five SEC Commissioners unanimously upheld the Securities Industry and Financial Markets Association’s (SIFMA) challenge to fee increases for “depth-of-book” market data filed by Nasdaq and NYSE Arca.1 Simultaneously the SEC remanded over 400 market data fee and other filings back to the exchanges and the national market system plans for consideration under the standards set out in the SIFMA order2 and an earlier Bloomberg order.3 These orders have the potential to rewrite the regulation of market data, and potentially other exchange fees, for the entire securities industry. Sidley represented SIFMA in its successful challenge to the market data fees.
The procedural status of the SIFMA matter is somewhat complex. Under the Exchange Act, fees must be “fair and reasonable” and not “unfairly discriminatory.” Historically, exchanges submitted proposed fee increases to the SEC for approval with limited if any factual support, and the SEC generally routinely approved them without substantial analysis. In NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010), the court held that competitive forces could be sufficient to meet the “fair and reasonable” standard of the Exchange Act. Nonetheless, in that case, the court found that the SEC had provided insufficient factual support for its conclusion that exchange market data fees were in fact constrained by significant competitive forces.
After substantial procedural wrangling, the SEC selected two market data filings, the NYSE Arca at issue in NetCoalition and a separate Nasdaq filing, for an unusual fact-finding hearing by a commission administrative law judge concerning whether those fees were “fair and reasonable,” including the issue of whether market data fees were constrained by competition. Both filings proposed substantial price increases for depth-of-book market data concerning securities traded on those respective exchanges — data not available from any other source. In the meantime, the SEC held in abeyance more than 400 challenges filed by SIFMA and Bloomberg LP to market data price increases filed by exchanges and the national market system plans (which administer core “top-of-book” market data required to be provided to all investors).
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