On May 24, 2022, a panel of the U.S. Court of Appeals for the District of Columbia (D.C. Circuit) unanimously ruled in favor of the Securities and Exchange Commission (SEC) in The Nasdaq Stock Market LLC et al. v. SEC upholding the SEC’s 2020 market data infrastructure rules.1 The market data infrastructure rules make a number of changes to the content and distribution of consolidated market data (i.e., quotation and transaction information aggregated across all exchanges), including to2
- decentralize the distribution of consolidated market data to allow any entity to distribute consolidated market data by registering with the SEC as a “competing consolidator,” rather than having exclusive, exchange-operated securities information processors (SIPs) continue to perform this function
- expand the content of consolidated market data to include certain odd-lot quotations and five levels of depth-of-book market data
- establish new round lot sizes that vary based on the price of a security (rather than today’s uniform 100 share round lot for all equities priced above $1 per share)
The court rejected arguments by Nasdaq, NYSE, and Cboe that the market data infrastructure rules were arbitrary and capricious because (so the exchanges argued) they would exacerbate information asymmetries among market participants and harm market resiliency. The petitioners also claimed unsuccessfully that the SEC had failed to adequately consider the potential effects of the rules including depriving the market of a uniform “national best bid or offer,”3 stifling innovation in the data market, and driving more trading to off-exchange “dark” markets. The court held that the SEC had reasonably considered and rejected each of these arguments. Because the court’s decision was unanimous and there are no contrary holdings in other courts, further appeals in this case are unlikely to be successful.
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