And the exchanges appear to have won this round.
Late last Friday the U.S. Court of Appeals for the District of Columbia Circuit ruled in the ongoing dispute between the major US stock exchange operators and the Securities and Exchange Commission, their regulator. The court ruled that the regulator cannot challenge or dispute some fees the exchanges charge for trading data.
And trading data drives the trading bus.
The dispute has been simmering for years as traders, brokers and the SEC have long questioned the fees exchanges have charged for their market data, alleging the fees are exorbitant and without check and balance. The ruling by the court appears to have dealt a blow to traders and brokers who must pay for this data.
One industry trade group, the Equity Markets Association said it was pleased that the D.C. Circuit court decision.
“…the Securities and Exchange Commission overreached its powers when it followed a financial lobby in taking up this case,” the EMA said in a release. “This ruling is a victory for the rule of law and free and fair competition.”
The EMA is composed of Intercontinental Exchange, Inc., the parent company of NYSE Group, which includes three equity exchanges: New York Stock Exchange, NYSE Arca and NYSE MKT. NASDAQ is the parent company of three equity exchanges, NASDAQ Stock Market, NASDAQ PHLX and NASDAQ BX.
Larry Tabb, Head of Market Structure Research at Bloomberg Intelligence, said in a Twitter post “Apparently this only impacts fee increases filed under 19(d) of the Exchange Act – and the impact isn’t too large.” He added that exchanges will have a more unfettered hand in upping market data fees. “But this, I understand, doesn’t give them carte blanch, its a pretty narrow carve out.”
But not all we happy with the result and were vocal about it.
While the exchanges aren’t angels this data pricing argument was a joke. And Larry, you should know that the scrutiny on all price increases going forward is extremely high and the exchanges have not filed for any post this fight. So there is not unfettered ability to raise price
— FinSkirt (@FinSkirt) June 5, 2020
The ruling still deals a blow to the SEC as it has more closely followed proposed price increases by the exchanges and other data fee and connectivity in recent years. This was not always the case. The SEC, whose mission is to protect investors, has sought to contain market data fees and keep a level playing field for investors.
- Bottom Line: Voigt believes this decision by the U.S. Court of Appeals was expected by the investment community. Regardless, at the minimum, it eliminates the tail risk of the exchanges (ICE, CBOE and NDAQ) having to re-justify and potentially roll back some of +400 prior fee filings dating back to 2013. With respect to pricing changes moving forward, Voigt doesn’t believe the ruling from Friday will necessarily make it any easier for the exchanges to implement future fee increases. Additionally, he believes the SEC will still attempt to push forward with reforms to SIP governance and broader cash equities market data infrastructure. The Transaction Fee pilot has also been appealed by the exchanges, and Voigt awaits a decision on this matter, but he doesn’t view this as material of a risk as the aforementioned market data reform topics.
- Background. In October 2018, the SEC ruled in favor of SIFMA in a longstanding dispute with the exchanges, specifically rolling back pricing increases on NYSE (ICE) and NDAQ depth-of-book data products, while also remanding over 400 fee filings made related to U.S. cash equities and options market data and market access (connectivity and access fees) that would have been required to be re-justified (CBOE, ICE, NDAQ). The exchanges subsequently filed an appeal against these actions, which was what was ruled upon by the U.S. Court of Appeals on Friday.
- Court of Appeals Ruling in Favor of the Exchanges. On Friday, June 5, the U.S. Court of Appeals ruled in favor of the exchanges’ (CBOE, ICE, NDAQ) appeal of SEC actions made in October 2018 mentioned above. Voigt had expected a 1H20 ruling on the matter, so the timing is not a surprise. “The ruling essentially eliminates some tail risk of the exchanges having to roll back previously implemented market data and market access fees (dating back to 2013) that would have been required to be re-justified if the SEC actions were ruled to be lawful.”