Statement on Market Data Fees and Market Structure

Today, the Commission took two actions with respect to the regulation of market data fees – i.e., the fees our regulated exchanges charge market participants for market data.[2]  These matters involve issues of law and fact, and by their very nature – challenges to fee amounts – are contentious.  Fee disputes of this type also can be complex, including because today's trading activity is itself complex and data driven. 

Below, I summarize these two actions with an eye toward informing our Main Street investors about market data fees and market structure more generally.  Please recognize that summaries of complex matters have limitations and that my summary is my own (not the views of the Commission, my fellow Commissioners or the SEC Staff), and my discussion of the Commission's orders is qualified by reference to these orders.[3]

Summary of Today's Two Actions

In the first action, the Commission issued a decision in a challenge to rule changes of two national securities exchanges, NYSE Arca, Inc. and Nasdaq Stock Market LLC, concerning certain market data fees (the "Data Fee Decision").  The Commission set aside the challenged fees, finding that the exchanges had not met their statutory obligation to demonstrate that the fees were consistent with the Exchange Act (i.e., that these fees are fair and reasonable and not unreasonably discriminatory).  To be clear, the Commission's decision does not mean the fees were too high, rather it means that the exchanges have not provided sufficient factual and legal support to continue to charge those fees.  This matter was commenced in 2013, and fees of the type at issue in the challenge have been the subject of various Commission and court proceedings over the last decade. 

During the pendency of the action that resulted in the Data Fee Decision, over 400 other challenges to market data and market access fees were filed with the Commission.  In today's second action, the Commission issued an order "remanding" these challenges.  In other words, the Commission sent the actions back to the exchanges for further review and, if appropriate, resubmission to the Commission. 

Our Trading Markets and Market Data

Our trading markets have changed substantially in the past two decades and are far different from the markets of a generation ago.  Today's markets are dominated by electronic trading and sophisticated technologies.  In most cases, offers to purchase and sell are generated by computer programs or "algorithms."  A portion of these offers to sell or purchase are matched, often instantaneously by other computers, resulting in completed trades.  The purchase and sale orders of Main Street investors and other market participants – for example, a request to buy 100 shares of XYZ Corporation – are fed into this largely electronic trading ecosystem. 

This "electronification" of our markets has brought significant efficiencies and other enhancements.  It also has raised new regulatory issues and other questions.  One issue is the increased importance of timely and robust "market data."  The computer algorithms that generate purchase and sale orders and determine where to route such orders depend on market data.  Most market data, including detailed data concerning trading interests generated by trading participants at exchanges, is available for purchase.  Accessing this market data, and in many cases accessing this data very quickly (i.e., in "microseconds" or "nanoseconds"), is integral to a variety of computer trading algorithms and market activity today. 

The SEC regulates exchanges' sale of this type of market data.  More specifically, but speaking generally about the applicable regulations, exchanges are permitted to set fees for this market data, but market participants are permitted to challenge those fees.  Today's first action is a result of such a challenge. 

It is with this history and current context that I support both actions taken today and believe that they are in the best interests of our markets and our Main Street investors.  As described in detail in the Commission's 54-page Data Fee Decision, two exchanges did not meet their statutory burden.  As a result, the Commission set aside the fees from the date of the order forward. 

It is worth emphasizing again that the Commission did not conclude that the fees are unfair or unreasonable.  Instead, we found that the facts and theories put forward by the exchanges did not sufficiently demonstrate that the fees satisfied the relevant statutory test.  It also is worth emphasizing that the Commission action setting aside the challenged fees is forward looking or "prospective." 

The second action today – the Commission's remand order concerning the other approximately 400 challenges – does not invalidate the other challenged fees, nor does it express a view on the merits of these challenges.  In practical terms, the remand order gives the exchanges and market participants an opportunity to step back and review those disputes in light of today's Data Fee Decision and other market and regulatory developments and other factors. 

Looking Forward

The matters addressed in today's orders have been before the Commission for a substantial period of time.  I believe that as we move forward, today's actions will enable the Commission and market participants to more efficiently and effectively ensure that market data fees are set, reviewed and regulated in the best interest of our markets and our Main Street investors.  More generally, I believe these actions, taken together with other initiatives of the Commission and our dedicated staff, will improve our regulation of market structure as it exists today and will inevitably continue to evolve.

In that regard, next week, our Division of Trading and Markets will host a public roundtable on market data and market access issues.[4]  I look forward to an insightful and constructive discussion at the roundtable, reflective of a broad and diverse representation of panelist perspectives.  The roundtable will be an important step in what will be a broad and open-minded review of our regulatory approach in this area. 

Our focus on market structure issues will, as always, start and end with ensuring that our markets meet the needs and serve the interests of our long term Main Street investors.