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Securities Enforcement and Regulatory Update

SEC Proposes Overhaul of Market Data Infrastructure

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On February 14, 2020, the U.S. Securities and Exchange Commission (SEC) proposed amendments to the manner in which exchange market data is collected, consolidated and disseminated to the public (the Proposal). The Proposal would significantly expand the content of consolidated market data information to include, among other things, five levels of depth-of-book quotations and certain odd-lot quotes. The Proposal would also shift away from the current centralized model whereby designated “securities information processors” (SIPs) are responsible for collecting and disseminating consolidated market data from exchanges toward a decentralized model that allows newly registered “competing consolidators” to perform this function.

This marks the latest initiative from the SEC designed to modernize market data infrastructure, a core component of the U.S. national market system. Comments are due on or before May 26, 2020.

The purpose of the Proposal is to modernize the national market system and to address a number of issues relating to the distribution of market data. Specifically, the SEC believes that the collection and distribution of consolidated market data via the SIPs have not kept pace with technological and market developments and “are no longer satisfying the needs of many investors.” SIP consolidated market data is meaningfully slower than most proprietary data products offered by the exchanges in a trading environment where speed matters significantly to many market participants. SIP consolidated market data also does not contain certain information that increasingly is needed by market participants, such as odd-lot data (i.e., quantities less than 100 shares are often a meaningful source of liquidity, especially for high-priced stocks) and opening and closing auction information from exchanges. Accordingly, the SEC believes the national market system may no longer be fulfilling its statutory goals of ensuring the broad availability of transaction and quotation data.

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