The SEC proposed amendments to Regulation NMS that would expand the content of NMS market data and modernize market data infrastructure.

Proposal

The proposed expansion of NMS market data would include information on orders:

  • with share amounts less than the current round lot size for higher-priced stocks,
  • outside of an exchange's best bid and best offer ("BBO") (i.e., certain "depth of book data"), and
  • that are participating in opening and closing auctions and in other auctions.

The proposal would also update Reg. NMS "for the collection, consolidation, and dissemination of information with respect to quotations for and transactions in [NMS] stocks." Among other things, the proposal would amend:

  • BBOs for each self-regulatory organization's ("SRO") revised round lot size to be consistent with the proposed "round lot" definitions;
  • the national best bid and national best offer (a/k/a "NBBO") to be based on the proposed round lot size quotations;
  • protected quotations to be 100 shares or more regardless of their round lot size; and
  • auction information to include any information, determined to be important by SRO rules or effective NMS plans, leading up to and during an auction, and disseminated during the time periods and time intervals provided in such rules and plans.

In addition, all exchange-specific data elements would be updated under NMS Rule 603(b). The proposal states that the current over-the-counter bulletin board and concurrent data use would be omitted from the proposed definition of "core data," and that "depth of book data" would be added to distinguish for each SRO an aggregation of all quotes.

Under the proposed decentralized consolidation model, competing consolidators would (i) distribute NMS information (instead of existing securities information processors ("SIPs")), and (ii) be required to comply with certain standards concerning the accuracy and fairness of their operations. In addition, the SEC explained, SROs would be required to support the proposed model by disclosing data - for NMS market data purposes - to (i) competing consolidators, which would collect and distribute market data to the public, and (ii) self-aggregators, which would be brokers or dealers that collect and distribute market data solely for their internal use.

Commissioner Statements

SEC Commissioner Elad L. Roisman supported the proposal. He requested feedback from market participants on:

  • requiring competing consolidators to be subject to Regulation Systems Compliance and Integrity ("Regulation SCI"), which is designed to strengthen the technology infrastructure of the U.S. securities markets;
  • achieving broker-dealers' "best execution" obligations by (i) requiring the use of proprietary exchange data feeds and (ii) remedying the lack of guidance on how to achieve this obligation; and
  • whether sub-100 share round lots should be subject to NMS Rule 611 ("Order Protection Rule").

SEC Commissioner Allison Herren Lee praised the proposal for:

  • requiring depth-of-book, odd-lot and auction information to be reported to the SIP under the proposed definition of "core data";
  • addressing the "latency" between SIP and proprietary data by implementing certain transmission and method-of-transmission requirements when an exchange trades core data or proprietary data; and
  • allowing multiple firms to register with the SEC in order to consolidate and distribute core data under the definition of a "competing consolidator."

SEC Commissioner Hester M. Peirce highlighted the benefits of expanding the scope of core data, stating that it would (i) clarify the definition of execution expectations and (ii) improve the value and usefulness of consolidated data under Regulation NMS. She also supported the proposal's accommodation of market participants' varying market data needs by allowing competing consolidators to offer market data types in accordance with subscriber demand while permitting exchanges to sell proprietary data feeds for trading strategy or business model purposes.

However, Ms. Peirce also expressed concern as to:

  • whether subjecting competing consolidators to Regulation SCI could increase regulatory burdens and prevent firms from entering the market as competing consolidators; and
  • whether the limits defined under the proposal for what self-aggregators can do with their aggregated data are sufficient.

Comments on the proposal must be submitted within 60 days after publication in the Federal Register.

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