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NYSE and Nasdaq Control of Stock Data Feeds Weakened by SEC

Ben Bain

(Bloomberg) -- Wall Street’s top regulator took one of its biggest steps to curb the power that the New York Stock Exchange and Nasdaq Inc. have over market data that is the lifeblood of modern stock trading.

For the first time in years, the U.S. Securities and Exchange Commission forced NYSE, Nasdaq and Cboe Global Markets Inc. to revamp the management of public data feeds that provide crucial information on real-time stock prices. The exchanges will also have to give securities firms and investors a seat at the table in key decisions about those feeds. The hope is that the public streams will get better, potentially mitigating the need for market participants to rely so heavily on expensive private feeds sold by exchanges.

The SEC move, which the agency’s commissioners voted unanimously to approve on Wednesday, follows criticism that exchanges haven’t done enough to improve the public data feeds because of conflicts of interest. Nasdaq and Cboe are public companies, while NYSE is owned by Intercontinental Exchange Inc., another public company. The proprietary data sets are an important source of revenue for the exchanges, accounting for hundreds of millions of dollars annually.

Read More: Top U.S. Exchanges Sue Their Regulator to Block a Proposed Test

Specifically, the SEC required the exchanges and the Financial Industry Regulatory Authority, the U.S. brokerage watchdog, to consolidate their existing plans for public data feeds. Also, brokerages, traders and investment firms will be added to the governance committee that votes to approve the revised plan. The demand shows that despite the coronavirus crisis, SEC Chairman Jay Clayton isn’t relenting in efforts to change rules that underpin stock trading.

“A critical element of market function is the quality of and access to price information,” Clayton said before the vote. “I believe it is fair to say we currently have what can generally be described as a tiered-system of market data access.”

Shortly after taking office in mid-2017, Clayton announced the SEC was conducting a sweeping review of many of the arcane structural aspects of the U.S. equities market. Meanwhile, the agency and the largest stock exchanges have been locked in a series of legal battles, including over how much the trading platforms charge for data.

The Equity Markets Association, which was founded by ICE and Nasdaq, said in a statement that “the SEC should not unnecessarily be adding to market risk by introducing eccentric governance changes during times of great volatility.” The group, which also represents Cboe, said Wednesday’s move “does little to help retail investors or our economy.”

In a separate statement, Cboe said it was disappointed with the SEC’s action, which it said was “short-sighted” and would make the market more confusing. “Indeed, we question why such transformative and risky changes are a priority at this time,” the exchange operator said.

In a sign of how tense disputes between exchanges and Wall Street trading firms have gotten over market data, a number of firms including Citadel Securities, Virtu Financial Inc. and Morgan Stanley have announced plans to launch their own trading venue later this year. The SEC on Tuesday green-lit the platform, which will be called the Members Exchange, or MEMX.

Read More: U.S. Stock-Trading Heavyweights Get OK to Start Own Exchange

Bloomberg LP, the parent company of Bloomberg News, is among firms that have contested exchanges’ fee increases for private data feeds.

(Adds exchanges’ comments starting in seventh paragraph.)

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