SEC issues ruling for a new National Market System

The regulator has ordered FINRA and SROs associated with Cboe, Nasdaq, and NYSE to work jointly in creating a new plan.

The SEC has ordered the filing of a new national market system plan (NMS plan), specifically directing FINRA and 18 SROs associated with Cboe, Nasdaq, and NYSE to act jointly in developing the NMS plan. 

The results are set to be published for public comment, and according to the SEC, the revised plan must: include a date by which it will become fully effective, alongside a prescribed timeline and periodic progress reports; require that all those involved be subject to the plan’s conflicts-of-interest and confidentiality policies; include specialised provisions regarding the sharing of protected information; and outline rules regarding the use of subcommittees.

The US Securities and Exchange Commission (SEC) ordered exchanges to submit new plans for governance of market data back in May 2020, in a bid to overhaul control over the equity consolidated tape and address conflicts of interest concerns.

The regulator at the time directed equity exchanges and the Financial Industry Regulatory Authority (FINRA) to propose a National Market System plan, to produce the public consolidated tape and disseminate the data.

Speaking at the time, Jay Clayton, chair of the SEC, stated: “Today’s action reflects careful analysis and deliberation on modernising and improving access to equity market data and, as a result, our equity market structure more generally.

“Today’s Commission action is based on extensive input from a broad range of investors and market participants and reflects the commitment of the women and men of the SEC to fairness in our markets and the interests of investors.” 

They have now moved forward, and last Friday ordered the filing of a new NMS plan “to replace the three existing national market system plans which govern the public dissemination of real-time, consolidated equity market data for national market system stocks”. 

Read more: What is Reg NMS and could it be beneficial for Europe?

Under the current regime, exchange groups which include Nasdaq, NYSE and Cboe, hold total control and voting rights related to the production and dissemination of data– which has over time led market participants to believe that venues hold an unfair monopoly on the critical market data.

The conflict of interest specifically stems from the entities’ interest in maximising the viability of the data products they sell, and their regulatory responsibilities in overseeing the NMS plans.

Speaking in the most recent announcement from 1 September, the SEC explained: “Developments in technology and changes in the equity markets have heightened the inherent conflicts of interest […] This has raised concerns about whether the existing NMS plans for equity market data continue to fulfil their regulatory purpose to ensure the availability of information with respect to quotations for and transactions in securities. 

“Today’s order addresses conflicts of interest inherent in the current governance structure of the existing equity data plans and is designed to improve the efficiency of NMS plan operations and the responsiveness of the plan to the concerns of market participants that are not self-regulatory organisations.”