SEC invites competition in market data

The U.S. Securities and Exchange Commission (SEC) is encouraging competition in the market data business by overhauling the rules for the collection and distribution of data in the U.S. equity market.

The SEC has adopted rule changes that will, among other things, introduce a new decentralized approach to collecting and disseminating market data on exchange-listed stocks. The commission said that it promises to create new efficiencies and reduce latency in data distribution.

Instead of the existing centralized approach, the framework adopted by the SEC will allow for multiple, competing firms to collect, consolidate and disseminate market data to the public. It will also allow certain firms and self-regulatory organizations to “self-aggregate” market data feeds.

“Today’s rules are part of our larger initiative and ongoing efforts to modernize our equity market regulatory structure to address significant changes in our trading markets and better fit the needs of investors — both retail and institutional — and other market participants, including issuers,” said SEC chairman, Jay Clayton, in a release.

“In particular, these rules are designed to increase competition and transparency, which will improve data quality and data access for all market participants,” he added.

The rule changes also update and significantly expand the content of market data, “to better meet the diverse needs of investors in today’s equity markets,” the SEC said.

The expanded market data content includes certain “depth of book” data, information about small orders, and data on orders that are participating in opening, closing, and other auctions.

“The content of national market system data for equities and the consolidation and dissemination of that data have lagged meaningfully behind the technologies and data content widely used for proprietary data products offered by exchanges,” said Brett Redfearn, director of the SEC’s trading and markets division.

“The rules adopted today address these issues and, for the first time, foster a competitive environment for processing and distributing NMS market data,” he added.

The new rules take effect 60 days after their publication in the Federal Register, but the SEC has developed a transition plan that will begin in 2021.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.