On May 6th, the SEC released an order that directs the equity exchanges and participants of the Financial Industry Regulatory Authority (FINRA) to submit a new National Market System (NMS) plan. This plan should include a modernized governance structure for the production of public consolidated equity market data and the dissemination of trade and quote data from trading venues. The order follows a Notice of Proposed Order issued on January 8, 2020. Under the new order, the participants must submit a new NMS plan, which will then be published for public notice and comment before the SEC takes action to approve it. The SEC has also approved amendments to the existing NMS plans, which were submitted by the participants and modified by the SEC. These amendments are designed to address conflicts of interest and the protection of confidential information.
Whether individually or collectively through mutual or pension funds, millions of main street investors have invested their savings in equity securities. The consolidated equity market data produced pursuant to NMS plans is a critical component of the national market system. This data facilitates the pricing and trading of these investments. Recent market developments have created concerns about whether the existing NMS plans for equity market data can continue to fulfill their regulatory purpose as currently structured. The new order also addresses conflicts of interest inherent in the current governance structure of the existing equity data plans. The order seeks to install a new plan that improves the efficiency of NMS operations and the responsiveness to the concerns of non-SRO market participants.
The SEC requires NMS participants to act jointly to disseminate consolidated information regarding NMS stocks. Currently, the three national market system plans (the Equity Data Plans) approved by the SEC facilitate the collection, consolidation, and dissemination of information regarding NMS stocks. These plans are the Consolidated Tape Association Plan, the Consolidated Quotation Plan, and Joint Self-Regulatory Organization Plan Governing the Collection, Consolidation, and Dissemination of Quotation and Transaction Information for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privileges Basis. The SEC’s order directs the equity exchanges and FINRA to submit a New Consolidated Data Plan within 90 days that includes specific governance provisions that the SEC believes will enable the plan to address concerns that have been raised about the governance of the existing Equity Data Plans and the provision of equity market data to market participants.
After the SEC receives the New Consolidated Data Plan, it will release the plan for public comment. Comments will be considered before the SEC deliberates on whether or not to approve the new plan with or without suggested changes. Until this New Consolidated Data Plan has been approved by the SEC, the current Equity Data Plans mentioned above will govern the collection, processing, and dissemination of equity market data.
This order is a part of a broader, ongoing SEC effort to modernize the U.S. national market system to better meet the needs of investors and other market participants. In October 2019, the SEC published a proposal to improve the procedure for public comment and review of proposed fee changes by NMS plans. In February 2020, the SEC also released a proposal to modernize the infrastructure for the collection, consolidation, and dissemination of NMS market data to better meet the differing needs of investors. The new order makes another significant step by requiring a new governance framework for the collection and dissemination of equity market data, as outlined by the Chairman in March 2019.
The SEC also approved amendments to the existing Equity Data Plans that make current mandatory disclosure policies with respect to conflicts of interest and establish a policy regarding the confidential treatment of any data or information generated, accessed, transmitted to, or discussed by the operating committee.