On Thursday, January 27, Security Traders Association (STA) hosted an open call entitled, “Market Data Infrastructure Rule Proposed Pricing – What is Fair and Reasonable?” featuring Manisha Kimmel, Chief Policy Officer at MayStreet and Chris Nielsen, Managing Director, Market Data Management, Charles Schwab.  They discussed the potential impact of the SEC’s proposed changes to its Market Data Infrastructure Rule (“MDI Rule”).

Beginning in December 2020, the SEC announced changes designed to modernize the MDI Rule, particularly within both the competitive nature of data collection and the aggregation and dissemination of such data for exchange-listed stocks. Following the announcement, the SEC delegated responsibility to the SIP Operating Committees, who since filed amendments on November 15, 2021, to adopt cost-based fees for the content underlying consolidated market data sold to various parties, including competing SIP consolidators and self-aggregators.

Following an introduction of the evening’s discussion and panelists by STA President & CEO Jim Toes, Kimmel kicked off the call by offering a current timeline, citing the next two months as a key period for decision-making. “The SEC has 90 days to take action [from November 15, 2021], which takes us to late February, where they can either approve, disapprove or institute proceedings with respect to the amendment.”

Toes then brought up the number of comment letters submitted by various industry players in response to the proposed amendments. In summarizing the content of these letters, Nielsen began by drawing a distinction between the major exchanges that were in favor of the filing and those that opposed it. In support of the amendments, Nielsen recapped Nasdaq’s position on the basis for which these fees ought to be calculated: “Even though the order from the SEC asked for a cost-based fee model, Nasdaq argued that the better way to do this was based on competitive fees from the prop data feeds that have been tested in a competitive market.”

Nielsen then offered perspective on the overall SRO voting structure, expressing support for the new model, which aims to reduce voting bias based simply on exchanges like Nasdaq, Cboe and NYSE, who possess a higher number of medallions. Of the SROs opposed to the competitive data feed fee model, the large majority was composed of smaller entities such as MIAX, LTSE and MEMX.

Toes then raised the question of comparing the current discussions to the SEC’s October 2018 Roundtables on market data, noting that these hearings aimed to raise awareness of the many disparities in market data collection and left industry leaders optimistic about the next step in optimizing processes. In reflecting on how those hearings impacted the current landscape, Kimmel began, “I think the optimism coming out of those Roundtables was what led to both the governance order and the MDI Rule.” She went on to note that while the MDI Rule set the stage for implementing better data policy, the SIP Committees’ fee amendments aim to tackle the additional issue of how the data ought to be priced. Nielsen reaffirmed Kimmel’s point that the MDI Rule “broadly addressed” the main issues of the Roundtables, and again expressed his optimism for the new SRO voting structure to further improve progress in these discussions.

The final points of discussion were on pricing methodology and the potential impact of the MDI Rule and its amendments on data quality, particularly for retail investors. Kimmel began by offering both cost-based and value-based pricing models: “We’re currently in a world where there is a prop feed infrastructure that has nothing to do with the consolidated market data…[Since the] MDI Rule allows the SROs to use their prop feed infrastructure to supply data to competing consolidators, the cost should be relatively low.” In offering her take on the value-based argument, she referenced Nasdaq’s use of prop feeds as a comparison for the value of these collections of data saying, “Even today, the SIPs have a problem with top-of-book feeds taking their market share because they’re cheaper and easier to administer.” In recognizing both arguments, Kimmel expressed the need to first clearly define a baseline for both cost and value.

In discussing the potential impacts on data quality with these changes implemented, Nielsen noted that while different retail investors have different uses for the types of market data available, greater visibility and transparency for retail investors is “always a good thing.” He continued by identifying areas of potential concern for retail firms if the SROs’ suggested fees are implemented, claiming that firms will end up paying additional costs on top of current core data fees. Kimmel closed out Nielsen’s final points of the evening by also addressing that the goal of establishing “fair and reasonable” market conditions extends beyond price and into policy decisions: “For there to be a market for competing consolidators, they have to have the flexibility that their raw ingredients don’t come with all this baggage,” a reference to the pro/non-pro and display/non-display distinctions that affect pricing.