I. Introduction

As discussed in more detail in the attached proposed order (“Proposed Order”),^[1] certain market developments have given rise to concerns about whether—as currently structured—the existing national market system plans (the “Equity Data Plans”) ^[2] that govern the public dissemination of real-time, consolidated equity market data for national market system stocks continue ( printed page 2165) to fulfill their statutory purpose under Section 11A of the Securities Exchange Act of 1934 (“Act”).^[3] To begin the process of addressing these concerns, and pursuant to Section 11A(a)(3)(B) of the Act,^[4] the Commission is publishing for comment the attached Proposed Order, which if ultimately issued by the Commission, would require the participants in the Equity Data Plans ^[5] to propose a single, new equity data plan (“New Consolidated Data Plan”).

Based upon input received from a broad range of market participants (including the SROs), the Commission's Equity Market Structure Advisory Committee, and its own regulatory oversight of the Equity Data Plans, the Commission has set forth in the Proposed Order its concerns regarding the Equity Data Plan's provision of equity market data,^[6] its views regarding issues arising from the current governance structure of the Equity Data Plans,^[7] and the specific governance provisions that the Commission preliminarily believes would enable the New Consolidated Data Plan to address these concerns and issues.^[8] The Commission seeks public comment on each of these aspects of the Proposed Order.

To the extent that the Participants have additional insights into the concerns and issues discussed in the Proposed Order, or are able to identify and suggest additional or alternative measures to those that the Commission has preliminarily set forth in the Proposed Order, the Commission will consider such information and suggestions, as well as any other comment on the Proposed Order. The Commission requests that any alternatives include a comprehensive explanation as to why the alternative would be effective in addressing the significant issues discussed in the Proposed Order regarding the current governance and operation of the Equity Data Plans.

After considering any comments received on the Proposed Order, the Commission will consider what action to take, including whether to issue a final order requiring the Participants to file a New Consolidated Data Plan. If the Commission issues such a final order, the New Consolidated Data Plan then submitted by the Participants would be published for public comment, and, after considering any comments received on the New Consolidated Data Plan filed by the Participants, the Commission would consider whether to approve the New Consolidated Data Plan, with any changes or subject to such conditions as the Commission may deem necessary or appropriate.^[9] Unless or until a New Consolidated Data Plan has been approved by the Commission, the Equity Data Plans will continue to govern the collection, processing, and dissemination of equity market data.

The Participants have submitted proposed amendments to the existing Equity Data Plans to (a) make mandatory their current disclosure policies with respect to conflicts of interest,^[10] and (b) establish a policy regarding the confidential treatment of any data or information generated, accessed, transmitted to, or discussed by the operating committee.^[11] Contemporaneously with the publication of this Notice of Proposed Order, the Commission is publishing for notice and comment these proposed amendments to the Equity Data Plans.^[12]

Interested persons are invited to submit written presentations of views, data, and arguments concerning the Proposed Order, including the Proposed Order's discussion of concerns with the current provision of equity market data by the Equity Data Plans, the Proposed Order's discussion of issues with the current governance structure of the Equity Data Plans, the specific provisions set forth in the Proposed Order to address those concerns and issues, and the likely economic consequences, including those of any proposed alternative provisions.

II. Procedure for Written Comments

All comments should be submitted by February 28, 2020. Comments may be submitted by any of the following methods:

Electronic Comments

• Use the Commission's internet comment form (https://www.sec.gov/​rules/​sro.shtml); or
• Send an email to:rule-comments@sec.gov. Please include File Number 4-757 on the subject line.

Paper Comments

• Send paper comments to: Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

Attachment A

Securities and Exchange Commission

(Release No. 34-)

Order Directing the Exchanges and the Financial Industry Regulatory Authority To Submit a New National Market System Plan Regarding Consolidated Equity Market Data

Notice is hereby given that, pursuant to Section 11A(a)(3)(B) of the Securities Exchange Act of 1934 (“Act”),^[1] the Securities and Exchange Commission (“Commission”) orders the Cboe BYX Exchange, Inc. (“BYX”), Cboe BZX Exchange, Inc. (“BZX”), Cboe EDGA Exchange, Inc. (“EDGA”), Cboe EDGX Exchange, Inc. (“EDGX”), Cboe Exchange, Inc. (“Cboe”), Investors Exchange LLC (“IEX”), Long Term Stock Exchange, Inc. (“LTSE”), Nasdaq BX, Inc. (“BX”), Nasdaq ISE, LLC (“ISE”), Nasdaq PHLX LLC (“PHLX”), Nasdaq Stock Market LLC (“Nasdaq”), New York Stock Exchange LLC (“NYSE”), NYSE American LLC (“NYSE American”), NYSE Arca, Inc. (“NYSE Arca”), NYSE Chicago, Inc. (“NYSE Chicago”), NYSE National, Inc. (“NYSE National”), and Financial Industry Regulatory Authority, Inc. (“FINRA”) (each a “Participant” or a “Self-Regulatory Organization” (“SRO”) and, collectively, the “Participants” or “the SROs”) to act jointly in developing and filing with the Commission a proposed new single national market system plan (the “New Consolidated Data Plan”), which will replace the existing national market system plans (the “Equity Data Plans”) ^[2] that govern the public dissemination of real-time, consolidated equity market data for national market system stocks (“NMS stocks”).^[3] The New Consolidated Data Plan shall be filed with the Commission pursuant to Rule 608 of Regulation NMS ^[4] no later than [90 days after the order is issued].

The public dissemination of consolidated information about quotes and trades in equity securities is a fundamental component of the national market system. In creating the national market system, Congress specifically found that ensuring the availability of this information is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets.^[5] As the Commission has stated, “one of the Commission's most important responsibilities is to preserve the integrity and affordability of the consolidated data stream.” ^[6]

In the Commission's view, changes in the market ^[7] have heightened an inherent conflict of interest between the Participants' collective responsibilities in overseeing the Equity Data Plans and their individual interests in maximizing the viability of proprietary data products that they sell to market participants. Under the current governance structure of the Equity Data Plans, the Participants have exclusive control of the Equity Data Plans. It is the Commission's belief that the Participants' conflicts of interest, combined with the concentration within exchange groups of voting power in the Equity Data Plans, create significant concerns regarding whether the consolidated feeds meet the purposes for them set out by Congress and by the Commission in adopting the national market system.^[8] Addressing these and other issues with the current governance structure of the Equity Data Plans is a key step in responding to the broader concerns about the consolidated data feeds.^[9]

The Commission further believes that the consolidated data feeds can be improved by consolidating the three existing, separate Equity Data Plans into a single New Consolidated Data Plan. A New Consolidated Data Plan should reduce existing redundancies, inefficiencies, and inconsistencies between and among the Equity Data Plans and should simplify plan governance and maintenance. The Commission is therefore ordering the SROs to develop the New Consolidated Data Plan to address the governance issues described in this Order and to consolidate the Equity Data Plans into the single New Consolidated Data Plan. Based upon input received from a broad range of market participants (including the SROs), the Commission's Equity Market Structure Advisory Committee (“EMSAC”), and its own regulatory oversight of the Equity Data Plans, the Commission has set forth below specific governance provisions that the Commission believes would enable the New Consolidated Data Plan to address these issues.

I. Background

In 1975, Congress, through the enactment of Section 11A of the Act,^[10] directed the Commission to facilitate the establishment of a national market system for the trading of securities in accordance with the Congressional findings and objectives set forth in Section 11A(a)(1) of the Act.^[11] Among the findings and objectives of Section 11A(a)(1) are that new data processing and communications techniques create the opportunity for more efficient and effective market operations,^[12] and that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to ensure the availability of information with respect to quotations for and transactions in securities.^[13]

Congress authorized the Commission to prescribe rules to ensure the “prompt, accurate, reliable, and fair collection, processing, distribution, and publication of information with respect to quotations for and transactions in such securities and the fairness and usefulness of the form and content of such information.” ^[14] In furtherance of these purposes, the Commission has sought through its rules and regulations to help ensure that certain “core data” ^[15] is widely available for reasonable fees.^[16] The Commission has recognized that investors must have this core data “to participate in the U.S. equity markets.” ^[17]

Section 11A of the Act also authorizes the Commission, by rule or order, to authorize or require the SROs to act jointly with respect to matters as to which they share authority under the Act in planning, developing, operating, or regulating a facility of the national market system.^[18] Pursuant to this authority, the Commission adopted ( printed page 2167) Regulation NMS.^[19] Rule 608 of Regulation NMS authorizes two or more SROs, acting jointly, to file with the Commission a national market system plan (“NMS plan”) or a proposed amendment to an effective NMS plan. ^[20] And Rule 603 of Regulation NMS requires the SROs to act jointly pursuant to NMS plans to “disseminate consolidated information, including a national best bid and national best offer, on quotations for and transactions in NMS stocks.” ^[21] The purpose of the Equity Data Plans, adopted pursuant to Regulation NMS, is to facilitate the collection and dissemination of core data so that the public has ready access to a “comprehensive, accurate, and reliable source of information for the prices and volume of any NMS stock at any time during the trading day.” ^[22] Widespread availability of timely market data promotes fair and efficient markets and facilitates the ability of brokers and dealers to provide best execution to their customers.^[23]

Under Regulation NMS and the Equity Data Plans, the SROs are required to provide certain quotation ^[24] and transaction data ^[25] for each NMS stock to an exclusive securities information processor (“SIP”),^[26] which consolidates this market data and makes it available to market participants on the consolidated tapes, as described below. For each NMS stock, the Equity Data Plans provide for the dissemination of top-of-book (“TOB”) data, generally defining consolidated market information (or “core data”) as consisting of: (1) The price, size, and exchange of the last sale; (2) each exchange's current highest bid and lowest offer, and the shares available at those prices; and (3) the national best bid and offer (“NBBO”) ( i.e., the highest bid and lowest offer currently available on any exchange).^[27] In addition to disseminating core data, the SIPs collect, calculate, and disseminate certain regulatory data—including information required by the National Market System Plan to Address Extraordinary Market Volatility (“LULD Plan”),^[28] information relating to regulatory halts and market-wide circuit breakers, and information regarding the short-sale price test pursuant to Rule 201 of Regulation SHO.^[29] They also collect and disseminate other NMS stock data and disseminate certain administrative messages. Together with core data, the Commission refers to this broader set of data for purposes of this Order as “SIP data.” ^[30]

The three Equity Data Plans that currently govern the collection, consolidation, processing, and dissemination of SIP data are (1) the Consolidated Tape Association Plan (“CTA Plan”), (2) the Consolidated Quotation Plan (“CQ Plan”), and (3) the 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 (“UTP Plan”).^[31] Pursuant to the Equity Data Plans, three separate networks disseminate consolidated data for equity securities: (1) Tape A for securities listed on the NYSE; (2) Tape B for securities listed on exchanges other than NYSE and Nasdaq; and (3) Tape C for securities listed on Nasdaq. The CTA Plan governs the collection, consolidation, processing, and dissemination of last sale information for Tape A and Tape B securities. The CQ Plan governs the collection, consolidation, processing, and dissemination of quotation information for Tape A and Tape B securities. And the UTP Plan governs the collection, consolidation, processing, and dissemination of last sale and quotation information for Tape C securities.

As discussed further below, the structure of the equity markets and the corporate structure of exchanges have changed dramatically since the adoption of Regulation NMS in 2005.^[32] While a substantial amount of trading in 2005 was conducted on relatively slow manual markets,^[33] and was concentrated for any given stock on its listing exchanges,^[34] nearly all trading now occurs on fast electronic markets (where even small degrees of latency affect trading strategies) and is dispersed among a wide range of competing market centers.^[35] Furthermore, most exchanges have converted from entities mutually owned by their members to demutualized entities that are owned by shareholders ( printed page 2168) and that also offer proprietary market data products.^[36] Finally, “exchange groups” (multiple exchanges operating under one corporate umbrella) have emerged, consolidating much of the voting power and control of the Equity Data Plans.^[37]

In the Commission's view, these market developments have heightened conflicts of interest between the exchanges' commercial interests and their regulatory obligations under the Act and the Equity Data Plans to produce and provide core data. The Commission believes that the current governance structure of the Equity Data Plans is inadequate to respond to these changes or to the evolving needs of investors and other market participants. The SIPs have significant market power in the market for core and aggregated market data products and are monopolistic providers of certain market information.^[38] But the operation of the Equity Data Plans has not kept pace with the efforts of the exchanges to expand the content of—and to employ technology to reduce the latency and increase the throughput of—certain proprietary data products. For example, the exchanges have developed depth-of-book (“DOB”) products that provide greater content ( e.g., information about orders resting on the order book and order imbalance information for opening and closing auctions) at lower latencies, relative to the SIPs, for one segment of the data market.^[39] The exchanges have also developed proprietary TOB products that provide data that is generally limited to the highest bid and lowest ask and last sale price information at a lower price for another segment of the data market that is less sensitive to latency.^[40] By contrast, the Participants of the Equity Data Plans have not taken comparable measures to update the SIPs to reflect new innovations in market data in response to evolving markets and the changing needs of investors ( e.g., those that use low-latency DOB products versus those that use TOB products).^[41]

The Commission believes that, under the current governance structure of the Equity Data Plans, improvements to the SIPs to adequately address important product, performance and pricing differentials between the SIPs and proprietary data products have not occurred.^[42] Also, the Commission does not believe that having multiple Equity Data Plans, which need to be separately maintained and operated, is necessary or efficient. The Commission believes the Equity Data Plans should be consolidated into a New Consolidated Data Plan. In the Commission's view, this would streamline operation of the SIP feeds, leading to greater efficiency in meeting the purposes of Section 11A of the Act, including ensuring the prompt, accurate, reliable, and fair collection, processing, distribution, and publication of quotation and transaction information, as well as the fairness and usefulness of the form and content of such data.^[43] As discussed in more detail below, the Commission believes that the Participants should develop a New Consolidated Data Plan that: (i) Operates pursuant to a governance structure that takes into account the evolving nature of business and trading relationships among exchanges, their members, and investors; (ii) is designed to ensure the usefulness of core data to market participants and to ensure that core data is provided on terms that are fair and reasonable, consistent with Section 11A of the Act and the rules thereunder; ^[44] and (iii) replaces the three Equity Data Plans to eliminate redundancies, inefficiencies, and duplicative costs. As noted above, the Commission believes that consolidating the Equity Data Plans into a single New Consolidated Data Plan should result in a more efficient governance structure for operation of the SIPs.^[45]

II. Discussion

In recent years, the Commission has received, and in certain instances, solicited a substantial amount of comment on the current provision of SIP data by the Equity Data Plans and on the governance model of the Equity Data Plans. In 2015, the EMSAC was established and tasked with providing the Commission with diverse perspectives on the structure and operations of the U.S. equities markets, as well as advice and recommendations on matters related to equity market structure.^[46] In 2018, the Commission's ( printed page 2169) Division of Trading and Markets held a Roundtable on Market Data and Market Access (“Roundtable”) that included panelists representing exchanges, institutional and retail broker-dealers, academics, and other market participants.^[47] The Commission has also received several petitions for rulemaking from market participants concerning the provision of SIP data and the governance structure of the Equity Data Plans.^[48]

Based on this input from a broad range of market participants and its own regulatory experience,^[49] the Commission believes that the current governance structure of the Equity Data Plans no longer adequately serves to ensure that the Equity Data Plans provide for the “prompt, accurate, reliable, and fair collection, processing, distribution, and publication of information with respect to quotations for and transactions in such securities and the fairness and usefulness of the form and content of such information.” ^[50] As will be discussed next, the Commission believes that the SROs should propose a single New Consolidated Data Plan, with a governance structure that incorporates a broad array of market participant perspectives and reduces administrative and operational inefficiencies and redundancies, to more effectively administer the dissemination of SIP data.

A. The Commission's Concerns Regarding the Equity Data Plans' Provision of Equity Market Data

Under the Equity Data Plans, the earliest of which dates from the 1970s,^[51] market data for each NMS stock is collected, consolidated, and disseminated to investors and market participants through one of two exclusive SIPs. These SIPs, which collect market data for the NMS stock transmitted from the dispersed SRO data centers, then consolidate the data and distribute the data to end-users.^[52] Several market developments, however, have given rise to proprietary data feeds that are offered—along with connectivity services that enable low-latency transmission—directly by the various exchanges. The emergence of these proprietary products, along with the core data feeds that are distributed pursuant to the Equity Data Plans, have created a two-tiered market-data environment.

Technological advances, as well as the order routing and trading strategies that have followed, have greatly increased the speed and automation of both markets and trading strategies. These changes, along with the provisions adopted in Regulation NMS that allow for the sale of proprietary data products,^[53] have created incentives for exchanges to develop enhanced proprietary data products that they sell to the same market participants that are subscribers to core data feeds provided by the SIPs.

Generally, proprietary data feeds that offer DOB data are designed for automated trading systems and are faster and more content rich, as well as more expensive, than the core data distributed by the SIPs. Other proprietary data feeds that offer TOB data are designed largely for the non-automated segment of the market ( e.g., retail investors and wealth managers who look at market information on a screen) and are less content rich (but also less expensive) than the core data distributed by the SIPs.^[54] Thus, the exchanges offer proprietary data products in both of these significant segments of the market for data. The exchanges also offer connectivity products and services ( e.g., co-location, fiber connectivity, wireless connectivity) that provide low-latency access to these proprietary data products, especially DOB products.^[55] Even though the exchanges' proprietary data products are not exact substitutes for the core data provided by the SIPs,^[56] users of the low-latency access provided by the exchanges for their DOB proprietary data products have a speed advantage over users of the core data because of the higher latency of the SIP data feeds.

Over the past several years, a number of market participants have raised concerns about how the differences between the SIPs and proprietary DOB data feeds affect their ability to use core data to be competitive in today's markets and provide best execution to their customers.^[57] According to certain market participants, the current speed of core data is no longer sufficient for them to trade competitively. One Roundtable panelist stated that broker-dealers do not have the option to forgo buying the proprietary data in meeting their clients' needs because the SIPs are slower and not as expansive.^[58] This panelist stated that, “[i]f our brokers are not aligned in that manner to use the most direct, the fastest, the most robust feeds they can get their hands on, then we will trade with someone else.” ^[59] Another ( printed page 2170) Roundtable panelist stated that, “broker-dealers are compelled to purchase exchanges' proprietary data feeds, both to provide competitive execution services . . . and to meet our best execution obligations due to the content of the information contained in the proprietary data fees as well as the latency differences between them. . . .” ^[60] Another commenter stated that “most broker-dealers require the faster and deeper information to participate effectively in the market and provide customers with the competitive order routing quality.” ^[61] This commenter also stated, “While business for proprietary market data innovated, the SIP utilities did not keep pace. Investment in the SIPs lagged, causing material latencies to develop between the top of book and last sale data available from the SIP as compared to the data offered privately by the market centers.” ^[62]

Broker-dealer panelists at the Roundtable stated that they are compelled to purchase SIP data for various reasons, including to receive LULD Plan price bands, to perform checks required by Rule 15c3-5 under the Act (the “market access rule”),^[63] and for redundancy purposes.^[64] Some broker-dealers use SIP data to comply with the requirements of Rule 611 of Regulation NMS ^[65] to prevent trade-throughs and to meet their best execution obligations for customer orders. Also, under Rule 603(c) of Regulation NMS,^[66] known as the “Vendor Display Rule,” if a broker-dealer displays any information with respect to quotations for or transactions in an NMS stock in a context in which a trading or order-routing decision can be implemented, it must also provide a consolidated display for that stock. Broker-dealers typically meet this regulatory requirement by using core data and paying the attendant fees.^[67]

The differences between the SIP data feeds and proprietary data feeds have the effect of increasing the demand for, and marketability of, proprietary data products to the financial benefit of the exchanges. And the Commission believes that this conflict of interest, combined with the Equity Data Plans' current governance structure, perpetuates disincentives for the Equity Data Plans to invest in certain improvements to enhance the distribution of core data or the content of the core data itself. In particular, lagging investment in updating and maintaining the operations of the SIPs has resulted in meaningful latency and content differentials between core data and the exchanges' proprietary market data products that have become consequential to market participants.^[68]

For example, the implementation of decimalization in 2001 ^[69] reduced the minimum price increment from $0.0625 (1/16 of a dollar) to $0.01. Because this significantly increased the number of price points over which trading interest could be expressed, it had the ancillary effect of reducing the TOB liquidity that is displayed and disseminated as part of core data. And commenters on Regulation NMS stated that this reduction of TOB liquidity, in turn, increased the importance of information regarding DOB liquidity to market participants.^[70]

In adopting Regulation NMS in 2005, the Commission nonetheless determined not to require that DOB quotations be included in core data, reasoning that investors who needed DOB data would be able to obtain that data from markets or third-party vendors.^[71] In making that determination, the Commission stated that this would be “a competition-driven outcome [that] would benefit investors and the markets in general.” ^[72] And, after the adoption of Regulation NMS in 2005,^[73] exchanges began to sell ( printed page 2171) their proprietary data products separately from the core data required by Rule 603(b) of Regulation NMS.^[74] But, as the markets have evolved and DOB data has become more important, the exchanges have continued to improve their proprietary data feeds without similar improvements to the SIPs to reflect this market evolution.

Another issue flows from the centralized consolidation model of the Equity Data Plans and the SIPs. The centralized consolidation model has at least three specific sources of latency disadvantage relative to the exchanges' proprietary data feeds: geographic latency, aggregation latency, and transmission latency. Geographic latency, as used herein, refers to the time it takes for data to travel from one physical location to another, which must also take into account that data does not always travel between two locations in a straight line. Aggregation latency, as used herein, refers to the amount of time a SIP takes to aggregate the multiple sources of SRO market data into core data and includes calculation of the NBBO.^[75] And transmission latency, as used herein, refers to the time interval between when data is sent ( e.g., from an exchange) and when it is received ( e.g., at a SIP and/or at the data center of the subscriber).^[76] The Commission understands that geographic latency is typically the most significant component of the additional latency that core data feeds experience compared to proprietary data feeds.^[77] Because each SIP must collect data from geographically dispersed SRO data centers, consolidate the data, and then disseminate it from its location to end-users, which are often in other locations, this hub-and-spoke form of centralized consolidation creates additional latency. For example, information about quotes and trades on Nasdaq for NYSE-listed securities incurs latency as it travels from Nasdaq's data center in Carteret approximately 34.5 miles to the CTA/CQ SIP in Mahwah, and then back to Carteret.^[78]

But these disadvantages are not inherent to the SIPs' role and operation in the markets, nor are they insurmountable. In recent years and in the face of ongoing public criticism,^[79] the SIP operating committees have made some improvements to aspects of the SIPs and related infrastructure.^[80] For example, from the second quarter of 2016 to the second quarter of 2019, Tapes A and B reduced average quote feed aggregation latency from 490 microseconds to 69 microseconds, and average trade feed aggregation latency from 340 microseconds to 139 microseconds.^[81] As another example, Tape C reduced its average quote feed aggregation latency during the same period from 777.8 microseconds to 16.9 microseconds, and its average trade feed aggregation latency from 604.8 microseconds to 17.5 microseconds.^[82] As shown by these latency statistics, however, aggregation latency for the CTA/CQ SIP data continues to be meaningfully greater than that of UTP SIP data, despite these improvements.^[83]

And as numerous new product offerings have been introduced by individual exchanges to reduce the latency of proprietary data products,^[84] the Equity Data Plans, which are operated jointly by the SROs (including those offering proprietary data products), have not made—or have been slow to make ^[85] —the investments that are necessary to comprehensively address these concerns.^[86] For example, proprietary data products offered by the exchanges often rely on low-latency wireless connections,^[87] whereas the Equity Data Plans rely on fiber optic cable.^[88] The Commission understands that these fiber networks, which the exchanges use to transmit data from their matching engines to the SIPs, are meaningfully slower than the wireless networks operated by the same exchanges for the transmission of proprietary data over the same routes.

As a potential measure to help the SIPs' data products better respond to the needs of users, some market participants, including exchanges, have suggested that geographic latency issues could be addressed through a “distributed SIP” model.^[89] Under a distributed SIP model, each exclusive SIP could place an additional processor in other major data centers, which would separately aggregate and disseminate consolidated market data for its respective tape. The SROs would submit their quotations and trade information directly to each SIP location in each data center, and each SIP location would consolidate and disseminate its respective consolidated market data feeds to subscribers at those data centers. As a result, consolidated market data would not have to travel from an exchange at one location to a centralized SIP at a second location for consolidation and dissemination prior to traveling yet again to a subscriber that may be at a third location, significantly reducing geographic latency. But, despite consideration by the dedicated subcommittee established by one of the Equity Data Plans,^[90] none of the Equity Data Plans' operating committees has yet addressed the SIPs' geographic latency disadvantages.

The Commission recognizes that, as discussed above, the SROs have made certain improvements to the SIPs over the past several years, including upgrades that resulted in meaningful reductions in the time required to calculate and consolidate the NBBO. The Participants have also enhanced the content of the SIP feeds, including reports of odd-lot trades.^[91] The Participants have also requested comment on a proposal to include odd-lot quotation information in response to the rise in odd-lot activity in the U.S. equity markets.^[92] In addition, Nasdaq migrated its SIP to a new technology platform in 2016 and stated that the update “significantly improves the efficiency, resiliency, and reliability of the SIP in a meaningful and measurable way.” ^[93] And NYSE has publicly stated that it has undertaken two projects to enhance the SIP: (1) Building a new, dedicated network for SIP data to provide faster subscriber access to SIP data, and (2) migrating its SIP data feed engine to the NYSE's Pillar technology platform to reduce processing time and enhance resilience.^[94]

Despite these changes, the SIPs have continued to meaningfully lag behind the proprietary data products and their related infrastructure with respect to content and speed. And while the Equity Data Plans' operating committees have discussed several ideas that could result in significant improvements to the SIPs both in terms of content and speed—ideas that could further reduce performance gaps when compared with proprietary data and its infrastructure ^[95] —these potential upgrades have failed to garner the support by Participants necessary for action.^[96] Thus, market participants that choose to pay for some or all of the DOB proprietary data feeds can consolidate those feeds and receive more comprehensive market data, and can receive it faster, than those who rely on the SIP feeds.^[97] As a result, significant information asymmetries persist between users of core data and users of proprietary DOB data, as well as potential disadvantages for market participants who do not access the ( printed page 2173) additional content included in proprietary data.^[98]

As discussed further below, the Commission believes that, under the current governance structure of the Equity Data Plans, improvements to the SIPs to adequately address important product, performance and pricing differentials between the SIPs and proprietary data products have not occurred.^[99] This failure contributes to the divergence in the usefulness of core data provided by the SIPs for some market participants compared to the proprietary data feeds. The Commission also believes that addressing these governance issues is an important first step in responding to concerns about the consolidated data feed.

B. Conflicts of Interest Inherent in the Governance Model and Structure of the Equity Data Plans

The Equity Data Plans provide the regulatory framework for the administration of SIP data. When it adopted Regulation NMS in 2005, the Commission contemplated that exchanges would offer proprietary market data feeds with greater content than the SIP feeds and that market participants might elect to purchase those feeds.^[100] However, since the adoption of Regulation NMS in 2005,^[101] the structure of the equity markets and the corporate structure of exchanges have changed dramatically.

In addition to the technological developments already discussed, changes in the ownership structure of exchanges—in particular the demutualization of the exchanges and the rise of “exchange groups”—have created conflicts between the SROs' business interests and the need to ensure prompt, accurate, reliable, and fair dissemination of core data through the jointly administered Equity Data Plans consistent with their obligations as SROs under the national market system.^[102] As noted above, the Commission believes that these changes, combined with the Equity Data Plans' current governance structure, have exacerbated the exchanges' lack of incentives to improve the SIPs. And, as described further below, the Commission's views on the effect of conflicts of interest on the exchanges' incentives are informed by input received over the course of a number of years from a broad range of market participants—including industry trade associations, broker-dealers (both those with a retail customer base and those with an institutional investor customer base), and the SROs themselves—through their participation in Commission-sponsored forums ( i.e., the EMSAC ^[103] and the Roundtable ^[104] ) and through the submission of comment letters ^[105] and petitions for rulemaking.^[106]

1. The Transformation of the Exchanges Into Publicly Owned Companies

When the Equity Data Plans were created, U.S. equity exchanges were member owned, not-for-profit organizations. The members that owned the exchanges were registered broker-dealers, and those members had a voice in exchange decisions through their voting power on the governing bodies of the exchanges, including with respect to Equity Data Plan matters.

When the exchanges demutualized, representation on exchange boards of directors broadened to require including non-industry representatives,^[107] thereby diluting exchange member representation, and the majority of the exchanges became part of publicly held companies seeking to maximize shareholder value. With this transformation, and following the adoption of Regulation NMS, many of the exchanges began to more actively pursue commercial interests that did not necessarily further the regulatory objective to “preserve the integrity and affordability of the consolidated data stream,” ^[108] which is necessary to ensure that there is a “comprehensive, accurate, and reliable source of information for the prices and volume of any NMS stock at any time during the trading day.” ^[109]

An important example of this divergence of interest has been the development by certain exchanges of proprietary data products with reduced latency and expanded content ( i.e., proprietary DOB data products), without the exchanges, in their role as Participants, similarly enhancing the data products offered by the Equity Data Plans. As discussed above, these DOB products have evolved to be considered competitive necessities for many market participants and are offered at significant premiums to SIP products.^[110] Another example of the divergence between commercial interests and regulatory goals has been the development by certain exchanges of limited TOB data products,^[111] which are offered at a discount compared to the SIP and marketed to a more price-sensitive segment of the market, without corresponding development by the Equity Data Plans of a less expensive SIP product for the price-sensitive segment of the market.^[112] The exchanges have continued to develop and enhance their proprietary market data businesses—which generate ( printed page 2174) revenues that, unlike Plan data revenues, do not have to be shared with the other SROs—while remaining fully responsible for the governance and operations of the Plans, including content, infrastructure, and pricing, as well as data consolidation and dissemination.

Many non-SRO Roundtable panelists, commenters, and petitioners identified these circumstances as constituting an inherent conflict of interest in that the exchanges oversee the Equity Data Plans while selling their own proprietary feeds and connectivity services.^[113] One commenter stated that the “exchanges maintain tight control of SIP governance to protect their lucrative market data revenue (plus associated SIP connectivity costs). . . .” ^[114] This commenter also stated that “[g]iven conflicts of interest when a market competitor is also a regulator, it is critical that broker-dealers and asset managers have representation on SIP Operating Committees to ensure accountability and to promote initiatives to better develop market data products.” ^[115] One exchange stated that, in addition to an exchange's proprietary data products, other circumstances in which an exchange's conflicts of interest may affect the work of the Equity Data Plans' operating committees include consideration of whether auction data should be added to the SIPs and competition among the SROs for the role of processor.^[116] In contrast, another exchange maintained that selling exchange proprietary market data was contemplated under Regulation NMS and that doing what Regulation NMS contemplates does not itself create a conflict of interest.^[117]

Moreover, the Equity Data Plans are currently administered by two of the exchanges,^[118] which gives employees of those exchanges access to confidential data subscriber information of potentially significant commercial value, including subscriber audit information. The Commission notes that concerns have been raised about the exchange administrators' use of market data and associated customer information obtained through their role as Equity Market Data Plan administrators for their proprietary data feed businesses.^[119]

Consequently, the Commission believes that the exchanges' commercial interests in their proprietary data businesses, as well as the exchange administrators' access to confidential subscriber information, have created conflicts of interest that could influence decisions as to the Equity Data Plans' operation and thereby impede their ability to ensure the “prompt, accurate, reliable, and fair collection, processing, distribution, and publication of information with respect to quotations for and transactions in such securities and the fairness and usefulness of the form and content of such information.” ^[120]

2. The Emergence of Exchange Groups

In addition to the demutualization of the exchanges and the rise of proprietary data feeds, another significant change in the SRO landscape has been the emergence of exchange groups. As acknowledged by the EMSAC ^[121] and echoed by Roundtable participants,^[122] the proliferation of exchange groups has had a significant effect on the allocation and concentration of voting power among certain SROs serving on the Equity Data Plans' operating committee.

Under the Equity Data Plans, each Participant is entitled to cast one vote, but the exchanges within each exchange group vote as a block. Currently, 14 of the 17 total votes are controlled by three exchange groups: (1) CBOE Holdings, Inc. has five votes (BYX, BZX, Cboe, EDGA, and EDGX); (2) Intercontinental Exchange Group, Inc. (“ICE”) has five votes (NYSE, NYSE American, NYSE Arca, NYSE Chicago, and NYSE National); and (3) Nasdaq, Inc. has four votes (BX, ISE, Nasdaq, and PHLX).^[123] As a result, the votes of only two exchange groups are sufficient to command a majority of votes and thereby control significant Equity Data Plan actions, including decisions that affect: (a) The capacity of the Equity Data Plans to transmit SIP data,^[124] (b) investments in infrastructure that could in turn affect performance and latency of Plan processors, (c) the fees charged for SIP data,^[125] and (d) the selection of individuals that participate in advisory committees.^[126]

The Commission believes that the consolidation of most of the exchange SROs into exchange groups has altered the relative voting power of Equity Data Plan Participants so that exchange groups now have greater voting power with respect to Plan governance matters. Correspondingly, the relative voting power of unaffiliated Equity Data Plans' ( printed page 2175) Participants has been diluted over time. Exchanges that historically had only one vote have now been consolidated into exchange groups under common management that can control blocks of four or five votes.^[127] Consequently, any two exchange groups can now command a majority of votes on the Equity Data Plans' operating committee, while the relative voting power of unaffiliated Equity Data Plan Participants has been diluted over time. Notably, as the primary producers of exchange proprietary data products, these exchange groups' voting power on the Equity Data Plans exacerbates the conflicts between their business interests and their regulatory obligations.^[128] Accordingly, the Commission believes that the current voting structure may not promote the goals of Section 11A of the Act ^[129] with respect to equity market data.

C. The Governance Structure of the New Consolidated Data Plan

As discussed below, the Commission believes that the existing Equity Data Plans should be replaced by a single New Consolidated Data Plan with a modernized governance structure.

1. Exchange Group Voting Power

Several interested parties have suggested various ways to realign Participants' voting power. In response to the Roundtable,^[130] several panelists and commenters recommended that SRO voting rights be limited to one vote per exchange group,^[131] which they believe would increase the voting representation of unaffiliated exchanges.^[132] Panelists and one commenter also supported having voting provisions that reflect market size, so that the SROs with greater market share would have increased voting power.^[133] One commenter recommended capping the voting control permissible for any single exchange group.^[134] One panelist supported maintaining the current voting construct and highlighted the importance of protecting the voting rights of the unaffiliated SROs that have just one vote on the operating committee.^[135] In addition, the EMSAC recommended that the existing one-vote-per-exchange model should be replaced with an allocation of voting rights at the exchange group level—resulting in one vote per exchange group.^[136] The EMSAC recommended that an exchange group receive two votes, however, when the exchange group has consolidated market share of at least 10% in the particular market relevant to the Equity Data Plan.

NYSE and Nasdaq objected to the EMSAC recommendation to reallocate votes among Equity Data Plan Participants by exchange group.^[137] In particular, Nasdaq argued that it would be inconsistent for the Commission not to provide each SRO with a vote when, in Nasdaq's view, the Commission has consistently held that each SRO is individually approved by the Commission and must have its own systems, rules, operations, and members.^[138]

The Commission believes that the New Consolidated Data Plan should modify the current voting allocation structure to address the issues described above.^[139] Consistent with the EMSAC recommendation, the Commission believes that voting rights in the New Consolidated Data Plan should be allocated so that each unaffiliated SRO ^[140] and exchange group has one vote on the operating committee—with a second vote provided if the exchange group or unaffiliated SRO has a market center or centers that trade more than a designated percentage of consolidated equity market share.^[141]

However, the Commission believes that the threshold percentage should be 15%, rather than the 10% threshold recommended by the EMSAC. The EMSAC's recommendation to the Commission concedes that there was no “magic” in selecting 10% as its ( printed page 2176) suggested threshold amount,^[142] and, based on the current size of the exchange groups in terms of both exchange licenses and trading volume, the Commission believes that using the 10% threshold recommended by the EMSAC for obtaining a second vote on New Consolidated Data Plan matters would suggest that a third vote would be appropriate at 20% of consolidated equity market share. Given that the existing consolidated market share of the largest exchange groups generally ranges from 17% to 23% ^[143] —as of December 4, 2019, the figures for the CBOE, Nasdaq, and NYSE exchange groups were 17.03%, 19.58%, and 23.05%, respectively ^[144] — setting the threshold for additional votes at 10% intervals would create the reasonable likelihood that exchange groups might receive a third vote, which would lead to a continuing concentration of voting power.

Accordingly, the Commission believes that setting the threshold for a second vote at 15%, and limiting the total votes available to an exchange group or unaffiliated exchange to two votes, would provide greater relative voting power for the three exchange groups that currently have the highest trading volumes—the CBOE, Nasdaq, and NYSE exchange groups would each get two votes. The Commission believes that a 15% threshold for a second vote on the operating committee would thus provide an exchange group or unaffiliated exchange with extra voting power in recognition of its responsibility as an SRO for the operations of a trading platform that generates a greater share of equity market data. Under this approach, FINRA would not be eligible for a second vote on the operating committee, because, despite facilitating a significant proportion of trade reporting, it does not produce quotations or operate a market center.^[145]

The Commission further believes that an exchange group or an unaffiliated exchange should be granted a second vote only if it has maintained consolidated equity market share of at least 15% for at least four of the six calendar months preceding a vote of the operating committee. While exchange group market share has remained relatively steady over the past several years,^[146] competition for order flow among the exchanges and the registration of new national securities exchanges that trade equities may lead to more significant changes in market share. The Commission believes that using a look-back period of at least four of the six calendar months preceding a vote of the operating committee for determining whether an exchange group or an unaffiliated exchange has met the threshold for a second vote would allow the voting structure of the New Consolidated Data Plan to adapt over time to changing trading volume among exchanges while avoiding frequent changes in vote allocations as a result of short-term changes in activity.^[147]

As noted above, Nasdaq has argued that an approach that limits exchange groups to only one vote would be inconsistent with the Commission's prior action to prevent exchange operating companies from offering “`cross-SRO' products that bundle products from multiple exchanges.” ^[148] The Commission believes, however, that a meaningful distinction exists between, on one hand, examining whether an exchange's proposed rule change unfairly discriminates between market participants and, on the other hand, regulating the actions of multiple SROs in collectively operating critical market systems.^[149] Under Section 6 of the Act,^[150] the Commission oversees individual exchanges, not exchange groups, regarding, among other things, their obligations to not engage in disparate treatment of their members. In contrast, Section 11A and Rule 608 address the joint responsibilities of multiple SROs to the national market system as a whole, including operating a central utility for market data that has a broader class of stakeholders. Moreover, as discussed above, the Commission believes that, given the current structure of the market for NMS securities, allocating votes on the operating committees for critical market systems simply on an exchange-by-exchange basis—and thereby permitting exchanges under common ownership to collectively vote the interests of their corporate parent and to therefore command a majority of votes on the operating committees—does not facilitate representation of the interests of all stakeholders and no longer supports the integrity and affordability of SIP data.^[151]

Finally, to ensure that only those SROs that are contributing to the generation or collection of the core data disseminated by the New Consolidated Data Plan have a vote on New Consolidated Data Plan decisions, the Commission believes that the New Consolidated Data Plan should provide that if an exchange ceases operation as an equity trading venue, or has yet to commence operation as an equity trading venue, that exchange should not have a vote on Plan matters.^[152]

2. Non-SRO Participation

In 2005, when the Commission adopted Regulation NMS,^[153] it amended the Equity Data Plans to establish non-voting advisory committees to give interested parties an opportunity to express their views on Equity Data Plan business before any decision by the operating committees.^[154] Those advisory committees are made up of at least one representative from each of the following categories: (1) A broker-dealer with a substantial retail investor customer base, (2) a broker-dealer with a substantial institutional investor customer base, (3) an ATS, (4) a data vendor, and (5) an investor. As the Commission explained, the creation of the advisory committees was “a useful first step toward improving the responsiveness of Plan participants and the efficiency of Plan operations.” And the Commission said that it would “continue to monitor and evaluate Plan developments to determine whether any further action is warranted.” ^[155] After monitoring the activities of the Equity Data Plans over many years, the Commission believes that non-SROs are important stakeholders in the operation of the Equity Data Plans. The Commission now believes that the governance structure of the New Consolidated Data Plan should provide for non-SROs to participate as full members of the operating committee, rather than in an advisory capacity.

Under the current governance structure of the Equity Data Plans, the SROs retain substantial influence over the advisory committees. Members of the advisory committees are selected by the majority vote of the SROs,^[156] and each SRO has the right to select an additional member of the advisory committee.^[157] Members of the Equity Data Plans' advisory committees are currently permitted to attend Plan meetings, receive certain information distributed to the operating committee relating to Plan matters, and submit their views prior to Plan decisions.^[158] Members of the Equity Data Plan advisory committees, however, may not vote on Equity Data Plan matters; can be excluded from substantive discussions, including, for example, discussions about potential amendments to the Equity Data Plans ( e.g., discussions in “executive sessions”); and can be denied access to critical information, such as cost and detailed revenue information.^[159] Thus, under the Equity Data Plans' current governance structure, the operating committees, which make decisions regarding Equity Data Plans' actions, such as expenditures for technology upgrades and programming updates (including those to address latency issues), changes to fees, and amendments, are controlled exclusively by SRO representatives, and no other market constituency has voting rights.

Although advisory committee representatives currently have no voting power in the Equity Data Plans and have limited access to non-public information on Equity Data Plan matters,^[160] they have substantial interests at stake in the Equity Data Plans' decision-making process. Market participants who use SIP data—including investors, broker-dealers, data vendors, and others—are required to pay the fees charged by the Equity Data Plans. Retail investors that access core data through their broker-dealers can also be affected by data fees in that the fees charged to their broker-dealers can impact investors' ready access through their broker-dealers to full NBBO market information.^[161] The Commission has previously stated that investors must have core data to participate in the U.S. equity markets.^[162] And many market participants, including all broker-dealers, must have access to SIP data to meet their regulatory obligations.^[163]

Roundtable panelists also stated that there are substantial burdens associated with the Equity Data Plans' audits of their firms' subscriber data usage and fee payment.^[164] A retail broker-dealer, ( printed page 2178) for example, has stated that compliance with the requirement to differentiate between the professional and non-professional status of their customers can be costly for a retail broker in terms of both time and manpower needed to complete the audit, and that these burdens are a factor favoring broker-dealer use of the exchanges' proprietary TOB products.^[165] Exchanges have also acknowledged the administrative burden associated with determining the professional and non-professional status of broker-dealers' customers.^[166]

During the Roundtable, many panelists expressed support for expanding the role of advisory committees in the governance of Equity Data Plans and for providing the advisory committees with the right to a formal vote on the operating committees.^[167] One panelist stated that current members of the advisory committees could initially serve as the pool of candidates from which to draw non-SRO representatives with voting power and that once the non-SRO representatives are appropriately constituted, they may be able to select among themselves their successors.^[168] Exchange panelists were not unified in their views during the Roundtable, however. One exchange panelist expressed support for full voting representation by brokers, traders, and investors on the operating committees of the Equity Data Plans.^[169] Several exchange panelists suggested a willingness to add an additional non-SRO vote, but only after consideration of the obligations attached to the voting right.^[170] Another exchange, NYSE, argued in its comment letter that, before providing advisory committee members with a vote, the Commission would need to take into consideration their conflicts of interest and to place obligations on the advisory committee members similar to those placed on the exchanges.^[171]

Many Roundtable commenters expressed support for permitting the Equity Data Plans' advisory committee members to have votes.^[172] In particular, one commenter suggested that the governance structure should call for a board and operating committees with equal non-SRO voting membership, including user, vendor, and public investor participation.^[173] One commenter asserted that giving voting representation on the operating committee to broker-dealers and asset managers would mitigate potential conflicts of interest.^[174] One commenter supported equal voting power between the SROs and industry representatives on the Equity Data Plans and replacing those representatives every two to four years.^[175] Another commenter stated that meaningful governance of the Equity Data Plans cannot be accomplished unless user and vendor representatives have a voice in their operations.^[176]

In one of its comment letters on the Roundtable, Nasdaq recommended expanding the authority and responsibilities of the advisory committees, particularly on fees and policy-related matters, and supported providing the general investing public a voice on the advisory committees.^[177] Nasdaq further stated that increased authority for the advisory committees should be coupled with “a fair and transparent mechanism” to address conflicts of interest among advisory committee members.^[178] In addition, ( printed page 2179) Nasdaq has expressed support for establishing a partnership between the exchanges and industry participants for Equity Data Plans' governance, specifically suggesting that industry participants have two votes on the plans' operating committees, to be split among the six members of the Equity Data Plans' advisory committee members.^[179] Nasdaq further supported requiring non-SRO voting members to “adhere to existing conflicts of interest and confidentiality policies, such as those that require exchanges and their affiliates to recuse themselves when they might receive a unique benefit not shared with other exchanges.” ^[180]

The Commission also received petitions for rulemaking that requested that the Commission improve the Equity Data Plans' governance by including voting representation from investment advisers and broker-dealers,^[181] and that the Commission conduct a review of the equity market data fee structure ^[182] and study the governance of the U.S. equity market data regulatory framework with respect to proprietary market data and the consolidated data processor model.^[183] The EMSAC also recommended that the advisory committee have the right to a formal vote to express its views before consideration of any matter on which the operating committee votes.^[184]

NYSE and Nasdaq, however, expressed concern with enhancing advisory committee involvement in Equity Data Plan governance.^[185] NYSE argued in its comment letter that the current non-voting advisory committee structure is “working as intended” and that Section 11A of the Act and Rule 608 of Regulation NMS enable only SROs to become official voting members or participants of the Equity Data Plans, consistent with the SROs' regulatory obligations.^[186] In particular, NYSE stated that, “[i]f the advisors of the NMS Plans were allowed effectively to interfere with the actions of the operating committees of the Plans, the advisors might be able to block or slow down changes the SROs felt were necessary to discharge their statutory obligations.” ^[187] Nasdaq similarly asserted that non-SROs have a “strong voice in the operation of NMS Plans through the significant participation of advisory committees” and expressed concern that enhanced industry participation in the Equity Data Plans could frustrate the regulatory obligations that attach to the SROs as Participants.^[188] Nasdaq also stated that expanding the role of advisory committees to include voting rights “would need to be accomplished through an amendment to Rule 608 of Regulation NMS and to the NMS plans to ensure proper and consistent application.” ^[189]

Since the Commission took the step of establishing non-voting advisory committees in Regulation NMS, the equity markets have seen a number of important changes, which as discussed above include the demutualization of exchanges—and the resulting divergence of the interests of the exchanges and their members—and the conflicts of interests that have emerged as exchanges have developed a variety of proprietary data products and marketed them to the subscribers of core data disseminated by the SIPs. Moreover, while non-SROs bear significant burdens from subscriber audits, those market participants have no role in selecting or overseeing the plan administrator that is responsible for the audit process. Thus, in light of the critical importance of disseminating SIP data to a broad range of market participants, the important role that the Equity Data Plans play in the national market system, and the financial ^[190] and operational burdens ^[191] that the Equity Data Plans' decisions frequently place on non-SRO market participants—as well as the comments the Commission has received supporting voting rights for non-SROs on the Equity Data Plans' operating committees.^[192] The Commission believes that, to help ensure that the New Consolidated Data Plan addresses the needs of all market participants, broader participation in the governance of the New Consolidated Data Plan would be beneficial.^[193] Consequently, the Commission believes that the New Consolidated Data Plan should include provisions that permit non-SRO representatives reflecting a diverse range of affected market participants to participate as voting members of the New Consolidated Data Plan operating committee.^[194]

Broader participation in the governance of the New Consolidated Data Plan should be beneficial in providing more meaningful inclusion of key stakeholders' views in New Consolidated Data Plan decision making, and the Commission believes that the New Consolidated Data Plan should provide for separate voting member representatives of an institutional investor ( e.g., an asset management firm), a broker-dealer with a predominantly retail investor customer base, a broker-dealer with a predominantly institutional investor customer base, a securities market data vendor, an issuer of NMS stock, and a retail investor. The representatives on the New Consolidated Data Plan would, therefore, closely mirror the categories of representatives on the advisory committees of the Equity Data Plans. However, because the Commission believes that ATSs and institutional broker-dealers serve similar roles in the markets, as they both operate as over- ( printed page 2180) the-counter trading venues, the Commission believes that the New Consolidated Data Plan operating committee should not include a designated ATS representative.^[195] To further ensure that non-SRO members reflect a diversity of perspectives, the Commission believes that the New Consolidated Data Plan should not permit a person affiliated with an SRO or a broker-dealer to serve as the representative of an “issuer,” a “retail investor,” or a “market data vendor.”

The Commission also believes that the extent of the SROs' current involvement in the Equity Data Plans' advisory committees—from selection of the members to selection of their own representatives on the advisory committees—limits the ability of the advisory committee members to be fully independent and to provide alternative views to be heard by the Equity Data Plans and the Commission, as contemplated when the advisory committees were created.^[196] Therefore, the Commission believes that the SROs should not be permitted to select the non-SRO members of the New Consolidated Data Plan operating committee. The Commission believes that the operating committee should provide for a process to publicly solicit, and make available for public comment, nominations for non-SRO members.

Further, the Commission believes that the initial non-SRO operating committee members should be selected by the current members of the Equity Data Plans' advisory committees, excluding advisory committee members who were selected by a Participant to be its representative, and subsequent non-SRO members should be selected solely by the then-serving non-SRO members of the New Consolidated Data Plan operating committee.^[197] Additionally, the Commission believes that, to enhance the ability of non-SRO members to obtain sufficient experience with the operation of the New Consolidated Data Plan, and to make informed contributions as members of the operating committee, the New Consolidated Data Plan should provide that non-SRO members serve for a term of two years, which is the current term of advisory committee members of the Equity Data Plans.^[198] The Commission further believes that to ensure that a diversity of viewpoints are reflected among the non-SRO members of the operating committee, the New Consolidated Data Plan should provide for reasonable term limits for non-SRO members.^[199]

The Commission further believes that the current membership of the Equity Data Plans' advisory committees, excluding exchange representatives, should, to the extent possible, be maintained through the transition to the New Consolidated Data Plan to facilitate continuity. The Commission believes that the current advisory committee members' experience with, and expertise in, the operation of the Equity Data Plans will be valuable in selecting the initial non-SRO operating members (as discussed in more detail below) and will thus support the stable transition of operations from the Equity Data Plans to the New Consolidated Data Plan. Therefore, until the initial non-SRO members have been selected, the Commission believes that the Participants should renew the expiring terms of all members of the Equity Data Plans' advisory committees (other than those selected to represent a Participant) who remain willing to serve in that role.

As noted above, certain exchanges have expressed concerns regarding extending voting rights on the Equity Data Plans to non-SROs.^[200] The Commission recognizes that the SROs have special legal obligations and responsibilities under the Act, including with regard to operating the Equity Data Plans.^[201] However, neither the Act nor the applicable rules thereunder, including Rule 608 of Regulation NMS, prohibit non-SROs from participating in the governance of any NMS plan or from having voting rights in the administration of NMS plans. Therefore, the Commission believes that it is not necessary to amend Rule 608 of Regulation NMS in order for the New Consolidated Data Plan to include voting rights for non-SROs. The Commission believes that providing non-SROs with voting rights in the New Consolidated Data Plan should help to further ensure that SIP data is available for the benefit of the public interest, by incorporating input from a range of stakeholders, consistent with the findings and goals of Section 11A of the Act.^[202] Moreover, the Commission believes that votes can be provided to non-SROs in a manner that results in the SROs retaining the voting power necessary to act jointly on behalf of the plan pursuant to the requirements of Section 11A of the Act ^[203] and Rule 608 of Regulation NMS.^[204]

Specifically, the Commission believes that the New Consolidated Data Plan should provide the SROs in aggregate with two-thirds of the voting power on the operating committee—and non-SRO members of the operating committee in aggregate with one-third of the voting power—with proportionate fractional votes allocated to non-SRO members of the operating committee as necessary to preserve this ratio. To ensure that the SROs retain primary control of the New Consolidated Data Plan, the Commission believes that this ratio should be maintained at all times, including when a member of the operating committee is not present or unable to vote for any reason. In addition, the relative value of non-SRO votes should be adjusted as necessary to account for new exchange registrations and consolidations to continually ensure that the ratio between aggregate SRO voting power and aggregate non-SRO voting power remains the same.

Thus, under the provisions that the Commission believes should be part of the New Consolidated Data Plan regarding the allocation of votes among the SROs and non-SROs, as applied to the current number and ownership structure of the SROs, there would be nine aggregate SRO votes ^[205] (two-thirds) and four and one-half aggregate non-SRO votes (one-third) on the New Consolidated Data Plan operating committee. Because there would be six non-SRO operating committee members eligible to vote in the New Consolidated Data Plan, but only four and one-half non-SRO votes in the aggregate, each ( printed page 2181) non-SRO member's vote would be worth three-quarters of one vote (4.5 ÷ 6 = 3/4 ).

Further, the Commission believes that action by the operating committee of the New Consolidated Data Plan should require an “augmented majority vote,” meaning a two-thirds majority of all votes on the operating committee, provided that this vote also includes a majority of the SRO votes, which will ensure that the SROs have sufficient voting power to act jointly on behalf of the plan pursuant to the requirements of Section 11A of the Act ^[206] and Rule 608 of Regulation NMS.^[207] For example, under the current number and ownership structure of the SROs, there would be nine SRO votes and four and one-half non-SROs votes. For an “augmented majority vote,” nine votes of the operating committee would be required for a two-thirds majority, and five SRO votes would be required for an SRO majority vote. Five SRO votes would be necessary to obtain a majority of SRO votes as well as a two-thirds majority vote of the operating committee. There would not be a situation in which a two-thirds majority would not also include a majority of the SRO votes. However, the number of the SROs may not remain static. If in the future another SRO joined the New Consolidated Data Plan, there would then be ten SRO votes, and the non-SRO operating committee members would then have five votes. Under those circumstances, a two-thirds majority could be obtained without a majority of the SRO votes—in other words, if five SROs and five non-SROs vote in favor of a motion, and five SROs vote against the motion, two-thirds of the operating committee voted in favor, but a majority of SROs did not. Therefore, this would not constitute an augmented majority vote and the motion would fail.

Finally, the Commission believes that the New Consolidated Data Plan should include provisions to address circumstances in which a member is unable to attend an operating committee meeting or to cast a vote.

3. Voting Requirements for Changes to the New Consolidated Data Plan

Under the current governance model, certain actions by the Equity Data Plans' operating committees require the unanimous vote of all Participants.^[208] While the majority of actions under the Equity Data Plans require only a majority vote, unanimity is required, for example, to propose amendments to the provisions of the Plans,^[209] to amend contracts between the Equity Data Plans' processor and vendors,^[210] and to terminate a Plan processor.^[211] The EMSAC, however, recommended that unanimity not be required for NMS plan votes, stating that limiting the use of unanimity requirements would “prevent undue friction or delay in Plan voting matters.” ^[212]

The Commission believes that, because unanimous voting provides each exchange, despite the conflicts of interest it may face, with an effective veto over certain significant Equity Data Plans' matters, the requirement for unanimous voting can enable a single exchange to obstruct improvements to the collection ( e.g., connectivity), processing ( e.g., aggregation or consolidation), and distribution ( e.g., transmission) of SIP data that the other SROs support. To address the concerns that arise from the Equity Data Plans' requirement for unanimous voting, the Commission believes that the submission of amendments to the New Consolidated Data Plan to the Commission, like other actions by the operating committee as described above,^[213] should be approved by an augmented majority vote, defined above, rather than a unanimous vote. As noted above, the Commission believes that requiring an augmented majority vote for changes to the New Consolidated Data Plan would provide non-SRO members with a voice in New Consolidated Data Plan governance, while also ensuring that the SROs have sufficient voting power to act jointly on behalf of the New Consolidated Data Plan.

One Roundtable panelist and one commenter raised the concern that eliminating the current Equity Data Plans' requirements regarding unanimous voting would reduce the influence of FINRA and the unaffiliated exchanges.^[214] The Commission, however, believes that the voting allocation described above for the New Consolidated Data Plan—coupled with the existing requirement that NMS plan amendments (except those put into effect upon filing) ^[215] must be published for comment and subject to approval by the Commission to become effective—should help to address this concern.^[216] Actions by the Equity Data Plans would no longer be subject to veto by a single SRO or exchange group, and substantive New Consolidated Data Plan amendments would continue to be subject to review by the Commission and public notice and comment, and would not become effective unless the Commission finds them to be consistent with the Act.

In addition, unanimous voting is not a requirement for NMS plans. In fact, the most-recently approved NMS plan, which governs the facility for a consolidated audit trail (“CAT”), requires the affirmative vote of a two-thirds supermajority of all members of the operating committee for plan amendments.^[217] In the adopting release for Rule 613 under the Act,^[218] which required the creation of the CAT Plan, the Commission stated that “an alternate approach” to voting involving “the possibility of a governance requirement other than unanimity, or even super-majority approval, for all but the most important decisions” should be considered, as it “may be appropriate to avoid a situation where a significant majority of plan sponsors—or even all but one plan sponsor—supports an initiative but, due to a unanimous voting requirement, action cannot be undertaken.” ^[219]

The Commission believes that the proposed reallocation of voting rights among the SROs—combined with the provision of formal voting power to non-SROs, the provision of a two-thirds majority of votes allocated to the SROs, and the provision of an augmented majority vote rather than unanimous vote for amendments to the New Consolidated Data Plan—would further the objectives of Section 11A of the ( printed page 2182) Act.^[220] Together, these provisions would promote the prompt, accurate, reliable, and fair dissemination of core data ^[221] by providing for meaningful input from a broad range of stakeholders while also ensuring that the SROs retain sufficient voting power to act jointly on behalf of the plan pursuant to the requirements of Section 11A of the Act and Rule 608 of Regulation NMS.^[222] The Commission also believes that broader representation on the New Consolidated Data Plan operating committee would help to ensure that decisions relating to New Consolidated Data Plan operations support the prompt, accurate, reliable, and fair dissemination of core data.^[223]

4. Consolidating the Three Equity Data Plans Into a Single New Consolidated Data Plan

Although the Equity Data Plans are structured as three separate NMS plans—which reflects the less integrated equity markets at the time the Equity Data Plans were organized and approved—the three Equity Data Plans now have identical operating committees that hold joint meetings to oversee the collection, processing, and distribution of SIP data in today's tightly integrated equity markets. Additionally, the three Equity Data Plans have the same advisory committee members, who function as one advisory committee for all three Equity Data Plans. The three Equity Data Plans also have overlapping administrative and regulatory functions and share the same revenue distribution formula, legal representation, and other professional services. The Commission believes that maintaining three separate Equity Data Plans is inefficient and creates redundant efforts on the part of the operating and advisory committee members that unnecessarily burden ongoing improvements to the SIPs and that contribute to certain duplicative costs. These redundant efforts include, among other things, maintaining accounting for three sets of legal and auditor fees, maintaining books and records for the Equity Data Plans' businesses, filing separate amendments regarding some aspects of the Equity Data Plans with the Commission, and devoting personnel resources to coordinate and facilitate three separate Equity Data Plans.

The Commission therefore believes that there should be one New Consolidated Data Plan to promote the application of consistent policies, procedures, terms, fees, and conditions that would be more transparent and easily understood across all data products offered and that reflect the provisions that are the subject of this Order. The Commission also believes that replacing the three existing Equity Data Plans with a single New Consolidated Data Plan with the governance structure discussed above would simplify the process of making future enhancements to the Equity Data Plans' operations so that core data meets on a continuing basis the needs of market participants and furthers the objectives of Section 11A of the Act.^[224]

Finally, the Commission believes that the terms of the New Consolidated Data Plan should provide for the orderly transition of functions and responsibilities from the three Equity Data Plans to the New Consolidated Data Plan. The Commission believes that the Participants, because of their significant experience in the operations of NMS plans, are well positioned to propose an efficient and orderly transition as part of the New Consolidated Data Plan they file with the Commission.

D. The Operation of the New Consolidated Data Plan

Given the importance of core data to the national market system, as recognized by both Congress and the Commission, and consistent with Rule 608 of Regulation NMS,^[225] the Commission believes that the terms, policies, and procedures of the New Consolidated Data Plan should promote the joint work of the SRO members ( i.e., members that represent an exchange group or an unaffiliated SRO) and non-SRO members of the operating committee to ensure the prompt, accurate, reliable, and fair dissemination of core data.^[226] The Commission has set forth below certain governance provisions that the Commission believes would enable the New Consolidated Data Plan to address these issues.

1. The Role and Responsibilities of the Operating Committee

The Commission believes that the New Consolidated Data Plan should set forth the role and responsibilities of the operating committee. The Commission believes that the duties of the operating committee should include, at a minimum, the provisions described below.

The New Consolidated Data Plan should state that the operating committee should be responsible for proposing amendments to the New Consolidated Data Plan or implementing other policies and procedures, as necessary, to ensure the prompt, accurate, reliable, and fair collection, processing, distribution, and publication of information with respect to quotations for and transactions in NMS stocks and the fairness and usefulness of the form and content of that information, consistent with the goals of Section 11A of the Act.^[227] While each of the Equity Data Plans includes a general provision stating that the operating committees will propose changes to the Equity Data Plans through amendments, the Commission believes that the New Consolidated Data Plan should specifically provide that the responsibilities of the operating committee include proposing amendments to ensure that SIP data is distributed consistent with these statutory goals. The Commission believes that such a provision would encourage the operating committee to actively examine New Consolidated Data Plan operations and propose to change provisions of the New Consolidated Data Plan (or policies and procedures thereunder) that are no longer effective in carrying out the objectives of the Act.

The Commission believes that the New Consolidated Data Plan operating committee's role should also include selecting, overseeing, specifying the role and responsibilities of, and evaluating the performance of, an independent plan administrator,^[228] plan processors, a firm to examine and assess data usage reports and fee payments by subscribers (“auditor”),^[229] and other professional service providers. While the Equity Data Plans provide that the performance of the processor must be reviewed,^[230] the Commission believes that this obligation should be expanded to cover other professional service providers that have a significant role in the operations of the New Consolidated Data Plan to ensure that the non-SRO members of the New Consolidated Data Plan operating committee have a voice in these matters.

With respect to reviewing the performance of the New Consolidated ( printed page 2183) Data Plan's processor(s), the Commission believes that the operating committee's role should include ensuring the public reporting of the performance of the processor(s) and other metrics and information about the processor(s). The CTA Plan requires the operating committee to periodically review whether “the Processor has failed to perform its functions in a reasonably acceptable manner in accordance with the provisions of [the] CQ Plan,” whether “its reimbursable expenses have become excessive and are not justified on a cost basis,” and whether “the Processor should continue in such capacity or should be replaced.” ^[231] The CTA Plan also states that, in reviewing the performance of the processor, the operating committee shall consider factors such as “experience, technological capability, quality and reliability of service, relative costs, back-up facilities, and regulatory considerations.” ^[232]

The Commission believes that the provisions in the New Consolidated Data Plan regarding the review of the processor(s) should also include a requirement that the results of the performance evaluation be made public, along with the metrics used to evaluate the processor(s) and other pertinent information about the processor(s). The Commission believes that making this information public would provide all market participants with a view of how well or poorly a processor is performing across various metrics, which would allow market participants to provide meaningful input to the operating committee and to the Commission. Further, the Commission believes that, if performance metrics are made public, the operating committee of the New Consolidated Data Plan would have enhanced incentives to ensure that the processor is functioning well and that the New Consolidated Data Plan is providing prompt, accurate, and reliable publication of information with respect to quotations for and transactions in NMS stocks.^[233]

The Commission further believes that the administrator of the New Consolidated Data Plan should be independent, meaning that the administrator should not be owned or controlled by a corporate entity that separately offers for sale a market data product, either directly or via another subsidiary. As discussed above, the Commission believes that an entity that acts as the administrator while also offering its own proprietary data products faces a substantial, inherent conflict of interest, because it would have access to sensitive customer information.^[234] While conflict-of-interest and confidentiality provisions of the New Consolidated Data Plan, or of the administrator, may serve to mitigate conflicts to some extent, the Commission believes the conflicts of interest faced by a non-independent administrator are so great that these conflicts cannot be sufficiently alleviated through policies and procedures.

The Commission also believes that a requirement that the New Consolidated Data Plan administrator be independent would address concerns that have been raised about the burdens imposed by the current audit process for the Equity Data Plans.^[235] Specifically, the Commission believes that the oversight of an independent plan administrator would help to ensure that the burdens imposed by the audit process are fair, that they are reasonably related to ensuring that data subscribers pay the amounts properly due for their data usage, and that they are not designed in a manner that affects the decision making of subscribers when determining whether to purchase proprietary TOB data feeds.

Additionally, the Commission believes that the New Consolidated Data Plan should provide that any expenditures for professional services—including for example, legal counsel, public relations, and accounting services—that are paid for using New Consolidated Data Plan revenues must be for activities consistent with the terms of the New Consolidated Data Plan and must be authorized by an augmented majority of the operating committee. Because the New Consolidated Data Plan's governance structure would be designed to represent the interests of a broad range of market participants—who may at times hold diverging views about how the New Consolidated Data Plan should operate—the Commission believes that requiring that professional services engaged by the New Consolidated Data Plan be consistent with the terms of the New Consolidated Data Plan and be authorized by an augmented majority vote would help ensure that New Consolidated Data Plan resources are expended in furtherance of the purposes of the New Consolidated Data Plan and that both SRO and non-SRO members of the operating committee have input into this important aspect of New Consolidated Data Plan operations.

Further, the Commission believes that the New Consolidated Data Plan should include provisions to ensure that the operating committee is responsible for assessing the marketplace for equity market data products and ensuring that SIP data offerings are priced in a manner that is fair and reasonable and are designed to ensure the widespread availability of SIP data ^[236] that is useful to a broad range of investors and other market participants.^[237] Imposing a direct responsibility on the operating committee of the New Consolidated Data Plan to keep abreast of changes in the marketplace regarding demands for and pricing of equity market data, and to ensure that SIP data meets those demands and are widely distributed at fair and reasonable prices, should help ensure that the SIPs' data feeds support the findings and goals of Section 11A of the Act.^[238]

Finally, the Commission believes that the New Consolidated Data Plan operating committee's role should include designing and maintaining a fair and reasonable revenue allocation formula for distributing plan revenues to be applied by the independent plan administrator, and overseeing, reviewing and revising that formula as needed. Over the past several years, market participants have suggested updating the market data revenue allocation.^[239] For example, during the ( printed page 2184) Roundtable, one panelist recommended that the Commission undertake rulemaking to simplify the revenue allocation formula.^[240] Another panelist highlighted work done to increase transparency on the revenue allocation formula, including publishing a “plain-language version of the revenue allocation formula” on the Equity Data Plans' websites.^[241] In addition, Nasdaq has stated that the revenue allocation formula needs improvement as certain exchanges have “skewed the expected allocation of revenue by attracting displayed quotations without executing a commensurate number of trades.” ^[242] Nasdaq has expressed support for modifying the revenue allocation formula to reward displayed quotes where investors receive an execution.^[243] The Commission believes that the operating committee of the New Consolidated Data Plan, with the broader representation of market participants contemplated by this Order, would be well situated to address issues such as these regarding Equity Data Plans' revenue allocation.

2. Executive Session Policy

In response to requests for improving the transparency of the use of executive session ( i.e., meetings from which members of the advisory committee are excluded),^[244] the Equity Data Plans have implemented an executive session policy under which the following topics are appropriate for consideration or action in executive session: Fees that require discussion of non-public financial information; subscriber audit findings; discussions requiring the disclosure of material non-public information; financial reports containing non-public financial information; the portion of a discussion or evaluation of administrator and processor performance that includes confidential information; contract negotiations, awards, and revocations that contain confidential information; advisory committee member selection; litigation matters; and confidential, non-public discussions with the Commission and its staff.^[245] While the Commission believes that the New Consolidated Data Plan would have no need to provide for an advisory committee,^[246] the Commission expects that the SROs will continue to hold executive sessions that will exclude non-SRO members of the operating committee. Thus, the Commission believes the New Consolidated Data Plan should include an executive session policy.

During the Roundtable, exchanges pointed to progress on limiting the use of executive sessions by the SROs.^[247] One exchange commenter highlighted recent improvements in transparency that have resulted from shifting more discussions about SIP operations from executive sessions to the general sessions.^[248] Another exchange commenter expressed a willingness to increase public transparency of SIP operations and limit time spent in executive sessions.^[249] Other panelists, however, raised continuing concerns.^[250] For example, one industry panelist stated there should be a “litmus test” for determining if a matter deserved executive session consideration.^[251]

The Commission believes that, by permitting the SROs to hold discussions and make decisions in executive session without the advisory committee members present, the Equity Data Plans have limited the ability of advisory committee members to influence the operation of the Equity Data Plans.^[252] While the Commission recognizes there may be circumstances in which deliberation by the SROs alone may be appropriate, any overuse of executive session limits transparency on Equity Data Plans' governance and has the potential to impede the advisory committee's ability to exercise its voice in key decisions.

The Commission acknowledges that the current Equity Data Plans' executive session policies provide some specificity regarding the subject matters eligible for executive session. The Commission believes, however, that the list of eligible items for executive session under the New Consolidated Data Plan should be more limited, particularly given that, as contemplated by this Order, the membership of the New Consolidated Data Plan operating committee would include non-SRO members.^[253] Therefore, the Commission believes that the New Consolidated Data Plan should include an executive session policy that permits the SROs to hold executive sessions only in circumstances when it is appropriate to ( printed page 2185) exclude non-SRO members of the operating committee, such as, for example, discussions regarding matters that exclusively affect the SROs with respect to the Commission's oversight of the New Consolidated Data Plan (including attorney-client communications relating to such matters). The Commission also believes that, in furtherance of greater transparency, the New Consolidated Data Plan should require that a request to enter into an executive session be included on the written agenda along with a clearly stated rationale for each matter to be discussed and be approved by a majority vote of the SRO members of the operating committee.

3. Conflicts of Interest Policy

Several Roundtable panelists discussed imposing a disclosure-based policy to address conflicts of interest concerns,^[254] including one exchange that supported greater disclosure—for both the SROs and advisory committee members.^[255] Another exchange stated that the operating committees of the Equity Data Plans should not have exchange representatives who have a “direct-line responsibility for proprietary data.” ^[256] Other commenters and one panelist observed that the advisory committee members are not immune to conflicts of interest ^[257] and recommended that the Equity Data Plans establish a conflict-of-interest identification and management provision, as well as enforcement mechanisms, for both the SROs and advisory committee members.^[258]

The Commission believes that the New Consolidated Data Plan should include a comprehensive conflicts of interest policy. As discussed above, in the Commission's view, conflicts of interest are inherent to the Equity Data Plans' current governance structure because some exchange Participants have a dual role as both an SRO jointly responsible for the operation of the Equity Data Plans and part of a publicly held company that offers proprietary data products.^[259] Moreover, an SRO representative on the operating committee may have direct responsibility for some or all of an exchange's proprietary data business. Recognizing that non-SRO representatives in the New Consolidated Data Plan may also have dual roles as voting members of the operating committee and employees of businesses that utilize core data or proprietary data feeds, the Commission believes that the New Consolidated Data Plan should include comprehensive conflict-of-interest provisions for both SRO and non-SRO representatives of the operating committee.^[260]

4. Confidentiality Policy

In the operation of the Equity Data Plans, Participants and Participant representatives have been privy to confidential and proprietary information of substantial commercial or competitive value, including, among other things, information about core data usage, the SIPs' customer lists, financial information, and subscriber audit results.^[261] However, the terms of the Equity Data Plans do not address commercial use of confidential or proprietary information by the Participants. The Commission therefore believes that the New Consolidated Data Plan should include provisions regarding the treatment of confidential information.

5. Other Provisions of the New Consolidated Data Plan

Because SIP data plays a critical role in the operation of the national market system, the Commission believes that the prompt, accurate, reliable, and fair collection, processing, distribution, and publication of SIP data must be maintained through the transition from the existing Equity Data Plans to the New Consolidated Data Plan. Therefore, the Commission believes that the New Consolidated Data Plan's terms should provide for the orderly and predictable transition of functions and responsibilities from the three existing Equity Data Plans to the New Consolidated Data Plan. The Commission believes that this transition should contemplate a period of time during which the Equity Data Plans continue to have responsibility for the collection, processing, and dissemination of SIP data, and for determining, collecting, and allocating data fees, while the New Consolidated Data Plan commences operations and prepares to assume responsibility for SIP data.

The Commission believes that this transition period should provide that, before the New Consolidated Data Plan assumes responsibility for the dissemination of SIP data, the members of the New Consolidated Data Plan operating committee will be selected and the New Consolidated Data Plan operating committee will have a reasonable period of time to launch its formal operations. For example, before commencing operations, the operating committee of the New Consolidated Data Plan would need to, among other things, select plan processors ^[262] and an independent plan administrator, and adopt a fee schedule. In particular, as part of this transition, the Commission believes that until the New Consolidated Data Plan has become operational, fees for data products disseminated by the SIPs should continue to be governed by the provisions of the existing Equity Data Plans. As discussed above,^[263] the Commission believes that the SROs face inherent conflicts of interest with respect to the operation of the Equity Data Plans, and the Commission therefore believes that a schedule of fees for data products offered by the New Consolidated Data Plan should be filed by the New Consolidated Data Plan operating committee, which would reflect broader representation of market ( printed page 2186) participants. The Commission believes that this should help to mitigate the conflicts of interest faced by the exchanges and should help to ensure that decisions relating to New Consolidated Data Plan operations support the prompt, accurate, reliable, and fair dissemination of core data.^[264]

Finally, the Commission recognizes that the Equity Data Plans govern the operations of separate and distinct SIPs, each of which contains unique features, and that the Equity Data Plans therefore contain distinct operational and technical provisions relating to these SIPs. In addition, the Equity Data Plans contain a number of provisions relating to other areas, including provisions specifically addressing governance, administrative, financial, and other miscellaneous matters. Under the New Consolidated Data Plan, there would be one NMS plan, along with one independent plan administrator, responsible for the governance and operation of multiple SIPs. The Commission believes, therefore, that the New Consolidated Data Plan submitted by the SROs under this Order should propose to adopt and include all other provisions of the Equity Data Plans necessary for the operation and oversight of the SIPs under the New Consolidated Data Plan, provided that these additional provisions are in furtherance of the purposes of the New Consolidated Data Plan as expressed in this Order and are not inconsistent with any regulatory requirements. Further, the New Consolidated Data Plan should, where possible, attempt to harmonize inconsistencies among, and combine duplicate provisions in, the Equity Data Plans that do not unavoidably arise from the existence of separate and distinct SIPs. Finally, as discussed above, existing fee schedules should continue to remain in effect under the Equity Data Plans until a fee schedule for the New Consolidated Data Plan, authorized by the new operating committee of the New Consolidated Data Plan after it is constituted, becomes effective.

As noted above, Section 11A(a)(2) of the Act ^[265] directs the Commission, having due regard for the public interest, the protection of investors, and the maintenance of fair and orderly markets, to facilitate the establishment of a national market system for securities. Section 11A(a)(3)(B) provides the Commission the authority to require the SROs, by order, “to act jointly . . . in planning, developing, operating, or regulating a national market system (or a subsystem thereof).” ^[266]

For the reasons discussed above, the Commission believes that it is in the public interest to require the Participants in the Equity Data Plans to jointly develop and file with the Commission a New Consolidated Data Plan as an NMS plan pursuant to Rule 608(a) of Regulation NMS.^[267]

III. The New Consolidated Data Plan

The Commission hereby orders the Participants in the Equity Data Plans to jointly develop and file with the Commission, as an NMS plan pursuant to Rule 608(a) of Regulation NMS,^[268] a single New Consolidated Data Plan that consolidates the three current Equity Data Plans and that includes, at a minimum, the following terms and conditions:

• The New Consolidated Data Plan shall provide for the orderly transition of functions and responsibilities from the three existing Equity Data Plans and shall provide that dissemination of, and fees for, SIP data will continue to be governed by the provisions of the Equity Data Plans until the New Consolidated Data Plan is ready to assume responsibility for the dissemination of SIP data and fees of the New Consolidated Data Plan have been approved.
• The New Consolidated Data Plan shall provide that each exchange group and unaffiliated SRO will be entitled to name a member of the operating committee (SRO member), who will be authorized to cast one vote on all operating committee matters pertaining to the operation and administration of the New Consolidated Data Plan, provided that an SRO member representing an exchange group or an unaffiliated SRO whose market center(s) have consolidated equity market share of more than 15% during four of the six calendar months preceding a vote of the operating committee will be authorized to cast two votes, and provided that an SRO member representing an exchange that has ceased operations as an equity trading venue, or has yet to commence operation as an equity trading venue, will not be permitted to cast a vote on New Consolidated Data Plan matters.
• The New Consolidated Data Plan shall provide that the operating committee will include, for a term of two years, and for a maximum term to be set forth in the New Consolidated Data Plan, individuals representing each of the following categories: An institutional investor (e.g., an asset management firm), a broker-dealer with a predominantly retail investor customer base, a broker-dealer with a predominantly institutional investor customer base, a securities market data vendor, an issuer of NMS stock, and a retail investor ( i.e., Non-SRO Members), provided that the representatives of the securities market data vendor, the issuer, and the retail investor, respectively, may not be affiliated with an SRO, a broker-dealer, or an institutional investor.
• The New Consolidated Data Plan shall provide that the initial Non-SRO Members will be selected by a majority vote of those current members of the Equity Data Plans' advisory committees, excluding advisory committee members who were selected by a Participant to be its representative, and, further, that until the initial Non-SRO Members have been selected, the Participants shall renew the expiring terms of all members of the Equity Data Plans' advisory committee (other than those selected to represent a Participant) who remain willing to serve in that role.
• The New Consolidated Data Plan shall provide for a fair and transparent nomination process for Non-SRO Members.
• The New Consolidated Data Plan shall provide that the aggregate number of votes provided to Non-SRO Members will, at all times, be one half of the aggregate number of SRO member votes and the number of Non-SRO Member votes will increase or decrease as necessary to ensure that the ratio between the number of SRO member votes and the number of Non-SRO Member votes is maintained, with Non-SRO Member votes equally allocated, by fractional shares of a vote as necessary, among the Non-SRO Members authorized and eligible to vote.
• The New Consolidated Data Plan shall include provisions to address circumstances in which a member is unable to attend an operating committee meeting or to cast a vote on a matter.
• The New Consolidated Data Plan shall provide that all actions under the terms of the New Consolidated Data Plan, except for the selection of Non-SRO Members and decisions to enter into an SRO-only executive session, will be required to be authorized by an augmented majority vote.
• The New Consolidated Data Plan shall provide that the responsibilities of the operating committee will include: ( printed page 2187)

○ Proposing amendments to the New Consolidated Data Plan or implementing other policies and procedures as necessary to ensure prompt, accurate, reliable, and fair collection, processing, distribution, and publication of information with respect to quotations for and transactions in NMS stocks and the fairness and usefulness of the form and content of that information;

○ selecting, overseeing, specifying the role and responsibilities of, and evaluating the performance of, an independent plan administrator, plan processors, an auditor, and other professional service providers, provided that any expenditures for professional services that are paid for from New Consolidated Data Plan revenues must be for activities consistent with the terms of the New Consolidated Data Plan and must be authorized by an augmented majority of the operating committee;

○ developing and maintaining fair, reasonable, and consistent terms and fees for the distribution, transmission, and aggregation of core data;

○ reviewing the performance of the plan processors; and ensuring the public reporting of plan processors' performance and other metrics and information about the plan processors;

○ assessing the marketplace for equity market data products and ensuring that SIP data offerings are priced in a manner that is fair and reasonable, and designed to ensure the widespread availability of SIP data to investors and market participants; and

○ designing a fair and reasonable revenue allocation formula for allocating plan revenues to be applied by the independent plan administrator, and overseeing, reviewing and revising that formula as needed.

• The New Consolidated Data Plan shall provide that the independent plan administrator will not be owned or controlled by a corporate entity that offers for sale its own proprietary market data product, either directly or via another subsidiary.
• The New Consolidated Data Plan shall include provisions designed to address the conflicts of interest of SRO Members and Non-SRO Members.
• The New Consolidated Data Plan shall include provisions designed to protect confidential and proprietary information from misuse.
• The New Consolidated Data Plan shall provide that the use of executive session of SRO members will be confined to circumstances in which it is appropriate to exclude Non-SRO Members, such as, for example, discussions regarding matters that exclusively affect the SROs with respect to the Commission's oversight of the New Consolidated Data Plan (including attorney-client communications relating to such matters).
• The New Consolidated Data Plan shall provide that requests to enter into an executive session of SRO members will be required to be included on a written agenda, along with a clearly stated rationale for each matter to be discussed and must be approved by a majority vote of the SRO members of the operating committee.
• To the extent that those provisions are in furtherance of the purposes of the New Consolidated Data Plan as expressed in this Order and not inconsistent with any other regulatory requirements, the New Consolidated Data Plan shall adopt and include all other provisions of the Equity Data Plans necessary for the operation and oversight of the SIPs under the New Consolidated Data Plan, and the New Consolidated Data Plan should, to the extent possible, attempt to harmonize and combine existing provisions in the Equity Data Plans that relate to the Equity Data Plans' separate processors.

It is hereby ordered, pursuant to Section 11A(a)(3)(B) of the Act,^[269] that the Participants act jointly in developing and filing with the Commission, as an NMS plan pursuant to Rule 608(a) of Regulation NMS,^[270] a New Consolidated Data Plan, as described above. The Participants are ordered to file the New Consolidated Data Plan with the Commission no later than [90 days after the order is issued].

All submissions should refer to File Number 4-757. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website ( https://www.sec.gov/​rules/​sro.shtml). Copies of the all written statements with respect to the Proposed Order that are filed with the Commission, and all written communications relating to the Proposed Order between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number 4-757 and should be submitted on or before February 28, 2020.

[Date]

By the Commission.

Vanessa Countryman,

Secretary.