If a recent ruling by the SEC is any indication, the major U.S. stock exchanges might want to prepare for heavier oversight of their businesses.
Last month, the commission denied efforts by the NYSE and Nasdaq to increase fees charged for market data, a first for Wall Street’s federal watchdog. The reason? According to the commission, the exchanges hadn’t justified the need for the hikes to the degree required by the law.
The decision was hailed as a big win for brokerage houses and traders, who have complained about the rising rates being charged for access to market data. The Securities Industry and Financial Markets Association (SIFMA), a trade group that represents broker-dealers, investment banks and asset managers, brought the complaint to the SEC. In the wake of the decision, a SIFMA official encouraged policymakers to further evaluate the landscape for market data.
“This pragmatic ruling by the SEC indicates increasing recognition by policymakers that the fee structure for proprietary market data products is broken,” said Melissa MacGregor, SIFMA managing director and associate general counsel. “Today’s decision should prompt further examination of policy reforms to ensure the efficiency of public market data feeds and fairness of fees.”
Like just about every other industry on the planet, the confluence of big data and new technologies have remade the business of stock trading. The advent of electronic services such as E*TRADE made buying and selling stocks more accessible to all classes of investors. At the same time, whiz kids at professional investment houses were developing increasingly sophisticated strategies like algorithmic trading to take advantage of whatever edges they could find in the market.
Stock exchanges built up a wealth of data on trades and trading behavior as a result. Not surprisingly, they found that they could parlay all of that data into lucrative fees from traders and brokers. As prices went up, end users balked, which ultimately led to last month’s decision.
The SEC’s commissioners have apparently decided to take some measure of control over how those fees are set. At the very least, the SEC appears intent on stepping in to keep costs down for subscribers after a 2017 federal appeals court decision related to options trading effectively told the regulator to get more involved.
Based on their reaction to the SEC’s decision, the people in charge of the NYSE are none too pleased with the commission’s new posture. “This decision represents a troubling shift by the SEC from its core mission of ensuring the long-term health of our financial markets to an agenda of regulatory overreach, prioritizing the interests of powerful Wall Street interests over those of retail investors and listed companies,” the company said in a statement.
Whether the commission will step up its oversight of the exchanges even more remains to be seen. However, they might want to start preparing for closer monitoring anyway.