Stock Exchanges Win Legal Battle With SEC Over Data Fees
June 05 2020 - 6:20PM
Dow Jones News
By Dave Michaels and Alexander Osipovich
U.S. stock exchanges won a legal battle with their regulator on
Friday when an appeals court ruled some fee increases can't be
challenged by the government after they have taken effect.
The decision by the U.S. Court of Appeals for the District of
Columbia Circuit appears to end a 14-year legal dispute over fees
that exchanges charge for data that show the most complete view of
market activity. Brokers, traders and investors say the information
is essential for pricing orders and responding to market
conditions.
The case revolves around a decision by the Securities and
Exchange Commission to reject price increases by New York Stock
Exchange parent Intercontinental Exchange Inc., or ICE, and Nasdaq
Inc. The two exchange operators sued to vacate the SEC's
action.
The SEC based its action on a section of law that "makes no
mention of fees at all," a three-judge panel of the court wrote.
The ruling is a blow to Washington's efforts to more closely
scrutinize the fees exchanges charge for their market-data
products.
Stock exchanges have become more dependent on the sale of market
data in recent years as competition made it tougher to make money
from trading, a more traditional source of revenue for them.
Companies such as ICE and Nasdaq sell different types of
market-data feeds to Wall Street banks, quantitative hedge funds
and other trading firms, while also licensing indexes to issuers of
exchange-traded funds and offering various products used in
financial analysis. Last year such "information services" captured
$6.8 billion in revenue for the global exchange industry, or 18.8%
of total revenue, up from 12.8% in 2010, according to a report
released this month by Burton-Taylor International Consulting, a TP
ICAP company.
Exchanges have said the SEC's recent focus on market data mostly
benefits Wall Street banks and securities dealers, which buy the
most robust market-data offerings.
The impact of Friday's decision forecloses one avenue that
brokers had to challenge market-data fees. The SEC can still
suspend fee increases if it acts within 60 days after the exchanges
file a notice indicating they will change prices.
The SEC has taken other steps that could put pressure on
exchanges' revenue from market data, including a rule proposal in
February that would force exchanges to expand the information they
provide through public data feeds. If the SEC adopts the rule, the
public data products could become a substitute for the faster,
richer and more expensive "proprietary" feeds that were the subject
of the lawsuit decided on Friday.
The D.C. Circuit didn't pass judgment on whether the fees are
fair, but it said the SEC can't reject them by finding that they
amount to a denial of access to the exchanges' trading services.
That process is meant for reviewing decisions to bar or suspend
individual brokers or traders from an exchange, the judges said,
and doesn't address fees disputes.
The SEC's decision to reject the fees in 2018 carved out new
legal ground, and it marked the first time the regulator had
prohibited fee increases for the exchanges' most lucrative class of
stock-market data feeds. The fees ruled upon Friday were first
challenged by several internet companies in 2006 and were later
challenged by the Securities Industry and Financial Markets
Association, known as Sifma.
An SEC spokeswoman said the decision won't affect the agency's
broader authority to supervise exchanges. "The court narrowly
focused its decision on the question of whether a particular
statutory provision authorized a challenge by a third party to the
exchanges' generally applicable fees," the spokeswoman said.
A trade group representing the ICE, Nasdaq and exchange operator
Cboe Global Markets Inc. said it was pleased with the panel's
decision.
"The D.C. Circuit court has ruled the Securities and Exchange
Commission overreached its powers when it followed a financial
lobby in taking up this case," the Equity Markets Association said.
"This ruling is a victory for the rule of law and free and fair
competition."
Banks and brokers, including those that serve investors such as
mutual funds, have pushed for the SEC's intervention, saying the
exchanges have a monopoly over packaged data that includes trades
and price quotes. Some investors say they can't get the best price
for their trades if they don't use the most up-to-date and
information-rich data feeds.
Sifma, which represents Wall Street banks and brokers, said it
continues to believe the fees don't meet legal standards and
represent a barrier to competition.
Write to Dave Michaels at dave.michaels@wsj.com and Alexander
Osipovich at alexander.osipovich@dowjones.com
(END) Dow Jones Newswires
June 05, 2020 18:05 ET (22:05 GMT)
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