Brett Redfearn, Director of the SEC’s Division of Buying and selling and Markets, has stated proposed modifications to governance buildings for US consolidated fairness market knowledge would assist to deal with conflicts of curiosity which have contributed to the event of a two-tier market.
“Fundamentally, the idea is to make sure the governance structure reflects the way the world looks today and has a greater diversity of views that eliminates some of the conflicts that have potentially been guiding plans up to the present moment,” he stated on Wednesday, talking the Safety Merchants Affiliation 2020 Market Construction Digital Convention.
Brett Redfearn, SEC
On Tuesday, the SEC launched for public remark a submitting made by exchanges and FINRA on August 11 which proposes a brand new single nationwide market plan governing the general public dissemination of real-time consolidated fairness market knowledge for NMS stocks. The proposal is on the market for 30 days from publication within the Federal Register, after which the SEC will make amendments and difficulty the ultimate plan. The brand new submitting is the most recent iteration of a regulatory reform course of which started in January 2020 when the SEC printed a proposed order to extend transparency and scale back conflicts of curiosity within the governance of consolidated fairness market knowledge.
The proposal widens membership of the SIP working committee past self-regulatory organizations for the primary time, to incorporate representatives from an institutional investor, a broker-dealer with a retail buyer base, a broker-dealer with an institutional buyer base, a market knowledge vendor and an issuer. It would additionally stop exchange operators from gaining elevated voting energy by way of market consolidation.
“The current plan provides voting power solely to the exchanges and FINRA. They are offering competing proprietary data products and one would suggest this potentially introduces certain conflicts. Part of the goal here is, in addition to streamlining, is to help deal with those conflicts,” stated Redfearn, talking in dialog with Doug Clark, Head of Market Construction for the Americas at Credit score Suisse.
The market knowledge reform proposals additionally embody measures that may see a wider vary of content material included in market knowledge feeds supplied by SIPs and the introduction of competitors by the licensing of competing consolidators. Redfearn stated these modifications would degree the enjoying subject and scale back data asymmetries between market members receiving SIP knowledge and people shopping for proprietary feeds.
“Is the SIP product a competitor to prop feeds for institutional investors? The answer is clearly not. It has significantly less content and is significantly slower due to its centralized consolidation system. We’ve heard institutions saying they would not trade with people who only use SIP data. This is about modernizing so we can upgrade the product and reduce information asymmetry. Ultimately, we think this also should help to facilitate best execution in the marketplace,” stated Redfearn.
And regardless of some skepticism from market observers concerning the proposed framework for competing SIP consolidators, notably in relation to latency and knowledge requirements, Redfearn insisted there may be “a reasonable chance” of efficiently introducing competitors into the market. “Competing consolidators will bring things to the market that will help to stimulate innovation. This will help to keep this product competitive and fresh and useful for market participants,” he stated.
Redfearn acknowledged the rising divergence in recent times between SIP and proprietary knowledge feeds, noting the latter had develop into costly and inaccessible to various market members. “That raises a lot of questions about fairness and equity in our marketplace. Part of our job is to ensure the widespread availability of market data to market participants,” he stated.
Alternate operators should file with the SEC to justify any price will increase. In 2017, a court docket ruling within the case ‘Susquehanna International Group vs SEC’ successfully pressured the regulator to use the next commonplace of proof to exchanges to justify purposes for greater charges.
Redfearn acknowledged the necessity for the regulator to understanding the monetary data behind filings for price rises and stated it was generally “difficult to get a clear picture” from the information supplied by exchanges. “The SEC is charged by statute with a responsibility to ensure market data fees are fair and reasonable, not discriminatory, [imposing] no undue burden on competition. It’s our job to understand what the words mean when we review fees,” he stated.
“The courts have emphasized that the SEC cannot merely place unquestioning reliance on the statements of SROs in their fee filings. If a statement cites competitive forces, we need to get behind that and look at the extent to which competitive forces indeed guide that.”
In addition to issuing steerage on SRO price filings, the SEC has additionally amended Regulation NMS to rescind the ‘effective on filing’ process for proposed price modifications by NMS plans. This implies future proposals might be topic to public remark and SEC evaluate previous to introduction. “I’d like to believe that this will lead to more public engagement and participation in the fee review process. When rules eventually come into effect, it will be after a considerable amount of vetting and consideration by the Commission and the marketplace.”
Each Redfearn and Clark asserted they have been talking in a private capability and that their views weren’t essentially shared by their employers.