US exchanges face added pressure on data fees under SEC clampdown

The New York Stock Exchange and Nasdaq face new threats to their revenues from selling stock market data after the US Securities and Exchange Commission toughened regulation and moved to inject more competition into the market.

New rules adopted unanimously by the commission on Wednesday would require more public access to information about stock prices, the SEC said.

Exchanges will be forced to speed up and expand the highly-regulated data feeds containing essential market information that they provide to the public — potentially denting the value of their proprietary data businesses, which offer more content, more quickly, for higher fees.

The SEC rules also open up the public feeds to more competition.

“While some can afford a pricey trip along a freshly paved, proprietary high-speed toll lane, others are relegated to a cheaper ride on a public highway with cracked pavement and potholes,” said Allison Lee, one of the Democrats on the five-member commission.

Ms Lee is expected to lead the SEC temporarily after the departure of Trump administration appointee Jay Clayton at the end of this year, and the unanimous nature of Wednesday’s vote suggests exchanges will not be able to breathe easier under a Biden administration.

Exchanges have tussled for two years with the SEC over rule changes designed to curb their market power. In June, NYSE, Nasdaq and CBOE Global Markets won two court challenges against earlier commission proposals designed to drive down data and trading fees.

Ms Lee said today’s stock market was controlled by for-profit exchanges selling their own competing proprietary data products in a pay-to-play model that has hurt small investors.

Morningstar said in an April research note about Nasdaq that the SEC’s new market data rules, “we don’t think this will result in declines in information services revenue, [but] we believe it’s possible it could limit the segment’s growth”.

Nasdaq said the rule changes “would reduce competition and make the markets more costly to all investors” and said it would “assess how to best protect the investing public in light of the SEC’s approval”.

NYSE said its markets and data infrastructure “performed exceptionally well during this year’s volatility, and we believe the SEC has hastily approved an irreversible experiment with critical systems”.

Investor groups gave the changes a cautious welcome. Tyler Gellasch, executive director of Healthy Markets, which represents Calpers, Federated Hermes and other institutional investors, said: “While we welcome reforms to make the public equity market data stream less costly and more useful, these [SEC] reforms will likely add significant complexity for market participants and risks to investors.”

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