[This story previously appeared in Securities Regulation Daily.]
By Matthew Garza, J.D.
The SEC’s Chief Administrative Law Judge has determined that the Securities Industry and Financial Markets Association (SIFMA) has standing to challenge rule changes made by NYSE and NASDAQ that establish fees for access to depth-of-book data. Administrative Proceedings Rulings Release No. 1921, October 20, 2014.
SIFMA challenged changes made by the NYSE and NASDAQ to rules governing fees charged for access to this “non-core” depth-of-book data, which was free prior to 2006 rule amendments. Chief ALJ Brenda Murray explained in a footnote that the exchanges are required to make available “core” data, which includes information such as best price offered and bid for each security, whereas non-core depth-of-book data is not required to be made available. Depth-of-book data, known as “ArcaBook” at the NYSE, refers to information on outstanding limit orders to buy stocks at prices lower than, or to sell stocks at prices higher than, the best prices on a respective exchange.
Background. The NYSE originally proposed the rule change to allow it to charge fees for depth-of-book data in May 2006, an action that was approved by the Commission but vacated by the D.C. Circuit after the court found that the economic justification of the rule change was not adequately established. In 2010 the Dodd-Frank Act changed the procedures for implementation of SRO rules. It allowed new rules to become effective immediately upon filing with the SEC, subject to the Commission’s authority to suspend the rules within 60 days. NYSE and NASDAQ then re-proposed amendments regarding depth-of-book fees and the SEC declined to suspend them.
A petition filed by SIFMA to the D.C. Circuit to review the re-proposed rule changes were refused by the court, which cited the Dodd-Frank SRO rulemaking process changes. The court said however, “we take the Commission at its word ... that it will make the section 19(d) process available to parties seeking review of unreasonable fees charged for market data, thereby opening the gate to our review.” SIFMA continued to petition the SEC to set aside the rule changes.
Challenge. Exchange Act Sec. 19(d)(2) says that SRO action shall be subject to regulatory review on its own motion, or “upon application by any person aggrieved.” SIFMA asserted that it had had associational standing to challenge the rule changes as a “person aggrieved.” The NYSE argued that the association did not establish that its members were aggrieved. The SIFMA declarations “do nothing more than assert each SIFMA Declarant is aggrieved ‘simply because it has to pay something for ArcaBook,’” NYSE argued.
The exchange also asserted that its 2010 re-proposed rule responded to the D.C. Circuit’s concerns and was based on a new and different record. SIFMA countered that the exchange conflated the issues of jurisdiction and the merits, and that it is not required to show that the fees at issue are unreasonable in order to establish standing.
The ALJ agreed, saying that the only question at this stage of the challenge was whether SIFMA has established that its members are subject to limitation of access to depth-of-book data. “The question here is not whether SIFMA showed that the rules at issue have imposed unreasonably high fees, but whether it should have an opportunity to do so.” The judge ruled that SIFMA met its burden to establish association standing, and scheduled four hearings, starting on December 22, to determine if the rule changes should be vacated.