The SEC has published a notice seeking comments on a proposed new single plan to govern the public dissemination of real-time consolidated equity market data for National Market System (NMS) stocks. The proposal was filed by the national equity exchanges and FINRA (collectively, the SROs) following the Commission’s order to submit a plan to modernize the governance structure for the production of public consolidated equity market data and the dissemination of trade and quote data from trading venues. If approved, the plan would replace the current, decades-old tiered system in which consolidated public data feeds are distributed through three equity data plans (Notice of Filing of a National Market System Plan Regarding Consolidated Equity Market Data, Release No. 34-90096, October 6, 2020).
On May 6, 2020, the Commission ordered the SROs to act jointly in developing and filing with the Commission a proposed new single NMS plan to govern the public dissemination of real-time consolidated equity market data for NMS stocks. Under the SROs’ proposal, the plan would replace the three existing plans: (1) Consolidated Tape Association Plan; (2) Consolidated Quotation Plan; and (3) Joint Self-Regulatory Organization Plan Governing the Collection, Consolidation, and Dissemination of Quotation and Transaction Information for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privileges Basis.
The equity exchanges filing the plan along with FINRA are Cboe BYX Exchange, Cboe BZX Exchange, Cboe EDGA Exchange, Cboe EDGX Exchange, Cboe Exchange, Investors Exchange, Long Term Stock Exchange, MEMX, Nasdaq BX, Nasdaq ISE, Nasdaq PHLX, Nasdaq Stock Market, New York Stock Exchange, NYSE American, NYSE Arca, NYSE Chicago, and NYSE National.
CT Plan. The SROs have proposed that the new plan take the form of a limited liability company agreement for a new Delaware limited liability company, CT Plan LLC. The plan provides that any entity registered as a national securities exchange or national securities association under the Exchange Act may become a member by: (1) providing written notice to the company; (2) executing a joinder to the plan; (3) paying a membership fee to the company, and (4) executing a joinder to any other agreements to which the other members have been made party in connection with being a member.
Except as otherwise provided in the agreement, the company will be managed by an operating committee comprised of SRO voting representatives and non-SRO voting representatives. The non-SRO voting representatives must include one representative from each of the following categories: (1) an institutional investor; (B) a broker-dealer with a predominantly retail investor customer base; (3) a broker-dealer with a predominantly institutional investor customer base; (4) a securities market data vendor that is not affiliated or associated with a member, broker-dealer, or investment adviser with third-party clients; (5) an issuer of NMS stock that is not affiliated or associated with a member, broker-dealer, or investment adviser with third-party clients; and (6) a retail representative. Non-SRO voting representatives would serve for two-year terms for a maximum of two terms total, whether consecutive or non-consecutive.
The SEC’s order requires that the new plan’s operating committee must approve actions other than the selection of non-SRO voting representatives and the decision to enter executive session. Given that the plan would be in the form of an LLC agreement, however, the SROs propose that certain of the plan's provisions concerning solely the company's operation as an LLC will require a majority vote of the members as opposed to a majority vote of the operating committee. In particular, the SROs propose that the following actions of the company be subject to a majority vote of only the members: (1) the selection of officers other than the chair and secretary, if needed; and (2) certain decisions related to indemnification, dissolution, and tax-related matters. The SROs believe that the members should have the sole authority to make these decisions because they would not affect the consolidation and distribution of equity market data.
The plan provides that it will not become effective until the later of two events: (1) the proposed agreement has been approved by the SEC; and (2) the members have formed the LLC pursuant to Delaware law by filing a certificate of formation. Until the operative date, the SROs will continue to operate pursuant to the three currently existing plans with respect to the public dissemination of real-time consolidated equity market data for NMS stocks.
Request for comments. The SEC’s wide-ranging request for comments seeks input in 62 specific areas, covering topics that include, among others:
- the plan’s effective and operative dates;
- the plan’s structure as an LLC agreement;
- the plan’s definitions;
- the organization and membership of the LLC;
- the composition, selection, responsibilities, and action of the operating committee;
- transactions with persons in which an SRO or any of its affiliates has a connection or a direct or indirect interest;
- certain outside business activities of the SROs that may present conflicts of interest;
- the designation and duties of the LLC’s officers;
- the composition of subcommittees and the selection of their chairs;
- disclosure of potential conflicts of interest by members, processors, the administrator, and non-SRO voting representatives;
- processor functions and responsibilities; and
- administrator functions and responsibilities.
Exchange challenge. In a footnote, the SEC’s release acknowledges that some of the SROs filing the proposal have nevertheless challenged the Commission’s May order in the D.C. Circuit. In June 2020, Nasdaq Stock Market, Nasdaq BX, and Nasdaq PHLX petitioned the court to review the SEC's order while asking the Commission to stay its order pending the final resolution of the case. In their statement of issues, the Nasdaq exchanges notified the appellate court of their intent to argue that the order was not in accordance with law because, among other things:
- The Exchange Act and Regulation NMS do not permit the SEC to grant persons or entities other than SROs voting power on the operating committee of a national market system plan.
- The SEC’s order improperly allocates votes to so-called "exchange groups," rather than individual SROs.
- The Exchange Act and Regulation NMS do not permit the Commission to bar SROs from having any role in the selection of non-SRO representatives on the operating committee of a national market system plan.
- The Commission’s exclusion of exchanges from serving as the administrator of the new national market system plan is unjustified and unsupported.