The New York Stock Exchange and its rivals are required to transmit a consolidated view of all stock trades and best prices.
Photo: Lev Radin/Zuma PressThe SEC ordered the nation’s stock exchanges Wednesday to give stockbrokers and investors greater input into how real-time stock prices are distributed.
The Securities and Exchange Commission issued the directive after hearing for years that the New York Stock Exchange and other market centers have too much control over the packaging and pricing of information about trades and share prices.
The NYSE and its rivals such as Nasdaq Inc. are required to transmit a consolidated view of all stock trades and best prices. Meanwhile, they sell more-robust price feeds tailored to the needs of sophisticated traders and investors.
The SEC decision gives brokers and trading firms a stronger role in how the public feeds are run. Ultimately, that could reduce the prices they pay for the feeds—savings they might pass on to investors—and produce richer content. At the same time, it could hurt revenues of the exchange groups that provide data.
The SEC’s order, approved unanimously by its four commissioners, requires the exchanges to devise a plan to give buyers of core market data more say in how those feeds—called securities information processors, or SIPs—operate. Core data generally include a security’s last sale price and the best bid and offer on display. Brokers such as Charles Schwab Corp. and Fidelity Investments buy core data to give retail clients the information they need to trade.
The move is “a positive initial step which addresses current conflicts of interests for exchanges between the SIP data and exchange proprietary feeds,’’ said Kenneth Bentsen Jr., chief executive of the Securities Industry and Financial Markets Association, a Wall Street lobbying group that has clashed with the exchanges over their market-data policies.
The SEC says NYSE, owned by Intercontinental Exchange Inc., and other large exchanges haven’t done enough to improve the core data because they also sell higher-price data feeds that get to traders faster and contain more information.
Combined with another proposal the SEC issued in February, the regulator is taking steps that could reduce demand for the higher-price feeds. That proposal would require the core feeds to include data that is now only found in the proprietary products.
“Significant technological advances have radically altered the manner in which stocks trade and market data is disseminated,” Brett Redfearn, the SEC’s director of trading and markets, said on a conference call approving the measure. “The governance structure of the equity-data plans has not similarly evolved.”
The exchanges will still get the revenue that comes from selling core data, although that business could become less profitable if brokers and investors, who will now help make decisions about fees, push back on price hikes. Exchanges could also make less money from their proprietary data feeds if the SEC follows through on its proposal to make the core data more robust.
A spokeswoman for Cboe Global Markets Inc., which operates four equity exchanges, said the company is “extremely disappointed” and believes the order “fails to consider the impact of many of these changes on a market that has worked exceptionally well for investors.” A Nasdaq spokesman declined to comment.
“The exchanges, which exist to protect the investing public, have been ordered to revise the currently efficient market system into one that hands over voting power to major financial institutions with conflicting interests,” the Equity Markets Association, whose members include Nasdaq and NYSE-owner ICE, said in a statement.
While exchanges will eventually write the governance plan themselves, the SEC gave them instructions for how to make it fair.
Users of market data such as brokers, asset managers, data vendors and a representative of retail investors would, for the first time, get votes on a committee that sets prices for core data. The prices would have to be “fair and reasonable and designed to ensure the widespread availability of data,” SEC Assistant Director Michael Coe said on Wednesday’s call.
The nonexchange members would have one-third of the votes on the committee, SEC officials said.
At the same time, exchange owners that have in the past wielded four or five votes on the committee—one for each exchange they operate—must now be capped at just two votes.
The SEC’s order also requires the committee to choose an independent administrator for the core-data plans. The administrator can’t be in the business of selling other market-data products.
Write to Dave Michaels at dave.michaels@wsj.com
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