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The SEC Modernizes Market Data: SIP Competition Increases

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On December 9th, the SEC approved a new plan that will bring more stock market data to the public. Going forward, public feeds, or securities information processors (SIPs), will now display supply and demand for national market system (NMS) stocks. Previously, the data in question was sold to professional traders by exchanges and was made available to the broader public at a premium. The newly approved plan removes this barrier to entry. Further, it also allows new data consolidators to directly compete with SIPs exclusively operated by the NYSE and the NASDAQ. SEC Chairman, Jay Clayton, claims that these two changes will “increase competition and transparency,” with respect to the NMS. [2]

The new plan is part of a greater effort to modernize the collection, consolidation, and dissemination of market data for exchange-listed national market system stocks (NMS market data). According to SEC Director Brett Redearn, there has been a lag in not only the consolidation and dissemination of NMS market data, but also in the content itself. [2] He and the rest of the SEC believe that increasing competition in both respects will adequately address this lag. To support this, they have pointed to the 1975 amendments to the Securities Exchange Act of 1934, which introduced significant technological developments in the NMS. The new plan is intended to match these developments with respect to data. Market watchers should expect a notable increase in NMS market data coverage, spread, and analysis. 

To better understand the impact of these changes, it is important to consider “one of Congress’s principal objectives for the national market system.” [2] The objective is best captured by the term ‘accessibility.’ Congress wanted NMS market data to be easily accessible and understandable for the general public. So, it enlisted the work of the national securities exchanges and the Financial Industry Regulatory Authority (FINRA) to “collect, consolidate, and disseminate information for NMS stocks.” [2]

The data would then be collected, consolidated, and shared as such. FINRA would provide NMS market data for each NMS stock to exclusive SIPs operated by the NYSE and the NASDAQ, who would then consolidate and disseminate the information to the public. With the new plan in place, FINRA will no longer share NMS market data solely with the NYSE and the NASDAQ’s SIPs. Instead, it will allow other competitors to access this information under its new decentralized consolidation model. Further, FINRA will expand upon and update the content of the data, including new supply and demand models.

Ultimately, this new plan bodes well for many. Competing consolidators are not the only new actors with access to NMS market data; so-called self-aggregators, “brokers, dealers, SROs, and investment advisers,” will likewise be able to register with SEC for data access. [2] New actors will be subject to SEC regulation with respect to the standards of data collection so as to ensure that the new decentralized model does not result in a drop in data quality. A phased transition plan is set to begin in 2021 to ensure that this new model is efficaciously introduced into practice.

Sources:

[1] – Osipovich, Alexander, “SEC Approves Plan to Bring More Detailed Stock-Market Data to Public,” The Wall Street Journal, 9 Dec. 2020, https://www.wsj.com/articles/sec-approves-plan-to-bring-more-detailed-stock-market-data-to-public-11607532641, accessed 17 Dec. 2020.

[2] – “SEC Adopts Rules to Modernize Key Market Infrastructure Responsible for Collecting, Consolidating, and Disseminating Equity Market Data,” U.S. Securities and Exchange Commission, 9 Dec. 2020, https://www.sec.gov/news/press-release/2020-311, accessed 17 Dec. 2020.

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