On May 21, 2019, the U.S. Securities and Exchange Commission (the “SEC”) issued guidance to national securities exchanges and the Financial Industry Regulatory Authority (“FINRA”) (referred to as “SROs”) clarifying the SEC’s expectations with respect to their market data fees. These guidelines clarify enhanced standards for SROs to increase their fees for products and services, including fees for market data and connections, which has become a significant revenue source for data providers.

Under the Securities Exchange Act of 1934 (the “Exchange Act”), SROs must file proposed rule changes, including changes to fees, with the SEC for either approval or immediate effectiveness. Regardless of whether a proposed fee change (referred to as a “Fee Filing”) is filed for approval or immediate effectiveness, it must comply with the Exchange Act requirements of reasonableness, equitable allocation, no unfair discrimination, and no undue burden on competition. The SEC’s guidance sets forth in detail how SROs are expected to evidence that their Fee Filing meets those requirements. The SEC stated that a Fee Filing must address all relevant statutory requirements and include, among other things:

• A “plain English” description of the product or service associated with the fee and a discussion of the benefits of the new or changed product or service to investors and market participants;
• A comparison of the projected number of purchasers likely to be subject to the fee after the change, in the case of a change to an existing fee, and the expected cost of the proposed fee for different types of users; and
• When the fee becomes effective.

In addition, if an SRO makes certain claims in a Fee Filing, including that a proposed fee is subject to competitive forces or that other alternatives are available in the market, then such claims must be supported by evidence (including data and analysis). If a proposed fee would not apply to all market participants equally, then the SRO must explain why such fees are nonetheless equitable. If a proposed fee would be applied differently to various types or sizes of market participants, then the SRO must explain why such fees are nonetheless fair and nondiscriminatory. Fee Filings must also address the impact of the proposed fee on competition.

If the SEC staff are not satisfied that an SRO has sufficiently demonstrated that the proposed fee complies with the Exchange Act requirements, then the SEC could temporarily suspend it and issue an order institution proceedings against the SRO to determine whether or not to approve the proposal.