On May 6, the Securities and Exchange Commission (“SEC”) issued an order (“Order”) directing the registered equity exchanges and the Financial Industry Regulatory Authority (“FINRA”) (together, the “Self-Regulatory Organizations” or “SROs”) to submit to the SEC a new National Market System (“NMS”) plan to govern the public dissemination of real-time, consolidated market data for NMS stocks. This new plan would replace the three existing NMS data plans for equities with a single, consolidated plan. Only SROs have voting power on the operating committees for the existing NMS data plans, but the Order directs that the new consolidated plan provide for voting by non-SROs for the first time. The Order discusses at length comments received in response to the Notice of Proposed Order issued by the SEC on January 8, 2020.

Regulation NMS authorizes two or more SROs to jointly file an NMS plan with the SEC and requires SROs to act pursuant to NMS plans to “disseminate consolidated information, including a national best bid and national best offer, on quotations for and transactions in NMS stocks.” The Order states that, in the time since Regulation NMS was adopted in 2005, “developments in technology and changes in the equities markets have heightened an inherent conflict of interest between the [SROs’] collective responsibilities in overseeing the [existing NMS data plans] and their individual interests in maximizing the viability of proprietary data products that they sell to market participants.” The Order also identified concerns with the consolidation of NMS data plan voting power under fewer corporate umbrella groups and perceived inefficiencies arising from maintaining three separate NMS data plans.

The new NMS data plan will be published for public notice and comment before the SEC takes action.

The Order requires that the new NMS data plan include the following terms and conditions, among others (the full list can be found on page 103 of the Order):

  • provides for an orderly transition from the existing NMS data plans;
  • provides each exchange group and unaffiliated SRO is entitled to name a member of on the operating committee, with certain terms and limitations regarding voting weight;
  • provides for the inclusion of non-SRO members from the following categories in the operating committee for at least two years: “an institutional investor, a broker-dealer with a predominantly retail investor customer base, a broker-dealer with a predominantly institutional investor customer base, a securities market data vendor, an issuer of NMS stock, and a person who represents the interests of retail investors. . . .”;
  • provides that the non-SRO members will initially be selected by the existing non-SRO advisory committees and subsequently by the then-serving non-SRO members of the operating committee;
  • provides for a “fair, transparent, and public nomination process” for non-SRO members;
  • provides that the aggregate voting power of the non-SRO members will be equal to one half of the aggregate voting power of the SRO members;
  • provides that all actions (other than the selection of non-SRO members and the entry into an SRO-only executive session) must be authorized by a supermajority vote of the operating committee that includes a majority vote of the SRO members;
  • includes provisions designed to address conflicts of interest;
  • includes provisions to protect confidential and proprietary information;
  • identifies the circumstances when the SRO members may hold executive sessions without non-SRO members; and
  • attempts to harmonize and combine the provisions in the existing NMS data plans.

The SEC has also approved amendments to the existing NMS data plans, designed to address conflicts of interest and the protection of confidential information.