Market Data Infrastructure

Federal RegisterApr 9, 2021

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240, 242, and 249

[Release No. 34-90610, File No. S7-03-20]

RIN 3235-AM61

Market Data Infrastructure

AGENCY:

Securities and Exchange Commission.

ACTION:

Final rule.

SUMMARY:

The Securities and Exchange Commission (“Commission” or “SEC”) is amending Regulation National Market System (“Regulation NMS”) under the Securities Exchange Act of 1934 (“Exchange Act”) to modernize the national market system for the collection, consolidation, and dissemination of information with respect to quotations for and transactions in national market system (“NMS”) stocks (“NMS information”). Specifically, the Commission is expanding the content of NMS information that is required to be collected, consolidated, and disseminated as part of the national market system under Regulation NMS and is amending the method by which such NMS information is collected, calculated, and disseminated by fostering a competitive environment for the dissemination of NMS information via a decentralized consolidation model with competing consolidators.

DATES:

Effective date:

The final rules are effective June 8, 2021.

Compliance dates:

The applicable compliance dates are discussed in Section III.H, titled “Transition Period and Compliance Dates.”

FOR FURTHER INFORMATION CONTACT:

Kelly Riley, Senior Special Counsel, at (202) 551-6772; Ted Uliassi, Senior Special Counsel, at (202) 551-6095; Elizabeth C. Badawy, Senior Accountant, at (202) 551-5612; Leigh Duffy, Special Counsel, at (202) 551-5928; Yvonne Fraticelli, Special Counsel, at (202) 551-5654; Steve Kuan, Special Counsel, at (202) 551-5624; or Joshua Nimmo, Attorney-Advisor, at (202) 551-5452, Division of Trading and Markets, Commission, 100 F Street NE, Washington, DC 20549. For further information on Regulation SCI: Heidi Pilpel, Senior Special Counsel at (202) 551-5666; David Liu, Special Counsel at (312) 353-6265 or Sara Hawkins, Special Counsel, at (202) 551-5523, Division of Trading and Markets, Commission, 100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

The Commission is adopting 17 CFR 242.614 (new Rule 614) under the Exchange Act, Form CC to require registration of competing consolidators, and a requirement that the participants to the effective national market system plan(s) for NMS stocks amend such plan(s) to reflect the new role and functions of the plan(s). The Commission is also adopting amendments to the following rules:

Commission reference

CFR citation

(17 CFR)

Exchange Act:

Rule 3a51-1

§ 240.3a51-1.

Rule 13h-1

§ 240.13h-1.

Regulation NMS:

§§ 242.600 through 242.613.

Rule 600(b)(2)

§ 242.600(b)(2).

Rule 600(b)(5)

§ 242.600(b)(5).

Rule 600(b)(16)

§ 242.600(b)(16).

Rule 600(b)(19)

§ 242.600(b)(19).

Rule 600(b)(20)

§ 242.600(b)(20).

Rule 600(b)(21)

§ 242.600(b)(21).

Rule 600(b)(26)

§ 242.600(b)(26).

Rule 600(b)(50)

§ 242.600(b)(50).

Rule 600(b)(59)

§ 242.600(b)(59).

Rule 600(b)(68)

§ 242.600(b)(68).

Rule 600(b)(70)

§ 242.600(b)(70).

Rule 600(b)(78)

§ 242.600(b)(78).

Rule 600(b)(82)

§ 242.600(b)(82).

Rule 600(b)(83)

§ 242.600(b)(83).

Rule 600(b)(85)

§ 242.600(b)(85).

Rule 602

§ 242.602.

Rule 603

§ 242.603.

Rule 611

§ 242.611.

Regulation SCI:

§§ 242.1000 through 242.1007.

Rule 1000

§ 242.1000.

Forms, Exchange Act:

Part 249.

Form CC

§ 249.1002.

Form SCI

§ 249.1900.

Finally, the Commission is adopting conforming changes and updates to cross-references in:

Commission reference

CFR citation

(17 CFR)

Exchange Act:

Rule 105(b)(1)(i)(C)

§ 242.105(b)(1)(i)(C).

Rule 105(b)(1)(ii)

§ 242.105(b)(1)(ii).

Rule 201(a)(1)

§ 242.201(a)(1).

Rule 201(a)(2)

§ 242.201(a)(2).

Rule 201(a)(3)

§ 242.201(a)(3).

Rule 201(a)(4)

§ 242.201(a)(4).

Rule 201(a)(5)

§ 242.201(a)(5).

Rule 201(a)(6)

§ 242.201(a)(6).

Rule 201(a)(7)

§ 242.201(a)(7).

Rule 201(a)(9)

§ 242.201(a)(9).

Rule 201(b)(1)(ii)

§ 242.201(b)(1)(ii).

Rule 201(b)(3)

§ 242.201(b)(3).

Rule 204(g)(2)

§ 242.204(g)(2).

Rule 600

§ 242.600.

Rule 602

§ 242.602.

Rule 611(c)

§ 242.611(c).

Table of Contents

I. Introduction and Background

A. Current Market Data Content and Dissemination Model Under Regulation NMS

B. National Market System Initiatives and the Market Data Infrastructure Proposing Release

C. Enhancements to the Content of NMS Information

D. Enhancements to the Provision of Consolidated Market Data

E. Implications for Best Execution

II. Enhancements to NMS Information

A. Introduction

B. Definition of “Consolidated Market Data” Under Rule 600(b)(19)

1. Proposal

2. Final Rule and Response to Comments

3. The Fifth Amendment's Takings Clause

C. Definition of “Core Data” Under Rule 600(b)(21)

1. Proposal

2. Final Rule and Response to Comments

D. Definition of “Round Lot” Under Rule 600(b)(82)

1. Proposal

2. Final Rule and Response to Comments

E. Definition of “Protected Bid or Protected Offer” Under Rule 600(b)(70)

1. Proposal

2. Final Rule and Response to Comments

F. Definition of “Depth of Book Data” Under Rule 600(b)(26)

1. Proposal

2. Final Rule and Response to Comments

G. Definition of “Auction Information” Under Rule 600(b)(5)

1. Proposal

2. Final Rule and Response to Comments

H. Definition of “Regulatory Data” Under Rule 600(b)(78)

1. Proposal

2. Final Rule and Response to Comments

I. Regulation SHO: Conforming Amendments to Rule 201

1. Proposal

2. Final Rule and Response to Comments

J. Definition of “Administrative Data” Under Rule 600(b)(2)

1. Proposal

2. Final Rule and Response to Comments

K. Definition of “Self-Regulatory Organization-Specific Program Data” Under Rule 600(b)(85)

1. Proposal

2. Final Rule and Response to Comments

III. Enhancements to the Provision of Consolidated Market Data

A. Introduction

B. Proposed Decentralized Consolidation Model

1. Comments on the Decentralized Consolidation Model

2. Comments on the Effectiveness of the Proposal

3. Comments on the Viability of the Decentralized Consolidation Model

4. Comments on Conflicts of Interest

5. Comments on Latency

6. Comments on the Potential Impact on Costs for Consolidated Market Data

7. Comments on Complexity of the Decentralized Consolidation Model

8. Comments on Surveillance and Regulation in the Decentralized Consolidation Model

9. Access to Data: Rule 603(b)

10. Calculation of the National Best Bid and National Best Offer Under Rule 600(b)(50)

C. Competing Consolidators

1. Definition of “Competing Consolidator” Under Rule 600(b)(16)

2. Comments on Resiliency

3. Comments on Data Quality

4. Comments on Competing Consolidator Products

5. Comments on Selection of a Competing Consolidator

6. Comments on a Standardized Consolidation Process

7. Registration and Responsibilities of Competing Consolidators: Rule 614

8. Responsibilities of a Competing Consolidator

D. Self-Aggregators

1. Proposal

2. Final Rule and Response to Comments

E. Amendment to the Effective National Market System Plan(s) for NMS Stocks Under Rule 614(e)

1. Proposal

2. Final Rule and Response to Comments

F. Systems Capability: Amendment to Rule 1000 of Regulation SCI To Expand “SCI Entities” Definition To Include “SCI Competing Consolidator”; Adoption of Rule 614(d)(9): Systems Integrity

G. Effects on the National Market System Plan Governing the Consolidated Audit Trail

H. Transition Period and Compliance Dates

1. Proposal

2. Final Rule and Response to Comments

I. Alternatives to the Centralized Consolidation Model

1. Distributed SIP Alternative

2. Single SIP Alternative

3. Other Alternatives

IV. Paperwork Reduction Act

A. Summary of Collection of Information

1. Registration Requirements and Form CC

2. Competing Consolidators' Public Posting of Form CC

3. Competing Consolidator Duties and Data Collection

4. Recordkeeping

5. Reports and Reviews

6. Amendment to the Effective National Market System Plan(s) for NMS Stocks

7. Collection and Dissemination of Information by National Securities Exchanges and National Securities Associations

B. Proposed Use of Information

1. Registration Requirements and Form CC

2. Competing Consolidators' Public Posting of Form CC

3. Competing Consolidator Duties and Data Collection

4. Recordkeeping

5. Reports and Reviews

6. Amendment to the Effective National Market System Plan(s) for NMS Stocks

7. Collection and Dissemination of Information by National Securities Exchanges and National Securities Associations

C. Respondents

1. Initial Estimate

D. Total Initial and Annual Reporting and Recordkeeping Burden

1. Registration Requirements and Form CC

2. Competing Consolidators' Public Posting of Form CC

3. Competing Consolidator Duties and Data Collection

4. Recordkeeping

5. Reports and Reviews

6. Amendment to the Effective National Market System Plan(s) for NMS Stocks

7. Collection and Dissemination of Information by National Securities Exchanges and National Securities Associations

E. Collection of Information Is Mandatory

F. Confidentiality

1. Registration Requirements and Form CC

2. Competing Consolidator Duties and Data Collection and Maintenance

3. Competing Consolidators' Public Posting of Form CC

4. Recordkeeping

5. Reports and Reviews

6. Amendment to the Effective National Market System Plan(s) for NMS Stocks

7. Collection and Dissemination of Information by National Securities Exchanges and National Securities Associations

G. Revisions to Current Regulation SCI Burden Estimates and Adoption of Rule 614(d)(9)

1. Proposed Estimates—Burden and Costs

2. Comments/Responses on Burden and Costs

3. Adopted Estimates—Burden and Costs

V. Economic Analysis

A. Introduction and Market Failures

1. Introduction

2. Market Failures

B. Baseline

1. Current Regulatory Process for Equity Data Plans and SIP Data

2. Current Process for Collecting, Consolidating, and Disseminating Market Data

3. Competition Baseline

C. Economic Effects of the Rule

1. Consolidated Market Data

2. Decentralized Consolidation Model

3. Economic Effects of Form CC

4. Economic Effects from the Interaction of Changes to Core Data and the Decentralized Consolidation Model

D. Impact on Efficiency, Competition, and Capital Formation

1. Efficiency

2. Competition

3. Capital Formation

E. Alternatives

1. Introduce Decentralized Consolidation Model With Addition of Full Depth of Book to Core Data Definition

2. Introduce Changes in Core Data and Introduce a Distributed SIP Model

3. Require Competing Consolidators' Fees be Subject to the Commission's Approval

4. Do Not Extend Regulation SCI To Include Competing Consolidators

5. Require Competing Consolidators To Submit Form CC in the EDGAR System Using the Inline XBRL Format

6. Require Competing Consolidators To Submit Monthly Disclosures in the EDGAR System Using the Inline XBRL Format

7. Prescribing the Format of NMS Information

VI. Regulatory Flexibility Certification

VII. Other Matters

VIII. Statutory Authority

I. Introduction and Background

The widespread availability of timely NMS information is critical to the ability of market participants to participate effectively in the U.S. securities markets. NMS information is made widely available to investors through the national market system, a system set forth by Congress in Section 11A of the Exchange Act

and facilitated by the Commission in Regulation NMS. The current national market system for NMS information was developed in the late 1970s, and the Commission is adopting changes that will modernize the national market system for NMS information for the benefit of investors.

15 U.S.C. 78k-1.

Section 11A of the Exchange Act directs the Commission to facilitate the establishment of a national market system for the trading of securities in accordance with the Congressional findings and objectives set forth in Section 11A(a)(1) of the Exchange Act.

Among the findings and objectives of Section 11A(a)(1) are that new data processing and communications techniques create the opportunity for more efficient and effective market operations,

and that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to ensure the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities.

Section 11A of the Exchange Act also authorizes the Commission to prescribe rules to ensure the “prompt, accurate, reliable, and fair collection, processing, distribution, and publication of information with respect to quotations for and transactions in such securities and the fairness and usefulness of the form and content of such information.”

In furtherance of these purposes, the Commission has sought through its rules and regulations to help ensure that certain “core data”

is widely available for reasonable fees.

The Commission has recognized that investors must have certain core data “to participate in the U.S. equity markets.”

15 U.S.C. 78k-1(a)(1).

See

15 U.S.C. 78k-1(a)(1)(B).

See also

S. Rep. No. 94-75, 94th Cong., 1st Sess. (1975) (noting that the systems for collecting and distributing consolidated market data would “form the heart of the national market system”).

See

15 U.S.C. 78k-1(a)(1)(C).

15 U.S.C. 78k-1(c)(1)(B).

See infra

note 17 and accompanying text (defining “core data”).

See

Rule 603 of Regulation NMS;

See also

Securities Exchange Act Release Nos. 10787 (May 10, 1974), 39 FR 17799 (order approving CTA Plan); 15009 (July 28, 1978), 43 FR 34851 (Aug. 7, 1978) (order temporarily approving CQ Plan); 16518 (Jan. 22, 1980), 45 FR 6521 (Jan. 28, 1980) (order permanently approving CQ Plan); 28146 (June 26, 1990), 55 FR 27917 (July 6, 1990) (order approving UTP Plan). The options exchanges are participants in the Limited Liability Company Agreement of Options Price Reporting Authority, LLC (“OPRA Plan”), a plan under Rule 608 of Regulation NMS, which governs the collection, consolidation, processing, and dissemination of last sale and quotation information for listed options.

See

Securities Exchange Act Release Nos. 17638 (Mar. 18, 1981), 22 SEC. Docket 484 (Mar. 31, 1981); 61367 (Jan. 15, 2010), 75 FR 3765 (Jan. 22, 2010).

Rule 603(b) of Regulation NMS, 17 CFR 242.603(b), requires that every national securities exchange on which an NMS stock is traded and national securities association act jointly pursuant to one or more effective national market system plans to disseminate consolidated information on quotations for and transactions in NMS stocks, and that such plan or plans provide for the dissemination of all consolidated information for an individual NMS stock through a single plan processor.

See

Rule 602 of Regulation NMS.

See

17 CFR 242.601 (Rule 601 of Regulation NMS).

See

Rule 600(b)(67) of Regulation NMS, 17 CFR 242.600(b)(67) (defining plan processor).

See also

Section 3(a)(22)(B) of the Exchange Act, 15 U.S.C. 78c(22)(B) (defining exclusive processor).

The Equity Data Plans disseminate SIP data over three separate networks: (1) Tape A for securities listed on the New York Stock Exchange (“NYSE”); (2) Tape B for securities listed on exchanges other than NYSE and Nasdaq; and (3) Tape C for securities listed on Nasdaq. These tapes are referred to as the “consolidated tapes.” The CTA Plan governs the collection, consolidation, processing, and dissemination of last sale information for Tape A and Tape B securities. The CQ Plan governs the collection, consolidation, processing, and dissemination of quotation information for Tape A and Tape B securities. Finally, the UTP Plan governs the collection, consolidation, processing, and dissemination of last sale and quotation information for Tape C securities.

See

Rule 600(b)(50) of Regulation NMS for the definition of NBBO.

See Bloomberg Order,

infra

note 22, at 3;

See also

infra

Section V.B.3(b). Proprietary data fees have increased over the last decade, and are generally more expensive relative to SIP data fees, and there are indicia that exchanges may not be subject to robust competition with respect to market data.

See infra

notes 1780-1788 and accompanying text.

On the other hand, the exchanges' proprietary TOB products, which are typically cheaper than the SIP data, may be purchased instead of SIP data for certain use cases in certain market segments (

e.g.,

retail investors).

These proprietary TOB products have decreased many market participants' utilization of SIP data even though they do not contain all “core data” and do not reflect TOB quotations and transactions from all markets and, therefore, do not display the NBBO. Market participants that solely use proprietary TOB products do not see all quotations in the market, including at times superior quotations, or all executed transactions and instead see only a subset of consolidated data.

See supra

note 17 and accompanying text.

The Commission notes that the number of Professional subscribers to the SIP feeds decreased 23.5 percent between the first quarter of 2010, which is the first quarter for which Professional subscriber data for the SIP Plans was available after the introduction of the first proprietary TOB product in 2009, and the end of 2019.

See

CTA Plan, Metrics,

available at

https://www.ctaplan.com/sip-metrics

(last accessed Nov. 20, 2020); UTP Plan, Metrics,

available at http://www.utpplan.com/metrics

(last accessed Nov. 25, 2020). For context, the number of registered representatives reported by FINRA during this time period decreased by only 1.0 percent.

See

FINRA, Statistics,

available at https://www.finra.org/newsroom/statistics

(last accessed Nov. 19, 2020).

Accordingly, the Commission has undertaken three initiatives related to the provision of NMS information in the national market system. These initiatives work together to address specific, significant, separate but overlapping, issues in the national market system and are aimed at improving discrete areas in the national market system. First, the Commission amended the process so that, instead of becoming effective upon filing, changes to fees proposed by the Equity Data Plans would be published for public comment and approved by the Commission.

These procedures enhance the efficiency and transparency of the process of assessing new NMS plan fees. Second, the Commission ordered the participants to the Equity Data Plans to submit a new, single effective national market system plan,

i.e.,

the New Consolidated Data Plan, for Commission consideration under Rule 608 of Regulation NMS.

The New Consolidated Data Plan includes specific governance provisions that the Commission believes will help to address concerns that have been raised about the existing Equity Data Plans, including conflicts of interest stemming from the sale of competing proprietary data products by the exchanges that currently have majority voting power on the Operating Committee(s) of the Equity Data Plans.

These committees are, among other things, responsible for proposing fees for SIP data. Finally, in this release, the Commission is adopting amendments to update and modernize the infrastructure of the national market system by adding data content to NMS information as defined under Regulation NMS and by amending the manner in which such NMS information is collected, consolidated, and disseminated.

See

Effective-Upon-Filing Adopting Release,

supra

note 17.

17 CFR 242.608.

See

Joint Industry Plan; Notice of Filing of a National Market System Plan Regarding Consolidated Equity Market Data, Securities Exchange Act Release No. 34-90096 (Oct. 6, 2020), 85 FR 64565 (Oct. 13, 2020) (“New Consolidated Data Plan Notice”).

See also

infra

Section III.E for a discussion on the Governance Order.

The Commission published the Proposing Release on its website on February 14, 2020. The comment period of 60 days from

Federal Register

publication ended on May 26, 2020. Many commenters asked the Commission to extend the comment period,

particularly in light of the COVID-19 pandemic.

See, e.g.,

letter from John A. Zecca, Executive Vice President, Chief Legal Officer, and Chief Regulatory Officer, Nasdaq, to Jay Clayton, Chairman, Commission, dated Apr. 7, 2020 (“Nasdaq Letter II”); letters to Vanessa Countryman, Secretary, Commission, from Elizabeth K. King, Chief Regulatory Officer, ICE, and General Counsel and Corporate Secretary, NYSE, dated May 15, 2020 (“NYSE Letter I”); Linda Moore, President and Chief Executive Officer, TechNet, dated Apr. 29, 2020 (“TechNet Letter I”); Christopher A. Iacovella, Chief Executive Officer, American Securities Association, dated Apr. 23, 2020; Kimberly Unger, Chief Executive Officer and Executive Director, Securities Traders Association of New York, Inc. (“STANY”), dated May 14, 2020 (“STANY Letter I”); Institutional Traders Advisory Council to Nasdaq, dated May 15, 2020; Gary A. LaBranche, President and Chief Executive Officer, National Investor Relations Institute, dated May 22, 2020; R T Leuchtkafer, dated May 20, 2020; Patrick J. Healy, Founder and CEO, Issuer Network, dated May 20, 2020 (going further by suggesting the Commission “table this proposal”).

The Commission has considered all comment letters received to date, including comments that were submitted after the comment deadline had passed. The last comment letter was received on October 13, 2020. Accordingly, the Commission believes that the time during which comments have been accepted is reasonable.

C. Enhancements to the Content of NMS Information

The Commission is adopting amendments to increase the content of NMS information that is required to be made available under Regulation NMS and to introduce a competitive decentralized consolidation model to disseminate the information. The content of NMS information that is made available under the rules of the national market system has not been adequately updated to reflect the needs of market participants trading in the U.S. market. As the U.S. market has evolved, market participants' information needs have changed; many market participants need additional information to trade efficiently and competitively. Today, the only means for market participants to receive a wider array of information than what is provided under the national market system is through proprietary data offerings from exchanges (and their affiliates). The Commission is concerned that the national market system, including the content of SIP data and the way such data is disseminated, significantly lags behind these proprietary data offerings and delivery methods established by the exchanges and their affiliates. Therefore, as discussed further below, the Commission believes that the content of NMS information under the rules of the national market system needs to be enhanced to address the needs of market participants. The adopted definitions will expand and modernize the content of NMS information that is made available in the U.S. market in a manner that the Commission believes will better facilitate competition; help to ensure the prompt, accurate, reliable, and fair collection of such information; and help to ensure the usefulness of NMS information. The Commission is adopting a new model for the provision of consolidated market data as discussed in Section III below, but the Commission believes that market participants and investors will benefit from enhanced NMS information regardless of the method by which they receive it. In particular, as a result of the new round lot definition and the inclusion of odd-lot quotations in core data, retail investors will be able to see, and more readily access, better-priced quotations. Further, through the addition of depth of book data and auction information in core data, the scope of NMS information will, to a greater extent, allow some market participants to trade in a more informed, competitive, and efficient manner. The Commission believes that even investors that do not consume that data directly will benefit because their brokers will be able to use the enhanced NMS information to trade more efficiently

and competitively and to achieve best execution for their customer orders.

See infra

Section II.C.2(a).

To expand and enhance the data that is required to be made available for collection, consolidation, and dissemination under Regulation NMS, the Commission is adopting several new defined terms in Rule 600 of Regulation NMS, including “consolidated market data,” “consolidated market data product,” “core data,” “round lot,” “auction information,” “depth-of-book data,” “odd-lot information,” “regulatory data,” “administrative data,” and “self-regulatory organization-specific program data.” Two of the new definitions in Regulation NMS—consolidated market data

and core data

—specify the components of NMS information that must be made available for collection, consolidation, and dissemination under the national market system.

The other new defined terms establish the scope of information included within the definitions of consolidated market data and core data. The definitions are designed to ensure that NMS information that is made available to market participants meets the goals set forth in Section 11A of the Exchange Act.

“Consolidated market data” is defined in Rule 600(b)(19) as the following data, consolidated across all national securities exchanges and national securities associations: (i) Core data; (ii) regulatory data; (iii) administrative data; (iv) self-regulatory organization-specific program data; and (v) additional regulatory, administrative, or self-regulatory organization-specific program data elements defined as such pursuant to the effective national market system plan or plans required under § 242.603(b).

“Core data” is defined in Rule 600(b)(21) of Regulation NMS.

See supra

Section I.A for a discussion of the regulatory requirements for NMS information. “Consolidated market data product” is defined as any data product developed by a competing consolidator that contains consolidated market data or any of the elements or subcomponents thereof.

See

Rule 600(b)(20);

infra

Section II.B.2.

See infra

note 151 and accompanying text with respect to certain information that is not included in the definition of core data.

The Commission is defining three new data elements as “core data:” (1) Information about better priced quotations in higher priced stocks (implemented through a new definition of “round lot” and the inclusion of certain odd-lot information), (2) information about quotations that are outside of the best-priced quotations (implemented through a new “depth of book data” definition), and (3) information about orders that are participating in auctions (implemented through a new definition of “auction information”).

Round Lot Definition.

To provide investors with information about better priced orders in high-priced stocks, the Commission proposed a five-tier definition of “round lot” based on the share price of an NMS stock.

The Commission also proposed to amend the definition of protected quotation to require that protected quotes be of at least 100 shares.

These two changes would have established a NBBO

that could differ from the best protected bid and best protected offer (“PBBO”). Commenters responded by expressing support and raising several issues and concerns.

See infra

Section II.D.1.

See infra

Section II.E.1.

See

Rule 600(b)(50).

See infra

Sections II.D.2(a); II.E.2.

For the reasons set forth below,

the Commission has modified the round lot definition so that it has fewer tiers and is based on a higher notional value. Specifically, the adopted round lot definition is 100 shares for stocks priced at $250 or less, 40 shares for stocks priced at $250.01 to $1,000, 10 shares for stocks priced at $1,000.01 to $10,000, and 1 share for stocks priced at $10,000.01 or more. Further, the Commission has decided not to adopt the proposed amendment to the definition of protected quotation. A protected quotation will remain a round lot; however, the protected quotation will change only insomuch as the round lot definition is changing.

Id.

The Commission also has decided to further increase the availability of information about better priced orders by adopting an additional element of “core data” for aggregated odd-lot quotations on each exchange that are priced at or better than the NBBO.

The Commission believes that the new definition of round lot and the increased availability of better priced odd-lot information will provide investors with valuable information about the best prices available and help to facilitate more informed order routing decisions and the best execution of investor orders.

See infra

Section II.C.2(b).

Depth of Book Data Definition.

The Commission proposed a definition of depth of book data to include information about orders outside of the NBBO and PBBO because information about the depth of book on each exchange helps market participants decide where to place orders and provides information about order book imbalances and potential future price moves in a NMS stock.

See infra

Section II.F.1.

The Commission, for the reasons set forth below, is adopting the definition of depth of book data with a few modifications.

First, the definition has been modified to reflect the fact that the definition of protected quotation is not changing, so it is not necessary to identify depth of book between the NBBO and PBBO. Second, the definition has been modified to specify that the five price levels included in the definition of depth of book data are measured from the NBBO. Third, the definition has been modified to specify that the aggregate size at each of the included price levels shall be attributed to each exchange so that market participants know where liquidity resides. Lastly, depth of book data will include all quotation sizes on a facility of a national securities association, instead of only on exchanges, as proposed. Adoption of the depth of book data definition with these modifications will provide useful information to market participants and support efficient order handling and execution.

See infra

Section II.F.

Auction Information Definition.

Finally, the Commission proposed a definition of auction information to include information about orders that participate in auctions.

Auctions have become increasingly significant liquidity events. Information about the orders participating in an auction can help market participants decide whether and how to submit orders in and around an auction and understand the potential price moves upon completion of the auction. For the reasons set forth below, the Commission is adopting the definition of auction information as proposed except for a modification to specify that the definition only includes auction information that an exchange publicly disseminates on its proprietary feeds.

See infra

Section II.G.1.

D. Enhancements to the Provision of Consolidated Market Data

The Commission is adopting a new model for the provision of consolidated market data under Regulation NMS to foster a competitive environment for the dissemination of market data. Under the new decentralized consolidation model, competing consolidators will collect, consolidate, and disseminate consolidated market data products, and self-aggregators will collect and consolidate such data for their own internal use. By fostering a competitive environment for the provision and dissemination of critical market data to investors and other market participants, this new model will better achieve the goals of Section 11A of the Exchange

Act and help to ensure broad availability to brokers, dealers, and investors of information with respect to quotations for and transactions in NMS stocks that is prompt, accurate, reliable, and fair. To implement this model, the Commission is amending Regulation NMS rules and adopting a new rule and a new form for entities seeking to register as competing consolidators.

Since Congress adopted the 1975 Amendments, the Commission has not substantially updated the distribution of NMS information in the national market system to reflect how the markets operate and investors' trade. Today, markets rely on highly sophisticated electronic trading systems that can consume many points of data at speeds measured in sub-second increments. The data delivery mechanisms and data feeds established under the national market system have not kept up with the current needs of market participants. To fulfill the data needs of market participants, the exchanges have developed proprietary low-latency market data products that are designed for automated trading systems. These data products, which include data such as depth of book and order imbalance information for opening and closing auctions, are faster and more content-rich than the delivery mechanisms and content that the SROs provide pursuant to Regulation NMS and the Equity Data Plans. Because of this disparity, many market participants use the exchanges' proprietary market data products for their competitive electronic trading systems.

See infra

Section III.B.2; note 588 and accompanying text.

In addition, the exchanges have developed proprietary TOB data products for market participants that are less expensive and less content-rich than the data products that the SROs provide via the exclusive SIPs pursuant to Regulation NMS and the Equity Data Plans.

Retail investors use these proprietary TOB products, which are specific to an individual exchange or affiliated exchanges. Because they are cheaper and faster, proprietary TOB products—despite their more limited content—decrease the demand for data delivered under the Equity Data Plans.

The Commission is concerned that market participants who solely use individual exchange proprietary TOB products are not getting the full consolidated view of the market, may be missing better priced quotes on other exchanges, and may only have a partial view of the trades that were executed in the market.

The SROs are required to provide NMS information to the national market system plan(s) disseminated to market participants under Regulation NMS.

See supra

Section I.A.

Proprietary TOB products, like proprietary DOB products, are provided directly to market participants and are not centrally consolidated before dissemination as is required of SIP data under the national market system.

The Commission believes that proprietary DOB and TOB data products that decrease the utilization of SIP data highlight fundamental issues regarding the fairness, usefulness, and efficiency of NMS information and how it is distributed today. Therefore, as discussed further below, the Commission is adopting a new dissemination model for the national market system—a decentralized consolidation model that will foster a competitive environment in the provision of consolidated market data. To effect this change, the Commission is amending Rule 603 under Regulation NMS to: (1) Remove the requirement that all consolidated information for an individual NMS stock be disseminated through a single, exclusive plan processor; and (2) require each national securities exchange and national securities association to make available to competing consolidators and self-aggregators its NMS information in the same manner and using the same methods, including all methods of access and the same format, as the exchange or association makes available any quotation or transaction information for NMS stocks to any person.

Commenters who responded to this proposal expressed support and raised several issues and concerns.

See also

infra

Section III.B.9(f) discussing the applicability of Rule 603(a).

See infra

Section III.B.

For the reasons set forth below, the Commission is adopting the decentralized consolidation model largely as proposed. The new decentralized consolidation model, with its fostering of a competitive environment, will modernize the provision of consolidated market data in the U.S. markets. Today, the national market system comprises two exclusive SIPs that consolidate and disseminate certain NMS information on a non-competitive basis.

The non-competitive structure, as required under Regulation NMS, no longer adequately ensures the timely dissemination of NMS information. The Commission believes the fostering of a competitive environment and enabling the introduction of new market forces into the collection, consolidation, and dissemination process through a decentralized consolidation model will help to deliver consolidated market data to market participants in a more timely, efficient, and cost-effective manner than the current centralized consolidation model. The Commission is adopting Rule 603(b) as proposed.

The exclusive SIPs are operated by the exchanges, which also develop proprietary data products using the same data that they provide to the exclusive SIPs.

See supra

Section I.A.

See infra

Section III.B.9(b).

As part of establishing the decentralized consolidation model, the Commission is amending the definition of NBBO to remove references to the plan processors and replace them with competing consolidators and self-aggregators.

Competing consolidators will be responsible for calculating the NBBO for their subscribers and self-aggregators will be responsible for calculating their own NBBO.

Given market participants' widespread usage of proprietary market data feeds and the array of issues these participants have raised with respect to NMS information currently provided by the exclusive SIPs, many of these market participants calculate their own NBBOs from different exchange proprietary data feeds in varying locations for their own internal use rather than rely on the exclusive SIPs. These current practices, as well as existing regulatory approaches to independent data aggregation,

will help to ensure market participants are able to operate with different NBBOs calculated by different consolidators under this new model.

See infra

Section III.B.10.

Id.

See infra

Section III.B.8.

Under the new decentralized consolidation model, competing consolidators will be responsible for collecting, consolidating, and disseminating consolidated market data products to subscribers. New Rule 614 and new Form CC will govern the registration and responsibilities of competing consolidators.

Informed by comments and upon further consideration, the Commission, for the reasons set forth below, is adopting Rule 614 and Form CC largely as proposed but with certain modifications to address points raised during the comment process.

Market participants need timely consolidated market data to route and execute orders. The Commission believes entities will be incentivized to register as competing consolidators to satisfy the expected robust demand for consolidated market data products. The Commission is also modifying the requirements of Rule 614 so that competing consolidators are not required, as proposed, to offer a product

containing all elements of consolidated market data. Competing consolidators will be able to develop the consolidated market data products

that their subscribers demand.

Rule 614 requires, among other things, that competing consolidators generate consolidated market data products in a manner that is consistent with the definitions in Regulation NMS and provide monthly performance metrics. Together with the Commission's oversight of competing consolidators, these requirements will help to ensure that the dissemination of consolidated market data products by competing consolidators is prompt, accurate, reliable, and fair.

See infra

Section III.C.7.

See infra

Section III.B.3.

See

Rule 600(b)(20), which defines “consolidated market data product.”

See infra

Sections II.B.2; III.C.8(a).

Also, under the new decentralized consolidation model, self-aggregators will be able to collect and consolidate NMS information for their own internal use. As defined, a self-aggregator will be a broker-dealer, exchange, national securities association, or investment adviser registered with the Commission (“RIA”) that receives the NMS information that is necessary to generate consolidated market data from the SROs pursuant to Rule 603(b). A self-aggregator may only generate consolidated market data for its internal use. Market participants—including broker-dealers, exchanges, and RIAs—self-aggregate proprietary market data today. The Commission is adopting this provision to allow these market participants to aggregate consolidated market data for their own internal uses. Notwithstanding the adopted improvements to the collection, consolidation, and dissemination of consolidated market data with the decentralized consolidation model, some market participants will continue to need to aggregate data themselves for their own internal purposes, for a variety of business reasons.

Specifically, we are adopting a definition of self-aggregator that will permit the exchanges, the Financial Industry Regulatory Authority, Inc. (“FINRA”), and RIAs to self-aggregate for their own internal purposes, including for the purpose of sharing consolidated market data across affiliated entities that are registered with the Commission.

See infra

Section III.D.

Id.

In general, self-aggregators will not be permitted to disseminate or otherwise make available such data to any person, including customers or clients, because the Commission believes the widespread dissemination of consolidated market data must be subject to Commission oversight and, accordingly, must be performed by competing consolidators. As discussed below, competing consolidators will be subject to the registration, disclosure, and other regulatory requirements in Rule 614 and Form CC.

The competing consolidator regulatory regime should help to ensure that non-registered persons receive market data that is consolidated and delivered in a reliable and accurate manner. Although self-aggregators will not be permitted to widely disseminate consolidated market data, they will be able to share consolidated market data with their affiliated entities that are registered with the Commission. The Commission has the authority to examine registered affiliated entities and would be able to determine how a self-aggregator provides consolidated market data to a registered affiliate and how the registered affiliate uses that data, whereas the Commission does not have the authority to examine a self-aggregator's affiliated entities that are not registered with the Commission.

See infra

Section III.C.7(a)(iv).

Under the decentralized consolidation model, the effective national market system plan(s) for NMS stocks will continue to play an important role.

The plan(s) will continue, for example, to develop and propose fees for the data content underlying consolidated market data, collect and allocate revenues collected for such data, develop the monthly performance metrics for competing consolidators, and provide an annual assessment of the competing consolidator model. Therefore, as discussed further below, the Commission is directing the effective national market system plan(s) participants to file an amendment to the plan(s) pursuant to Rule 608 of Regulation NMS to reflect the new functions of the plan(s). The Commission believes that the effective national market system plan structure provides a useful mechanism to gather consensus views from a wide variety of market participants on the operation of the national market system. The provisions requiring amendment to the effective national market system plan(s) are adopted largely as proposed with a few modifications.

Currently, there are three effective national market system plans for the collection, consolidation, and dissemination of certain NMS information.

See supra

note 10 and accompanying text. The Commission has ordered the Operating Committees of these three effective national market system plans to file a single new plan.

See infra

note 1128;

See also

Geman

SEC,

334 F.3d 1183, 1186 (10th Cir. 2003) (“[T]he duty of best execution requires that a broker-dealer seek to obtain for its customer orders the most favorable terms reasonably available under the circumstances.” (quoting

Newton

Merrill, Lynch, Pierce, Fenner & Smith, Inc.,

135 F.3d 266, 270 (3d Cir. 1998)));

Kurz

. Fidelity Management & Research Co.,

556 F.3d 639, 640 (7th Cir. 2009) (describing the “duty of best execution” as “getting the optimal combination of price, speed, and liquidity for a securities trade”).

Regulation NMS Adopting Release at 37538.

See, e.g.,

infra

Sections II.F.2(h) (discussing comments received on best execution related to depth of book data); III.B.10(c) (discussing comments received on best execution related to “multiple NBBOs” and the selection of a competing consolidator).

Proposing Release, 85 FR at 16729, 52, 69.

Id.

at 16734, 55.

A broker-dealer has a legal duty to seek best execution of customer orders.

The duty of best execution derives from common law agency principles and fiduciary obligations.

It is incorporated in SRO rules

and has been incorporated into the antifraud provisions of the Federal securities laws through judicial decisions.

In addition to the best price reasonably available, speed of execution and available liquidity,

the Commission has articulated a non-exhaustive list of factors that may be relevant to broker-dealers' best execution analysis: (1) The size of the order; (2) the trading characteristics of the security involved; (3) the availability of accurate information affecting choices as to the most favorable market center for execution and the availability of technological aids to process such information; and (4) the cost and difficulty associated with achieving an execution in a particular market center.

Regulation NMS Adopting Release at 37537.

Id.

at 37538.

FINRA has codified a duty of best execution in its rules, requiring a broker-dealer to “use reasonable diligence to ascertain the best market for the subject security and buy or sell in such market so that the resultant price to the customer is as favorable as possible under prevailing market conditions.” FINRA Rule 5310, “Best Execution and Interpositioning.”

See

Regulation NMS Adopting Release at 37538.

Kurz

Fidelity, supra

note 80, 556 F.3d at 640.

Securities Exchange Act Release No. 43590 (Nov. 17, 2000), 65 FR 75414, 18 (Dec. 1, 2000). The Commission has recognized that the scope of the duty of best execution must evolve as changes occur in the market that give rise to improved executions for customer orders. Order Execution Obligations, Release No. 37619A (Sept. 6, 1996), 61 FR 48290 (Sept. 12, 1996).

While these amendments do not change a broker-dealer's duty of best execution,

the Commission recognizes that the changes to consolidated market data resulting from the amendments may be relevant to a broker-dealer's best execution analysis.

Broker-dealers must execute customers' trades at the most favorable terms reasonably available under the circumstances and must examine their procedures for seeking to obtain best execution in light of market and technology changes and modify those practices if necessary.

Both the additional data content and the new method by which such data will be disseminated represent market and technology changes that should be considered by broker-dealers in connection with their best execution obligations.

Similarly, these amendments do not change investment advisers' duty of best execution.

See generally

Commission Interpretation Regarding Standard of Conduct for Investment Advisers, Release No. IA-5248 (June 5, 2019).

The Commission will monitor the impact of these amendments on broker-dealer best execution policies and procedures and will consider whether additional steps, such as further best execution guidance, are necessary or appropriate.

See

Regulation NMS Adopting Release at 37538 (“Broker-dealers must examine their procedures for seeking to obtain best execution in light of market and technology changes and modify those practices if necessary to enable their customers to obtain the best reasonably available prices.”).

Best execution considerations may also be relevant to the selection of a market data provider and the choice to consume different data elements today.

See

FINRA, Regulatory Notice 15-46, 1, 3 n. 12 (2015) (“The exercise of reasonable diligence to ascertain the best market under prevailing market conditions can be affected by the market data, including specific data feeds, used by a firm. For example, a firm that regularly accesses proprietary data feeds, in addition to the consolidated SIP feed, for its proprietary trading, would be expected to also be using these data feeds to determine the best market under prevailing market conditions when handling customer orders to meet its best execution obligations.”).

Specifically, the availability of more data content in consolidated market data, including odd-lot information, depth of book data, and auction information, may be relevant to a broker-dealer's ability to achieve and analyze best execution because it can provide information that, in many circumstances, may be useful in making trading and order placement decisions.

In addition, the availability of more timely consolidated market data may be relevant to a broker-dealer's ability to achieve and analyze best execution because it can bear upon the accuracy of the information about the most favorable market center for executing customer orders. Therefore, broker-dealers should consider the availability of consolidated market data, including the various elements of data content and the timeliness, accuracy, and reliability of the data provided by competing consolidators, in developing and maintaining their best execution policies and procedures. Further, because richer, more timely consolidated market data may enhance the ability of broker-dealers to obtain the most favorable terms reasonably available under the circumstances, including the best reasonably available price and other factors,

for their customer orders, broker-dealers should consider the availability of consolidated market data for purposes of evaluating best execution.

See

Proposing Release, 85 FR at 16741, 54.

See supra

notes 80-81 and accompanying text.

However, while the additional data content may be relevant to broker-dealers' best execution analyses and, in many cases, will facilitate the ability of broker-dealers to achieve best execution for their customer orders, the Commission, consistent with the approach taken in the Proposing Release, is not setting forth minimum data elements needed to achieve best execution and does not expect that all market participants will need to

purchase the most comprehensive or fastest consolidated market data product available. The legal requirements that establish minimum data standards for certain purposes are not changing. Specifically, Rule 603(c) of Regulation NMS,

the Vendor Display Rule, requires SIPs and broker-dealers to provide a consolidated display, as defined in Rule 600(b)(17) of Regulation NMS,

in a context in which a trading or order routing decision can be implemented. In addition, in order to comply with Rule 611 of Regulation NMS, the Order Protection Rule, trading centers, as defined in Rule 600(b)(95) of Regulation NMS,

must have access to the protected bid and protected offer. While these rules are impacted by the new definition of round lot, and the data that must be processed and displayed will change as the definition of round lot changes, the minimum data requirements associated with these rules are not changing.

100

Additionally, market participants will need to obtain regulatory data to meet regulatory obligations and to be informed of trading halts, price bands, or other market conditions that may affect their trading activity.

101

17 CFR 242.603(c).

17 CFR 242.600(b)(17).

17 CFR 242.600(b)(95).

100

See

Proposing Release, 85 FR at 16743-46;

infra

Section II.D.2(b).

101

See

Proposing Release, 85 FR at 16760;

infra

Section II.H.

Best execution analysis varies depending upon the characteristics of customers and orders handled. For example, the data requirements for an institutional broker's smart order router (“SOR”) executing large algorithmic orders are likely different than for a small retail broker's visual display for non-professional individual investors. Given the large array of potential scenarios, the Commission cannot specify the data elements that may be relevant to every specific situation. Rather, broker-dealers must perform a best execution analysis to determine what data is relevant to obtaining best execution of customer orders, in a manner that is similar to decisions they must make today regarding whether to obtain data content that is available on a proprietary basis.

In addition, the decentralized consolidation model will change the method by which market data is disseminated by introducing competing consolidators, who will offer consolidated market data products, which broker-dealers may choose as a source of market data. The speed of execution, the availability of accurate information affecting choices as to the most favorable market center for execution, and the availability of technological aids to process such information may be relevant factors in conducting a best execution analysis.

102

While all competing consolidators will offer consolidated market data products, they may do so at different prices or at different latencies or with different amounts of data content.

103

Therefore, the selection of a competing consolidator may also be relevant to a broker-dealer's ability to achieve and analyze best execution. Competing consolidators will be required to disclose information about their consolidated market data products, including the services they will offer, the prices for such services as well as performance metrics.

104

These disclosures should help to facilitate a broker-dealer's ability to achieve and analyze best execution because they provide information regarding the timeliness, completeness, and accuracy of the market data offered by competing consolidators.

105

These disclosures also provide statistics on capacity, network delay, and latency, offering additional insight into the technical capabilities and expected performance of a competing consolidator. This information will assist a broker-dealer in selecting an appropriate competing consolidator, which will affect the broker-dealer's ability to obtain “the most favorable terms reasonably available under the circumstances” for its customer orders. The Commission believes that a broker-dealer that uses low-latency or content-rich consolidated market data, whether self-aggregated or received from a competing consolidator, for its proprietary trading, would also be expected to use those data products when pursuing the best execution of customer orders, particularly those handled within the same aggregation unit that conducts proprietary trading. For example, a broker-dealer should not use a separate, less performant data source for its customer orders than the data source used for proprietary orders that may interact with those customer orders in a manner disadvantageous to those customer orders.

106

102

See supra

notes 89 and 90 and accompanying text.

103

See infra

notes 897, 907-908 and accompanying text.

104

See infra

Section III.C.8(c).

105

See supra

note 90 and accompanying text.

106

Cf.

FINRA, Regulatory Notice 15-46,

supra

note 94.

See also

letter from Tyler Gellasch, Executive Director, Healthy Markets Association, to Vanessa Countryman, Secretary, Commission, dated May 26, 2020, (“Healthy Markets Letter I”) at 4-5; letter from Marcia E. Asquith, Executive Vice President, Board and External Relations, Financial Industry Regulatory Authority, Inc., to Vanessa Countryman, Secretary, Commission, dated May 26, 2020, (“FINRA Letter”) at 6.

II. Enhancements to NMS Information

A. Introduction

Today, most market participants utilize electronic trading systems to execute orders for themselves and for their customers. These electronic trading systems, which consume many pieces of data in an effort to trade competitively and efficiently in today's markets, are designed to analyze more information than is provided by the exclusive SIPs. Given that the current market is vastly different from when the national market system was established in the 1970s, the Commission believes that a broad cross-section of market participants would benefit from information that goes beyond SIP data to trade competitively and efficiently and that the information that is provided within the national market system needs to be augmented with new information elements. As discussed in detail below, the Commission is adopting new rules and amending certain existing rules under Regulation NMS to add new elements to the information that is collected, consolidated, and disseminated under the national market system.

By way of example, in the 1970s, trading volume in any given stock was concentrated on its listing exchange and trading largely occurred manually with individuals representing orders on exchange floors.

107

Since then, technology has fundamentally altered market operations and trading today largely occurs electronically with little human intervention.

108

Numerous other changes have also impacted how trading occurs. For example, in 2001, decimalization reduced the increment of trading from fractions to pennies and resulted in a reduction in the size of liquidity at the best prices, commonly referred to as the “top of book.”

109

The reduction in displayed order interest at the best bid or offer means liquidity is layered across multiple price levels, which makes depth of book information necessary for many market participants and trading systems to trade in an informed and effective manner.

107

See

Proposing Release, 85 FR at 16728.

108

See id.

109

See id.

at 16751.

In addition, individual odd-lot quotations, especially in high share price stocks, have become more prevalent

110

and important to market participants as individual share prices

have increased.

111

Finally, an increasing proportion of total trading volume is executed during opening and closing auctions, which has made information about orders participating in auctions increasingly important to many market participants. These changes have led market participants to call for additional information to be included in consolidated market data so that market participants can participate more fully and competitively.

112

However, very few adjustments

113

have been made to NMS information to account for these changes since the adoption of the 1975 Amendments.

110

See infra

note 240.

See also

Proposing Release, 85 FR at 16739.

111

See

Proposing Release, 85 FR at 16739 (stating that between 2004 and 2019, the average price of a stock in the Dow Jones Industrial Average nearly quadrupled).

112

See id.

at 16740 (noting multiple Roundtable panelists and commenters supported the addition of odd-lot information to SIP data), 16751-52 (noting multiple Roundtable panelists and commenters supported the addition of depth of book data to SIP data), 16758 (noting multiple Roundtable panelists and commenters supported the addition of auction information to SIP data).

113

See, e.g.,

Securities Exchange Act Release Nos. 70793 (Oct. 31, 2013), 78 FR 66788 (Nov. 6, 2013) (order approving Amendment No. 30 to the UTP Plan to require odd-lot transactions to be reported to consolidated tape); 70794 (Oct. 31, 2013), 78 FR 66789 (Nov. 6, 2013) (order approving Eighteenth Substantive Amendment to the Second Restatement of the CTA Plan to require odd-lot transactions to be reported to consolidated tape).

The Commission believes that the content of current SIP data and the mechanism by which SIP data is collected, consolidated, and disseminated has not kept pace with market developments. Therefore, the Commission is adopting these amendments to specify additional information that must be made available pursuant to the effective national market system plan(s).

114

Information about better priced orders in smaller sizes can improve investors' ability to trade at the best prices available. Further, certain market participants can more efficiently place larger sized orders that may not be fully executed at top of book prices using information about the prices of orders outside of the best bids and best offers, and they can more effectively participate in exchange auctions using relevant information about the trading interest in such auctions. Finally, market participants also need to have, and will continue to receive, regulatory information, administrative data, and other important information to participate effectively in the markets. The Commission received comments on each of these issues.

114

Section 11A(c)(1)(B) of the Exchange Act provides the Commission with the authority to, among other things, assure the fairness and usefulness of the form and content of quotation and transaction information.

As discussed more fully below, some commenters, stating that the information is not necessary for all investors, questioned the need to add new information elements.

115

While the Commission recognizes that different market participants need differing amounts of information to meet different trading objectives, the Commission believes that the availability of the new information will enhance the ability of market participants to trade competitively and efficiently and will indirectly benefit investors who place orders in the national market system even if they do not directly consume all of the new data elements by facilitating executing broker-dealers' access to information.

116

In today's market, information about odd-lot quotations, depth of book quotations, and auction information has become highly relevant. Together, these pieces of information can be significantly beneficial in facilitating informed trading decisions, and the Commission believes that they should be more widely distributed and more readily accessible. The Commission anticipates that a variety of consolidated market data products will be developed to meet the various needs investors have for data.

117

The Commission believes that the amendments will enhance the usefulness of NMS information and thus better inform trading and investment decisions for all investors, which in turn will help maintain fair and efficient markets as well as facilitate best execution of customer orders.

118

115

See, e.g.,

letter from John A. Zecca, Executive Vice President, Chief Legal Officer, and Chief Regulatory Officer, Nasdaq, to Vanessa Countryman, Secretary, Commission, dated May 26, 2020, (“Nasdaq Letter IV”) at 31-34; letter from Elizabeth K. King, Chief Regulatory Officer, ICE, and General Counsel and Corporate Secretary, NYSE, to Vanessa Countryman, Secretary, Commission, dated June 1, 2020, (“NYSE Letter II”) at 3-8; letter from Joseph Kinahan Managing Director, Client Advocacy and Market Structure, TD Ameritrade, to Vanessa A. Countryman, Secretary, Commission, dated June 1, 2020, (“TD Ameritrade Letter”) at 4.

116

See infra

Section II.C.2(a).

117

See infra

Section III.E.2(e).

118

See supra

Section I.E (discussing the implications for best execution).

Accordingly, as discussed in more detail below, the Commission is adopting several new defined terms under Rule 600 of Regulation NMS to specify, and as a result expand and enhance, the data that Regulation NMS requires to be collected, consolidated, and disseminated. Importantly, the Commission is adopting two new definitions under Regulation NMS—“consolidated market data” and “core data”—to specify the components of NMS information that are required to be collected, consolidated, and disseminated under the national market system. “Consolidated market data product” is defined as any data product developed by a competing consolidator that contains consolidated market data or any of the elements or subcomponents thereof. The Commission is also adopting additional defined terms to further set forth the scope of information included within the definitions of consolidated market data and core data. The definitions include information that is currently provided by the exclusive SIPs as well as new information designed to ensure that brokers, dealers, and investors have available information with respect to quotations for and transactions in securities that is prompt, accurate, reliable, and fair.

119

See supra

Section I.A.

B. Definition of “Consolidated Market Data” Under Rule 600(b)(19)

1. Proposal

The Commission proposed to expand the content of the NMS information that would be required to be collected, consolidated, and disseminated under the rules of the national market system through the proposed definition of “consolidated market data.” Specifically, the Commission proposed that consolidated market data would include the following data, consolidated across all national securities exchanges and national securities associations: (1) Core data; (2) regulatory data; (3) administrative data; (4) exchange-specific program data; and (5) additional regulatory, administrative, or exchange-specific program data elements defined as such pursuant to the effective national market system plan or plans required under Rule 603(b).

120

In addition, the proposed definition of consolidated market data would be used to delineate the responsibilities and obligations of the SROs under Rule 603(b) and competing consolidators under Rule 614. These rules implement the decentralized consolidation model, which is discussed in more detail in Section III below.

120

As discussed below, the Commission also proposed and is adopting definitions for “core data,” “regulatory data,” “administrative data,” and “self-regulatory organization-specific program data.”

See infra

Sections II.C, II.H, II.J, II.K, respectively.

2. Final Rule and Response to Comments

The Commission received a number of comments on the proposed expansion of NMS information related to the specific elements that make up

consolidated market data,

121

and the Commission also received some comments on the proposed definition of consolidated market data. One commenter supported the expansion of NMS information to include the proposed elements of consolidated market data.

122

Another commenter agreed with the proposed definition, stating that these data elements need to be clearly defined and categorized and that “tight definitions would assist to `preserve the integrity and affordability of the consolidated data stream.' ”

123

121

See infra

Sections II.C through II.K.

122

See

Capital Group Letter at 2.

123

TD Ameritrade Letter at 3 (quoting Regulation NMS Adopting Release).

Other commenters, however, stated that the Commission should allow additional core data elements to be included in consolidated market data through a process other than Commission rulemaking.

124

A different commenter stated that the proposed changes to consolidated market data are “not appropriately tailored to the needs of the market” and “are overly broad and unnecessarily complex.”

125

Another commenter, while agreeing that the definition of consolidated market data should be defined as proposed, suggested that it should only include depth-of-book data, certain odd-lot information, and three options for including auction data.

126

124

See

Clearpool Letter at 11 (stating that the Commission should provide flexibility in the definition of core data or the process by which the elements of core data are determined); RBC Letter at 4 (stating that the proposed definition of core data should serve as a “floor” that the Operating Committee should be permitted to expand upon (but not reduce) pursuant to Plan amendments); letter from Emil R. Framnes, Global Head of Trading, and Simon Emrich, Market Structure and Trading Research, Norges Bank Investment Management Letter, to Vanessa Countryman, Secretary, Commission (“NBIM Letter”) at 5 (“[I]t might be prudent to allow for further modification of the definition of core data as market structure evolves.”).

125

NYSE Letter II at 3.

126

See

letter from Kelvin To, Founder and President, Data Boiler Technologies, LLC, to Vanessa Countryman, Secretary, Commission, dated May 26, 2020, (“Data Boiler Letter I”) at 19-20. However, this commenter also stated that administrative data should be included in the proposed definition of consolidated market data.

See id.

at 34.

The Commission is adopting the definition of consolidated market data largely as proposed.

127

As discussed in detail below,

128

the Commission continues to believe that expanding the NMS information that is required to be provided under the rules of the national market system, as set forth in the definition of consolidated market data, would support more informed trading and investment decisions by market participants in today's markets and facilitate the best execution of customer orders by the full range of broker-dealers.

129

As reflected in comments received from a variety of market participants, each of the elements of consolidated market data—and in particular the expansion of core data to include quotation interest in smaller orders of higher-priced stocks, depth of book data, and auction information—would provide significant, useful information to market participants.

130

Consistent with the views of market participants—many of whom will be the users of consolidated market data—that this data would be useful to them to improve investment decisions and facilitate the best execution of customer orders, the Commission believes that the definition of consolidated market data is “appropriately tailored” to market participants' needs, that it is not overly broad, and that it does not entail unnecessary complexity.

131

In addition, the proposed decentralized consolidation model permits competing consolidators to offer, and market participants to consume, customized market data products that suit their particular needs. This flexibility addresses concerns that consolidated market data is overly broad or unnecessarily complex because it allows competing consolidators and their subscribers to adjust the breadth and complexity of the market data products they offer and consume, respectively.

132

On the other hand, limiting consolidated market data to only depth of book data, certain odd-lot information, and auction data, as one commenter suggested, would not include regulatory data—such as information regarding trading halts and price bands—that the Commission believes is necessary to trade effectively and efficiently.

133

127

The Commission is modifying the definition of exchange-specific program data to be self-regulatory organization-specific program data.

See infra

Section II.K.

128

See infra

Sections II.C through II.K.

129

See

Proposing Release, 85 FR at 16735.

See also

infra

Section II.C.2(a);

supra

Section I.E.

130

See infra

Sections II.C through II.K.

131

See

NYSE Letter II at 3.

132

See infra

Section III.

See also

infra

notes 139 and 140 and accompanying text (discussing the Commission's adoption of the new defined term “consolidated market data product”).

133

See infra

Section II.H.

In response to comments recommending a more streamlined or flexible process to include additional data elements in core data,

134

the Commission agrees that the definition of consolidated market data should permit additional data elements to be added pursuant to effective national market system plan amendments. However, the Commission continues to believe that this process should be limited to future regulatory, administrative, or self-regulatory organization-specific program information.

135

As discussed below,

136

the transaction and quotation information reflected in the definition of core data—including best bids and offers, the NBBO, protected quotations, last sale data, depth of book data, and auction information—is specified in the rule.

137

The rule as proposed and adopted is designed to account appropriately for additional regulatory, administrative, and self-regulatory organization-specific program information data elements that may emerge periodically through the approval of new SRO rules or the development and refinement of technical specifications to be included in consolidated market data through the effective national market system plan amendment process.

138

134

See

Clearpool Letter at 11.

135

See

Proposing Release, 85 FR at 16734.

136

See infra

Sections II.C through II.G.

137

The Commission will continue to monitor the usefulness of these core data elements to market participants and consider whether any modifications to the definition of core data are necessary or appropriate as the markets evolve. Interested persons also may petition the Commission to amend such definition if they believe particular changes are warranted.

138

See infra

Sections II.H, II.J, and II.K. Both SRO rule changes and effective national market system plan amendments are subject to the public notice and comment process, as well as Commission review.

See

Exchange Act Section 19(b)(1), 15 U.S.C. 78s(b)(1); 17 CFR 240.19b-4 (Rule 19b-4); Rule 608(b) of Regulation NMS, 17 CFR 242.608(b).

The Commission is defining a new term, “consolidated market data product” to mean any data product developed by a competing consolidator that contains consolidated market data or components of consolidated market data. The definition of consolidated market data product also specifies that components of consolidated market data include the enumerated elements, and any subcomponent of the elements, of consolidated market data in § 242.600(b)(19) and that all consolidated market data products must reflect data consolidated across all national securities exchanges and national securities associations.

139

As discussed further below, Rule 614 will require competing consolidators to offer one or more consolidated market data products to their subscribers, and will not, as proposed, require them to offer a product that contains all elements of consolidated market data.

140

In addition, the Commission recognizes that some market participants will not want or need a consolidated market data

product that contains all elements of consolidated market data.

139

See infra

Section VIII.

140

See infra

Section III.C.8(a).

3. The Fifth Amendment's Takings Clause

The Constitution's Takings Clause prevents the taking of private property for public use without just compensation.

141

One commenter stated that the proposal to expand the data that would be required to be provided under Regulation NMS would violate the Takings Clause by “effecting a physical taking . . . without just compensation.”

142

The commenter asserted that the proposal would require it to “turn over vast amounts of their proprietary market data—valuable property that Nasdaq currently sells to market participants at a reasonable rate of return—to competing consolidators and self-aggregators at prices set by the operating committee of the consolidated NMS plan.”

143

The commenter stated that the government would “expropriate property belonging to Nasdaq and redistribute it to Nasdaq's competitors at prices set, in part, by the non-SRO members of the consolidated NMS plan's operating committee” that would be “laboring under a conflict-of-interest and would have no incentive to pay `just compensation' for the property taken from Nasdaq.”

144

141

U.S. Const. amend. 5 (“No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury, except in cases arising in the land or naval forces, or in the militia, when in actual service in time of war or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.”).

142

Nasdaq Letter IV at 50.

143

Id.

144

Id.

at 50-51.

Neither the expansion of NMS information pursuant to the definition of consolidated market data nor the requirement that national securities exchanges and associations make the data necessary to generate consolidated market data available to competing consolidators and self-aggregators constitutes a taking for the following reasons. The Commission's action does not encroach on or appropriate any property. The exchanges developed their proprietary data within a highly regulated statutory and regulatory structure that provides the Commission with ample authority to decide—and revise—which types of information the exchanges must provide to market participants to fulfill their responsibilities under the Exchange Act.

145

Moreover, the SROs will be compensated for making the data necessary to generate consolidated market data available to competing consolidators and self-aggregators pursuant to fees established by the effective national market system plan(s). Even if non-SRO members of plan Operating Committees have a degree of authority to influence proposed consolidated market data fees, the Commission retains authority to ensure that those fees are “fair and reasonable” and “not unreasonably discriminatory.” The exchanges thus had no reasonable basis to expect that the current regulatory structure would remain in place in perpetuity in this highly regulated field, and, in any event, they will not be deprived of the economic benefits of the information they will provide to market participants.

146

145

See supra

note 5.

146

See Ruckleshaus

. Monsanto Co.,

467 U.S. 986, 1005-07 (1984) (noting that the reasonableness of an investment-backed expectation depends in part on whether the regulated activity has been in an area “that has long been the source of public concern and the subject of government regulation”);

District Intown Properties Ltd. P'ship

District of Columbia,

198 F.3d 874, 884 (D.C. Cir. 1999) (“Businesses that operate in an industry with a history of regulation have no reasonable expectation that regulation will not be strengthened to achieve established legislative ends.”);

Me. Educ. Ass'n Benefits Tr.

. Cioppa,

695 F.3d 145, 154 (1st Cir. 2012) (the plaintiff's “expectations are substantially diminished by the highly regulated nature of the industry in which it operates”).

C. Definition of “Core Data” Under Rule 600(b)(21)

1. Proposal

As stated in the Proposing Release,

147

Regulation NMS does not contain a definition of “core data,” although various Regulation NMS rules describe the information that is required to be collected, consolidated, and disseminated under Regulation NMS.

148

The Commission proposed defining “core data” to include the information currently referred to as core data—last sale data, each SRO's best bid and best offer (“BBO”), and the NBBO

149

—along with new information that is not currently required to be provided under Regulation NMS or by the exclusive SIPs. The proposed new information included quotation data for smaller-sized orders in higher-priced stocks (pursuant to a new definition of “round lot”), information on certain quotations below the best bid or above the best offer (pursuant to a new definition of “depth of book data”), and information about orders participating in auctions (pursuant to a new definition of “auction information”). Specifically, the proposed definition of core data included: (A) Quotation sizes; (B) aggregate quotation sizes; (C) best bid and best offer; (D) national best bid and national best offer; (E) protected bid and protected offer; (F) transaction reports; (G) last sale data; (H) odd-lot transaction data disseminated pursuant to the effective national market system plan or plans required under § 242.603(b) as of [date of Commission approval of this Adopting Release]; (I) depth of book data; and (J) auction information.

147

See

Proposing Release, 85 FR at 16730.

148

See, e.g.,

Rules 601, 602, and 603 of Regulation NMS.

149

See supra

note 16.

Additionally, the proposed definition of core data specified how odd-lots are to be aggregated for purposes of certain data elements included within the definition of core data. Specifically, the proposed definition stated that the best bid and best offer, national best bid and national best offer, and depth of book data shall include odd-lots that when aggregated are equal to or greater than a round lot, and that such aggregation shall occur across multiple prices and shall be disseminated at the least aggressive price of all such aggregated odd-lots.

150

As discussed below, the proposed definition of core data also specified an odd-lot aggregation methodology for protected quotations.

See infra

Section II.E.2(b).

Finally, the proposed definition of core data did not include certain information—specifically, OTC Bulletin Board (“OTCBB”) data, and corporate bond and index data—that is currently provided by the exclusive SIPs.

151

See

Proposing Release, 85 FR at 16736.

2. Final Rule and Response to Comments

(a) Expansion of Core Data, Generally

Multiple commenters supported the expansion of NMS information generally

152

and of core data

153

particular.

154

One commenter, “agree[ing] that the proposed information to be included in core data has become much more important to broker-dealers in recent years . . .,” “strongly support[ed] expanding core data to include additional information of significance to investors.”

155

Another commenter stated that “add[ing] more pricing information to the consolidated tape . . . would be a fundamental improvement that would expand data access to Main Street investors in a very meaningful way.”

156

A different commenter said that “all data is `core data.' ”

157

152

See

T. Rowe Price Letter at 1-2 (“Expanding the content of NMS information would improve its utility when consumed electronically (

e.g.,

by algorithmic trading systems or smart order routers).”); BlackRock Letter at 2 (“BlackRock is supportive of expanding and revamping the content of NMS information. We agree that this would help to reduce information asymmetries between market participants who rely upon SIP data and those who purchase proprietary data feeds from the national securities exchanges.”).

153

See

Clearpool Letter at 11 (supporting “the inclusion of this additional information in core data, which can reduce the reliance on exchanges' proprietary data feeds and provide market participants with additional information to make informed order routing and execution decisions,” while also “recommend[ing] that the Commission require a `retail interest indicator' to be added to quotes to assist market participants in defining what portion of the quote is attributable to retail interest”); RBC Letter at 4 (stating that RBC “generally support[s] the Proposal's definition of Core Data”); letter from Tim Lang, Chief Executive

Officer, ACS Execution Services, LLC, to Vanessa Countryman, Secretary, Commission, dated May 26, 2020, (“ACS Execution Services Letter”) at 2; IEX Letter at 2 (“We support the Market Infrastructure Proposal because it will update the content of `core data' to better reflect the information needed to participate in today's markets . . . .”); ICI Letter at 4 (“We support the Commission expanding the scope of core data, which will benefit funds and their shareholders.”).

154

As discussed below, many commenters also expressed views on the specific elements of the definition of core data.

See infra

Sections II.D; II.E; II.F; II.G.

155

ACS Execution Services Letter at 2.

156

Letter from Jeffrey T. Brown, Senior Vice President Legislative and Regulatory Affairs, Charles Schwab & Co., Inc., to Vanessa Countryman, Secretary, Commission, dated May 26, 2020, (“Schwab Letter”) at 2-3.

157

Virtu Letter at 2, 5 (“[T]he `core data' offered through the SIPs is no longer sufficient for most market participants to trade competitively in today's marketplace.”).

Some commenters opposed the expansion of core data, however. One commenter, though agreeing that Regulation NMS should define core data, stated that the new proposed core data elements are not necessary or useful for all market participants but will raise the costs of core data for all market participants by requiring them to receive and process core data to meet their regulatory obligations.

158

Similarly, another commenter, though supportive of the Commission formally defining core data in its regulations, argued that the proposed definition was “poorly designed” because it “only consider[s] the requirements of market participants that need, and are able to consume, a richer data set” and that the proposed definition “would require non-professional investors who do not need such rich data to purchase and consume even more unnecessary data elements (

e.g.,

depth of book data) than the current SIP product provides.”

159

Another commenter argued that the Commission falsely assumed that the decision by some market participants to supplement current core data with proprietary data means that this additional data is necessary to all market participants and investors, and that the expanded set of information included in the proposed definition of core data “is neither necessary nor relevant to the business models and trading or investment strategies of many, if not most, ordinary investors and market participants.”

160

Additionally, the commenter stated that the Commission “failed to collect data regarding whether any meaningful number of market participants that desire access to non-core data are actually unable to obtain it, either directly from exchanges or indirectly (and often free of charge) from their brokers.”

161

158

See

TD Ameritrade Letter at 3.

159

NYSE Letter II at 3-4.

160

Nasdaq Letter IV at 7-8.

161

Id.

at 8 (footnote removed).

See also

NYSE Letter II at 3-8; TD Ameritrade Letter at 4.

The Commission is adopting the definition of core data largely as proposed, as discussed further below.

162

In the Proposing Release, the Commission stated its preliminary belief that the content of core data has not kept pace with market developments and that the proposed expansion of core data would enhance its usefulness to address the needs of a broad cross-section of market participants.

163

Comments received from a variety of market participants—including exchanges, buy-side firms, and sell-side firms—have borne this out. Numerous commenters expressed support for the proposed definition of core data, stating that the specific subcomponents of core data, such as five levels of depth of book data, would help market participants to trade more effectively.

164

Several commenters also pointed out that expanding core data would promote a wider dissemination of this data, including to market participants who cannot afford expensive proprietary feeds.

165

For the reasons discussed in the Proposing Release and as set forth in detail below with respect to the specific elements of core data,

166

the Commission believes that the expanded definition of core data will be useful to market participants and will help fulfill needs that are not currently being met by SIP data. Additionally, and for the same reasons, the Commission disagrees with comments suggesting that proposed core data would not be useful to many market participants, that proprietary market data products are adequately meeting the needs of all market participants, and that all market participants that have a need to access

these products are able to do so. Rather, the definition of core data specifies important information that would be useful to a wide variety of market participants—including those who do not obtain it through proprietary market data products today—and facilitates a broader dissemination of this information.

167

162

The Commission is revising the proposed definition of core data to include odd-lots priced at or better than the NBBO, to specify how quotation sizes are to be displayed in core data, and to require SRO attribution of core data elements. The Commission is also modifying the proposed definitions of depth of book data and auction information and is not adopting the proposed amendments to the definition of protected bid or protected offer, which definitions are embedded in the definition of core data. The particular elements of the definition of core data are discussed below.

See infra

Sections II.C.2(b); II.D; II.E; II.F; II.G.

163

See

Proposing Release, 85 FR at 16735-76.

164

See, e.g.,

T. Rowe Price Letter at 2 (“We believe the addition of depth of book data (specifically, the five price levels above the protected offer and below the protected bid) and auction imbalance information, including opening, reopening, and closing auctions, will make SIP data a much more viable alternative to proprietary market data. . . . This additional data will help reduce the information asymmetries that currently exist between SIP data and proprietary data.”); ACS Execution Services Letter at 2 (“ACS strongly supports expanding core data to include additional information of significance to investors. As the proposal notes, through the provision of such additional information, market participants may have access to data to make better routing and trading decisions.”).

165

See, e.g.,

Virtu Letter at 5 (“[I]ncluding depth of book information in the SIP will allow investors who cannot afford to pay for costly Exchange proprietary feeds to trade more competitively in the marketplace, and we believe five levels of depth of book is a reasonable and appropriate place to land.”); Clearpool Letter at 11 (“[C]urrently, the `core data' provided through the SIP only includes the NBBO and top-of-book data. For this reason, there continues to be no viable alternatives for broker-dealers to paying exchanges for their proprietary market data, both to provide competitive execution services to clients and, equally important, to meet best execution obligations. Clearpool therefore strongly supports the inclusion of this additional information in core data, which can reduce the reliance on exchanges' proprietary data feeds and provide market participants with additional information to make informed order routing and execution decisions.”); IEX Letter at 5-6 (“For these reasons, the NBBO no longer encompasses the `core data' that market participants need to stay competitive and satisfy best execution responsibilities. The fact that depth of book data can only be obtained through exchange proprietary data feeds allows exchanges to charge extraordinarily high prices completely disproportionate to any reasonable estimation of the cost of producing that data. . . . Importantly, however, to the extent that a significant subset of market participants could rely on this data as a viable alternative to purchasing proprietary data, or could viably choose to purchase less proprietary data than they need today, it could help to harness market competition to restrain data fee increases that today are largely unrestrained.”); letter from James J. Angel, Associate Professor of Finance, Georgetown University, to the Commission, dated June 12, 2020, (“Angel Letter”) at 7-8 (“Providing data on a visibly level playing field will increase public trust in the integrity of the markets. . . . Freely available information about the entire market, including orders inside the spread and the depth of book, will reduce the asymmetry of information in the market between small retail investors and larger players. This added transparency will reduce the notion that markets are `rigged' in favor of larger players.”).

166

See

Proposing Release, 85 FR at 16735-59 (discussing market developments such as rising stock prices and increased odd-lot trading, decimalization, and the growth of auctions and the need to expand core data to include smaller-sized orders in higher priced stocks, depth of book data, and auction information to help market participants use core data to trade in a more informed and effective manner in light of these developments);

infra

Sections II.D through II.G.

167

See supra

note 114 (describing the authority under Section 11A of the Exchange Act to specify additional information that must be made available within the national market system); Section I.A (explaining the need to improve and modernize the national market system to fulfill the goals of Section 11A of the Exchange Act and to meet the current core data needs of all market participants). As stated below, some market participants stated that those who do not buy the exchange proprietary DOB feeds and associated connectivity and transmission offerings are at a competitive disadvantage relative to market participants who purchase these feeds.

See infra

note 1620 and accompanying text.

See also

infra

Sections III.E.2(c); V.C.2(b)(i)a (discussing how the amendments will affect data content fees).

In addition, the Commission disagrees with comments that the definition of core data would require market participants, including non-professional investors, to purchase or consume all data that would be defined as core data, and thereby increase the cost of core data for all.

168

Competing consolidators are not required to offer a data product that includes all consolidated market data,

169

and the Commission has explicitly stated that the proposed definitions of core data and consolidated market data do not “mandat[e] the consumption” of particular data elements.

170

Thus, the Commission believes it has considered and addressed the needs of market participants that do not directly need all elements of core data. The purpose of expanding core data is to promote wider dissemination of data that will be useful in meeting the needs of a broad array of market participants. As explained below, the enhanced core data content will benefit all investors, regardless of whether they directly consume it.

171

Furthermore, the Operating Committee of the effective national market system plan(s) could develop fees for data content underlying consolidated market data offerings for different subsets of consolidated market data to suit the needs of various market participants, as one member of the Operating Committee has already suggested.

172

Within this framework, the Commission believes that the market would develop to enable market participants to consume and pay for the market data that best suits their needs and that there would be downward pressure on data content fees.

173

168

See

TD Ameritrade Letter at 3; NYSE Letter II at 3-4; Nasdaq Letter IV at 7-8.

169

See infra

Section III.C.8(a).

170

Proposing Release, 85 FR at 16775.

171

See infra

notes 174-176 and accompanying text.

172

See

letter from Elizabeth K. King, Chief Regulatory Officer, ICE, General Counsel and Corporate Secretary, NYSE to Vanessa Countryman, Secretary, Commission, dated Feb. 5, 2020, (“Feb. NYSE Letter”) (recommending that the Commission expand SIP content and “create products designed for modern use cases, including a SIP product with depth-of-book quotes for institutional traders and a National Best Bid and Offer (`NBBO') only version for retail customers, with fees based on content entitlements (or levels) instead of user type”).

See also

infra

notes 1201-1208 and accompanying text.

173

See supra

note 28 (describing comments received by the Commission regarding the high cost of proprietary data products that contain data needed for effective participation in the markets);

infra

Sections III.E.2(c); V.C.2(b)(i)a (discussing how the amendments will affect data content fees).

Moreover, the Commission believes that all investors will benefit, directly or indirectly, from the expanded definition of core data. Even if only a subset of market participants may choose to acquire directly a data product that includes the full set of data elements included within the definition of core data, the Commission believes that there will be ample demand for expanded core data

174

and a corresponding incentive for competing consolidators to offer more content-rich products. The Commission expects that direct purchasers of such products likely will include many broker-dealers that are electronically routing orders for execution or executing orders internally. As discussed below, the additional data elements included within the definition of core data are useful to efficiently and effectively route and execute orders in today's dispersed electronic markets,

175

and their widespread availability should facilitate broker-dealers' ability to achieve best execution for customers.

176

Thus, broker-dealers will be incentivized to acquire products containing the expanded core data elements to compete effectively for customer business. In addition, by including these additional, important market data elements as part of expanded core data, this rulemaking should help facilitate executing broker-dealers' access to information, to the benefit of all investors. Accordingly, while the Commission expects only some market participants to choose to purchase a data product that includes the full set of core data, any market participant that submits an order in an NMS stock should benefit indirectly from their doing so because more executing broker-dealers will receive the data elements that will help them place customer orders in a more informed and effective manner.

174

See infra

notes 878-880;

supra

notes 163-167 and accompanying text.

175

See infra

notes 878-880 and accompanying text.

176

See supra

Section I.E.

Finally, in response to the comment recommending that a “retail interest indicator” be added to quotes,

177

the definition of self-regulatory organization-specific program information already incorporates retail interest indicators disseminated in current SIP data and established pursuant to exchange retail liquidity programs in the definition of consolidated market data.

178

177

See

Clearpool Letter at 6.

178

See infra

Section II.K.

(b) Odd-Lot Quotations

In the Proposing Release, the Commission solicited comment on whether core data should include odd-lot quotations, but did not include odd-lot quotes in the definition of core data other than by incorporating them through the proposed definition of round lot.

179

Several commenters recommended directly including odd-lots in core data rather than doing so through the mechanism of the proposed definition of round lot.

180

Specifically, one commenter suggested including odd-lots priced better than the PBBO in core data,

181

and another suggested including the best-priced odd-lot quotation from each exchange.

182

Another commenter supported the Commission's aim of increasing odd-lot transparency for higher priced securities but questioned doing so through the proposed definition of round lot.

183

One commenter recommended adding unprotected odd-lots to core data, combined with best execution guidance on broker-dealer obligations with respect to odd-lot quotations, rather than redefining round lot.

184

Similarly, another commenter recommended including odd-lot quotations in core data while leaving the definition of round lot as it currently stands.

185

different commenter recommended delaying odd-lots to mitigate the impact on processing times.

186

On the other hand, one commenter expressed concerns that adding odd-lot quotations to core data would harm investor confidence in the markets resulting from confusion over protected and unprotected quotes and increased costs and latency for core data by adding more information that needs to be disseminated.

187

A different commenter presented data showing that, for a significant percent of orders in each of the Commission's proposed round lot tiers, there would still be a contra-side odd-lot quote better than the NBBO.

188

179

See

Proposing Release, 85 FR at 16746.

180

See

letter from Patrick Sexton, Executive Vice President, General Counsel, and Corporate Secretary, Cboe, to Vanessa Countryman, Secretary, Commission, dated May 26, 2020, (“Cboe Letter”) at 15; NYSE Letter II at 5; Nasdaq Letter IV at 14; RBC Letter at 5; letters to Vanessa Countryman, Secretary, Commission, from Kimberly Unger, Chief Executive Officer and Executive Director, STANY, dated June 11, 2020, (“STANY Letter II”) at 3; Anders Franzon, General Counsel, MEMX LLC, dated May 26, 2020, (“MEMX Letter”) at 2 (“[A]ll data currently made available through proprietary data feeds should be available through NMS data feeds. This includes complete depth-of-book data (and thus all odd lot data). . . .”).

181

See

CBOE Letter at 15.

182

See

NYSE Letter II at 5.

183

See

Nasdaq Letter IV at 14.

184

See

RBC Letter at 5.

185

See

STANY Letter II at 3.

186

See

Data Boiler Letter I at 19.

187

See

TD Ameritrade Letter at 4-5.

188

Memorandum from the Division of Trading and Markets regarding a June 19, 2020, meeting with representatives of JP Morgan (“JP Morgan Memo to File”) at 2 (“Under today's rules: 11.6% of orders contain a contra-side oddlot [sic] quote better than the NBBO. Under SEC's proposed round lot parameters: (i) Bucket A ($50.00 and less)−100 share round lot−6.3% of orders would still contain a contra-side oddlot [sic] quote better than the NBBO; (ii) Bucket B (between $50.01 and $100.00)−20 share round lot−10.9% of orders would still contain a contra-side oddlot [sic] quote better than the NBBO; (iii) Bucket C (between $100.01 and $500.00)−10 share round lot−11.6% of orders would still contain a contra-side oddlot [sic] quote better than the NBBO; (iv) Bucket D (between $500.01 and $1,000.00)−2 share round lot−23% of orders would still contain a contra-side oddlot [sic] quote better than the NBBO; (v) Bucket E ($1,000.01 and higher)−1 share round lot−all quotes are at round lot levels.”).

The Commission continues to be concerned that the availability of odd-lot order information solely to market participants who have purchased proprietary market data products creates a potentially significant information asymmetry relative to market participants who purchase only SIP data.

189

For the reasons discussed below, the Commission is also modifying the definition of round lot.

190

While the proposed definition of round lot, as modified, would incorporate a substantial proportion of odd-lot quotations that occur at a price better than the NBBO for certain higher-priced stocks, the Commission is concerned that a significant amount of liquidity that could be available at better prices would be excluded from core data.

191

After considering comments, and given that the adopted round lot definition, on its own, would have resulted in less odd-lot information being included in core data, the Commission is adopting a definition of core data that includes all odd-lots that are priced at or better than the NBBO, aggregated at each price level at each national securities exchange and national securities association.

189

Proposing Release, 85 FR at 16741.

190

See infra

Section II.D (explaining that the Commission is adopting a four-tiered definition of round lot rather than the five-tiered definition that was proposed).

191

See

JP Morgan Memo to File at 2.

As summarized in Tables 1 and 2 below, staff analyzed data on the portion of all corporate stock and ETF volume executed on an exchange, transacted in a quantity less than 100 shares, at a price better than the prevailing NBBO, occurring in a quantity that would be defined as a round lot under both the adopted and proposed definitions of round lot.

Table 1

Adopted round lot tier

Adopted round lot definition

Portion of all corporate stock and ETF volume executed on an exchange, transacted in a quantity less than 100 shares, at a price better than the prevailing NBBO, occurring in a quantity that would be defined as a round lot under the adopted definition of round lot

$0-$250.00

100 Shares

0%.

$250.01-$1,000

40 Shares

65.35%.

$1,000.01-$10,000.00

10 Shares

88.28%.

$10,000.01 or more

1 share

100.00%.

Source: Equity consolidated data feeds (CTS and UTDF), as collected by MIDAS (May 2020); NYSE Daily TAQ.

Table 2

Proposed round lot tier

Proposed round lot definition

$0-$50

100 shares

0%.

$50.01-$100

20 shares

86.32%.

$100.01-$500

10 shares

93.57%.

$500.01-$1,000

2 shares

98.85%.

$1,000.01 or more

1 share

100%.

Source: Equity consolidated data feeds (CTS and UTDF), as collected by MIDAS (May 2020); NYSE Daily TAQ.

In comparison to the proposed tiers, the round lot tiers in the final rule would have excluded a significant proportion of better-priced odd-lot liquidity, particularly for stocks priced between $50.01 and $250.00, and thus would not have included this liquidity in core data absent the Commission also including certain odd-lots in the definition of core data.

The Commission believes that this better-priced odd-lot liquidity needs to be reflected in core data because it will help investors and other market participants to trade in a more informed and effective manner and to achieve better executions and reduce the information asymmetries that currently exist between subscribers to SIP data and subscribers to proprietary data. However, the Commission continues to be concerned that adding all odd-lot quotations, particularly those at less aggressive price levels, could “burden systems, increase complexity, and degrade the usefulness of information in a manner that may not be warranted by the relative benefit of the additional information to investors and market participants” and that the inclusion of

odd-lot quotations in proposed core data should be “reasonably calibrated.”

192

Proposing Release, 85 FR at 16741.

Therefore, the Commission is modifying the proposed definition of core data to include odd-lots that are priced at or more aggressively than the NBBO.

193

Specifically, pursuant to the revised definition of core data that the Commission is adopting, core data will include odd-lot quotations priced greater than or equal to the national best bid and less than or equal to the national best offer, aggregated at each price level at each national securities exchange and national securities association, in addition to odd-lot transaction data.

194

Making the best priced quotations available in core data is consistent with the Commission's goals in expanding the content of NMS information: Enhancing the availability and usefulness of the information, reducing information asymmetries, and facilitating best execution. In addition, this modification is reasonably calibrated to include the odd-lot quotation data that would be of the most interest to investors and other market participants—namely, quotations that offer pricing at or superior to the NBBO—thus limiting complexity and systems burdens, and therefore costs, relative to alternatives such as including all odd-lot quotations.

195

193

As discussed below, the Commission is adopting a standard odd-lot aggregation methodology for all elements of core data, including the NBBO, wherein odd-lots across multiple price levels would be aggregated and disseminated at the least aggressive price.

See infra

Section II.C.2(d). As a result, odd-lots priced at or better than the NBBO could be both included in the NBBO and displayed in the aggregate at each price level by exchange. The Commission believes that this is appropriate, since the NBBO and odd-lot interest at or better than the NBBO provide independently valuable information to market participants. For example, odd-lots priced at or better than the NBBO are beneficial for order routing and achieving best execution, while the NBBO is protected under Rule 611 and must be provided in certain contexts pursuant to the Vendor Display Rule (Rule 603(c)). Additionally, as discussed below, competing consolidators will have the ability to customize data products for their customers, allowing investors to receive only the information they are able to process, so the Commission does not believe that including better-priced odd-lots both at each price level at each exchange and as part of an aggregated round lot would confuse investors.

194

The Commission is adding odd-lots priced at or better than the NBBO through a new definition, “odd-lot information,” that is included in the definition of core data. The definition of odd-lot information will include both odd-lots priced at or better than the NBBO and odd-lot transaction data. Odd-lot transaction data, which was added to SIP data by the national market system plans in 2013 (

see

Proposing Release, 85 FR at 16739), was proposed to be included in core data as a separate element, but the Commission believes it will simplify the definition of core data to include in a single defined term as “odd-lot information” odd-lots priced at or better than the NBBO and odd-lot transaction data.

See infra

Section VIII.

195

As discussed below, odd-lots priced less aggressively than the NBBO are not included in core data unless they aggregate to a round lot and are within the first five price levels after the NBBO.

See infra

Section II.F.2(e) (discussing odd-lot aggregation in the depth of book context).

The Commission is also adopting the proposed inclusion of odd-lot transaction data in the definition of core data, through the definition of odd-lot information.

196

Odd-lot transaction data is included in SIP data today, and it constitutes part of the baseline information that provides the foundation of transparency and price discovery in the U.S. securities markets.

197

The Commission therefore believes that it should be included in the definition of core data so that investors and other market participants who consume core data can continue to use it to make informed trading and investment decisions.

198

196

See supra

note 194.

197

See

Proposing Release, 85 FR at 16736, 16739.

198

See also

infra

Section II.C.2(c) (discussing why certain other data that is included in SIP data today is not included in core data but will be available through other means).

To further limit the cost and complexity of the inclusion of odd-lots priced at or better than the NBBO in core data, the definition of core data requires these odd-lots to be represented in the aggregate at each price level at each national securities exchange or national securities association rather than on an order-by-order basis.

199

Finally, as discussed below, the Commission is modifying the proposed definition of round lot, which, relative to the proposal, will reduce the number of round lot tiers and eliminate certain better priced quotation information from the NBBO.

200

However, the inclusion of odd-lot quotes priced at or better than the NBBO will make available additional quotation information market participants can use to trade in a more informed and effective manner, which counterbalances this reduction in information.

199

This would not reintroduce a single-price-only odd-lot aggregation methodology in the same sense that prompted concerns from some commenters.

See infra

note 232 and accompanying text; Section II.C.2(d). Aggregating better-priced odd-lots at each price level at each exchange is not the same as aggregating odd-lots into round lots. Rather, it simply means that better-priced odd-lot orders will be represented in core data in terms of the total number of shares available at each price level at each exchange rather than on an order-by-order basis. For example, if the NBB for XYZ, Inc. is 100 shares at $25.00, and there are three orders of five shares and two orders of ten shares at $25.01 on Exchange A, a competing consolidator's core data product would show 35 shares at $25.01 on Exchange A.

200

See infra

Section II.D (stating that increasing the minimum stock price for the first sub-100 share round lot tier from $50 to $250 will not improve odd-lot transparency for stocks priced between $50 and $250).

See also

supra

Tables 1 and 2.

The Commission believes that including only the best-priced odd-lot quote from each exchange, as one commenter suggested,

201

would not include sufficient information about better-priced odd-lot liquidity in core data. Because for many securities there are odd-lot quotes priced better than the NBBO at multiple price levels,

202

the Commission believes that including only the best-priced odd-lot quote from each exchange in core data would perpetuate some of the critical information asymmetries between SIP data and proprietary data and could impair the usability of core data for many market participants.

201

See

NYSE Letter II at 5.

202

In response to the comment suggesting only including the best-priced odd-lot quote from each exchange, staff supplemented the analysis above (

see, e.g.,

Tables 1 and 2) that evaluated the volume of trades occurring in a quantity that would be defined as a round lot under the adopted definition, by also considering the volume of quotation data for the week of May 22-29, 2020, for stocks priced from $250.01 to $1000.00, which will have a round lot size of 40 shares pursuant to the modified definition of round lot that the Commission is adopting herein. Staff found that there is odd-lot interest priced better than the new round lot NBBO 28.49% of the time, and, in 48.49% of those cases, there are better priced odd-lots at multiple price levels, confirming the view that only including the best-priced odd-lot quote from each exchange would not include sufficient information about better-priced odd-lot liquidity in core data.

Furthermore, the Commission does not share the view of some commenters that its adoption of a modified definition of core data that incorporates odd-lots priced at or better than the NBBO is an alternative to redefining round lot sizes. Defining smaller-sized orders in higher-priced stocks as round lots, in addition to providing transparency into such quotations, ensures that these smaller-sized orders can establish the NBBO, receive order protection, and invoke the applicability of several other rules under Regulation NMS.

The Commission does not agree that including quotation information about odd-lot orders priced at or better than the NBBO in core data, and enabling more investors to see and access this information, will undermine investor confidence in the markets resulting from potential confusion over protected versus unprotected quotes.

203

As is the case today, Rule 611 will not protect these odd-lot orders except to the extent that they are aggregated into round lots. Investors and other market participants who do not believe they need to consume information on odd-lots priced at or better than the NBBO may choose not to do so, and therefore the

Commission does not believe the inclusion of this information in core data will confuse investors.

204

Moreover, odd-lots are subject to best execution requirements,

205

so investors have the assurance that their broker-dealers are required to seek the most favorable terms reasonably available under the circumstances for such orders despite the fact that the odd-lot quotes are not protected quotations pursuant to Rule 611.

206

Furthermore, the Commission does not believe adding odd-lot quotations priced at or better than the NBBO to core data would materially increase latency for core data. Market participants are not required to consume and process this additional odd-lot data, and could choose a consolidated market data product offered by a competing consolidator that does not contain such information, reducing concerns about the latency effects of additional odd-lot information on core data more broadly. In addition, the Commission believes that the decentralized consolidation model will result in lower latencies for the delivery of all consolidated market data.

207

203

See

TD Ameritrade Letter at 4-5.

204

See infra

Section III.B.

205

See

Order Execution Obligations,

supra

note 90, at 48305 (“The market maker still will have best execution obligations with respect to the remaining odd-lot portion of the customer limit order.”).

206

See supra

note 95 and accompanying text.

See also

supra

Section I.E.

207

See supra

note 199;

infra

Section III.B.5.

The Commission does not believe that including a subset of odd-lot quotes in core data is, as one commenter suggested, likely to “drag the processing time of SIP[s] and CC[s].”

208

The Commission believes that the most sophisticated, latency-sensitive market participants rely on proprietary market data feeds that include all odd-lots simultaneously with all other market data, which suggests that the inclusion of odd-lots, particularly the subset of odd-lots that will be included as part of core data, will not materially slow data dissemination. Therefore, the Commission does not believe it is necessary to consider new rulemaking that would “make odd-lots become true `outliers' ” and/or require the publication of “ `delayed' odd-lot trades and quotations statistics.”

209

208

Data Boiler Letter I at 19.

209

Id.

In the Proposing Release, the Commission solicited comment regarding the exclusion of information related to OTC equities,

210

certain corporate bonds, and indices from the definition of core data.

211

Commenters had mixed views about whether to include such information in the definition. One commenter favored the exclusion of this information on the grounds that core data should be kept “light,”

212

while others agreed with the Commission that this information does not relate to “NMS securities” and that it should not be included on that basis.

213

One of those commenters, however, suggested the Commission ensure the information remain available to retail investors.

214

210

“OTC Equity Security” is defined in FINRA Rule 6420(f) to mean “any equity security that is not an `NMS stock' as that term is defined in Rule 600(b)(47) of SEC Regulation NMS; provided, however, that the term `OTC Equity Security' shall not include any Restricted Equity Security.” In its comment letter, FINRA notes that the Proposing Release refers to “OTCBB” data to describe the quotation and transaction data for OTC equities, which includes both transaction data from the FINRA OTC Reporting Facility (“ORF”) and quotation data from the OTCBB.

See

FINRA Letter at 9.

211

Currently, Nasdaq UTP Plan Level 1 subscribers can obtain OTC equity quotation and transaction feeds for unlisted stocks. Similarly, the CTA Plan permits the dissemination of “concurrent use” data relating to NYSE-listed corporate bonds and indexes.

See

Proposing Release, 85 FR at 16736.

212

Data Boiler Letter I at 21.

213

See

TD Ameritrade Letter at 4; MEMX Letter at 6.

214

See

TD Ameritrade Letter at 4.

On the other hand, FINRA highlighted that excluding such data “would reduce investor access to [such data] and raise investor costs.”

215

FINRA argued that because OTC equities may become listed and become NMS stocks and vice versa, providing that information in the same data feed “facilitates more orderly markets and transparency continuity in relation to transitioning issuers.”

216

Excluding such data would also, FINRA argued, increase costs for both FINRA and market participants.

217

215

FINRA Letter at 9.

216

Id.

at 11.

217

Id.

Given that OTC equities, corporate bonds, and indices are not NMS stocks,

218

the Commission is not revising the proposed definition of core data to include this information, even though this information is currently disseminated by the SIPs. Nothing in these amendments prohibits SROs from independently providing this kind of market data. As discussed below,

219

under the decentralized consolidation model, competing consolidators would be permitted to purchase data from the SROs and offer data products to subscribers that go beyond core data or consolidated market data.

220

Therefore, the exclusion of these types of data from the definitions of core data and consolidated market data does not preclude the provision of this data to market participants who wish to receive it.

221

218

See

Proposing Release, 85 FR at 16736-37.

219

See infra

Section III.B.

220

As discussed below, the fees for such additional data would be proposed and filed by an individual SRO pursuant to Section 19(b), 15 U.S.C. 78s(b), and Rule 19b-4, rather than by the effective national market system plan(s).

See infra

Section III.B.

221

In addition, one commenter suggested including exchange-traded product (“ETP”) intraday indicative values (“IIVs”) in core data and standardizing symbology across equity data feeds.

See

Angel Letter at 1, 11. The Commission is not including IIVs in core data because IIVs are not NMS stock quote or trade information and are therefore outside the scope of this proposal. In addition, the Commission did not require exchange-traded funds (“ETFs”) to disseminate IIVs in adopting Investment Company Act Rule 6c-11.

See

Securities Act Release Nos. 33-10695; IC-33646 (Sept. 25, 2019), 84 FR 57162, 57179-80 (Oct. 24, 2019) (describing various shortcomings of IIV and stating that the Commission “do[es] not believe that IIV will provide a reliable metric for retail investors . . .”). The commenter also argued that the different suffixes for various securities—including preferred shares, rights, and warrants—cause “confusion for investors and increases the risk of costly trading mistakes.”

Id.

at 11. This comment is unrelated to the dissemination of NMS stock quote or trade information and is therefore outside the scope of this proposal.

Additionally, as trades in OTC equities are reported to only one SRO (

i.e.,

FINRA) while NMS stocks are traded on multiple SROs, there is less need to consolidate OTC data pursuant to an effective national market system plan, which functions primarily to consolidate data across market centers. Furthermore, FINRA makes information on OTC trades widely available to market participants through its ORF.

222

In addition, FINRA's rules related to the reporting of OTC equity transaction data remain in effect, and any change to FINRA's rules would require Commission review.

223

Finally, pursuant to Exchange Act Sections 15A(b)(5), (b)(6), and (b)(9), FINRA could recoup the costs of providing OTC quotation and transaction data by

charging fees that are fair, equitable, and do not impose an unnecessary burden on competition.

224

The Commission will monitor, during the transition period and thereafter,

225

the impact of these amendments on the provision of OTC quotation and transaction data, including its cost and availability, and consider whether additional steps are necessary or appropriate.

222

See supra

note 210. On September 24, 2020, FINRA filed a proposed rule change to eliminate its OTCBB. Historically, FINRA operated the OTCBB to provide an electronic quotation medium for OTC equity securities. However, FINRA represents that quoting on the OTCBB has declined and that the OTCBB does not currently display or widely disseminate quotation information on any OTC equity securities. FINRA represents that all quotation activity in OTC equity securities now occurs on member-operated interdealer quotation systems. As a result, in place of the OTCBB, FINRA is proposing to adopt enhanced requirements governing member interdealer quotation systems that provide real-time quotations in OTC equity securities. Among other things, the proposed rules would require such systems to maintain and enforce written policies and procedures relating to the collection and dissemination of quotation information in OTC equity securities on or through their systems.

See

Securities Exchange Act Release No. 99067 (Oct. 1, 2020), 85 FR 63314 (Oct. 7, 2020) (SR-FINRA-2020-031).

223

See

FINRA Rule 6600.

224

15 U.S.C. 78

-3(b)(5), (b)(6), and (b)(9).

225

See infra

Section III.H.

(d) Odd-Lot Aggregation

The Commission proposed that the best bid and best offer, national best bid and national best offer, and depth of book data shall include odd-lots that when aggregated are equal to or greater than a round lot, and that such aggregation shall occur across multiple prices and shall be disseminated at the least aggressive price of all such aggregated odd-lots.

226

Several commenters supported odd-lot aggregation across multiple price levels for purposes of determining these elements of core data.

227

One commenter argued that this method would “provide market participants with a reasonably complete view of the best bids and offers for each security.”

228

Another commenter stated that “a common odd-lot aggregation logic should be employed by all exchanges for the purpose of displaying meaningful size.”

229

However, a different commenter recommended that odd-lot quotes not be aggregated across multiple price levels because it “would cause unnecessary confusion.”

230

226

For example, if Market A had 25 shares offered at $1.98, 25 shares offered at $1.99, and 50 shares offered at $2.00, the round lot offer would be displayed as 100 shares offered at $2.00. As discussed below, the Commission proposed a single-price odd-lot aggregation methodology for purposes of protected quotations.

See infra

Section II.E.1.

227

See

Fidelity Letter at 4; IEX Letter at 4.

228

IEX Letter at 4-5.

229

TD Ameritrade Letter at 2.

See also

IEX Letter at 5 (“[I]t is important that this method be specified in SEC rules so as to ensure a common understanding of the NBBO by all market participants.”).

230

Data Boiler Letter I at 24.

The Commission is adopting the definition of core data with odd-lot aggregation across multiple price levels and specifying that such aggregation is for each market.

231

Specifically, the best bid and best offer, national best bid and national best offer, and depth of book data shall include odd-lots that when aggregated are equal to or greater than a round lot, and such aggregation shall occur across multiple prices and shall be disseminated at the least aggressive price of all such aggregated odd-lots.

232

The Commission does not believe that this would cause unnecessary confusion

233

because many exchanges currently aggregate odd-lot prices in this manner. Setting forth this cross-price aggregation methodology in Commission rules will promote consistency in the calculation and display of core data. Additionally, this method of odd-lot aggregation will enable market participants to obtain a more reasonably complete view of the best bids and best offers of each security than they would if odd-lots were not aggregated or aggregated at only a single price level because the aggregation methodology the Commission is adopting captures liquidity dispersed across multiple prices. Furthermore, this odd-lot aggregation methodology would benefit market participants by promoting tighter spreads in all stocks, especially high priced ones.

234

231

The Commission is specifying that the definition of core data does not require cross-market odd-lot aggregation.

232

As explained below, the Commission is also extending the multiple-price odd-lot aggregation methodology to protected quotations.

See infra

Section II.E.

233

See

Data Boiler Letter I at 24.

234

See infra

Section II.E.2(b).

(e) Quotation Sizes and SRO Attribution in Core Data

Currently, the size of the NBBO is represented in core data in terms of the number of round lots. For example, if a 200 share bid at $25.00 establishes the national best bid, the SIP feed shows “2” at $25.00.

One commenter, believing that this practice might be confusing given the new round lot sizes, particularly to retail investors, recommended requiring size to be represented in actual shares rather than round lots.

235

See

CBOE Letter at 13-14. For example, an investor would have to know that, for a $300 stock, “2” means 80 shares pursuant to the adopted round lot sizes.

The Commission agrees that continuing the current size representation convention—

i.e.,

the number of round lots—could be confusing. Accordingly, the Commission is modifying the proposed definition of core data to require quotation sizes for core data elements—including the NBBO, each SRO's best and protected quotes, depth of book data, and auction information—to be disseminated in share sizes, rounded down to the nearest round lot multiple. For example, a 275 share buy order at $25.00 for a stock with a 100 share round lot would be disseminated as “200.”

236

The Commission has considered whether the entire size should be displayed including any odd-lot portion rather than rounding down to the nearest round lot multiple. The purpose of rounding down to the nearest round lot multiple is to ensure that the enumerated elements of core data reflect orders of meaningful size. Specifically with respect to the NBBO, rounding down also helps to ensure that the protected portion of the order is clearly represented, which addresses concerns about impacts on investor confidence and confusion that could result from showing unprotected size at the NBBO. In addition, as discussed above, odd-lots priced at or better than the NBBO, including the odd-lot portion of a mixed lot order at the NBBO, will be included in core data.

The Commission is also modifying the proposed definiti

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