# Market Data Infrastructure > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2020-28370 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** April 9, 2021 - **Citation:** 86 FR 18596 ## Text 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 1 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. 1 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. 2 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, 3 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. 4 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.” 5 In furtherance of these purposes, the Commission has sought through its rules and regulations to help ensure that certain “core data” 6 is widely available for reasonable fees. 7 The Commission has recognized that investors must have certain core data “to participate in the U.S. equity markets.” 8 2 15 U.S.C. 78k-1(a)(1). 3 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”). 4 See 15 U.S.C. 78k-1(a)(1)(C). 5 15 U.S.C. 78k-1(c)(1)(B). 6 See infra note 17 and accompanying text (defining “core data”). 7 See Rule 603 of Regulation NMS; see also, e.g., Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37560 (June 29, 2005) (“Regulation NMS Adopting Release”) (“In the Proposing Release, the Commission emphasized that one of its primary goals with respect to market data is to assure reasonable fees that promote the wide public availability of consolidated market data.”). 8 Regulation NMS Adopting Release, supra note 7, at 37560. On February 14, 2020, the Commission proposed to amend Regulation NMS to better achieve the goal of Section 11A of the Exchange Act of assuring “the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities” that is prompt, accurate, reliable, and fair. 9 The amendments as adopted endeavor to fulfill this goal of Section 11A of the Exchange Act by updating the content of “core data” and the manner in which it is provided to investors in the national market system. 9 See Securities Exchange Act Release No. 88216 (Feb. 14, 2020), 85 FR 16726, 27 (Mar. 24, 2020) (“Market Data Infrastructure Proposing Release” or “Proposing Release”). A. Current Market Data Content and Dissemination Model Under Regulation NMS The Commission established many of the current requirements of the national market system under Regulation NMS and approved the three effective national market system plans shortly after Congress enacted Section 11A in the 1975 amendments to the Exchange Act (“1975 Amendments”). 10 Under Regulation NMS and the Equity Data Plans, 11 the self-regulatory organizations (“SROs”) are required to provide certain quotation 12 and transaction information 13 for each NMS stock to an exclusive plan processor (“exclusive SIP”), 14 which consolidates this information and makes it available to market participants on the consolidated tapes. 15 For each NMS stock, the Equity Data Plans currently provide for the dissemination of top-of-book (“TOB”) data and transaction information, generally defining consolidated market information (or “core data”) as consisting of: (1) The price, size, and exchange of the last sale; (2) each exchange's current highest bid and lowest offer and the shares available at those prices; and (3) the national best bid and national best offer (“NBBO”) 16 ( i.e., the highest bid and lowest offer currently available on any exchange). 17 In addition to disseminating core data, the exclusive SIPs collect, calculate, and disseminate certain regulatory data—including information required by the National Market System Plan to Address Extraordinary Market Volatility (“LULD Plan”), 18 information relating to regulatory halts and market-wide circuit breakers, and information regarding the short-sale price test pursuant to Rule 201 of Regulation SHO. 19 They also collect and disseminate other NMS information and disseminate certain administrative messages. 20 Together with core data, the Commission refers to this broader set of data for purposes of this release as “SIP data.” 10 The three effective national market system plans that govern the collection, consolidation, processing, and dissemination of certain NMS information are: (1) The Consolidated Tape Association Plan (“CTA Plan”); (2) the Consolidated Quotation Plan (“CQ Plan”); and (3) the Joint Self-Regulatory Organization Plan Governing the Collection, Consolidation, and Dissemination of Quotation and Transaction Information for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privileges Basis (“UTP Plan”) (together, the “Equity Data Plans”). Each of the Equity Data Plans is an effective national market system plan under 17 CFR 242.608 (Rule 608) 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). 11 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. 12 See Rule 602 of Regulation NMS. 13 See 17 CFR 242.601 (Rule 601 of Regulation NMS). 14 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). 15 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. 16 See Rule 600(b)(50) of Regulation NMS for the definition of NBBO. 17 See Bloomberg Order, infra note 22, at 3; see also Rescission of Effective-Upon-Filing Procedures for NMS Plan Fee Amendments, Securities Exchange Act Release No. 89618 (Aug. 19, 2020), 85 FR 65470 (Oct. 15, 2020) (“Effective-Upon-Filing Adopting Release”). 18 See Limit Up Limit Down Plan, available at http://www.luldplan.com (last accessed Sept. 24, 2020). 19 Rule 201(b)(3). 20 For example, messages regarding cancelled and erroneous trades are included in the data disseminated by the exclusive SIPs. See, e.g., Consolidated Tape System, Multicast Output Binary Specification, 36, 47 (October 2, 2020), available at https://www.ctaplan.com/publicdocs/ctaplan/CTS_Pillar_Output_Specification.pdf . The purpose of the Equity Data Plans, approved under Regulation NMS, is to facilitate the collection and dissemination of SIP data so that the public has ready access to a “comprehensive, accurate, and reliable source of information for the prices and volume of any NMS stock at any time during the trading day.” 21 Widespread availability of timely market information promotes fair and efficient markets and facilitates the ability of brokers and dealers to provide best execution to their customers. 22 Many of the requirements under Regulation NMS and the Equity Data Plans that establish the national market system have not been updated since their adoption despite dramatic changes in the operation of the market and market participants' information needs. 23 21 Concept Release on Equity Market Structure, Securities Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3593 (Jan. 21, 2010). 22 See In the Matter of the Application of Bloomberg L.P., Securities Exchange Act Release No. 83755 at 3 (July 31, 2018), available at https://www.sec.gov/litigation/opinions/2018/34-83755.pdf (“ Bloomberg Order” ); SEC Concept Release: Regulation of Market Information Fees and Revenues, Securities Exchange Act Release No. 42208 (Dec. 9, 1999), 64 FR 70613, 70615 (Dec. 17, 1999) (“Market Information Concept Release”) (stating that the distribution of core data “is the principal tool for enhancing the transparency of the buying and selling interest in a security, for addressing the fragmentation of buying and selling interest among different market centers, and for facilitating the best execution of customers' orders by their broker-dealers”). 23 See Proposing Release, 85 FR at 16728, n. 13 and accompanying text. In addition to the SIP data provided via the Equity Data Plans, most exchanges have developed many proprietary TOB products that contain the quotation and transaction data that they provide to the exclusive SIPs as well as proprietary depth-of-book (“DOB”) products that contain more extensive information that is not provided by the exclusive SIPs, such as complete order-by-order information, full depth of book information, auction information, and odd-lot quotation information. 24 The exchanges provide individual exchange proprietary data products directly to market participants and sometimes consolidate them with their affiliated exchanges' proprietary data feeds. The exchanges make these proprietary data products available with different connectivity and transmission options, many of which are faster than those available for the consolidated tapes. Market participants that purchase proprietary DOB data feeds directly generally aggregate the information in a decentralized manner in an effort to create a consolidated view of the market that is both more timely and more complete than the exclusive SIP data feeds provided by the Equity Data Plans. 24 While the pre-Regulation NMS rules permitted the independent distribution of quotes by individual SROs, Rule 603(a) of Regulation NMS, 17 CFR 242.603(a), was adopted to impose “uniform standards” on such distribution ( i.e., the “fair and reasonable” and “not unreasonably discriminatory” standards). See Regulation NMS Adopting Release, supra note 7, at 37569. Prior to Regulation NMS, however, SROs and their members were prohibited from disseminating their trade reports independently. Id. at 37589. As discussed further below, Regulation NMS and the Equity Data Plans have not kept pace with the business demands of market participants. 25 While the exchanges have developed individual proprietary data products to meet the needs of some market participants, the Commission believes that there should be improvement to, and modernization of, the national market system to fulfill the goals of Section 11A of the Exchange Act and to meet the current core data demands of market participants. 26 Over the last 15 years, the exchanges have moved from largely manual, floor-based models to predominantly electronic trading systems and market participants have likewise largely incorporated sophisticated, latency-sensitive, and data dependent electronic trading technologies for their trading needs. This has contributed to some market participants stating that they require additional, and more timely, information for their best execution analysis. 27 The Commission agrees that more comprehensive and latency-sensitive NMS information can be significantly beneficial in facilitating informed trading decisions, and the Commission believes that such information should be more widely distributed and more readily accessible. Further, while the proprietary DOB products provided by exchanges contain the data elements included within expanded core data, commenters have stated that the cost of these proprietary market data products inhibits the purchase of, and the widespread dissemination of, this data to market participants that may need it to participate effectively in the markets. 28 The Commission is concerned that the two different methods of data dissemination—SIP data provided pursuant to Regulation NMS and the Equity Data Plans and proprietary data products provided by the exchanges—have contributed to the development of a two-tiered data market that raises fundamental concerns about the ability of the national market system to continue to ensure that the goals of Section 11A of the Exchange Act are being met, including: (i) Fair competition among brokers and dealers; 29 (ii) the availability to brokers, dealers, and investors of NMS information; 30 and (iii) the practicability of brokers executing investors' orders at the best available prices. 31 Section 11A of the Exchange Act directs the Commission to facilitate the establishment of a national market system in accordance with these, and other, Congressional findings. Therefore, the Commission believes that Regulation NMS should be amended to update the national market system in accordance with the findings and to carry out the objectives set forth in Section 11A and to “assure the prompt, accurate, reliable, and fair collection, processing, distribution, and publication” of NMS information and “the fairness and usefulness of the form and content of such information.” 32 25 See infra Section III.A. 26 Commenters generally expressed concern that SIP data provided by the Equity Data Plans was not sufficient for some market participants. See, e.g., letters to Vanessa Countryman, Secretary, Commission, from Mehmet Kinak, Vice President and Global Head of Systematic Trading and Market Structure, and Jonathan D. Siegel, Vice President and Senior Legal Counsel, Legislative and Regulatory Affairs, T. Rowe Price, dated June 3, 2020, (“T. Rowe Price Letter”) at 1 (“Unfortunately, as the SIPs have not kept pace with the dramatic technological and market developments over the past decade, they are no longer satisfying the needs of a broad cross-section of market participants. Due to its limited content and higher latency, the usage of SIP data is adequate only for investors that visually consume NMS information ( e.g., humans looking at quotes on a screen”); Thomas M. Merritt, Deputy General Counsel, Virtu Financial, Inc., dated May 26, 2020, (“Virtu Letter”) at 2 (“the `core data' offered through the SIPs is no longer sufficient for most market participants to trade competitively in today's market place.”), 5; Michael Blasi, Vice President, Enterprise Infrastructure, and Krista Ryan, Vice President and Associate General Counsel, Fidelity Investments, dated May 26, 2020, (“Fidelity Letter”) at 2 (“the SIPs have not kept pace with the U.S. equity markets which, through technological and market developments, now offer more products, faster, and at a lower cost.”); Joseph J. Barry, Senior Vice President and Global Head of Regulatory, Industry, and Government Affairs, State Street Corporation, dated May 26, 2020, (“State Street Letter”) at 2 (“. . . regulatory obligations and customer expectations related to best execution, transaction cost analysis, transparency and market competition generated further need for data that is unavailable on the SIPs. As a result, market participants have become increasingly dependent on proprietary data feeds marketed by the exchanges outside of the SIPs.”); Hubert De Jesus, Managing Director, Global Head of Market Structure and Electronic Trading, and Samantha DeZur, Director, Global Public Policy, BlackRock, Inc., dated May 26, 2020, (“BlackRock Letter”) at 1 (“However, the current model for and content of NMS market data has not kept pace with the evolution in equity markets and correspondingly the quality of the Securities Information Processors (“SIPs”) has declined, lowering public confidence in the market.”); Jennifer W. Han, Associate General Counsel, Managed Funds Association, dated May 29, 2020, (“MFA Letter”) at 2 (“Today, the current exclusive SIP model and content of core data does not serve the needs of investors, many of whom must subscribe to the exchanges' proprietary market data feeds at considerable additional cost to trade effectively, while others are forced to rely on inferior information and outdated technology.”); Peter D. Stutsman, Global Equity Trading Manager, The Capital Group Companies, Inc., dated June 2, 2020, (“Capital Group Letter”) at 2 (“Over the last 15 years, the discrepancy in data elements and latency between proprietary feeds and the consolidated tape has expanded such that the SIP is no longer a realistic tool for institutional investors or broker-dealers in meeting their respective best execution obligations when routing orders.”); Makan Delrahim, Assistant Attorney General, U.S. Department of Justice, Antitrust Division, Rene L. Augustine, Deputy Assistant Attorney General, Michael F. Murray, Deputy Assistant Attorney General, David B. Lawrence, Chief, Karina B. Lubell, Assistant Chief, Charles J. Ramsey, Attorney, Antitrust Division Competition Policy and Advocacy Section, and Ihan Kim, Attorney, Technology and Financial Services Section, dated May 26, 2020, (“DOJ Letter”); Mark Garabedian, Manager, Trading Data and Analytics, and Lisa Mahon Lynch, Associate Director, Global Trading, Wellington Management Company LLP, dated May 27, 2020, (“Wellington Letter”). 27 See, e.g., letters to Vanessa Countryman, Secretary, Commission, from Lev Bagramian, Senior Securities Policy Advisor, Better Markets, Inc., dated May 26, 2020, (“Better Markets Letter”) at 1-2; Joe Wald and Ray Ross, Managing Directors, BMO Capital Markets Group and Co-Heads of Electronic Trading, Clearpool, dated June 2, 2020, (“Clearpool Letter”) at 1, 11; John Ramsay, Chief Market Policy Officer, Investors Exchange LLC, dated May 28, 2020, (“IEX Letter”) at 5; Jim Considine, Chief Financial Officer, McKay Brothers LLC, dated May 31, 2020, (“McKay Letter”) at 1; Rich Steiner, Head of Client Advocacy and Market Innovation, RBC Capital Markets, LLC, dated May 27, 2020, (“RBC Letter”) at 4; Ellen Greene, Managing Director, Equity and Options Market Structure, SIFMA, dated May 26, 2020, (“SIFMA Letter”) at 3-4; Capital Group Letter at 2; DOJ Letter at 2, 4; State Street Letter at 2; T. Rowe Price Letter at 1; Virtu Letter at 2. 28 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 . . . .”); SIFMA Letter at 2 (“[W]e do not believe that the SIPs currently provide the necessary data to market participants at the requisite speed to efficiently trade in today's high speed and automated marketplace. As a result, many broker-dealers, asset managers and other market participants are forced to purchase proprietary data feeds from individual exchanges to create a consolidated and robust view of the market, while additionally bearing the economic burden of having to purchase consolidated data from the SIPs. This results in an enormous cost burden on the marketplace and creates a two-tiered market for market data by limiting access to critical market data at the fastest speeds to those who can afford to pay the exorbitant fees charged for it by the exchanges.”); MFA Letter at 2 (“Today, the current exclusive SIP model and content of core data does not serve the needs of investors, many of whom must subscribe to the exchanges' proprietary market data feeds at considerable additional cost to trade effectively, while others are forced to rely on inferior information and outdated technology.”); Clearpool Letter at 2 (“As we have stated on a number of previous occasions, of all the issues relating to the costs of trading, the trend toward higher market data fees has had the most negative impact on the securities markets. It remains increasingly difficult for many broker-dealers to compete in the current market environment due, in part, to issues related to the costs associated with trading.”); Dorothy Donohue, Deputy General Counsel, Securities Regulation, Investment Company Institute, dated May 26, 2020, (“ICI Letter”) at 9-10 (“Including auction information in the consolidated feed would enhance transparency into market activity. Doing so also would eliminate proprietary data costs as a barrier to auction trading and encourage a broader range of market participants to submit trading interest.”). 29 Section 11A(a)(1)(C)(ii) of the Exchange Act, 15 U.S.C. 78k-1(a)(1)(C)(ii). 30 Section 11A(a)(1)(C)(iii) of the Exchange Act, 15 U.S.C. 78k-1(a)(1)(C)(iii). 31 Section 11A(a)(1)(C)(iv) of the Exchange Act, 15 U.S.C. 78k-1(a)(1)(C)(iv). 32 Section 11A(c)(1)(B) of the Exchange Act, 15 U.S.C. 78k-1(c)(1)(B). B. National Market System Initiatives and the Market Data Infrastructure Proposing Release The Commission has monitored the national market system and its operation in light of changes in the markets and, over the years, has observed increased concerns about the usefulness, fairness, and promptness of the consolidated tapes. The Division of Trading and Markets held a Roundtable on Market Data in October of 2018, 33 at which some market participants discussed their views about the shortcomings of the existing centralized consolidation model and the need for updates to the national market system to reflect the now widespread use of electronic trading and the need for more, faster NMS information. 34 33 See Equity Market Structure Roundtables, Oct. 25-26, 2018: Roundtable on Market Data and Market Access, SEC, available at https://www.sec.gov/spotlight/equity-market-structure-roundtables (“Market Data Roundtable”). 34 See Proposing Release, 85 FR at 16765, n. 393 and accompanying text. Further, the Commission has considered how the provision of the current consolidated tapes and proprietary data feeds has affected investors' access to NMS information. The Commission understands that different types of investors have different information needs. However, as stated above, the Commission is concerned that a two-tiered system has developed in which certain market participants who are able to afford, and choose to pay for, the exchanges' proprietary DOB data feeds and associated connectivity and transmission offerings receive more content-rich data faster than those who do not receive these data feeds, such as market participants that face higher barriers to entry from data and other exchange fees. 35 Market participants that do not receive proprietary DOB feeds may be affected in their efforts to seek best execution and otherwise effectively compete with market participants that receive proprietary DOB data feeds because they do not obtain access to the additional content and may be receiving data in a slower manner. 35 See Proposing Release, 85 FR at 16768. 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). 36 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. 37 36 See supra note 17 and accompanying text. 37 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. 38 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. 39 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. 40 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. 38 See Effective-Upon-Filing Adopting Release, supra note 17. 39 17 CFR 242.608. 40 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, 41 particularly in light of the COVID-19 pandemic. 41 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. 42 42 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 43 and core data 44 —specify the components of NMS information that must be made available for collection, consolidation, and dissemination under the national market system. 45 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. 46 43 “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). 44 “Core data” is defined in Rule 600(b)(21) of Regulation NMS. 45 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. 46 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. 47 The Commission also proposed to amend the definition of protected quotation to require that protected quotes be of at least 100 shares. 48 These two changes would have established a NBBO 49 that could differ from the best protected bid and best protected offer (“PBBO”). Commenters responded by expressing support and raising several issues and concerns. 50 47 See infra Section II.D.1. 48 See infra Section II.E.1. 49 See Rule 600(b)(50). 50 See infra Sections II.D.2(a); II.E.2. For the reasons set forth below, 51 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. 51 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. 52 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. 52 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. 53 53 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. 54 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. 54 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. 55 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. 55 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. 56 56 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. 57 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. 58 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. 57 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. 58 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. 59 Commenters who responded to this proposal expressed support and raised several issues and concerns. 60 59 See also infra Section III.B.9(f) discussing the applicability of Rule 603(a). 60 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. 61 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. 62 61 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. 62 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. 63 Competing consolidators will be responsible for calculating the NBBO for their subscribers and self-aggregators will be responsible for calculating their own NBBO. 64 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, 65 will help to ensure market participants are able to operate with different NBBOs calculated by different consolidators under this new model. 63 See infra Section III.B.10. 64 Id. 65 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. 66 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. 67 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 68 that their subscribers demand. 69 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. 66 See infra Section III.C.7. 67 See infra Section III.B.3. 68 See Rule 600(b)(20), which defines “consolidated market data product.” 69 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. 70 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. 71 70 See infra Section III.D. 71 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. 72 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. 72 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. 73 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. 74 73 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 Section III.E.2(a). On August 11, 2020, the participants filed a proposed plan, which the Commission published for comment on October 6, 2020. See New Consolidated Data Plan Notice, supra note 40. 74 See infra Section III.E. Finally, the Commission is amending Regulation SCI to expand the definition of “SCI entities” to include “SCI competing consolidators” that are subject to the requirements of Regulation SCI after an initial transition period if they meet a threshold based on a share of gross consolidated market data revenues, as described below. The Commission believes that the threshold as adopted is appropriate to identify those competing consolidators whose market share is large enough that they have the potential to significantly impact investors, the overall market, or the trading of securities should the competing consolidator have a systems or cybersecurity issue occur. As discussed below, based on the threshold being adopted for SCI competing consolidators, the Commission estimates that most competing consolidators will meet this definition. 75 In addition, after consideration of commenters' concerns regarding potential barriers to entry, the Commission is adopting a tailored set of operational capability and resiliency obligations that will apply during an initial transition period and thereafter to competing consolidators that do not meet the threshold in the definition of SCI competing consolidator. 76 75 See infra Section III.F. 76 See id. The amendments will significantly enhance and modernize the content of NMS information and the means by which it is disseminated to market participants. These changes will address meaningful shortcomings that have developed in the national market system relating to the consolidation and dissemination of NMS information. 77 The centralized consolidation model is an outdated model that was initially developed for an entirely different, manual market structure, and it is no longer suitable for trading in today's high-speed electronic markets. Further, the exclusive SIP model was developed when the exchanges were not selling competing proprietary data products that are superior in both content and delivery to the SIP data products. Therefore, as discussed further below, the Commission is amending Regulation NMS to modernize the national market system consistent with its mandate under the Exchange Act so that “[n]ew data processing and communications techniques [can be used] to create the opportunity for more efficient and effective market operations” 78 and to ensure fair competition, the availability of NMS information, and “the practicability of brokers executing investors' orders in the best market.” 79 77 See Proposing Release, 85 FR at 16728, n. 17 and accompanying text. 78 Section 11A(a)(1)(B) of the Exchange Act. 79 See Sections 11A(a)(1)(C)(ii) through (iv) of the Exchange Act. E. Implications for Best Execution The Commission has stated that the duty of best execution requires broker-dealers to “execute customers' trades at the most favorable terms reasonably available under the circumstances, i.e., at the best reasonably available price.” 80 The Commission stated that certain other factors that are relevant to best execution include “order size, trading characteristics of the security, speed of execution, clearing costs, and the cost and difficulty of executing an order in a particular market.” 81 Commenters questioned the implications of the proposed changes to the content and provision of NMS information on the duty of best execution. 82 In the Proposing Release, the Commission stated that the proposed additional data content in consolidated market data and the method by which such data was disseminated would facilitate the best execution of investor orders and enhance best execution analyses. 83 The Commission also stated that it was not “specifying minimum data elements needed to achieve best execution” or “mandating the consumption” of the expanded data content and, more broadly, acknowledged that different market participants and different trading applications have different market data needs. 84 80 Regulation NMS Adopting Release at 37538. See also Geman v. 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 v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 135 F.3d 266, 270 (3d Cir. 1998))); Kurz v . 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”). 81 Regulation NMS Adopting Release at 37538. 82 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). 83 Proposing Release, 85 FR at 16729, 52, 69. 84 Id. at 16734, 55. A broker-dealer has a legal duty to seek best execution of customer orders. 85 The duty of best execution derives from common law agency principles and fiduciary obligations. 86 It is incorporated in SRO rules 87 and has been incorporated into the antifraud provisions of the Federal securities laws through judicial decisions. 88 In addition to the best price reasonably available, speed of execution and available liquidity, 89 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. 90 85 Regulation NMS Adopting Release at 37537. 86 Id. at 37538. 87 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.” 88 See Regulation NMS Adopting Release at 37538. 89 Kurz v. Fidelity, supra note 80, 556 F.3d at 640. 90 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, 91 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. 92 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. 93 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. 94 91 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). 92 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. 93 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.”). 94 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. 95 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, 96 for their customer orders, broker-dealers should consider the availability of consolidated market data for purposes of evaluating best execution. 95 See Proposing Release, 85 FR at 16741, 54. 96 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, 97 the Vendor Display Rule, requires SIPs and broker-dealers to provide a consolidated display, as defined in Rule 600(b)(17) of Regulation NMS, 98 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, 99 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 97 17 CFR 242.603(c). 98 17 CFR 242.600(b)(17). 99 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. 119 119 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 v . 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 v. 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. v . 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. 150 150 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. 151 151 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 in 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 Releas [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2020-28370. Public record. Not legal advice.