Joint Industry Plan; Order Approving, as Modified, a National Market System Plan Regarding Consolidated Equity Market Data

Federal RegisterAug 11, 2021

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92586; File No. 4-757]

Joint Industry Plan; Order Approving, as Modified, a National Market System Plan Regarding Consolidated Equity Market Data

August 6, 2021.

I. Introduction

On August 11, 2020, pursuant to Section 11A of the Securities Exchange Act of 1934 (“Act”)

and Rule 608 of Regulation NMS thereunder,

Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., Cboe Exchange, Inc., Investors Exchange LLC (“IEX”), Long Term Stock Exchange, Inc. (“LTSE”), MEMX LLC (“MEMX”), Nasdaq BX, Inc., Nasdaq ISE, LLC, Nasdaq PHLX LLC, Nasdaq Stock Market LLC (“Nasdaq”), New York Stock Exchange LLC (“NYSE”), NYSE American LLC, NYSE Arca, Inc., NYSE Chicago, Inc., NYSE National, Inc., and Financial Industry Regulatory Authority, Inc. (“FINRA”) (collectively, the “SROs” or “Participants”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) a proposed new national market system plan governing the public dissemination of real-time consolidated equity market data for national market system (“NMS”) stocks (the “CT Plan or “Plan”). The CT Plan was published for comment in the

Federal Register

on October 13, 2020.

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

17 CFR 242.608.

See

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

On January 11, 2021, the Commission instituted proceedings, under Rule 608(b)(2)(i) of Regulation NMS,

to determine whether to approve the CT Plan, disapprove the CT Plan, or approve the CT Plan with any changes or subject to any conditions the Commission deems necessary or appropriate after considering public comment.

On April 8, 2021, the Commission extended the deadline for Commission action on the CT Plan and designated June 10, 2021, as the new date by which the Commission would be required to take action.

On June 9, 2021, the Commission further extended the deadline for Commission action on the CT Plan and designated August 9, 2021, as the date by which the Commission would be required to take action.

17 CFR 242.608(b)(2)(i).

See

Order Instituting Proceedings to Determine Whether to Approve or Disapprove a National Market System Plan Regarding Consolidated Equity Market Data, Securities Exchange Act Release No. 90885 (Jan. 11, 2021), 86 FR 4142 (Jan. 15, 2021) (File No. 4-757) (“Order Instituting Proceedings”). Comments received in response to the Notice and Order Instituting Proceedings can be found on the Commission's website at

https://www.sec.gov/comments/4-757/4-757.htm.

See

Securities Exchange Act Release No. 91504 (Apr. 8, 2021), 86 FR 19667 (Apr. 14, 2021).

See

Securities Exchange Act Release No. 92130 (June 9, 2021), 86 FR 31543 (June 14, 2021).

This Order approves the CT Plan, with modifications that are described in detail below. The Commission concludes that the CT Plan, as modified, is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act. A copy of the CT Plan, marked to reflect the modifications the Commission has made, is Attachment A to this Order.

II. Discussion and Commission Findings

A. Background

On May 6, 2020, the Commission ordered the SROs to act jointly in developing and filing with the Commission a proposed new national market system plan to govern the public dissemination of real-time, consolidated equity market data for NMS stocks (“Governance Order”)

to replace the existing equity data plans.

The Commission sought to address with the Governance Order, among other things, the inherent conflicts of interest between the self-regulatory organizations' role in collecting and disseminating consolidated equity market data and their interests in selling proprietary data products. As the Commission stated in the Governance Order, since the adoption of Regulation NMS in 2005,

See

Order Directing the Exchanges and the Financial Industry Regulatory Authority to Submit a New National Market System Plan Regarding Consolidated Equity Market Data, Securities Exchange Act Release No. 88827 (May 6, 2020), 85 FR 28702 (May 13, 2020) (File No. 4-757).

The three equity data plans that currently govern the collection, consolidation, processing, and dissemination of SIP data 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”) (collectively, the “Equity Data Plans”).

See

Governance Order,

supra

note 8, 85 FR at 28703 & n.34.

developments in technology and changes in the equities markets have heightened an inherent conflict of interest between the Participants' collective responsibilities in overseeing the Equity Data Plans and their individual interests in maximizing the viability of proprietary data products that they sell to market participants. This conflict of interest, combined with the concentration of voting power in the Equity Data Plans among a few large “exchange groups”—multiple exchanges operating under one corporate umbrella—has contributed to significant concerns regarding whether the consolidated feeds meet the purposes for them set out by Congress and by the Commission in adopting the national market system. Additionally, the Commission believes that the continued existence of three separate NMS plans for equity market data creates inefficiencies and unnecessarily burdens ongoing improvements in the provision of equity market data to market participants. Addressing the issues with the current governance structure of the Equity Data Plans . . . is a key step in responding to broader concerns about the consolidated data feeds.

See

Governance Order,

supra

note 8, 85 FR at 28702.

Moreover, as stated in the Governance Order, “[t]he Commission believes that the demutualization of the exchanges and the proliferation of proprietary exchange data products have heightened the conflicts between the SROs' business interests in proprietary data offerings and their obligations as SROs under the national market system to ensure prompt, accurate, reliable, and fair dissemination of core data through the jointly administered Equity Data Plans.”

See id.

at 28704.

Thus, the Commission determined that the current governance structure of the existing Equity Data Plans is “inadequate to respond to changes in the market and in the ownership of exchanges, and to the evolving needs of investors and other market participants,”

and the Commission ordered the SROs to develop and file with the Commission a proposed new NMS plan regarding equity market data with a set of specified governance provisions designed to address the issues identified by the Commission,

and 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.”

Id.

at 28702.

See id.

at 28729-31.

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

The Commission also acknowledged in the Governance Order that the SROs, “as the parties that have been operating the NMS plans, can provide unique

insight in formulating the specific terms and provisions” of the new NMS plan for consolidated equity market data.

Accordingly, the Governance Order did not dictate all of the specific terms of the new NMS plan and contemplated that the operational and other terms of the plan not directed by the Governance Order would be proposed by the SROs and considered by the Commission after public comment.

The CT Plan filed by the SROs includes both provisions directed by the Commission in the Governance Order and other provisions that have been proposed by the SROs.

Governance Order,

supra

note 8, 85 FR at 28711.

See id.

at 28705, 28718 n.244.

Below, this Order first addresses the threshold issue of the Commission's authority to modify the CT Plan proposed by the SROs, and then it separately addresses each of the proposed provisions of the Plan, discussing the comments received and explaining the modifications, if any, that the Commission is making.

B. The Commission's Authority To Modify the CT Plan

As noted above, the Commission is modifying the CT Plan proposed by the SROs. Several commenters argued that, before modifying the CT Plan, the Commission should publish notice for public comment of the specific changes it proposes. One commenter urges the Commission not to make substantial modifications to the CT Plan in an order purporting to approve the plan without providing the opportunity for public comment, asserting that public comment is required by the Administrative Procedure Act (“APA”).

One commenter asserts that the Notice provides an insufficient opportunity for comment, arguing that the Commission has not stated its position regarding any of the 62 separate topics of interest identified in the Notice or proposed any specific textual changes upon which the SROs and other persons can meaningfully comment.

This commenter further argues that this approach does not comply with notice and comment obligations under the Act, Rule 608, or the APA.

See

Letter from Patrick Sexton, EVP, General Counsel & Corporate Secretary, Cboe Global Markets, Inc. (Nov. 12, 2020) (“Cboe Letter”), at 9. This commenter argues that any changes to the governance of the SIP operating committees should be made through amendments to the current plans.

See id.

at 6 n.13. As the Commission explained in the Governance Order, one of its goals was to reduce redundancies, inefficiencies, and inconsistencies among the three existing Equity Data Plans by replacing them with a new, single plan.

See

Governance Order,

supra

note 8, 85 FR at 28710.

See

Letter from Elizabeth K. King, Chief Regulatory Officer, ICE, General Counsel and Corporate Secretary, NYSE (Nov. 16, 2020) (“NYSE Letter I”), at 5, 32.

See

NYSE Letter I,

supra

note 18, at 32. This commenter also generally asserts that the Commission cannot make a finding that the CT Plan is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act.

See

Letter from Elizabeth K. King, Chief Regulatory Officer, ICE, General Counsel and Corporate Secretary, NYSE (Feb. 4, 2021) (“NYSE Letter II”), at 2. As explained throughout this Order, the Commission disagrees and finds that, as modified, the CT Plan meets these standards.

Another commenter also asserts that, if the Commission determines to approve the CT Plan with modifications, it should first publish the exact text of its proposed amendments and seek comment on them.

This commenter argues that the need to publish proposed modifications for comment is evidenced by the “numerous errors and potential unintended consequences visited on the current Equity Data Plans by the Commission's hasty issuance” of the conflicts and confidentiality orders.

This commenter argues that if the Commission does not publish the specific proposed modifications of the CT Plan, the SROs and other interested persons will be “deprived of the opportunity to comment that is afforded them by the Administrative Procedure Act.”

See

Letter from Joan C. Conley, Senior Vice President and Corporate Secretary, Nasdaq (Nov. 12, 2020) (“Nasdaq Letter I”), at 3.

Id.

at 7.

The Commission does not agree that it is required to publish notice of specific proposed plan language in order to modify a proposed NMS plan. Under Rule 608, the Commission can approve a proposed NMS plan “with such changes or subject to such conditions as the Commission may deem necessary or appropriate, if it finds that such plan . . . is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act.”

As set forth below, the Commission finds that each of its modifications of the CT Plan is necessary or appropriate. Moreover, the Commission asked extensive and detailed questions in the Notice that encompass each of the areas of the Plan the Commission is modifying and provided an opportunity for the public to comment on each of these topics as well as the Plan as a whole. As discussed throughout this Order, the Commission has carefully considered the comments received in response to these questions, as well as all other comments received, before finding that each of the modifications made is necessary or appropriate in order to sufficiently address the core problem identified in the Governance Order.

The Commission believes that this process has provided the public sufficient notice of, and an opportunity to comment on, the areas of modification and it was not necessary to provide a second round of comment on the specific language of the modifications approved in this Order. And the Commission finds that, as modified, the CT Plan is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system.

17 CFR 242.608(b)(2).

See CSX Transp.

Surface Transp. Bd.,

584 F.3d 1076, 1081 (D.C. Cir. 2009);

City of Portland

EPA,

507 F.3d 706, 715 (D.C. Cir. 2007).

See

17 CFR 242.608(b)(2).

C. The Provisions of the CT Plan

1. Recitals

The Recitals of the CT Plan set forth the procedural history of the CT Plan, the proposed schedule for implementation of the CT Plan, and the SROs' acknowledgement of their regulatory obligations with respect to the CT Plan. As discussed below, the Commission is modifying certain of the Recitals with respect to the timeline for implementation of the CT Plan, as well as the Recital of the regulatory obligations of the SROs to the CT Plan.

(a) Implementation of the CT Plan

Paragraphs (b) and (c) of the Recitals set forth the implementation schedule for the CT Plan that the SROs have proposed. Paragraph (b) of the Recitals defines the “Effective Date” of the CT Plan as the later of the date that the Commission has approved the CT Plan or the date that the SROs have filed a certificate of formation with the State of Delaware to form the Company as a limited liability company (“LLC”). Paragraph (c) of the Recitals provides that the CT Plan will become operative as an NMS plan that governs the public dissemination of real-time consolidated equity market data on the “Operative Date,” which is defined as the first day of the month that is at least 90 days after the latest of five specified tasks has been accomplished:

(i) SRO Voting Representatives and Non-SRO Voting Representatives of the Operating Committee have been selected;

(ii) Fees have been established by the Operating Committee, are effective as an amendment to the CT Plan pursuant to Rule 608 of Regulation NMS, and are ready to be implemented;

(iii) Agreements have been entered with the Processors currently performing under the CQ Plan, CTA Plan, and UTP Plan;

(iv) Agreements have been entered with an Administrator and all required contracts with vendors and subscribers have been finalized and systems to administer distributions and fees are in place; and

(v) The Operating Committee and, if applicable, the Commission have approved all policies and procedures that are necessary or appropriate.

In the Notice, the Commission sought comment on whether the timing provisions might result in undue delay in the effectiveness of the CT Plan.

The Commission asked whether the CT Plan should require that the certificate of formation be filed within a certain period of time, and whether 10 days would be an appropriate amount of time.

The Commission also asked several questions about the actions that would be required to be taken before the CT Plan becomes operative. Specifically, the Commission sought comment on, among other things, whether the CT Plan should set deadlines for completion of each of the requisite actions, whether the Operating Committee should be required by the CT Plan to provide updates on the status of implementation, and, if so, whether such updates should be made public.

The Commission also sought comment on whether the CT Plan should require that the selection of the Operating Committee be the first action undertaken after the Effective Date.

See

Notice,

supra

note 3, 85 FR at 64567 (Question 1).

Id.

See

Notice,

supra

note 3, 85 FR at 64567 (Question 2).

Id.

In response to the Notice, the Commission received a number of comments supporting changes to the CT Plan to establish specified timeframes within which the requisite actions must occur for the CT Plan to be effective or operative.

These commenters express concern that the absence of specified deadlines in the CT Plan will cause the SROs to unduly delay its implementation.

Specifically, one commenter argues that it would be “nonsensical to rely on the SROs, many of whom have no incentive to change the current governance structure, to take actions on a timely basis to ensure the implementation of the Plan.”

Another commenter acknowledges that the SROs will have significant control and influence over how and when the necessary steps to implement the CT Plan are completed and asserts that, without a reasonable deadline or target date for completion, there is a “significant risk” that implementation will be delayed indefinitely, undermining important public policy goals.

Another commenter similarly argues that the CT Plan fails to meet the core objectives of the Commission's Governance Order because the required number of steps would delay full implementation of the plan for an indefinite period, possibly years.

See, e.g.,

Letter from Ellen Greene, Managing Director, Equity and Options Market Structure, SIFMA (Nov. 12, 2020) (“SIFMA Letter I”), at 3; Letter from Ellen Greene, Managing Director, Equity and Options Market Structure, SIFMA (Feb. 18, 2021) (“SIFMA Letter II”), at 2; Letter from Michael Blasi, SVP, Enterprise Infrastructure, and Krista Ryan, VP, Associate General Counsel, Fidelity Investments (Nov. 12, 2020) (“Fidelity Letter”), at 2-3; Letter from John Ramsay, Chief Market Policy Officer, IEX (Nov. 13, 2020) (“IEX Letter”), at 1-2; Letter from Rich Steiner, Head of Client Advocacy and Market Innovation, RBC Capital Markets (Nov. 12, 2020) (“RBC Letter”), at 4; Letter from Thomas M. Merritt, Deputy General Counsel, Virtu Financial, Inc. (Nov. 11, 2020) (“Virtu Letter”), at 2; Letter from Jeffrey T. Brown, Senior Vice President, Legislative and Regulatory Affairs, Charles Schwab & Co., Inc. (Nov. 12, 2020) (“Schwab Letter I”), at 2; Letter from Jeffrey T. Brown, Senior Vice President, Legislative and Regulatory Affairs, Charles Schwab & Co., Inc. (Feb. 11, 2021) (“Schwab Letter II”), at 5; Letter from Joe Wald, Managing Director, Co-Head of Electronic Trading, and Ray Ross, Managing Director, Co-Head of Electronic Trading, BMO Capital Markets Group (Nov. 18, 2020) (“BMO Letter I”), at 2-3; Letter from Joe Wald, Managing Director, Co-Head of Electronic Trading, and Ray Ross, Managing Director, Co-Head of Electronic Trading, BMO Capital Markets Group (Feb. 19, 2021) (“BMO Letter II”), at 2; Letter from Anders Franzon, General Counsel, MEMX (Feb. 5, 2021) (“MEMX Letter”), at 2-3; Letter from Hubert De Jesus, Managing Director, Global Head of Market Structure and Electronic Trading, and Samantha DeZur, Director, Global Public Policy, BlackRock (Feb. 5, 2021) (“BlackRock Letter II”), at 2; Letter from Jennifer W. Han, Managing Director & Counsel, Regulatory Affairs, Managed Funds Association (Nov. 18, 2020) (“MFA Letter”), at 4-5.

See, e.g.,

IEX Letter,

supra

note 30, at 1; MFA Letter,

supra

note 30, at 5; BMO Letter I,

supra

note 30, at 2; BMO Letter II,

supra

note 30, at 2; Fidelity Letter,

supra

note 30, at 3; Letter from Dorothy Donohue, Deputy General Counsel, Securities Regulation, Investment Company Institute (Nov. 12, 2020) (“ICI Letter I”), at 6-7; Letter from Dorothy Donohue, Deputy General Counsel, Securities Regulation, Investment Company Institute (Feb. 5, 2021) (“ICI Letter II”), at 2; RBC Letter,

supra

note 30, at 3; Letter from Kelvin To, Founder and President, Data Boiler Technologies, LLC (Nov. 12, 2020) (“Data Boiler Letter I”), at 20.

BMO Letter II,

supra

note 30, at 2.

IEX Letter,

supra

note 30, at 1.

See

RBC Letter,

supra

note 30, at 3.

One commenter acknowledges that there will be “some work” in implementing the CT Plan, but states that the lack of deadlines and the number of conditions associated with the effective and operative dates are “very concerning.”

Another commenter recommends that the Commission closely monitor implementation and potentially penalize the SROs for unwarranted delays.

One commenter points to the National Market System Plan Governing the Consolidated Audit Trail (“CAT NMS Plan”) as a cautionary tale resulting from a lack of deadlines or accountability in meeting them,

while another commenter favorably promotes the CAT NMS Plan's use of target deadlines for critical implementation deadlines, quarterly progress reports, and financial incentives.

SIFMA Letter I,

supra

note 30, at 3.

See

ICI Letter I,

supra

note 31, at 7; ICI Letter II,

supra

note 31, at 2. This commenter urges the Commission to provide financial incentives to the SROs either through fines or through not allowing the SROs to collect SIP fees for some period of time.

See

ICI Letter I,

supra

note 31, at 7.

See

Virtu Letter,

supra

note 30, at 2.

See

Fidelity Letter,

supra

note 30, at 3.

Two commenters recommend making the Effective Date of the CT Plan the date of the Commission's approval order,

without regard to the proposed delay for the administrative step of filing the LLC agreement with Delaware. One commenter does not express a view about the propriety of a 10 day requirement, but recommends that the SROs be required to file the LLC's certificate of formation with Delaware “as promptly as the Commission determines is practicable following Commission approval” of the plan.

Another commenter anticipates no difficulty with filing the certificate of formation as an LLC and recommends ten business days as an appropriate timeframe.

See

SIFMA Letter I,

supra

note 30, at 3; SIFMA Letter II,

supra

note 30, at 2; Virtu Letter,

supra

note 30, at 2.

RBC Letter,

supra

note 30, at 3.

See

Fidelity Letter,

supra

note 30, at 2-3.

A number of commenters support imposing a one-year deadline for the Operative Date for the CT Plan.

One commenter suggests that a deadline for implementation of one year from the date of Commission approval of the CT Plan is reasonable and states that, if additional time proves necessary, the

CT Plan can provide for obtaining an extension based on a showing of good cause.

One commenter states that, because the changes required of the plan are “primarily organizational rather than operational,” a period of no more than one year from the effective date to the operational date would be reasonable.

Another commenter supports a one-year deadline for the completion of the necessary steps to fully transition to operating under the CT Plan, subject to an extension only for good cause shown.

This commenter suggests that, immediately upon approval of the CT Plan, the Operating Committee, including the Non-SRO Voting Representatives, should be formed and begin meeting to complete the remaining prerequisites, including the adoption of fees.

This commenter acknowledges the timing complexity of adopting fees under the new CT Plan and selecting and onboarding a new Administrator, emphasizing that the one year deadline is an “ambitious project” that will require a commitment from both the SROs and industry participants to ensure a smooth transition.

Another commenter also supports requiring the CT Plan to become operational within one year and urges the Commission to finalize the proposal expeditiously.

See

SIFMA Letter I,

supra

note 30, at 3; SIFMA Letter II,

supra

note 30, at 2; Fidelity Letter,

supra

note 30, at 4; IEX Letter,

supra

note 30, at 2; RBC Letter,

supra

note 30, at 4; Virtu Letter,

supra

note 30, at 2; Schwab Letter I,

supra

note 30, at 2; Schwab Letter II,

supra

note 30, at 5; BMO Letter I,

supra

note 30, at 2; MEMX Letter,

supra

note 30, at 2-3; BlackRock Letter II,

supra

note 30, at 2.

See

IEX Letter,

supra

note 30, at 2.

RBC Letter,

supra

note 30, at 4.

See

MEMX Letter,

supra

note 30, at 3.

See id.

See

BlackRock Letter II,

supra

note 30, at 2.

Other commenters argue that there is no reasonable way to impose deadlines on any part of the process.

One of these commenters expresses concern that the Commission is “vastly underestimating” the amount of time needed to implement the new CT Plan, particularly given the Commission's requirements with respect to an Administrator and a new fee schedule.

Another of these commenters argues that any deadline the Commission sets at this point would be “inherently arbitrary” and would do nothing to move the project forward, cautioning that, “rushing to complete an inherently complex project may result in costly errors.”

See

Nasdaq Letter I,

supra

note 20, at 10; Letter from Erika Moore, Vice President and Corporate Secretary, Nasdaq (Feb. 5, 2021) (“Nasdaq Letter II”), at 2; NYSE Letter I,

supra

note 18, at 33; Cboe Letter,

supra

note 17, at 5.

Cboe Letter,

supra

note 17, at 6.

Nasdaq Letter I,

supra

note 20, at 11.

In highlighting the difficulty in specifying deadlines for completing the Operative Date prerequisites, another commenter states that, because neither the SROs nor the Commission has jurisdiction over the individuals that constitute the Advisory Committee, any timeframes imposed on the Advisory Committee members to select the Non-SRO Voting Representatives would be unenforceable and the Operating Committee cannot function until the Non-SRO Voting Representatives have been selected.

This commenter further emphasizes the complexity and uncertainty of determining fees, selecting an independent Administrator through a request-for-proposal (“RFP”) process, and negotiating new contracts with processors, data vendors and subscribers.

This commenter states that because the RFP process is “so specialized and idiosyncratic,” there is “no way to reasonably impose time limits on any part of that process, let alone a time limit for the entire process overall.”

See

NYSE Letter I,

supra

note 18, at 33.

See id.

at 33-35. This commenter further states that the 90-day period between the finalization of earlier actions and the operational date is “prudent” and is the current industry standard for announcing the implementation of changes to market data plans.

See id.

at 35-36.

NYSE Letter I,

supra

note 18, at 35. As examples, this commenter points out that OPRA's process to select a processor took two years even though OPRA ultimately decided to retain the same processor and cites the CAT NMS Plan for the risk that a selected administrator might be unable to perform the necessary functions, requiring that the RFP process be repeated.

See id.

Other commenters recommend that the CT Plan require a detailed project plan with interim dates,

and public progress reports.

One of these commenters states that because implementation will be a complex undertaking, it will be important for both the Commission and outside stakeholders to have reasonable visibility into progress.

Another of these commenters argues that the SROs should be required to provide a detailed implementation plan with timeframes for each step and the rationale for each timeframe.

One of these commenters states that it will be important for the CT Plan to require the Operating Committee to provide periodic public updates on the status of implementation.

One commenter agrees, recommending that the CT Plan set “milestone dates while remaining flexible depending on progress.”

This commenter favors periodic public updates on implementation from the Operating Committee.

See

Fidelity Letter,

supra

note 30, at 2-3; IEX Letter,

supra

note 30, at 2.

See

Fidelity Letter,

supra

note 30, at 3; IEX Letter,

supra

note 30, at 2; BMO Letter I,

supra

note 30, at 3; BMO Letter II,

supra

note 30, at 2; ICI Letter I,

supra

note 31, at 7.

See

IEX Letter,

supra

note 30, at 2.

See

ICI Letter I,

supra

note 31, at 7.

See

BMO Letter I,

supra

note 30, at 3; BMO Letter II,

supra

note 30, at 2.

Data Boiler Letter I,

supra

note 31, at 20. For example, this commenter argues against an overly prescriptive timeframe, suggesting that the process for nomination and selection of Non-SRO Voting Representatives should not take more than 90 days, with a 30-day extension in case of an unprecedented event, such as a pandemic.

See id.

at 28.

See id.

at 20.

Additionally, two commenters suggest that the Commission should “clarify” that the fee schedules for the current Equity Data Plans will remain in effect and apply to the CT Plan until the CT Plan Operating Committee files a new schedule with the Commission and the Commission approves that schedule.

SIFMA Letter I,

supra

note 30, at 3; IEX Letter,

supra

note 30, at 2.

Finally, one commenter also asserts that the implementation of the new CT Plan before the existing contracts between the Equity Data Plans and the Administrators and Processors expire would constitute a Fifth Amendment “taking.”

See

Nasdaq Letter I,

supra

note 20, at 10-11.

While the Commission recognizes the challenges associated with completing the actions required for implementation of the CT Plan, the Commission also believes that the SROs have the relevant expertise and experience—both with respect to operating NMS plans generally and with respect to the dissemination of equity market data specifically—to implement the CT Plan. In particular, the Commission found in the Governance Order that the SROs could provide “unique insight in formulating the terms and conditions of the New Consolidated Data Plan,”

even as it also highlighted the inherent conflicts of interest faced by SROs in the operation of the existing plans.

The Commission disagrees with the comment that it is “vastly underestimating” the time needed to implement the CT Plan,

and instead believes, consistent with the views of other market participants,

that the SROs should be able to use their extensive experience in operating the existing Equity Data Plans to complete the specific actions needed to implement the CT Plan within the timeframes specified below. Moreover, the Commission believes that fully implementing the CT Plan within prescribed deadlines is important, because implementation of the CT Plan is critical to reducing existing redundancies, inefficiencies, and inconsistencies in the current Equity

Data Plans and to modernizing plan governance.

Although one commenter recommends that the CT Plan explicitly provide for obtaining an extension based on a showing of good cause, in case good faith efforts by the Operating Committee are nonetheless unable to meet one or more of the specified deadlines,

the Commission does not believe that it is necessary or appropriate to add a provision to the CT Plan regarding an extension of these deadlines. Further, the Commission does not believe that it is necessary or appropriate to suggest at this time how it might view a future request for an extension from the Operating Committee or other affected parties.

Governance Order,

supra

note 8, 85 FR at 28711.

See, e.g.,

id.

at 28713.

See

Cboe Letter,

supra

note 17, at 6.

See supra

notes 42-48 and accompanying text.

See

Governance Order,

supra

note 8, 85 FR at 28703-05, 28711.

See

IEX Letter,

supra

note 30, at 2;

see also

MEMX Letter,

supra

note 30, at 3 (supporting a one-year deadline with an extension only for good cause shown).

There are well-known mechanisms in existing law by which affected parties make such requests. If such a request were made at some point in the future, the Commission would decide whether to grant or deny the relief sought under the facts and circumstances applicable at that time.

Additionally, the Commission disagrees with the commenter's statement that, because neither the Commission nor the SROs have jurisdiction over Non-SRO Voting Representatives, placing timeframes on the selection of Non-SRO Voting Representatives by the existing Advisory Committee of the Equity Data Plans will be unenforceable and therefore futile.

The Commission fully expects, based on the widespread support among market participants for providing voting power to non-SROs,

that the Advisory Committee members will willingly undertake the task of selecting Non-SRO Voting Representatives. Moreover, the two-month deadline imposed on the selection of SRO and Non-SRO Voting Representatives in this provision is consistent with the timeframe set forth in the procedures proposed by the SROs in Section 4.2(b)(v) of the CT Plan for selection of Non-SRO Voting Representatives, and there is considerable overlap between the categories of market participants represented on the Advisory Committee and the categories of market participants who would be Non-SRO Voting Representatives.

See

NYSE Letter I,

supra

note 18, at 33.

See, e.g.,

IEX Letter,

supra

note 30, at 2; ICI Letter II,

supra

note 31, at 1; BMO Letter I,

supra

note 30, at 3; BMO Letter II,

supra

note 30, at 2.

Finally, the Commission disagrees with one commenter's statement that the timing of implementation of the CT Plan prior to the expiration of the existing contracts between the current Equity Data Plans and the Administrators and Processors would constitute a “taking” without just compensation under the Fifth Amendment of the U.S. Constitution.

As the Commission stated in the Governance Order in response to similar concerns previously expressed by the same commenter,

the commenter fails to demonstrate how the proposal would “impermissibly interfere with a protected property interest.”

Nor does the Commission anticipate any economic harm to the processors of the current Equity Data Plans.

And operation of the Equity Data Plans is a “fundamental component” of the national market system, which is itself highly regulated pursuant to the broad authority provided the Commission by Congress.

The Commission continues to believe that the commenter's argument that the implementation of the CT Plan would constitute a Fifth Amendment taking lacks merit.

See

Nasdaq Letter I,

supra

note 20, at 10-11.

See

Letter from Joan C. Conley, Senior Vice President and Corporate Secretary, Nasdaq (Feb. 28, 2020), at 13-14 (responding to the Commission's Proposed Order,

infra

note 483);

see also

Nasdaq Letter I,

supra

note 20, at 10-11.

Governance Order,

supra

note 8, 85 FR at 28725, 28727.

See id.

at 28727.

Id.

at 28725.

Accordingly, the Commission finds that, to facilitate the implementation of the CT Plan on a timely basis, it is appropriate to modify the CT Plan, as discussed below, to add specified deadlines to paragraphs (b) and (c) of the Recitals of the CT Plan and to add new paragraph (d) to the Recitals.

First, with respect to the proposed definition of the Effective Date of the CT Plan, set forth in paragraph (b) of the Recitals, the Commission shares concerns raised by commenters about the uncertainty of the timing associated with defining the Effective Date as the later of the date of Commission approval or the SROs' filing of the required certificate with the State of Delaware.

The Commission agrees with commenters that the act of filing the certificate of formation of the LLC is administrative and can be accomplished expeditiously.

Accordingly, the Commission is modifying paragraph (b) of the Recitals of the CT Plan to define the Effective Date as the date of Commission approval of the CT Plan as an NMS plan governing the public dissemination of real-time consolidated market data for Eligible Securities

pursuant to Rule 608 of Regulation NMS.

The Commission finds that the modification of this provision is appropriate because Commission approval of the CT Plan, as modified, will finalize all of the terms of the CT Plan and because defining the Effective Date in this way will support timely implementation of the CT Plan and reduce the potential for unnecessary delay.

See

SIFMA Letter I,

supra

note 30, at 3; SIFMA Letter II,

supra

note 30, at 2; Virtu Letter,

supra

note 30, at 2.

See, e.g.,

Fidelity Letter,

supra

note 30, at 2-3.

Section 1.1(w) of Article I of the proposed CT Plan defines the term “Eligible Securities” as “(i) any equity security, as defined in Section 3(a)(11) of the Act, or (ii) a security that trades like an equity security, in each case that is listed on a national securities exchange.”

17 CFR 242.608.

In addition, the Commission is modifying paragraph (b) of the Recitals of the CT Plan to require that the documents needed to create the LLC be filed by the SROs with the State of Delaware within 10 business days of the Effective Date. The Commission finds that this modification is appropriate because, once the language of the CT Plan as modified by the Commission is available to the SROs, 10 business days is a sufficient period of time for the SROs to execute the modified CT Plan and undertake the administrative step of filing the necessary formation documents for the CT Plan LLC with the State of Delaware.

With respect to the proposed definition of the Operative Date, the Commission agrees with commenters that the CT Plan should set forth a date certain for the CT Plan to become operational and should also specify deadlines for interim steps to be completed.

The Commission believes that the language of paragraph (c) of the Recitals—which provides that the CT Plan will be operative on the first day of the month that is at least 90 days after the specified actions—could serve to unnecessarily delay implementation of the CT Plan because it fails to impose deadlines that will help ensure the completion of the requisite actions in a timely manner.

See

SIFMA Letter I,

supra

note 30, at 3; SIFMA Letter II,

supra

note 30, at 2; Fidelity Letter,

supra

note 30, at 4; IEX Letter,

supra

note 30, at 2; RBC Letter,

supra

note 30, at 4; Virtu Letter,

supra

note 30, at 2; Schwab Letter I,

supra

note 30, at 2; Schwab Letter II,

supra

note 30, at 5; BMO Letter I,

supra

note 30, at 2; MEMX Letter,

supra

note 30, at 2-3; BlackRock Letter II,

supra

note 30, at 2.

While one commenter states that the proposed 90-day testing period is consistent with the current industry standard of announcing changes to market data plans before implementation,

see

NYSE Letter I,

supra

note 18, at 35-36, the Commission's concern is not with the 90-day period itself, but with the lack of any deadlines to determine when the 90-day period would begin. The Commission believes that any such testing period should take place within a prescribed period for

implementation of the CT Plan, not simply at the end of an indefinite period in which other preliminary steps take place.

In addition, the Commission shares the view of commenters, particularly those with experience with the operation of the current Equity Data Plans, that it is not unreasonable to require the CT Plan to become operational within one year of the date of Commission approval.

The Commission further agrees that meeting these deadlines is an “ambitious project” that will undoubtedly require a commitment from both the SROs and other industry participants.

As discussed below, while implementation of the CT Plan would, among other things, require selecting a new Administrator (which would in turn require new contracts with vendors and subscribers, as well as new billing systems) and would also require entering into new contracts with the existing Processors, the Commission believes that the SROs have the expertise and experience, with diligence and commitment, to enable the Operating Committee of the CT Plan to complete all of the required actions within one year while avoiding costly errors. Although the CT Plan would be a new NMS plan, significant expertise and experience would be directly transferrable from the operation of the Equity Data Plans to the implementation of the CT Plan. Not only have the SROs run the Equity Data Plans for decades, but the current processors for the Equity Data Plan would, as proposed by the SROs, be the processors for the CT Plan. Therefore, the Commission disagrees that setting deadlines would be “inherently arbitrary” or “may result in costly errors.”

A number of market participants, including market participants that have experience with the operation of the current Equity Data Plans,

have commented that it is appropriate for the Commission to set deadlines for implementation of the CT Plan and that the specific actions required to fully implement the CT Plan, described below, can be accomplished within the timeframe that the Commission is prescribing. The Commission agrees with these commenters and believes, for the reasons discussed below, that the prescribed timeframes are achievable and that costly errors can be avoided. Therefore, the Commission is modifying paragraph (c) of the Recitals to the CT Plan to require the LLC Agreement to become operative as an NMS plan governing the public dissemination of real-time consolidated equity market data for Eligible Securities within 12 months of the Effective Date. The Commission finds that the modification to paragraph (c) of the Recitals of the CT Plan is appropriate because it will create a certain and achievable date for implementation and require the SROs to implement the CT Plan in a timely manner for the benefit of all market participants.

See

IEX Letter,

supra

note 30, at 2; MEMX Letter,

supra

note 30, at 2-3.

See also

SIFMA Letter I,

supra

note 30, at 3; SIFMA Letter II,

supra

note 30, at 2; Fidelity Letter,

supra

note 30, at 4; RBC Letter,

supra

note 30, at 4; Virtu Letter,

supra

note 30, at 2; Schwab Letter I,

supra

note 30, at 2; Schwab Letter II,

supra

note 30, at 5; BMO Letter I,

supra

note 30, at 2; BlackRock Letter II,

supra

note 30, at 2.

MEMX Letter,

supra

note 30, at 3.

Nasdaq Letter I,

supra

note 20, at 11.

See

IEX Letter,

supra

note 30, at 2; MEMX Letter,

supra

note 30, at 2-3.

See also

SIFMA Letter I,

supra

note 30, at 3; SIFMA Letter II,

supra

note 30, at 2; Fidelity Letter,

supra

note 30, at 4; RBC Letter,

supra

note 30, at 4; Virtu Letter,

supra

note 30, at 2; Schwab Letter I,

supra

note 30, at 2; Schwab Letter II,

supra

note 30, at 5; BMO Letter I,

supra

note 30, at 2; BlackRock Letter II,

supra

note 30, at 2.

Paragraph (c) of the Recitals of the CT Plan also sets forth the five specified actions that must be completed before the Operative Date. The Commission is concerned that the sequence for completion of the required actions is not expressly clear from the CT Plan. If, for example, certain actions required prior to the Operative Date were taken before the selection of the entire Operating Committee, including Non-SRO Voting Representatives, those initial decisions would be made by the SROs alone, in a manner inconsistent with the Commission's Governance Order.

See

Governance Order,

supra

note 8, 85 FR at 28714-20.

To address this uncertainty, the Commission is modifying paragraph (c) of the Recitals by renumbering it as paragraph (d) and adding a specific deadline for each of the required actions. The Commission has modified renumbered paragraph (d) to add the following language: “[i]n support of ensuring that the CT Plan is fully operational by the Operative Date, the following actions shall be completed within the specified periods.” As discussed below, the Commission is modifying each of the requisite actions now set forth in subparagraphs (i)-(iv) of renumbered paragraph (d) of the Recitals to add specificity. The new language is intended to set forth the sequence for completion of the required actions, as well as to prescribe deadlines for completion. In addition, the Commission is adding new subparagraphs (v) and (vi) of renumbered paragraph (d) of the Recitals to specify the obligations of the Operating Committee. The Commission finds that the modifications to renumbered paragraph (d) of the Recitals are appropriate because they will provide clear timelines for the Operating Committee and greater certainty for other industry participants and because they will establish achievable objectives to facilitate CT Plan implementation.

Specifically, the Commission is modifying subparagraph (i) of renumbered paragraph (d) of the Recitals to provide that the SRO Voting Representatives and Non-SRO Voting Representatives of the Operating Committee must be determined pursuant to the requirements of Section 4.2 of Article IV of the CT Plan within two months of the Effective Date. This timeframe is consistent with subparagraph (v) of Section 4.2(b) of Article IV of the CT Plan, which, as proposed by the SROs, contemplates a process for selecting Non-SRO Voting Representatives that could be completed within two months. In light of these provisions of Section 4.2(b)(v) of the CT Plan, as well as the Commission's belief that the Advisory Committee members have an incentive to facilitate non-SROs having a vote on plan governance, the Commission believes that the Advisory Committee of the current Equity Data Plans will proceed promptly to select, pursuant to Section 4.2 of the CT Plan, the Non-SRO Voting Representatives to serve on the Operating Committee. The Commission also believes that the SROs, who have already selected their representatives to the operating committees of the existing Equity Data Plans, and who have extensive experience in doing so, should be able to select their Voting Representatives to the CT Plan Operating Committee within the timeframe provided. Accordingly, the Commission finds that the modification to this provision is appropriate because it will establish a reasonable timeframe for selecting the Non-SRO and SRO Voting Representatives to form the Operating Committee—an indispensable first step of the implementation process.

The Commission is further modifying subparagraph (ii) of renumbered paragraph (d) of the Recitals to provide that the Operating Committee must file with the Commission pursuant to Rule 608 of Regulation NMS

an amendment to the CT Plan governing proposed fees with respect to the existing exclusive SIP model

within

four months of the Effective Date, which is two months after the deadline for the formation of the Operating Committee. The Commission believes that the four-month period to file a proposed CT Plan fee schedule with the Commission is a reasonable and appropriate timeframe for several reasons. First, given the importance of market data fees to both SROs and other market participants, the Commission believes that the determination of CT Plan fees will be a critical priority for both SROs and Non-SRO Voting Representatives. Assessing fees to subscribers for access to the SIP data is one of the fundamental responsibilities of the Operating Committee and one of the issues most consequential to both SROs and other market participants. Second, the Commission believes that a number of persons selected to be members of the Operating Committee are likely to have detailed and substantial pre-existing knowledge and experience with the content and pricing of the equity data products that are disseminated under the current centralized SIP model. Third, the four-month period is a deadline solely for filing the proposed fees with the Commission and not a requirement that the fee schedule be approved by the Commission and implemented within the four month period. Instead, the required fee filing would commence the process for Commission consideration of the proposed fees, which will include an opportunity for public comment. Accordingly, the Commission finds that the modification to this provision is appropriate because it provides sufficient time after the formation of the Operating Committee for proposed fees to be discussed by knowledgeable and experienced persons, agreed upon, and filed with the Commission.

17 CFR 242.608.

Several commenters express views with respect to the interaction of the CT Plan with Commission Rule 614(e), the recently adopted Market Data

Infrastructure Rule. 17 CFR 242.614(e). One of these commenters states, “[t]he timely implementation of the CT Plan would undoubtedly facilitate the success of any new market data infrastructure regime and, at the very least, will be important to ensure that, upon Commission approval, the implementation of any such regime is not impeded.” BMO Letter I,

supra

note 30, at 3. Another commenter, pointing to the lack of analysis of the impact of the Infrastructure rulemaking, suggests that the SROs acknowledge that the CT Plan may need to be amended to accommodate the competing consolidator model.

See

SIFMA Letter I,

supra

note 30, at 3. Other commenters express the view that the two initiatives are “inextricably intertwined.” Nasdaq Letter I,

supra

note 20, at 34-36 (incorporating its brief filed jointly with NYSE and CBOE);

see also

NYSE Letter I,

supra

note 18, at 3. Because the existing exclusive SIP model will continue to operate during the transition to the competing consolidator model, the participation of Non-SRO Voting Representatives in Operating Committee deliberations on the fee filing required by subparagraph (ii) of renumbered paragraph (d) of the Recitals would facilitate the determination of the fee schedule that will be needed to commence consolidated equity market data dissemination under the new CT Plan. In addition, the Non-SRO Voting Representatives' participation would likely provide valuable perspectives on fees that may serve as a reference point for, among other things, future fees under the competing consolidator model.

The Commission is also modifying subparagraph (iii) of renumbered paragraph (d) of the Recitals to provide that the Operating Committee must enter into agreements with the Processors performing under the current Equity Data Plans within eight months of the Effective Date. The Processors performing under the current Equity Data Plans are performing pursuant to existing contracts, and the CT Plan as submitted by the SROs provides that the Operating Committee shall enter into agreements with those same Processors. While one commenter states that retaining the existing Processors would require, at a minimum, “negotiation of new contracts and related service level agreements,”

the Commission believes that concerns about the need to renegotiate all of the terms of the existing contracts are not well founded because the CT Plan does not by its terms change any of the technical provisions of the existing Equity Data Plans with respect to the dissemination of consolidated equity market data. And the SROs have not suggested that the terms of the new contracts of the Processors will be materially different than the existing contracts under the Equity Data Plans. Consequently, the Commission believes that the technical and business terms of the new Processor contracts with the CT Plan are likely to be substantially identical to the existing contracts. Therefore, the Commission finds that the modification to this provision is appropriate because the Operating Committee should encounter little unavoidable difficulty in executing agreements with the Processors within the prescribed timeframe, and the change will facilitate timely implementation for the benefit of market participants.

NYSE Letter,

supra

note 18, at 34.

Moreover, the Commission is modifying subparagraph (iv) of renumbered paragraph (d) of the Recitals to require that the proposed actions relating to the selection and duties of an Administrator, discussed in greater detail below, pursuant to Section 6.4 of Article VI and Section 4.3 of Article IV of the CT Plan, be completed within eight months of the Effective Date. The amended provision provides that the Administrator must be prepared to transition to the CT Plan, by finalizing new contracts with vendors and subscribers and having in place systems to administer distributions and fees, before the Operative Date.

While commenters argue that deadlines could not reasonably be imposed on the process of selecting an Administrator and preparing to implement the CT Plan,

the Commission disagrees. One commenter points to the difficulties attendant in selecting a processor for the CAT NMS Plan,

but the Commission does not view the circumstances to be analogous. In the case of the CAT NMS Plan, the SROs were tasked with implementing the first-ever consolidated audit trail for equities trading, a complex NMS system without precedent. Here, by contrast, the Operating Committee will be conducting an RFP process to select an Administrator to perform functions with which market participants, whether SROs or market data consumers, have extensive familiarity. Thus, the Commission believes that crafting the necessary requirements for the RFP and evaluating proposals submitted in response should be a substantially less complicated and time-consuming process than searching for a processor to build an entirely new and comprehensive database. Moreover, with respect to certain commenters' concerns that it will be difficult to find an Administrator with the necessary expertise, the Commission understands that a number of different types of entities, such as accounting firms, market data administration firms, or consulting firms, would be capable of serving as Administrator to the CT Plan and providing the requisite billing, auditing, and licensing services. The Commission finds that the modifications to the provision are appropriate because, given the extensive experience of the SROs over several decades in supervising—or serving as—the administrators of the Equity Data Plans, the process of selecting an Administrator, as well as the duties assigned to the firm selected pursuant to the provisions of the CT Plan, should be able to be completed within the established timeframes.

See

Nasdaq Letter I,

supra

note 20, at 10; Nasdaq Letter II,

supra

note 49, at 2; NYSE Letter I,

supra

note 18, at 33; Cboe Letter,

supra

note 17, at 5-6.

See

NYSE Letter I,

supra

note 18, at 35.

In addition, the Commission is adding new subparagraph (v) of renumbered paragraph (d) of the Recitals to explicitly impose responsibility on the Operating Committee to ensure that all of the requirements set forth in the preceding subparagraphs of renumbered paragraph (d) have been satisfied prior to the Operative Date. In particular, the

provision provides that “before the Operative Date, the Operating Committee will be required to ensure that the Administrator and the Processors have developed, implemented, and suitably tested the systems necessary with respect to the existing exclusive SIP model

—including dissemination systems, billing and audit systems, and appropriate contracts with Vendors and Subscribers—and, if applicable, the Operating Committee has expeditiously filed any necessary policies and procedures with the Commission. This new language is designed to impose on the Operating Committee not only the initial obligation to select an Administrator and Processors, but also the explicit ongoing responsibility to oversee the Administrator and Processors' specific efforts to implement the CT Plan. The Commission finds that this modification is appropriate because the inclusion of this language establishes that the Operating Committee's obligation to oversee the development of all systems, agreements, and policies and procedures necessary to facilitate the implementation of the CT Plan within the prescribed timeframe continues beyond the time when the Administrator and Processors have been selected.

This provision is designed to require the Operating Committee to oversee the Administrator's and Processors' efforts to test all pertinent systems prior to the transition from the existing Equity Data Plans to the CT Plan.

Finally, the Commission is adding new subparagraph (vi) to renumbered paragraph (d) of the Recitals to impose on the Operating Committee the obligation to provide quarterly written progress reports to the Commission, and to make these reports publicly available, beginning three months after the Effective Date and continuing every three months until the Operative Date. These quarterly reports would be required to address the actions undertaken and the progress made toward completing each of the required actions listed in paragraph (d) with respect to implementation of the CT Plan. The Commission shares commenters' views that transparency with respect to the progress made to satisfy the requirements of the CT Plan would benefit not only the Commission but also interested market participants.

The requirement to provide progress reports in writing to the Commission on a quarterly basis and to make them publicly available is designed to help ensure that affected market participants are informed about the status of the steps that are taken to implement the CT Plan within the prescribed time periods. Providing periodic updates to the Commission should also facilitate holding the Operating Committee accountable for its progress in completing the interim steps towards satisfying the longer-range requirements.

See

Fidelity Letter,

supra

note 30, at 3; IEX Letter,

supra

note 30, at 2; BMO Letter I,

supra

note 30, at 3; BMO Letter II,

supra

note 30, at 2; ICI Letter I,

supra

note 31, at 7. While one of these commenter urges the Commission to provide financial incentives to the SROs either through fines or through not allowing the SROs to collect SIP fees for some period of time,

see

ICI Letter I,

supra

note 31, at 7, the Commission believes that the required quarterly progress reports and the involvement of the Operating Committee, including the Non-SRO Voting Representatives, should be sufficient to ensure timely implementation of the CT Plan.

The Commission believes that the required frequency of the progress reports, one report every three months, should be sufficient to identify for the Commission any notable delays in completing the interim steps needed to satisfy the deadlines established for CT Plan implementation without imposing unnecessary burdens on efforts to implement the CT Plan. The Commission believes that this requirement should not be overly burdensome to the Operating Committee or distract from its performance of the specified actions required by the CT Plan, because the quarterly reports would essentially reflect the analysis the Operating Committee would need to undertake in any event for its diligent oversight of the implementation process. The Commission finds that the modifications to renumbered paragraph (d) of the Recitals of the CT Plan are appropriate because the specified deadlines and sequence for completion prescribed by the provision will provide greater certainty regarding timeframes for the Operating Committee and other market participants and will establish achievable objectives to facilitate implementation of the CT Plan.

For the reasons discussed above, the Commission is approving paragraph (b), which has been renumbered as paragraph (c), and renumbered paragraph (d) of the Recitals of the CT Plan, as modified.

(b) SRO Duties to the CT Plan

Paragraph (f) of the Recitals, renumbered as paragraph (g) as a result of the modifications discussed above, sets forth the SROs' statement of their regulatory obligations to the CT Plan. With respect to several provisions of the CT Plan discussed below,

a commenter expresses concern that the SROs are disclaiming any duty or obligation to the CT Plan.

The Commission agrees with another commenter that the regulatory obligations of SROs with respect to the CT Plan are set by the federal securities laws and regulations,

but finds that it is appropriate to reiterate that the provisions of the CT Plan do not lessen any of the SROs' regulatory obligations. Accordingly, the Commission is modifying this provision to add the following sentence, “No provision of this Agreement shall be construed to limit or diminish the obligations and duties of the Members as self-regulatory organizations under the federal securities laws and the regulations thereunder.”

The Commission finds that the modification to renumbered paragraph (g) of the Recitals of the CT Plan is appropriate because it ensures that the text of the CT Plan reflects the relationship between the CT Plan's provisions and the SROs' regulatory obligations. For the reasons discussed above, the Commission is approving this provision as modified.

See infra

notes 443-454 and accompanying text.

See

MFA Letter,

supra

note 30, at 1-2.

See

Nasdaq Letter I,

supra

note 20, at 16-17.

The “Members” of the LLC Agreement, as defined in the first paragraph of the LLC Agreement, are the SROs identified in Exhibit A to the LLC Agreement.

Paragraph (a) of the Recitals establishes that the CT Plan is filed with the Commission in response to the Commission's Governance Order. Paragraphs (d) and (e) of the Recitals as proposed establish that the current Equity Data Plans will continue to operate until the Operative Date.

The Commission received no comment on paragraphs (a), (d), and (e) of the Recitals as proposed. The Commission is approving paragraph (a) as proposed, and paragraphs (d) and (e), renumbered as paragraphs (e) and (f), otherwise as proposed.

2. Definitions

Article I of the CT Plan sets forth the defined terms used throughout the CT Plan and its Exhibits. In the Notice, the Commission sought comment on several of the proposed definitions.

100

Specifically, the Commission requested comment on the proposed scope and use of the following defined terms: “CT Feeds,” “Covered Persons,” “Fees,” “Member Observer,” and “Public Information.” After considering the comments received, the Commission

finds that it is appropriate to modify several of the proposed definitions.

101

100

See

Notice,

supra

note 3, 85 FR at 64567-68 (Questions 4-8).

101

While one commenter suggests that the definition of “fees” should be “similar to the comprehensiveness in defining `royalties for copyright works' in the music industry,” Data Boiler Letter I,

supra

note 31, at 22-23; Letter from Kelvin To, Founder and President, Data Boiler Technologies, LLC (Jul. 20, 2021) (“Data Boiler Letter II”), at 2, the commenter has not provided specific suggestions as to how this high-level analogy would be appropriately applied in the context of consolidated equity market data. Further, the Commission does not believe that the analogy is apt in the context of data that the SROs have a regulatory obligation to disseminate through an NMS plan.

First, for the reasons discussed below in Section II.C.11(a) of this Order, the Commission is expanding the definition of “Company Indemnified Party,”

102

set forth in Article I, Section 1.1(k) and referred to in Article XII, Section 12.2, Section 12.3, and Section 12.4 of the CT Plan,

103

to include Non-SRO Voting Representatives.

102

As proposed, Section 1.1(k) defines the term “Company Indemnified Party” as “a Person, and any other Person of whom such Person is the legal representative, that is or was a Member or an SRO Voting Representative.”

103

The term “Company Indemnified Party” is also referred to in Section 1.1(kk) (“Losses”) and Section 1.1(ccc) (“Party to a Proceeding”) of Article I of the CT Plan.

Second, for the reasons discussed below in Section II.C.5(k)(iii) of this Order, the Commission is modifying Article I, Section 1.1(n), of the CT Plan—the proposed definition of “Covered Persons”

104

—to define the phrase “representatives of the Members” to include SRO Voting Representatives, alternate SRO Voting Representatives, and Member Observers, to expand the definition of Covered Persons to include SRO Applicant Observers, and to delete the phrase, “and the employers of Non-SRO Voting Representatives.” The term, Covered Persons, is referred to in Section 4.11 of Article IV of the CT Plan and Exhibit C to the CT Plan.

105

104

As proposed, Section 1.1(n) of Article I defines the term “Covered Persons” as “representatives of the Members, the Non-SRO Voting Representatives, SRO Applicants, the Administrator, and the Processors; affiliates, employees, and agents of the Operating Committee, a Member, the Administrator, and the Processors; any third parties invited to attend meetings of the Operating Committee or subcommittees; and the employers of Non-SRO Voting Representatives. Covered Persons do not include staff of the SEC.”

105

The term “Covered Persons” is also referred to in Section 1.1(l) (“Confidential Information”) of Article I of the CT Plan.

Third, for the reasons discussed below in Section II.C.5(d)(iii) of this Order, the Commission is modifying the definition of “Executive Session,”

106

set forth in Article I, Section 1.1(z), to require that the other persons as deemed appropriate to attend Executive Session will be determined by “majority vote of” the SRO Voting Representatives. The term “Executive Session” is referred to in Article IV, Section 4.2(d), Section 4.3(c), and Section 4.4(g) of the CT Plan and Exhibit C to the CT Plan.

106

As proposed, Section 1.1(z) of Article I defines the term, “Executive Session,” as a meeting of the Operating Committee pursuant to Section 4.4(g), which includes SRO Voting Representatives, Member Observers, SEC staff, and other persons as deemed appropriate by the SRO Voting Representatives.

Fourth, for the reasons discussed below in Section II.C.5(j)(ii) of this Order, the Commission is modifying the definition of “Member Observer,”

107

set forth in Article I, Section 1.1(oo), to require that a Member Observer be an employee of a Member or any attorney to a Member, and to provide that a Member's designation of a Member Observer is subject to the limitation contained in Article IV, Section 4.10(b)(i) of the CT Plan. The term “Member Observer” is referred to in Article IV, Section 4.4 and Section 4.7 of the CT Plan and Exhibit C to the CT Plan.

108

107

As proposed, Section 1.1(oo) of Article I defines the term “Member Observer” as any individual, other than a Voting Representative, that a Member, in its sole discretion, determines is necessary in connection with such Member's compliance with its obligations under Rule 608(c) of Regulation NMS to attend Operating Committee and subcommittee meetings.”

108

The term “Member Observer” is also referred to in Section 1.1(z) (“Executive Session”) of Article I of the CT Plan.

Fifth, for the reasons discussed below in Section II.C.5(k)(ii) of this Order, the Commission is modifying the definition of “Highly Confidential Information,” as set forth in Article I, Section 1.1(ii),

109

to replace the phrase, “personnel matters” with the phrase “personnel matters that affect the employees of the SROs or the Company.” The term “Highly Confidential Information” is referred to in Article IV, Section 4.4 and Section 4.10 of the CT Plan and Exhibit B to the CT Plan.

109

The term “Highly Confidential Information” is also referred to in Section 1.1(l) (“Confidential Information”), and Section 1.1(kkk) (“Public Information”) of Article I of the CT Plan.

Finally, for the reasons discussed below in Section II.C.11(a) of this Order, the Commission is modifying Section 1.1(eee) of Article I of the CT Plan, referred to in Article XII, Section 12.2 of the CT Plan,

110

to expand the definition of the term “Party to a Proceeding,”

111

to include Non-SRO Voting Representatives.

110

The term, “Party to a Proceeding,” is also referred to in Section 1.1(kk) (“Losses”) of Article I of the CT Plan.

111

As proposed, Section 1.1(eee) of Article I defines the term, “Party to a Proceeding,” as a “Company Indemnified Party that is, was, or is threatened to be made, a party to a Proceeding, or is involved in a Proceeding, by reason of the fact that such Company Indemnified Party is or was a Member and/or an SRO Voting Representative.”

Except for the modifications identified above, the Commission is approving Article I of the CT Plan as proposed.

3. Organization of LLC

The SROs propose to organize the new NMS plan for consolidated equity market data in the form of a Delaware limited liability company pursuant to a limited liability company agreement, entitled the Limited Liability Company Agreement (“LLC Agreement”) of CT Plan LLC (“Company” or “LLC”).

112

The Members (

i.e.,

the equity owners) of the LLC will be the 17 national securities exchanges for equities and FINRA,

113

each of which will be a “Participant” of the CT Plan as an effective NMS plan for the dissemination of consolidated equity market data.

112

See

Article II, Section 2.1 of the CT Plan.

113

See

Article III, Section 3.1 of the CT Plan. The names and addresses of each Member are set forth in Exhibit A to the CT Plan.

The CT Plan states that the purposes of the LLC are to engage in the following activities on behalf of the Members: (i) The collection, consolidation, and dissemination of Transaction Reports, Quotation Information, and such other information concerning Eligible Securities as the Members shall agree as provided therein; (ii) contracting for the distribution of such information; (iii) contracting for and maintaining facilities to support any activities permitted in the LLC Agreement and guidelines adopted thereunder, including the operation and administration of the System;

114

(iv) providing for those other matters set forth in the LLC Agreement and in all guidelines adopted thereunder; (v) operating the System to comply with Applicable Laws; and (vi) engaging in any other business or activity that now or thereafter may be necessary, incidental, proper, advisable, or convenient to accomplish any of the foregoing purposes and that is not prohibited by the Delaware Limited Liability Company Act (“Delaware Act”), the Act, or other Applicable Law.

115

The LLC Agreement itself, including its appendices, is the CT Plan. Under the CT Plan, the governing body

of the LLC would be the Operating Committee, which would comprise representatives of the Members and the Non-SRO Voting Representatives.

116

114

Section 1.1(yyy) of Article I of the proposed CT Plan defines the term “System” as “all data processing equipment, software, communications facilities, and other technology and facilities, utilized by the Company or the Processors in connection with the collection, consolidation, and dissemination of Transaction Reports, Quotation Information, and other information concerning Eligible Securities.”

115

See

Article II, Section 2.4 of the CT Plan.

116

See

Article IV, Section 4.1(a) of the CT Plan.

In their Transmittal Letter, the SROs assert that, while the Governance Order requires Operating Committee approval for actions other than the selection of Non-SRO Voting Representatives and the decision to enter into Executive Session, certain provisions of the CT Plan that concern solely the operation of the LLC as an LLC and that are unrelated to consolidation and distribution of equity market data should require only a majority vote of the Members. Specifically, the SROs propose that the following actions require only a majority vote of the Members: (1) The selection of Officers of the LLC (other than the Chair and Secretary), if needed, and (2) certain decisions concerning the operation of the LLC as an LLC and approval of amendments to LLC-related provisions of the CT Plan, including provisions related to indemnification, dissolution of the LLC, and tax-related matters.

117

The SROs assert that neither of these topics would affect the consolidation and distribution of equity market data and that, therefore, the Members should have the sole authority to make decisions related to these topics, with Commission approval where necessary.

118

117

See

Transmittal Letter,

supra

at 2.

118

See id.

Several commenters raise concerns with the proposed LLC structure and the Members' exclusive powers thereunder.

119

One commenter states that the LLC structure is “flawed” and “defies America's `Free Enterprise' concept.”

120

The commenter further states that, under the LLC structure proposed, the Members of the LLC will retain control over the actions under the CT Plan.

121

Another commenter asserts that the CT Plan “appears perfectly designed to facilitate the continued neglect of the distribution of consolidated market data in order to benefit the sale of SROs' proprietary market data feeds,”

122

and states that the CT Plan would allow the SROs to prioritize the sale of their proprietary market data products over the interests and statutory purposes of the CT Plan.

123

This commenter asserts that the Plan “incentivizes the SROs to run the Plan and the LLC poorly to the extent they believe it is in their self-interest” and there is “no downside for an SRO to act in its self-interest contrary to the Plan as they are exculpated in taking any such action.”

124

This commenter states that it fears that the CT Plan structure will not promote the goals of Section 11A, given the absence of any obligations on the SROs to operate the plan consistent with its statutory purpose,

125

and suggests that a balance must be struck with the principle of creating a governing arrangement that is reasonably designed to ensure that the CT Plan will carry out its statutory purpose.

126

119

See

Data Boiler Letter I,

supra

note 31, at 4, 23, 25, 49; MFA Letter,

supra

note 30, at 1-2, 3; RBC Letter,

supra

note 30, at 10; BMO Letter II,

supra

note 30, at 2.

120

Data Boiler Letter I,

supra

note 31, at 25. This commenter also states that because of CT Plan's role and public purpose, it should be a non-profit rather than LLC.

See id.

at 24. The commenter opines that a non-profit structure would be “better than an LLC in preserving an independent status when dealing with the establishment of fees, manners in entering into contracts with an Administrator and Processor(s), and other applicable policies and procedures. . . .”

Id.

at 19;

see also

Data Boiler Letter II,

supra

note 101, at 2.

121

See

Data Boiler Letter I,

supra

note 31, at 21, 24, 30;

see also

RBC Letter,

supra

note 30, at 10.

122

MFA Letter,

supra

note 30, at 3.

123

See

MFA Letter,

supra

note 30, at 1-2 (stating, CT Plan as proposed is likely to “preserve the misaligned incentives that gave rise to the Order.”);

see also

BMO Letter II,

supra

note 30, at 2.

124

MFA Letter,

supra

note 30, at 3.

125

See id.

at 2.

126

See id.

One commenter states that the CT Plan does not include all of the necessary provisions for an LLC agreement to function appropriately as an NMS plan, but does not provide further details about what is missing.

127

Another commenter states that more detail needs to be provided on the types of decisions that would fall under “the operation of the CT Plan as an LLC” and “modifications to the LLC-related provisions of the CT Plan” in order to ensure that non-SRO representatives have an opportunity to participate in any material decisions related to the regulatory operations of the CT Plan.

128

127

See

Data Boiler Letter I,

supra

note 31, at 25.

128

Virtu Letter,

supra

note 30, at 5.

Another commenter, however, supports the LLC structure as proposed, arguing that the Non-SRO Voting Representatives do not need to be members of the LLC in order to fulfill their role on the Operating Committee,

129

and that providing the Non-SRO Voting Representatives with an economic interest in the CT Plan is inappropriate because “it would provide individuals with a claim on revenues that they did nothing to generate and expose them to funding obligations that they would not be prepared to support.”

130

129

See

Nasdaq Letter I,

supra

note 20, at 14.

130

Id.

at 14-15.

The Governance Order did not specify the form or structure of the plan, and for the reasons discussed below, the Commission finds that it is appropriate for the SROs to organize this NMS plan as an LLC agreement. Foremost, an LLC agreement provides a formal legal structure through which the SROs will fulfill their obligations with respect to consolidated equity market data, which will necessarily entail, among other things, entering into contracts with the Administrator and the Processors, as well as, in all likelihood, outside counsel, accountants, and other parties. The Commission believes that structuring the CT Plan as an LLC will reduce ambiguities with respect to rights and obligations related to such contracts and with respect to the financial rights responsibilities of each SRO to the CT Plan and to each other.

131

Moreover, the use of an LLC structure for a NMS plan is not novel. The most recent NMS plan approved by the Commission, CAT NMS Plan, employs an LLC structure,

132

as does the Options Price Reporting Authority Plan (“OPRA Plan”),

133

and the Commission does not believe that it is necessary to prescribe a different legal structure here.

131

As noted above, however, the terms of the CT Plan shall not be construed to limit or diminish the obligations and duties of the Members of the LLC as SROs under the federal securities laws.

See

text accompanying note 99,

supra.

132

See

Securities Exchange Act Release No. 79318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016) (Order Approving the National Market System Plan Governing the Consolidated Audit Trail).

133

See

Securities Exchange Act Release No. 61367 (Jan. 15, 2010), 75 FR 3765 (Jan. 22, 2010) (Notice of Immediate Effectiveness of Proposed Amendment To Revise the Plan for Reporting of Consolidated Options Last Sale Reports and Quotation Information To Serve as the Operating Agreement for OPRA LLC).

As described above, some commenters are concerned that the LLC Agreement as proposed would allow the SROs to continue to act exclusively in their own self-interest, rather than in the interest of the Plan, as significant powers would rest exclusively with the SROs. The Commission, however, does not believe that the choice of an LLC structure over other structures for the CT Plan will permit the SROs to act exclusively in their own self-interest. First, the terms of the LLC agreement must be consistent with the regulatory obligations of the SROs as set by the federal securities laws and regulations, and SROs also have direct obligations under the federal securities laws and regulations. And second, as required by the Governance Order, the CT Plan provides Non-SRO Voting Representatives with voting rights on the Operating Committee that is responsible for managing the activities

of the CT Plan, which will provide a means to mitigate the inherent conflicts of interests between the SROs' “collective responsibilities in overseeing the Equity Data Plans and their individual interest in maximizing the viability of proprietary data products that they sell to market participants.”

134

Though one commenter suggests that a non-profit structure for the CT Plan would better ensure independence in decisions relating to fees and administrator contracts than, for example, an LLC, the Commission believes that the requirement of the Governance Order that non-SROs have a vote on matters before the Operating Committee, together with the SROs' obligations under the federal securities laws and regulations, is sufficient at this time to mitigate conflicts of interests in making such decisions, regardless of the corporate structure used.

134

Governance Order,

supra

note 8, 85 FR at 28707, 28715-16.

Moreover, the Commission is modifying certain other provisions of the CT Plan to help ensure that the CT Plan meaningfully includes non-SROs in Operating Committee decision-making, consistent with the Governance Order.

135

Each of the following modifications is discussed in greater detail below.

135

See, e.g.,

Governance Order,

supra

note 8, 85 FR at 28707.

First, as discussed below in Section II.C.5(d)(iii), the Commission is modifying the CT Plan to limit the circumstances under which the SRO Voting Representatives may meet outside the presence of the Non-SRO Voting Representatives in Executive Session. Second, as discussed below in Section II.C.5(g)(iii), the Commission is modifying the CT Plan to limit the topics that may be addressed in a legal subcommittee without the Non-SRO Voting Representatives present and to require certain records of legal subcommittee meetings be kept to enhance transparency and accountability regarding the use of that subcommittee. Third, as discussed below in Section II.C.5(h), the Commission is modifying the CT Plan to require that the creation and assignment of any officer positions and duties be subject to a vote of the Operating Committee, rather than by a majority vote of the SROs. Fourth, as discussed below in Section II.C.5(g)(iii), the Commission is modifying the CT Plan to apply the Exculpation provisions available to the SROs to Non-SRO Voting Representatives. And fifth, as discussed below in Section II.C.12(e), the Commission is modifying the CT Plan to remove the provision that would allow the SROs to modify Article IX (Allocations), Article X (Records and Accounting; Reports), Article XI (Dissolution and Termination), and Article XII (Exculpation and Indemnification) by a majority vote of Members.

Finally, one commenter states that the CT Plan does not include all of the necessary provisions for an LLC agreement to function appropriately as an NMS plan.

136

The commenter does not, however, identify the areas in which it believes the agreement is deficient.

136

See

Data Boiler Letter I,

supra

note 31, at 25

For the reasons stated above, the Commission finds that it is appropriate for the CT Plan to be structured as an LLC Agreement, and is approving Article II as proposed.

4. Membership (Obligations and Liabilities)

Pursuant to Article III, Section 3.2(a) of the CT Plan, any national securities association or national securities exchange whose market, facilities, or members, as applicable, trades Eligible Securities may become a Member by (i) providing written notice to the Company; (ii) executing a joinder to the LLC Agreement; (iii) paying a Membership Fee to the Company as determined pursuant to Section 3.2(b) (“Membership Fee”); and (iv) executing a joinder to any other agreements to which all of the other Members have been made party in connection with being a Member.

137

Membership Fees paid will be added to the general revenues of the Company.

138

137

See

Article III, Section 3.2(a) of the CT Plan.

138

See id.

Article III, Section 3.2 of the CT Plan specifies that the factors that will be considered in determining a Membership Fee are: (1) The portion of costs previously paid by the Company (or by the Members prior to the formation of the Company) for the development, expansion and maintenance of the System which, under generally accepted accounting principles (“GAAP”), would have been treated as capital expenditures and would have been amortized over the five years preceding the admission of the new member; and (2) an assessment of costs incurred and to be incurred by the LLC for modifying the System or any part thereof to accommodate the new member, which costs are not otherwise required to be paid or reimbursed by the new Member.

139

The CT Plan prohibits a Member's transfer of its Membership Interest in the LLC, except in connection with the withdrawal of a Member from the LLC, as discussed below.

140

139

See

Article III, Section 3.2(b) of the CT Plan. The proposed CT Plan provides that Participants of the CQ Plan, CTA Plan, and UTP Plan are not required to pay the Membership Fee.

See

Article III, Section 3.2(c) of the CT Plan.

140

See

Article III, Section 3.3 of the CT Plan.

Pursuant to Article III, Section 3.4, any Member may voluntarily withdraw from the LLC by: (i) Providing not less than 30 days' prior written notice of such withdrawal to the LLC, (ii) causing the LLC to file with the Commission an amendment to effectuate the withdrawal,

141

and (iii) transferring such Member's Membership Interest to the LLC.

142

If a Member ceases to be a registered national securities association or registered national securities exchange, that Member automatically withdraws from the LLC.

143

Section 3.4 further provides that after withdrawal from Membership, the Member will remain liable for any obligations arising prior to withdrawal.

144

A withdrawing Member is entitled to receive a portion of the Net Distributable Operating Income attributable to the period prior to the Member's withdrawal.

145

141

Any withdrawal will not be effective until an amendment to the Agreement is approved by the Commission.

See

Article III, Section 3.4(c) of the CT Plan.

142

See

Article III, Section 3.4(a) of the CT Plan.

143

See

Article III, Section 3.4(b) of the CT Plan. Article III, Section 3.5 of the CT Plan provides that a Member's bankruptcy under Section 18-304 of the Delaware Act shall not itself cause a withdrawal of such Member from the Company.

144

See

Article III, Section 3.4(d)(i) of the CT Plan.

145

See

Article III, Section 3.4(d)(ii) of the CT Plan.

Pursuant to proposed Sections 3.4(d)(iii) and (iv), a Member that has withdrawn from the LLC will no longer have the right to have its Transaction Reports, Quotation Information, or other information disseminated over the System, and the Capital Account of that Member will not be allocated profits and losses of the LLC. In addition, Article III of the CT Plan provides that no Member, unless authorized by the Operating Committee, has the authority to represent the LLC or to make any expenditure on behalf of the LLC; provided, however, that the Tax Matters Partner may represent, act for, sign for or bind the LLC as permitted under Sections 10.2 and 10.3 of the LLC Agreement.

146

In addition, the CT Plan provides that, following the Operative Date, each Member will be required to comply with the provisions of the Plan

and enforce compliance with the Plan by its members.

147

146

See

Article III, Section 3.7(d) of the CT Plan.

147

See

Article III, Section 3.6 of the CT Plan.

These provisions relating to joining and withdrawing from the CT Plan as a Member and enforcing compliance with the Plan are similar to those existing in other NMS Plans.

148

The Commission received no comments addressing these provisions. Accordingly, the Commission is approving Section 3.4, as proposed.

148

See, e.g.,

CAT NMS Plan, Article III.

Article III of the CT Plan also sets forth the obligations and liabilities of the Members. Article III, Section 3.7(b) provides that Members will not be required to contribute capital or make loans to the LLC, nor will Members have any liability for the debts and liabilities of the LLC.

149

This section also states that it is the intent of the Members that no distribution to any Member pursuant to the LLC Agreement will be considered a return of money or other property paid or distributed in violation of the Delaware Act, and that any such payment will be considered a compromise within the meaning of Delaware Act, and the Member receiving any payment will not be required to return any payment to any person, provided that a Member will be required to return any payment made due to a clear accounting or similar error or as otherwise provide in Section 3.7(b).

150

Finally, Section 3.7(e) provides that no Member owes any duty (fiduciary or otherwise) to the LLC or to any other Member other than the duties expressly set forth in the LLC Agreement.

149

However, in the event that the Processors or the Administrator have not been paid pursuant to the terms of the Processor Services Agreements and Administrative Services Agreement, the proposed CT Plan requires each Member to return to the Company its pro rata share of any moneys distributed to it by the Company until an aggregated amount equal to the amount owed has been recontributed to the Company. The Company will pay the amount(s) owed.

See

Article III, Section 3.7(b) of the CT Plan.

150

See

Article III, Section 3.7(c) of the CT Plan. The proposed CT Plan further provides that if any court of competent jurisdiction holds that any Member is obligated to make any such payment, such obligation shall be the obligation of such Member and not of the Operating Committee.

See id.

In the Notice, the Commission sought comment on Article III, Section 3.7 and the provision that states that SROs shall have no liability for the debt, liabilities, commitments, or any other obligations of the CT Plan or for any losses of the CT Plan. The Commission asked if the provision is consistent with the SROs' obligations to, and purposes of, the CT Plan. Several commenters express concern with this provision.

151

One commenter states that the Members should not receive special liability protections.

152

Another commenter states that the liability carve-out for SROs is too broad.

153

This commenter states that the provisions in Article III, Section 3.7 would “significantly increase the likelihood that Plan activities would be contrary to the role and public purpose of the Plan as part of the national market system,” thereby creating a conflict of interest with SROs' obligations with respect to the Plan under federal securities rules and regulations.

154

Another commenter views the provisions of Article III, Section 3.7 as allowing the LLC to have upside profit, but relieving the SROs of responsibility for any debt, liabilities, commitment, or any other obligations.

155

This commenter further states that the SROs have significant influence on how the LLC operates through control of the Operating Committee, but no consequence for that control, and recommends that Article III, Section 3.7(e) be removed from the CT Plan.

156

151

See

Notice,

supra

note 3, 85 FR at 64568 (Question 11).

152

See

RBC Letter,

supra

note 30, at 9. This commenter recommends that the CT Plan should make clear that the liability protection and indemnification provisions apply to non-SRO representatives acting in their role on the Operating Committee.

See id.

at 10.

See also

infra

Section II.C.11 (discussing modification to the proposed CT Plan to provide indemnity to the Non-SRO Voting Representatives).

153

See

Virtu Letter,

supra

note 30, at 3.

154

Id.

155

See

Data Boiler Letter I,

supra

note 31, at 24.

156

See id.

In contrast, one commenter states that the liability protections in Article III, Sections 3.7(b) and (e) are standard protections for the members of an LLC and are commonly included in LLC agreements.

157

This commenter further argues that the Non-SRO Voting Representatives do not need similar protection since they are not members of the LLC.

158

Another commenter states that the provisions in Article III are consistent with Delaware business organization law.

159

This commenter also argues that including the principle that no Member of the CT Plan is liable for the obligations of the CT Plan “is not an attempt to avoid appropriate funding for the CT Plan,”

160

and states that the requirements in CT Plan that each Member make capital contributions for “reasonable administrative and other reasonable expenses” of the CT Plan and that each Member return its pro rata share of distributions from the CT Plan in the one year period prior to a default in payment to the Processors or Administrator are evidence of appropriate funding responsibilities for the CT Plan.

161

157

See

NYSE Letter I,

supra

note 18, at 37. This commenter points to Section 4.8 of the CAT NMS Plan as precedent for including the limitation on liability provisions at Section 3.7(b) and (e) and states that, similar to the proposed CT Plan, the CAT NMS Plan extends liability protection and indemnification coverage only to SROs that created the LLC.

See id.

at 37-38. Another commenter notes that the OPRA Plan is an LLC with similar limitation on liability provisions.

See

Nasdaq Letter I,

supra

note 20, at 16 n.26.

158

See

NYSE Letter I,

supra

note 18, at 38.

159

See

Nasdaq Letter I,

supra

note 20, at 15 (citing Section 18-303 of the Delaware Act).

160

Id.

at 16.

161

Id.

While certain commenters object to the provisions that would absolve the Members of financial liabilities incurred by the LLC, arguing that the provisions are too broad and would allow the Members to act in their own self-interest, contrary to the purpose of the CT Plan,

162

after careful consideration of the comments, the Commission is not modifying these provisions. As the Commission stated above, the SROs' regulatory obligations pursuant to the CT Plan flow from the federal securities laws and regulations, and the Commission has, as noted above, modified the language of the Recitals of the CT Plan to reiterate that the terms of the CT Plan cannot act to diminish those obligations.

163

Further, the language proposed by the SROs for Section 3.7(b) states that an SRO shall not have liability to the CT Plan as a Member

except

as provided in the Agreement or “Applicable Law” (a defined term in the CT Plan), which means that the express terms of this provision of the LLC agreement do not contemplate limiting any regulatory obligations SROs might have under the federal securities laws and regulations with respect to the operation of the CT Plan. Finally, the Commission does not believe that it is necessary to extend these provisions to apply to Non-SRO Voting Representatives, as one commenter suggests,

164

because while these persons serve on the Operating Committee, they have no financial obligation under the CT Plan and thus do not require the protections afforded to the Members in Article III. Accordingly, the Commission is approving Article III, Section 3.7 as proposed.

162

See

RBC Letter,

supra

note 30, at 9; Virtu Letter,

supra

note 30, at 3;

see also

Data Boiler Letter I,

supra

note 31, at 24.

163

See supra

Section II.C.1(b).

164

See

NYSE Letter I,

supra

note 18, at 38.

In the Notice, the Commission specifically sought comment on Article III, Section 3.7(e) of the CT Plan, which absolves Members of any duty to the

LLC or other Members, and on the provision's potential impact on the CT Plan's responsibilities for the collection, processing, and dissemination of equity market data.

165

Two commenters object to the provision that relieves Members of a duty (fiduciary or otherwise) to the CT Plan or each other.

166

One of these commenters asserts that the SROs' disclaimer of duty or obligation to the CT Plan appears to be a “complete abdication” of responsibility to ensure that the Plan carries out its intended function, and that it is “unclear” why an SRO's representative to the CT Plan would not have a fiduciary duty to the LLC.

167

This commenter states that the SROs should, at a minimum, establish a duty in the CT Plan to promote the plan's function of assuring the widespread availability of equity market data on terms that are fair and reasonable, consistent with statutory requirements, or to promote the interests of fair and orderly markets and the protections of investors and the public interest.

168

This commenter encourages the SROs to adopt a fiduciary duty as well as to affirmatively articulate the duties that are owed to the CT Plan.

169

Another commenter similarly believes that the SROs should assume fiduciary duties to the LLC.

170

165

See

Notice,

supra

note 3, 85 FR at 64568 (Question 12).

166

See

MFA Letter,

supra

note 30, at 2; RBC Letter,

supra

note 30, at 9.

167

MFA Letter,

supra

note 30, at 2 (also stating that the SROs cannot both disclaim any duty to the LLC and maintain the current level of control over the LLC if the CT Plan is to function properly.).

168

See id.

169

See id.

170

See

RBC Letter,

supra

note 30, at 9.

One commenter disagrees that the CT Plan should impose a fiduciary duty on Members.

171

This commenter states that, while individuals or entities that manage a limited liability company may have fiduciary duties under Delaware law, a member generally does not have fiduciary duties so long as it does not exercise control over the company.

172

This commenter argues that under the CT Plan, the Operating Committee, not the Members, have managerial responsibility for the operations of the CT Plan and the Members only have limited rights to take actions.

173

Further, the commenter explains, no individual Member of the CT Plan has the ability to control the actions of the CT Plan.

174

The commenter concludes that “it is unlikely that under Delaware law the Members of the CT Plan, when acting in such capacity, would owe fiduciary duties to the CT Plan or the Members.”

175

This commenter also argues that the proposed language of the CT Plan has no effect on the SROs' obligations under federal securities laws and that it is those obligations, rather than the SROs' obligations to the CT Plan and each other, that will ensure that the SROs comply with their responsibilities regarding the dissemination of real-time consolidated equity market data.

176

171

See

Nasdaq Letter I,

supra

note 20, at 16-17.

172

See id.

173

See id.

174

See id.

175

Id.

176

See id.

at 16. This commenter further states that “since the Plan is a product of federal law, it would be inappropriate to subject its Members to state fiduciary duties, as this would give rise to a potential conflict between state and federal law.”

Id.

With respect to providing a disclaimer of fiduciary duty for Non-SRO Voting Representatives, this commenter states that there would be some logic in expanding the disclaimer of fiduciary duties to cover Non-SRO Voting Representatives, but that this would not address the discrepancy between the federal law obligations of the Members and the Non-SRO Voting Representatives.

177

This commenter states that Rule 608 of Regulation NMS “would require the Members to comply with the Plan, and enforce compliance by their broker members, but that neither that rule, nor any other provision of law, imposes corresponding duties on the Non-SRO Voting Representatives.”

178

177

See id.

at 17.

178

Id.

at 17;

see also

NYSE Letter I,

supra

note 18, at 7.

The Commission agrees that the proposed language of the CT Plan has no effect on the SROs' obligations under the federal securities laws, and that it is those obligations than will ensure compliance with SRO responsibilities regarding consolidated equity market data. As discussed above,

179

any disclaimer of fiduciary duty to the LLC cannot dilute, diminish, or otherwise alter the Members' regulatory responsibilities under the federal securities laws and rules because, as SROs and pursuant to the requirements under the national market system, the Members are prohibited from acting in contravention of Commission rules and regulations, which include rules for the protection of investors 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.”

180

However, the Commission understands the concerns raised by commenters that the terms of the CT Plan fail to impose any express duty on the Members to act to promote the purpose of the Plan and expressly disclaim any such duty.

181

To address this concern, as discussed above, the Commission is modifying the terms in the CT Plan's Recitals to explicitly state that no provision of the CT Plan shall be construed to limit or diminish the obligations of SRO Members to the CT Plan that arise pursuant to federal securities laws and regulations.

182

The Commission is not, however, modifying the Plan to include a disclaimer of fiduciary duty for the Non-SRO Voting Representatives who serve on the Operating Committee, a possibility raised by one commenter,

183

because Non-SRO Voting Representatives will not have the same legal obligations as the SRO Voting Representatives and because they may also have separate legal duties to their employers.

179

See supra

Section II.C.1(b).

180

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

181

See

MFA Letter,

supra

note 30, at 2; RBC Letter,

supra

note 30, at 9.

182

See supra

Section II.C.1(b).

183

See

Nasdaq Letter I,

supra

note 20, at 16-17.

5. Management of the LLC

(a) Duties and Powers of the Operating Committee

Article IV of the CT Plan establishes the overall governance structure for the management of the LLC. Article IV, Section 4.1(a) proposes that the LLC be managed by the Operating Committee.

184

Article IV, Section 4.1 also provides that the Operating Committee has the authority to take actions it deems necessary to accomplish the purposes of the LLC, including: (1) Proposing amendments or implementing policies and procedures;

185

(2) selecting, overseeing, specifying the role and responsibilities of, and evaluating the performance of the Administrator, the Processor, an auditor, and any other professional service providers;

186

(3) developing fair and reasonable fees for equity market data

187

; (4) reviewing the performance of the Processor and ensuring public reporting of the Processors' performance and other metrics and information about the processors;

188

(5) assessing the marketplace for equity data products

and ensuring that the CT Feeds are priced in a manner that is fair and reasonable, and designed to ensure the widespread availability of CT Feeds data to investors and market participants

189

; (6) designing a fair and reasonable formula to be applied by the Administrator for allocating revenue, and reviewing and revising the formula as needed;

190

(7) interpreting the LLC Agreement and its provisions;

191

and (8) other specific responsibilities provided for in the LLC Agreement.

192

184

See

Article IV, Section 4.1(a) of the CT Plan.

185

See

Article IV, Section 4.1(a)(i) of the CT Plan.

186

See

Article IV, Section 4.1(a)(ii) of the CT Plan. This section further provides that any expenditure for professional services paid by the Company must be authorized by the Operating Committee and must be for activities consistent with the CT Plan.

See id.

187

See

Article IV, Section 4.1(a)(iii) of the CT Plan.

188

See

Article IV, Section 4.1(a)(iv) of the CT Plan.

See also

Letter from Kenneth E. Bentsen, Jr., President and CEO, SIFMA (June 9, 2021), at 2.

222

IEX Letter,

supra

note 30, at 2 (quoting the Commission's Governance Order,

supra

note 8, 85 FR at 28707).

223

See

BMO Letter I,

supra

note 30, at 3; BMO Letter II,

supra

note 30, at 2.

224

Data Boiler Letter I,

supra

note 31, at 30.

225

Schwab Letter II,

supra

note 30, at 6.

Other commenters oppose the CT Plan's provisions that grant non-SROs voting rights on the Operating Committee. Three commenters state that these provisions are contrary to Section 11A of the Act.

226

These commenters

state that Section 11A of the Act authorizes the Commission to direct only the SROs to jointly develop and operate NMS plans, and does not provide the authority to give non-SROs voting power on the operating committee of an NMS plan.

227

While acknowledging that the non-SROs should have some voice in the operations of the CT Plan, one commenter argues that Congress “determined to entrust the planning, development, operation, and regulation of NMS plans to SROs that have specific regulatory obligations to act in furtherance of the public interest.”

228

This commenter also argues that, because Rule 608 provides that only SROs have the authority to act jointly to file and amend NMS plans, providing voting rights to non-SROs violates Rule 608.

229

Another commenter argues that the Act leaves no discretion for the Commission to grant votes to non-SROs,

230

and that providing votes to non-SROs would conflict with the design and purpose of the Act, which entrusted responsibility for the planning, development, operation, and regulation of the national market system to SROs, which are subject to comprehensive regulation,

231

rather than to non-SROs, whose representatives would have no obligation to act in the public interest and would be free to act in their own personal self-interest.

232

This commenter further states that the Non-SRO Voting Representatives would not have an obligation to protect investors or further the public interest, or to comply with the terms of the CT Plan, despite being voting members of the Operating Committee.

233

226

See

Cboe Letter,

supra

note 17, at 2, 3-4 (arguing that only SROs have the authority to act jointly to file, amend, implement, and administer an NMS plan); NYSE Letter I,

supra

note 18, at 6-

7 (arguing that neither Section 11A nor Rule 608(a)(3) authorize non-SROs to act jointly along with SROs with respect to NMS plans); Nasdaq Letter I,

supra

note 20, at 1-2 (attaching and incorporating by reference all arguments made by Petitioners in their opening brief challenging the Order). The Commission has responded to the arguments made by Nasdaq in its brief.

See

Brief for the Respondent, Securities and Exchange Commission,

The Nasdaq Stock Market, et al.

Securities and Exchange Commission

(Case No. 20-1181) (DC Cir. 2020).

227

See

Cboe Letter,

supra

note 17, at 2; Nasdaq Letter I,

supra

note 18, at 1-2.

See also

NYSE Letter I,

supra

note 18, at 6-7; NYSE Letter II,

supra

note 19, at 3.

228

Cboe Letter,

supra

note 17, at 3.

229

See id.

at 4.

230

See

NYSE Letter I,

supra

note 18, at 7.

231

See id.

232

See id.

at 7-8.

233

See

NYSE Letter I,

supra

note 18, at 7 (“While these individuals are intended to `represent' each of the six enumerated categories of non-SRO market participants, such individuals would not even have the obligation to further the purportedly represented non-SROs' interest nor the public interest when voting on the Operating Committee, leaving each free to act in his or her own personal self-interest.”).

The Commission specifically considered and addressed these arguments in the Governance Order.

234

As stated therein, the Commission believes that it is within its authority under Section 11A to require the operating committee to include voting rights for non-SROs. In Section 11A(a)(2), Congress directed the Commission to use its authority under the Act to facilitate the establishment of the NMS in accordance with and in furtherance of its specific findings and objectives. Here, the Commission is acting pursuant to its authority under Section 11A(a)(3)(B) to further Congress's express objective of assuring the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities.

235

Section 11A(a)(3)(B) expressly permits the Commission to require SROs to “act jointly” with respect to a “matter[ ]” as to which they “share authority in planning, developing, operating, or regulating the national market system (or a subsystem thereof).”

236

But Congress left to the Commission's discretion the determination of which “matters” to require joint action and how such joint action should occur. The requirement for the CT Plan to include minority voting rights for non-SROs on the Operating Committee falls comfortably within that discretion.

234

See

Governance Order,

supra

note 8, 85 FR at 28715-16.

235

See

15 U.S.C. 78k-1(a)(3)(B).

236

Id.

The particular “matter” as to which the Commission is requiring joint action here—the planning, development, and operation of an NMS plan governing dissemination of consolidated equity market data—is designed to achieve the goals of Section 11A(c), in particular by ensuring the prompt, accurate, reliable, and fair collection, processing, distribution, and publication of information with respect to quotations for and transactions in securities and the fairness and usefulness of the form and content of such information. Not only does that provision expressly contemplate the involvement of non-SROs,

237

but as the Commission explained in the Governance Order, an operating committee that takes into account views from non-SRO members that are charged with carrying out the objectives of the CT Plan will have an overall improved governance structure that better supports those goals, because it will reflect a more diverse set of perspectives from a range of market participants, including significant subscribers of SIP core data products.

238

As the Commission further stated, “including representatives from non-SROs alongside the SROs on the operating committee will enhance the ability of all relevant constituencies to work together to facilitate the goals of Section 11A of the Act.”

239

These findings had substantial support in the comment file for the Governance Order, as a diverse set of commenters expressed the view that the governance of market data plans should include a broader array of viewpoints.

240

And the Commission reiterates those findings here.

237

See

15 U.S.C. 78k-1(c) (prohibiting any SRO “securities information processor, broker or dealer” from collecting, processing, distributing, or publishing market data in contravention of Commission rules).

238

See

Governance Order,

supra

note 8, 85 FR at 28715-16.

239

Id.

at 28716.

240

See id.

at 28706.

The Commission disagrees with comments that argue that because Section 11A of the Act and Rule 608 of Regulation NMS authorize the Commission to permit or require SROs to “act jointly” in planning, developing, and operating the NMS plans, the Commission has no authority to mandate that SROs provide minority voting rights for certain non-SROs on the operating committee of the new plan. Nothing in Section 11A precludes the involvement of non-SROs in the national market system.

241

Nor do the text or structure of Section 11A demonstrate that in permitting the Commission to authorize or require SROs to “act jointly” with respect to matters over which they share authority, Congress intended to entrust the development or operation of the NMS exclusively to SROs. “Act jointly” does not clearly connote “act jointly and exclusively.”

242

Likewise, the

Commission's grant of authority to SROs in Rule 608(a)(3) authorizes SROs to act jointly but, in doing so, does not by implication limit the Commission's authority to set forth a governance structure that includes non-SROs with some measure of voting power on an NMS plan operating committee. Rather, as the Governance Order notes, both Section 11A and Rule 608 are silent as to the participation of non-SROs in the operation of the plan.

241

To the contrary, Section 11A expressly contemplates the involvement of non-SROs.

See, e.g.,

Section 11A(b), 15 U.S.C. 78k-1(b) (regarding Securities Information Processors); Section 11A(c), 15 U.S.C. 78k-1(c) (prohibiting any SRO “securities information processor, broker or dealer” from collecting, processing, distributing, or publishing market data in contravention of Commission rules); Section 11A(d)(3), 15 U.S.C. 78k-1(d)(3) (listing brokers, dealers, securities information processors, issuers, and investors with “other persons interested in or likely to participate in the establishment, operation, or regulation of the national market system”).

242

Indeed, history indicates that there is a different congressional intent behind the inclusion of this language. As the Commission has explained, the “act jointly” provision “enables the Commission to require joint activity that otherwise might be asserted to have an impact on competition, where the activity serves the public interest and the interests of investors.” Order Directing the Exchanges and the National Association of

Securities Dealers, Inc. to Submit a Phase-in Plan to Implement Decimal Pricing in Equity Securities and Options, Securities Exchange Act Release No. 42914 (June 8, 2000), 65 FR 38010, 38012 (June 19, 2000);

see also

Application Pursuant to Section 11A(a)(3)(B) of the Securities Exchange Act of 1934, Securities Exchange Act Release No. 41843 (Sept. 8, 1999), 64 FR 50126, 50127 (Sept. 15, 1999); Order Directing Options Exchanges To Submit an Inter-Market Linkage Plan, Securities Exchange Act Release No. 42029 (Oct. 19, 1999), 64 FR 57674, 57675 (Oct. 26, 1999). In other words, Congress permitted the Commission to authorize SROs to engage in joint action that may otherwise give rise to antitrust concerns in circumstances in which they are acting “with respect to matters as to which they share authority . . . in planning, developing, operating, or regulating a national market system (or a subsystem thereof) or one of more facilities thereof.”

Further, the Commission does not believe, as suggested by some commenters, that permitting non-SROs to serve on the Operating Committee will impede the SROs' ability to act jointly or interfere with their ability to operate the national market system. The CT Plan simply requires the SROs to include Non-SRO Voting Representatives in the decision-making process for plan action.

243

Additionally, nothing in the legislative history of Section 11A indicates that Congress sought to preclude the Commission from directing the SROs to provide non-SROs with a voice in NMS plan governance, particularly where, as here, the Commission has reasonably concluded that doing so will promote the Plan's effectiveness, consistent with Section 11A's enumerated goals.

243

See

Governance Order,

supra

note 8, 85 FR at 28715.

Further, the Commission does not believe that allowing a broader representation of market participants in the governance of the CT Plan by including non-SROs as voting members on the Operating Committee will diminish the SROs' ability to ensure that the CT Plan meets the requirements of Section 11A of the Act and Rule 608 of Regulation NMS. As discussed below, the proposed voting structure, provides the SROs, by themselves, sufficient voting power to ensure that the Plan meets the requirements of Section 11A and Rule 608. In addition, the inclusion of non-SROs as voting members does not create a risk that the CT Plan could be amended in a manner inconsistent with the SROs' regulatory obligations or with the Act, as any substantive amendments to the CT Plan would require Commission approval, and the Commission would determine if each such amendment was consistent with the Act and Rule 608. Therefore, the Commission continues to believe that inclusion of Non-SRO Voting Representatives on the Operating Committee would not interfere with the Commission's ability to exercise its oversight over the CT Plan.

(B) Categories of Non-SRO Voting Representatives

Article IV, Section 4.2(b) provides that one Non-SRO Voting Representative will be chosen from each of the following categories to serve on the Operating Committee, with the right to vote on Operating Committee matters: (A) An institutional investor; (B) a broker-dealer with a predominantly retail investor customer base; (C) a broker-dealer with a predominantly institutional investor customer base; (D) a securities market data vendor that is not affiliated or associated with a Member, broker-dealer, or investment adviser with third-party clients; (E) an issuer of NMS stock that is not affiliated or associated with a Member, broker-dealer, or investment adviser with third-party clients; and (F) a Retail Representative.

244

See

Article IV, Section 4.2(b) of the CT Plan. For purposes of the CT Plan, a Retail Representative is an individual who (1) represents the interests of retail investors, (2) has experience working with or on behalf of retail investors, (3) has the requisite background and professional experience to understand the interests of retail investors, the work of the Operating Committee of the Company, and the role of market data in the U.S. equity market, and (4) is not affiliated with a Member or broker-dealer.

See id.

One commenter states it is “not against” the proposed categories of Non-SRO Voting Representatives, but argues that the representatives' ability to introduce new and useful innovation to reform the SIP should be emphasized.

245

Another commenter expresses support, in particular, for the inclusion of an institutional investor, such as an asset manager, on the Operating Committee.

246

One commenter opposes the proposed restriction that would prohibit the Non-SRO Voting Representative representing issuers from being affiliated with an SRO, a broker-dealer, or an investment adviser.

247

This commenter argues that such a limitation would “eliminate a significant portion of qualified issuer representatives with the industry experience necessary to be effective non-SRO members,” and would unreasonably discriminate against ETF issuers as they are typically affiliated with a broker-dealer or investment adviser, denying representation to a significant segment of the market.

248

245

Data Boiler Letter I,

supra

note 31, at 28.

246

See

ICI Letter II,

supra

note 31, at 1.

247

See

Letter from Hubert De Jesus, Managing Director, Global Head of Market Structure and Electronic Trading, and Samantha DeZur, Director, Global Public Policy, BlackRock (Nov. 12, 2020) (“BlackRock Letter I”), at 3.

248

Id.

Another commenter disagrees with the proposed restriction that would prohibit the Non-SRO Voting Representative representing Market Data Vendors from being affiliated or associated with a Member, broker-dealer, or investment adviser with third-party clients.

249

The commenter explains that many market data vendors partner with broker-dealers to create, and have available, technology that will complement traditional vending technology. The commenter argues that if these vendors are excluded from the pool of possible adviser candidates, no employees of major vendors would be eligible to serve, and that would eliminate many candidates that have the depth and breadth of understanding that comes from working for a large vendor. The commenter suggests that the restriction on who is eligible to serve as the securities Market Data Vendor Non-SRO Voting Representative be revised so that the individual representing the vendor community may not be associated with or in a direct control relationship with a broker-dealer.

250

249

See

Letter from Sherry Madera, Chief Industry & Government Affairs Officer, Refinitiv (Nov. 12, 2020) (“Refinitiv Letter”), at 1-2.

250

See id.

Although some commenters object to the restriction that the securities market data vendor representative and the issuer representative cannot be affiliated with SROs, broker-dealers, and investment advisers with third-party clients,

251

the Commission continues to believe that these restrictions are appropriate. These restrictions would operate to prevent certain affiliates of SROs, broker-dealers, or investment advisers from gaining additional representation on the Operating Committee by virtue of their affiliations. Under the CT Plan, SROs would have two-thirds of the votes on the Operating Committee, broker-dealers would have two representatives on the Operating Committee, and institutional investors would have one representative on the Operating Committee. Allowing a person from an issuer or market data

vendor affiliated with an SRO to serve as a Non-SRO Voting Representative would increase SRO representation and correspondingly diminish the representation of non-SROs on the Operating Committee.

251

See

BlackRock Letter I,

supra

note 247, at 3; Refinitiv Letter,

supra

note 249, at 1-2.

The Commission also believes that it is important that the securities market data vendor representative and the issuer representative not be affiliated with a broker-dealer or an investment adviser with third-party clients so that there are entities with potentially diverse views on the Operating Committee. The Commission believes that adding an issuer representative that is not affiliated with an investment adviser would be more likely to add a different and valuable perspective than a second representative affiliated with an investment adviser. Similarly, the Commission believes that, although it is likely that the affiliation restrictions for a market data vendor representative would prevent at least some qualified and experienced persons from serving in that role, the Commission believes that this disadvantage is justified by the benefits of having a non-affiliated market data vendor, because the non-affiliated market data vendor would be more likely to add a different and valuable perspective to the deliberations of the Operating Committee than a third Non-SRO Voting Representative that is affiliated with a broker-dealer and would also be less likely to be affected by the same potential conflicts of interest. Moreover, as stated in the Governance Order, the Commission believes that even with these restrictions, the Operating Committee will be able to attract knowledgeable representatives of securities market data vendors and issuers, as the CT Plan will address issues and make important decisions that will impact these constituencies.

252

The Commission believes that the opportunity to have a voice on the operating committee of an NMS plan responsible for issues related to market data will be highly coveted and that there will be qualified nominees willing to serve as representatives from organizations that are not affiliated with SROs, broker-dealers, or institutional investors.

252

See

Governance Order,

supra

note 8, 85 FR at 28718.

The Commission therefore concludes that including representatives from these categories of Non-SRO Voting Representatives, as set forth in the CT Plan as proposed, will provide a diversity of views on the Operating Committee such that perspectives from key stakeholders in matters related to equity market data are heard. Accordingly, the Commission is approving the provision of Article IV, Section 4.2(b) that enumerates the categories of Non-SRO Voting Representatives as proposed.

Article IV, Section 4.2(b) of the CT Plan provides that Non-SRO Voting Representatives are eligible to serve for two-year terms for a maximum of two terms total, whether consecutive or non-consecutive.

253

Under this provision, after the expiration of a Non-SRO Voting Representative's term, a replacement will be selected by a majority of the then-serving Non-SRO Voting Representatives.

254

The CT Plan provides for a staggered start of the Non-SRO Voting Representatives official terms,

255

but provides that those Non-SRO Voting Representatives whose official terms would not begin until the Third Quarterly Operating Committee Meeting after the Effective Date, would temporarily serve as a Non-SRO Voting Representative upon their selection and would still be eligible to be selected for another two-year term.

256

253

See

Article IV, Section 4.2(b) of the CT Plan.

254

See

Article IV, Section 4.2(b)(i) and (ii) of the CT Plan.

See also

infra

Section II.C.5(b)(ii)(D).

255

Specifically, the proposed CT Plan provides that the terms for the Issuer Representative, the Retail Representative, and the Institutional Representative would begin at the First Quarterly Operating Committee Meeting and the Securities Market Data Vendor Representative, the Broker-Dealer with a predominantly retail customer base Representative and the Broker-Dealer with a predominantly institutional investor base Representative would begin at the Third Quarterly Operating Committee Meeting.

See

Article IV, Section 4.2(b)(i) of the CT Plan.

256

See

Article IV, Section 4.2(b) of the CT Plan.

Several commenters express views on the term limits proposed in Article IV, Section 4.2(b).

257

One commenter states that the maximum term limit imposed on Non-SRO Voting Representatives in the CT Plan could adversely affect the operations of the Operating Committee by barring members with more experience from serving on it and by making it more difficult to attract qualified candidates for all the categories of Non-SRO Voting Representatives.

258

Another commenter recommends allowing Non-SRO Voting Representatives to serve two two-year terms and then take a break for two years before being eligible to serve again.

259

The commenter believes that this term structure will “promote qualified participation by non-SROs, while preserving an egalitarian process which allows for a rotation of representatives and provides any interested candidate the opportunity to serve.”

260

Another commenter recommends that Non-SRO Voting Representatives be permitted to serve two consecutive terms and then serve again after a one-term break, arguing that there is a limited pool of individuals with adequate experience and knowledge that can serve and that there are benefits from institutional knowledge gained from serving on the Operating Committee.

261

In addition, one commenter believes that a Non-SRO Voting Representative should be permitted to serve more than two terms, provided there is a sufficiently lengthy (

e.g.,

two years) cooling-off process.

262

This commenter believes that the cooling-off process should provide a check on any firm's or individual's influence and would foster a sufficiently deep pool of candidates.

263

257

See

RBC Letter,

supra

note 30, at 8; MFA Letter,

supra

note 30, at 3-4; BlackRock Letter I,

supra

note 247, at 2; ICI Letter I,

supra

note 31, at 3-4; SIFMA Letter I,

supra

note 30, at 3; SIFMA Letter II,

supra

note 30, at 2; Virtu Letter,

supra

note 30, at 4; Letter from Marcia E. Asquith, Executive Vice President, Board and External Relations, FINRA (Nov. 12, 2020) (“FINRA Letter I”), at 7-8; MEMX Letter,

supra

note 30, at 3.

258

See

RBC Letter,

supra

note 30, at 8.

259

See

BlackRock Letter I,

supra

note 247, at 2.

260

Id.

261

See

MFA Letter,

supra

note 30, at 3-4.

262

See

ICI Letter I,

supra

note 31, at 3-4.

263

See id.

Similarly, another commenter that supports a maximum term limit for Non-SRO Voting Representatives to allow for fresh perspectives from new industry representatives recommends that Non-SRO Voting Representatives be permitted to serve three consecutive two-year terms with ability to serve the same term limits after a two-year break.

264

This commenter believes that the maximum term of four years proposed in the CT Plan would “impede meaningful and informed participation of Non-SRO Representatives” and “does not allow sufficient time for the representative to provide meaningful contribution as it may take new members . . . some time to get up to speed on the many diverse and complex issues.”

265

Another commenter states that it supports term limits to “incentivize a healthy rotation of industry experts on the [Operating] Committee,” but it does not believe that the term limits proposed “offer enough runway for experts to get up to speed

and to participate meaningfully in the work of the [Operating] Committee,” and recommends permitting Non-SRO Voting Representatives to serve three two-year terms.

266

Another commenter states that there is a sufficient number of qualified people to serve on the Operating Committee such that it is not necessary to have any person serve for more than six years, whether terms are consecutive or not.

267

This commenter supports allowing Non-SRO Voting Representatives to serve for two three-year terms, arguing that such a term would provide continuous fresh ideas to the Operating Committee.

268

264

See

SIFMA Letter I,

supra

note 30, at 3; SIFMA Letter II,

supra

note 30, at 2.

265

SIFMA Letter I,

supra

note 30, at 3;

see also

SIFMA Letter II,

supra

note 30, at 2. FINRA similarly supports a longer maximum term to “ensure that Non-SRO Voting Representatives are able to gain knowledge and experience with the specifics of SIP operations, which can be very technical in nature, and allow them to provide more meaningful input into the CT Plan's operations.” FINRA Letter I,

supra

note 257, at 7-8.

266

Virtu Letter,

supra

note 30, at 4.

267

See

Fidelity Letter,

supra

note 30, at 4.

268

See id.

Other commenters address when the Non-SRO Voting Representatives should commence their duties on the Operating Committee.

269

One commenter suggests that the Operating Committee be established with both SRO and non-SRO voting representation before the CT Plan becomes effective to allow non-SROs the ability to participate in the process of operationalizing the CT Plan.

270

Another commenter recommends that the Non-SRO Voting Representatives' terms begin at the first meeting of the Operating Committee and that the terms be staggered such that three Non-SRO Voting Representatives would serve for three years and three Non-SRO Voting Representatives would serve for two years to allow all representatives to be present from the start.

271

Other commenters similarly support staggered terms. One commenter argues that staggered terms would reduce the distractions that could occur if all the Non-SRO Voting Representatives were replaced every two to four years.

272

Another commenter believes that the terms for Non-SRO Voting Representatives should be staggered so that no more than half of the representatives are elected in one year.

273

Similarly, another commenter recommends staggering terms “by at least one or two years to ensure sufficient continuity and consistency in representation.”

274

269

See

RBC Letter,

supra

note 30, at 4; BlackRock Letter II,

supra

note 30, at 1-2; ICI Letter II,

supra

note 31, at 2; Data Boiler Letter I,

supra

note 31, at 31.

270

See

BlackRock Letter II,

supra

note 30 at 1-2;

see also

Data Boiler Letter I,

supra

note 31, at 31 (stating that Non-SRO Voting Representatives should be selected before the Effective Date so they can assist with implementation of governance policies and procedures).

271

See

ICI Letter II,

supra

note 31, at 2.

272

See

Data Boiler Letter I,

supra

note 31, at 31.

273

See

MEMX Letter,

supra

note 30, at 3. To accomplish this, the commenter suggests modifying the initial term of three of the Non-SRO Voting Representatives.

See id.

274

BlackRock Letter I,

supra

note 247, at 2;

see also

Virtu Letter,

supra

note 30, at 4.

Several commenters recommend imposing term limits on SRO Voting Representatives.

275

One commenter believes that by applying term limits to Non-SRO Voting Representatives only, the CT Plan could advantage SROs relative to non-SROs with respect to relevant information and experience.

276

Another commenter states that SRO Voting Representatives should be subject to the same term limits as Non-SRO Voting Representatives.

277

Another commenter similarly states that allowing SRO Voting Representatives to serve indefinitely may be “counterproductive.”

278

275

See

RBC Letter,

supra

note 30, at 8; Virtu Letter,

supra

note 30, at 4; MFA Letter,

supra

note 30, at 3-4.

276

See

RBC Letter,

supra

note 30, at 8.

277

See

MFA Letter,

supra

note 30, at 3-4.

278

Virtu Letter,

supra

note 30, at 4.

Other commenters disagree that SRO Voting Representatives should be subject to term limits. Two commenters objecting to term limits for SRO Voting Representatives explain that these representatives do not serve as individuals, but as representatives of a legal entity, and must vote based on that entity's position.

279

Therefore, one commenter argues, changing the individual would not serve to bring new perspectives to the Operating Committee.

280

Another commenter stated that whether term limits apply to either Non-SRO Voting Representatives or SRO Voting Representatives is a decision for the SROs to make, not the Commission.

281

279

See

FINRA Letter I,

supra

note 257, at 7-8; Nasdaq Letter I,

supra

note 20, at 23.

280

See

Nasdaq Letter I,

supra

note 20, at 23. This commenter also argues that imposing term limits on SRO Voting Representatives would interfere with the SRO's ability to discharge its responsibilities under the Act through the individual that it believes best able to exercise those functions.

See id.

281

See

NYSE Letter I,

supra

note 18, at 38-39.

In the Governance Order, the Commission explained that term limits for Non-SRO Voting Representatives must balance the advantages of institutional knowledge with the potential benefits to be derived from new perspectives.

282

Further, the Commission stated that it believed that a term of two years, with the potential for additional terms, would provide sufficient time for a member to become familiar with the issues dealt with by the operating committee.

283

Several commenters, however, argue that Non-SRO Voting Representatives would need to be permitted to serve for longer than two two-year terms to get fully up to speed on all the complex matters covered by the CT Plan before rotating off the Operating Committee.

284

282

See

Governance Order,

supra

note 8, 85 FR at 28720.

283

See id.

284

See

RBC Letter,

supra

note 30, at 8; MFA Letter,

supra

note 30, at 3-4; BlackRock Letter I,

supra

note 247, at 2; SIFMA Letter I,

supra

note 30, at 3; SIFMA Letter II,

supra

note 30, at 2; Virtu Letter,

supra

note 30, at 4; Fidelity Letter,

supra

note 30, at 4; FINRA Letter I,

supra

note 257, at 7-8. Some of these commenters proposed alternative terms.

See

SIFMA Letter I,

supra

note 30, at 3; SIFMA Letter II,

supra

note 30, at 2; Virtu Letter,

supra

note 30, at 4; Fidelity Letter,

supra

note 30, at 4; FINRA Letter I,

supra

note 257, at 7-8; MEMX Letter,

supra

note 30, at 3.

After considering the concerns raised by commenters, the Commission is modifying Section 4.2(b) of the CT Plan to provide that Non-SRO Voting Representatives shall serve no more than two consecutive three-year terms, but shall be eligible, after a period of three years of non-service, to serve additional terms, subject to the requirement that three years of non-service must follow every set of two three-year terms of service.

285

The Commission finds that the modification from two two-year terms to two three-year terms is appropriate because the Commission believes that these longer terms will better allow Non-SRO Voting Representatives to obtain sufficient experience with the operation of the CT Plan and to make informed contributions as members of the Operating Committee. The Commission also finds that—in order to preserve an appropriate balance between retaining institutional knowledge and allowing new perspectives to be heard—it is appropriate to require that, after serving a defined amount of time, Non-SRO Voting Representatives should be required to observe a “cooling-off” period before serving again so as to allow others the opportunity to serve. In response to a commenter's claim that the SROs should have discretion to set Non-SRO Voting Representatives' term limits, the Commission believes, as it stated in the Governance Order, that the determination of term limits for Non-SROs falls within its statutory authority under Section 11A of the Act.

286

Moreover, the Commission believes that full participation by the Non-SRO Voting Representatives on the Operating Committee is a critical component of the

governance of the CT Plan and that permitting the SROs to set the terms of Non-SRO Voting Representatives would grant the SROs influence over the Non-SRO Voting Representatives and diminish the independence and effectiveness of Non-SRO Voting Representatives as they serve on the Operating Committee.

285

The Commission is modifying references to the Non-SRO Voting Representatives' term limits in Article IV, Sections 4.2(b)(iii) and (b)(vii) of the CT Plan to reflect this modification for consistency.

See infra

Section II.C.5(b)(ii)(C).

286

See supra

note 281.

See also

Brief for the Respondent, Securities and Exchange Commission,

The Nasdaq Stock Market, et al.

Securities and Exchange Commission

(Case No. 20-1181) (DC Cir. 2020).

The Commission, however, disagrees with comments suggesting that term limits should also apply to SRO Voting Representatives.

287

Rather, the Commission agrees with those comments that argue that the SRO Voting Representatives serve on the Operating Committee as representatives of a legal entity and vote at the direction of that entity. The SROs are, by virtue of their status as SROs, permanent participants in the CT Plan, and the Commission does not expect that varying the identity of the individuals representing a given SRO Group or Non-Affiliated SRO on the Operating Committee is likely to vary the views expressed or the votes cast by that SRO Group or Non-Affiliated SRO on the Operating Committee. The Non-SRO Voting Representatives, by contrast, will vary over time, and most will be employees of a set of firms that will vary over time, and the Commission expects that these individuals may have different perspectives regarding market data issues. Therefore, the Commission finds that imposing term limits on SRO Voting Representatives would not be appropriate, because it does not believe that doing so would bring fresh perspectives to the Operating Committee or further promote the goals of the CT Plan in the same manner as it would for Non-SRO Voting Representatives.

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See

RBC Letter,

supra

note 30, at 8; Virtu Letter,

supra

note 30, at 4; MFA Letter,

supra

note 30, at 3-4.

The Commission agrees with comments that suggest that all Non-SRO Voting Representatives should commence their duties upon selection and that the terms of Non-SRO Voting Representatives should be staggered,

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and the Commission believes that Sections 4.2(b)(ii) and (iii) of the CT Plan allow for both. Specifically, Section 4.2(b)(ii) provides that the terms of the Non-SRO Voting Representatives will begin on a staggered basis with half of the Non-SRO Voting Representatives beginning their term with the First Quarterly Meeting of the Operating Committee and half beginning their term with the Third Quarterly Meeting. However, Section 4.2(b)(iii) also states that, although the official term for certain of the Non-SRO Voting Representatives will not begin until the Third Quarterly Meeting, these Non-SRO Voting Representatives will

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