A far-reaching court case fought for years between stock exchanges and traders over the fees exchanges charge for market data could near a conclusion in 2018, recent court filings show.
The case, which dates back to 2013 in its earliest iteration, was brought by the Securities Industry and Financial Markets Association, a group that counts dozens of major broker/dealers and banks as members. The group alleged that because traders need the fastest market data from every exchange to effectively route orders, there is no check on how much the exchanges can charge for their data products.
SIFMA eventually asked the Securities and Exchange Commission's administrative law court to review the exchanges' fees. While an initial ruling sided with the exchanges, the SEC granted an appeal. A final appeals decision could unravel what has become the exchanges' most valuable business — selling the market data feeds that algorithmic and high-frequency traders rely on to give clients the legally required "best execution" of their orders.
The administrative law case has languished since Dec. 8, 2016, when SIFMA filed a final brief.
More than a year later, on Dec. 14, Chief Administrative Judge Brenda Murray asked the parties to file any new evidence they wish to be considered when the court reopens the case on appeal. The deadline for those submissions would be Jan. 5, 2018, with replies due Jan. 16, 2018.
In a joint brief filed the next day, SIFMA and the exchanges said they did not plan to submit additional materials. The case names what is now the Intercontinental Exchange Inc.-owned New York Stock Exchange and Nasdaq Inc. as defendants, but a decision would also affect Cboe Global Markets Inc. Market data sales are more profitable than other business lines for the three major equity exchanges.
While developments in the SEC case have been absent in 2017, regulatory scrutiny of market data has been on the rise. An extensive Treasury Department report on capital markets released in October recommended that the SEC and the Financial Industry Regulatory Authority allow broker/dealers to satisfy best-execution requirements without using the exchanges' proprietary data feeds.
Treasury also recommended that the SEC admit that the markets for proprietary data and the publicly available, slower feed called the SIP "are not fully competitive."
The SEC's use of administrative judges to make far-reaching decisions also came under fire in 2017, when a federal appeals court considered whether the judges need to go through the U.S. Senate confirmation process or are exempt from it, as they have been historically. A ruling that the judges need confirmation could undermine the legal authority of thousands of the judges' previous decisions.
In June, the appeals court rejected a petition to review a lower court's decision in favor of the SEC. An earlier, separate appellate case, however, had ruled that the judges should be subject to confirmations, setting up two conflicting appeals court decisions. Such split rulings are often resolved by the Supreme Court.