A three-judge panel in the US Circuit Court of Appeals for the District of Columbia, earlier this week, came out with a significant order allowing the Securities and Exchange Commission to proceed with its overhaul of the way essential stock market data is collected and disseminated. The order is significant as this tries to achieve a level-playing field between brokerages — big and small.

In 2020, Caroline A. Crenshaw, Commissioner of the US Securities and Exchange Commission, had approved new rules governing public data feeds to improve transparency and address inefficiencies in the collection and dissemination of stock market data.

Conflict of interest

According to SEC, “While the exchanges have changed dramatically, the core of our approach to exchange regulation has not. Our regulatory framework is still based on the model of a non-profit trading floor. That framework did not contemplate for-profit exchanges, and as a result does not adequately address the reality that today, an exchange’s incentives to maximise its own profits are often in direct tension with its regulatory obligations.”

It is these conflicts that have led to a broken and inequitable system of market data distribution. “Today’s rule is a step toward fixing the regulatory mismatch that now exists,” SEC statement added.

Level-playing field

“I believe today’s rule, by improving both the speed and the content of the public data feeds, is a step toward remedying this conflict. First, participants relying on the public data feeds can have access to crucial market information that, until now, had largely been available only to those who subscribe to high-priced prop data feeds. Second, introducing competition into the market for the consolidation and distribution of the public data feeds has the potential to meaningfully improve the speed, quality, and affordability of the data in those feeds,” she said.

Major exchanges including Nasdaq Inc, Intercontinental Exchange Inc’s NYSE unit and CBOE Global Markets opposed the move, as the new move allows other firms too to develop and sell data products based on data obtained from the exchanges.

Recently, SEBI also came out with a circular directing stock exchanges to make data available to users, ‘free of charge’ both for ‘viewing’ as also for downloading in the format as specified by the regulatory mandate for reporting and for their usage for value-addition purposes.

Still exchanges continue to levy multiple charges for real-time data for various levels (level 1, level 2, level 3 and tick by tick) across segments such as capital market, futures and options, currency derivative and wholesale debt market. Level 1 provides best bid and ask price; Level 2 provides market depth data up to five best bids and ask prices and Level 3 provides market depth data unto 20 best bids and ask prices.

However, there is no clarity on which data is being offered free, as per SEBI’s diktat. Instead of offering multiple layers of order book data, SEBI can make it mandatory for exchanges to offer just tick-by-tick data to all at a nominal cost.

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