Submission of Morgan Stanley to the SEC's Federal Advisory Committee on Market Information
Remarks on Alternative Models
I. Bottom Line Objectives
- Enhanced market transparency
- Reduced costs and administrative burdens
II. Market Transparency
- Retain, at a minimum, a requirement for dissemination of consolidated NBBO and last sale information, although we have a strong preference for mandated consolidated price and size information beyond the NBBO as well, because in a penny environment, "top of book" information does not sufficiently convey accurate information as to buy and sell interest in stocks.
- Retaining mandated consolidated NBBO and last sale information is critical to providing investors timely and accurate price information and in facilitating broker-dealers' fulfillment of their best execution obligations.
- Retain the limit order display rule (and, indeed, extend that rule to listed options as well), which has been critical in empowering investors, enhancing overall transparency and narrowing bid/ask spreads.
- Eliminate the concept of an exclusive SIP and submit the role of the "consolidator" to open competition.
- Strong preference for competing consolidators with view toward pricing discipline and ongoing technological innovation.
- Require an SRO wishing to act also as consolidator to separate that function from its SRO role.
- Dismantle existing data plans, thereby eliminating contentious governance issues. No need for SRO plans in this model given the non-exclusivity of the SIP role, questionable whether continuation of plans would pass antitrust muster.
IV. Costs and Administrative Burdens
- On the issue of pricing, we remain concerned over the prices that the various market centers will charge for their data in a competing consolidator model (especially if consolidated information, as hoped, continues to be required). Perhaps there should be more precise requirements to ensure non-discriminatory pricing (e.g., most-favored nation status).
- While market forces ought to operate effectively to keep the costs of market data reasonable at the consolidator level, that is contingent on there actually being competing consolidators - i.e., until there is more than one, perhaps the SEC should consider adopting standards similar to those to which market centers should be subject.
- Receipt and redistribution of market data is administratively burdensome and expensive and needs to be streamlined, including allowing unlimited use by recipients of market data.
IV. Technical Issues
- Technical standards and specifications, capacity requirements and data quality standards should be established as baseline requirements for market centers and competing consolidators which propose to send, receive and store data.
- Perhaps the SEC could appoint a panel of experts to make recommendations to the SEC as to the appropriate specifications, which the SEC could publish for public comment.