Roadwork Ahead: Upgrading Market Data Infrastructure

Washington D.C.

I am pleased to support this final rule which will upgrade the public market data – essentially stock trades, prices and other information – that is the lifeblood of equity trading markets. The rule is designed to improve both the content and speed of market data that is provided through public market data streams known as the Securities Information Processors, or “SIPs.” It also introduces competition into the aggregation and dissemination of SIP data, and overall is expected to enhance the value of the data while lowering costs to market participants.

I’m grateful to the staff in the Division of Trading and Markets for shepherding this rule through a long and arduous process while also juggling an astounding workload on numerous other fronts. A lot has been asked of this team now for many, many months and you have consistently stepped up and performed above and beyond the call. Your work is difficult, highly technical and extremely demanding, and it’s critical to the fair and orderly functioning of our markets and to the protection of everyday investors.

I also want to add to the sentiments already expressed by my colleagues, my gratitude for the expertise and tireless dedication of Director Redfearn in getting this rule across the finish line, as well as numerous other significant policy improvements he has been instrumental in implementing during his tenure. It’s quite plain to me that you care very much about improving the structure of our markets. And you also possess a tremendous depth of experience, a true humility, and a straightforward candor that build credibility, trust, confidence – and ultimately consensus – in your work.

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Most individual investors never see directly how the costs of market data impact their investments. Data fees are paid by the investment funds, broker dealers, and investment advisers through which individuals invest. These fees represent a toll on trading and investing that are directly or indirectly borne by investors. Like tolls that help pay for many of the bridges and roads in our national transportation infrastructure, data fees support our trading system’s infrastructure.

The Commission has an obligation to oversee the provision of market data and ensure that it is provided on fair and reasonable terms.[1] Under current regulations, there are two exclusive SIPs. Each has an exclusive right to consolidate and distribute certain SIP data. The SIPs are run by for-profit exchange groups that also offer their own competing proprietary data products. But there’s really no competition between the two. As I said when this rule was proposed, the SIPs have not kept pace with these proprietary data products, either in terms of content or speed.[2]

Ever more sophisticated electronic trading and communication methods have led to equity trading occurring at speeds beyond what was previously imaginable. Particularly as algorithmic trading has come to dominate electronic trading, the content of trading information and the speed with which it is disseminated to market participants have become critical to ensuring the National Market System trading experience remains both competitive and fair. But many market participants have found they must pay for the more expensive proprietary data feeds in order to ensure they can operate effectively and competitively in the equity markets. In other words, the SIP data has not just failed to keep pace with proprietary data products, it has proven inadequate to ensure the public has timely access to essential trading information.[3]

That is where the Commission comes in. Congress was clear in directing the Commission to facilitate the establishment of a National Market System that our objectives are, among other things, to foster efficiency, enhance competition, increase information available to market participants, and contribute to best execution of orders.[4]

In today’s markets, however, while some can afford a pricey trip along a freshly paved, proprietary high speed toll lane, others are relegated to a cheaper ride on a public highway with cracked pavement and potholes. Today’s rule provides an upgrade to ensure that the trading experience on the SIP data highways is closer to that of the trading experience on the proprietary autobahns. The Commission expects this will enhance the utility of SIP data especially for the market participants that do not compete in the trading space where participants seek to slice milliseconds off trading times.

First, today’s final rule adopts a definition of “core data” for the first time, and includes within that definition depth-of-book, odd-lot, and auction information that market participants have made clear are all vital pieces of information in trading and routing decisions.[5] This provides all market participants with information that is essential to the operations of trading firms which, under the current framework, must obtain it by purchasing the proprietary data feeds.

Second, the rule requires core data and proprietary data sold by an exchange to be transmitted using the same format, hardware, and method of transmission. In short, it seeks to reduce latency by requiring both core and proprietary data to leave the starting gate at the same time and on the same track. This is designed to ensure that technological advances relating to consolidation and dissemination of market data do not accrue solely to the benefit of proprietary data customers.

Third, today’s final rule implements a model in which “competing consolidators” can register with the Commission to consolidate and distribute core data. The introduction of competition in the market for SIP data is expected to provide faster, more robust, and lower-cost market data for market participants than they can currently obtain.

Of course, the National Market System is complex, and it could be that further enhancements will be necessary to ensure that today’s changes achieve their intended effect of providing timely and fair access to essential trading information. For example, many commenters recommended the Commission adopt minimum standards relating to the performance or content of the data disseminated by competing consolidators.[6] While the introduction of competition into the market for SIP data is a step in the right direction, the possibility remains that variance in terms of, among other things, latency, message format, and data quality, could persist across different market participants. Once today’s changes are implemented, the Commission will continue to monitor the performance of competing consolidators and could determine in the future that certain minimum standards are warranted to prevent the persistence of the tiered system for market data that today’s rules are intended to address.[7]

Moreover, while this rule provides a critical building block in modernizing the National Market System infrastructure, more work remains to be done. The Commission should consider more holistically the standard by which best execution is gauged and achieved. The complexities of today’s National Market System and electronic trading can make determining best execution difficult. The Commission should consider broadly what constitutes best execution in today’s trading environment and what measures may be taken to ensure that investors have adequate transparency into the quality of execution they receive, including the costs of trading.

Indeed, today’s release highlights an important principle regarding best execution. Market participants that have access to data streams of varying degrees of speed and content, cannot use those data streams in a way that would disadvantage customer orders. For instance, a market participant that uses a low-latency or content-rich market data stream for its proprietary trading would be expected to use that same data stream when pursuing best execution of customer orders, especially if orders between the firm and its customers may interact. In short, it would be inconsistent with best execution for a firm to use higher quality data for its own proprietary trading while using lower quality data for customer orders. The Commission emphasizes and reiterates that fact in today’s release.[8]

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In sum, this rule represents an important step forward. Combined with the recent changes we have made to the governance and oversight of the SIPs,[9] the changes made today help ensure that market participants will have fair and timely access to robust market data at reasonable fees. Of course, the complexity of the markets and, by extension, our task in improving them for investors, will require continued oversight and evaluation as today’s changes are implemented. I look forward to hearing from the staff and from market participants about whether additional measures may be warranted in the future. As for today’s important milestone, I am happy to support.


[1] See Section 11A of the Securities Exchange act of 1934 (“Exchange Act”), 15 U.S.C. 78k-1(a)(1); see also Final Rule: Market Data Infrastructure, Securities Exchange Act Release No. [XXXXX] (December 9, 2020) (“Adopting Release”), at 10-12.

[2] See Commissioner Allison Herren Lee, Statement on Proposed Rule on Market Data Infrastructure (February 14, 2020), available at

[3] As explained in the Adopting Release, “[t]he purpose of the Equity Data Plans, approved under Regulation NMS, is to facilitate the collection and dissemination of SIP data so that the public has ready access to a ‘comprehensive’, accurate, and reliable source of information for the prices and volume of any NMS stock at any time during the trading day.” Adopting Release at 14.

[4] See Section 11A of the Exchange Act.

[5] See Adopting Release at 25-28. “Core data” is a newly defined term in the Adopting Release. Currently, the information provided to traders through SIP data is: (1) the price, size, and exchange of the last sale; (2) each exchange’s current highest bid and lowest offer, and the shares available at those prices; and (3) the national best bid and offer (i.e., the highest bid and lowest offer currently available on any exchange). While this information is important and useful to many market participants, for active traders who are concerned with execution, this limited information may provide an inadequate picture of the market.

Depth of book information allows participants to see what quotes are available on an exchange that are more expensive than the current best offer or cheaper than the best bid to sell a stock—providing a more granular picture of the overall market. The Adopting Release provides for five price levels of depth of book information as measured from the National Best Bid and Offer (“NBBO”).

The adopting release also adds quotes for odd lots to the “round lot” definition for the purposes of calculating the NBBO. An odd lot is typically an order for a stock that is less than 100 shares. Odd-lot price quotes are not currently captured in SIP data streams, therefore participants relying only on SIP data would miss prices quoted for odd lots. As many stocks have gotten more expensive, more and more trading occurs in odd lots. Including more odd-lot quotes in core data provides greater price transparency to traders. The Adopting release does this by amending the definition of “round lot” to include certain orders that are currently considered “odd lots.” As proposed, the Commission’s Order Protection Rule would not have applied to these new “round lots” based on “odd lots.” In response to comments received, the Commission has determined that the Order Protection Rule will apply to these new “round lots,” which is a positive change for investors and market participants. See Adopting Release at 108-116.

Finally, auctions play a key role in determining prices for exchange-traded stocks. Even as the proportion of trades executing in auctions has risen, little auction information is currently included in today’s SIP data. The Adopting Release would require auction information to be included within core data, again enhancing price transparency and giving traders a more granular picture of the market.

[6] See, e.g., letters from Tyler Gellasch, Executive Director, Healthy Markets (Jul. 27, 2020); letter from Christopher Solgan, VP, Senior Counsel, MIAX Exchange Group (Aug. 18, 2020).

[7] See Adopting Release at 288, n. 976.

[8] See Adopting Release at 36-43.

[9] 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 Release 88827 (May 6, 2020); Final Rule: Rescission of Effective-Upon-Filing Procedure for NMS Plan Fee Amendments and Modified Procedures for Proposed NMS Plans and Plan Amendments, Securities Act Exchange Release 89618 (August 19, 2020).

Last Reviewed or Updated: Dec. 9, 2020