New SEC guidance makes it 'more difficult' for US equity exchanges to increase market data fees

New guidance out of the Securities and Exchange Commission could make it harder for US equity exchanges to profit on one of Wall Street's biggest cash cows: market data. 

As per the guidance released on Tuesday, exchanges will be required to disclose more specific details when they decide to increase fees tied to market data. Specifically, exchanges have to justify that a given fee increase is "reasonable." They'll also have to justify discounts.

"A Fee Filing proposal should fully and fairly describe the operation of the applicable fee (including its effect on market participants) and do so in sufficient detail so that the public can understand the Fee Filing proposal sufficiently to provide meaningful comment and the Commission can determine whether the proposal is consistent with the Exchange Act," the guidance said. 

It's a win for brokers and trading firms which have long argued that exchanges have unfairly raised the price for firms to access their proprietary market data, insights into how assets are trading on exchanges. Total annual revenue from market data increased 45% from 2014 to 2017, according to The Wall Street Journal. In recent years, market data has become just as important as a revenue source as trading fees for US equity exchanges. The SEC has been siding more with brokers on the issue, blocking exchanges from raising fees in October. 


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"It certainly is a loss for the exchanges. Fee increase filings just got a lot more difficult for them," said Joe Saluzzi of brokerage firm Themis Trading. "Raiding the market data piggy bank won't be so easy anymore."

Still, the exchanges — Nasdaq and NYSE — have fought hard against their regulator to adjust fees as they see fit. NYSE defended its role in the market in a statement to The Block.“The NYSE provides tremendous value to Main Street investors and listed companies alike through our ongoing investment in innovation, quality execution and the cost efficiency of our trading platforms," a NYSE spokesperson commented. A Nasdaq spokesman did not comment. 

IEX, an exchange that has criticized its larger rivals for charging high fees on market data, is in favor of the SEC's move. 

“We applaud the Commission’s efforts to hold exchanges accountable for justifying the fees they charge for market data and connectivity -- services where exchanges have rightly been criticized for exerting monopoly pricing power," said IEX Chief Market Policy Officer John Ramsay. "Today marks a major milestone in bringing more transparency in service of investors and their agents.”

Reporting by Frank Chaparro.


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Frank Chaparro is the Editor At Large at The Block. Chaparro started his career at Business Insider, where he specialized in the intersection of digital assets and Wall Street, market structure, and financial technology. Soon after joining Business Insider out of Fordham University, Chaparro was interviewing top finance and tech executives, including billionaire Mark Cuban, “Flash Boys” star Brad Katsuyama, Cboe Global Markets CEO Ed Tilly, and New York Stock Exchange President Tom Farley. In 2018, he become a sought after reporter in the crypto world, interviewing luminaries such as Tyler Winklevoss, the cofounder of Gemini, Jeremy Allaire, the CEO of Circle, and Fundstrat head Tom Lee. He runs his own podcast The Scoop and writes a biweekly eponymous newsletter. He leads special projects, including The Block's flagship podcast, The Scoop. Prior to The Block, he held roles at Business Insider, NPR, and Nasdaq. For inquiries or tips, email [email protected].