The Stock Exchanges vs. SEC: How the New Market Data Infrastructure Regulations Will Help the Common Investor


On December 9, 2020, all five Securities and Exchange Commission (“SEC”) Commissioners voted to adopt an amendment to Regulation National Market System (“NMS”), which restructures market data collection and expands the supply and demand of stock market data available to the public.[1] Although this appears to be a victory for the everyday investor, not everyone is thrilled about the amendment because the restructure decentralizes the flow of valuable information and removes control from the current stock exchange platforms.[2] In fact, after this regulation was adopted, the Nasdaq, Inc. (Nasdaq),[3] the New York Stock Exchange (NYSE),[4] and Cboe Global Markets (“Cboe”)[5] quickly sued the SEC alleging it exceeded its authority under the Exchange Act of 1934 and for unconstitutionally seizing their property.[6] Should these claims fail, it is expected that the new amendment will create a more efficient market and increase opportunities available to the everyday investor.[7]

  1. The NMS Regulation Framework

The SEC’s mission is to protect investors and maintain efficient, fair markets.[8] To reach this goal, the SEC can enact rules to secure “prompt, accurate, reliable, and fair collection, processing, distribution, and publication” of transaction information under the Exchange Act of 1934.[9] In the 1970s, the SEC enacted Regulation NMS to facilitate the collection of data and to outline how market data was to be shared with the public, but it has not been updated since its adoption.[10]

When Regulation NMS was enacted, computer transactions were not very common and, as such, the structure of trading stocks was vastly different than it is today.[11] Back then, each stock was registered with a stock exchange and only traded on that platform.[12] Individuals who wanted to invest in a stock would call their orders into the brokers at the exchange’s central headquarters.[13] Then, the broker would relay the trade to the floor where buyers’ bids and orders were matched with sellers, resulting in the transfer of the ownership of stocks.[14] These exchanges were an exclusive club where broker membership came at a hefty price and was a prerequisite to participation.[15] Thus, Regulation NMS implemented mechanisms intended to share information relating to these types of sales with the public.[16]

More specifically, Regulation NMS was created as a way for these exchanges to share market data with the public and help investors make fruitful investment decisions.[17] Regulators took the exchanges’ structures, available technology, and current useful data into account when determining the best framework for dissemination of information.[18] Regulation NMS gave verified self-regulatory organizations (SROs), which are mostly exchange platforms like Nasdaq, NYSE, and Cboe, exclusive rights to the securities information processors (SIPs) that collected data regarding NMS stocks on their platforms and allowed them to disseminate it.[19] Although the exchanges were given central control, they were required to share certain data with the public. [20]  The public information included “(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 national best offer (“NBBO”) (i.e., the highest bid and lowest offer currently available on any exchange).”[21] The remainder of the data collected, however, was retained by the exchanges for dissemination at a premium price.[22]  And, this retained data was quite valuable to investors.[23]

For instance, the price public investors access is the “round lot,” even though the SROs collect each offer and sale price. [24]  The “round lot” varies based on the price of the stock.[25] The “round lot” for a stock price under $250 is 100 shares.[26] Thus, when the share price is under $250, SROs only publicly present the stock price of bids for over 100 shares.[27] Yet, with premium data access, investors instead receive each and every share bid and offer price, thereby giving the investors with premium data access a better gauge of the stock’s value.[28]

As technology increased, SROs have further improved their algorithms and easily determine vital market indicators.[29] They then charge others for access to such valuable data, giving the investors with premium data access an unfair advantage when selecting stocks and making trades, resulting in a tiered system with everyday investors at the bottom.[30]

  1. The Amendment to Regulation NMS

Prior to the end of SEC Chairman Jay Clayton’s term, he adopted an amendment to Regulation NMS in order to provide greater transparency to the public and give common investors greater access to market data.[31] The Regulation NMS amendment is intended to expand the required share supply and demand information disseminated on public data feeds, including auction prices, and allow other companies to create their own SIPs so long as they register with the SEC.[32]

Making such data available to common investors would, of course, minimize the unfair advantage paying investors receive and help the common investors to make more sound financial decisions.[33] The more expansive public data would also include “odd lots” as opposed to just “round lots.” “Odd lots” take the average price of the past 100 bid orders and state that as the going rate for a share.[34] The “odd lot” is particularly informative because investors have started to purchase stocks in smaller entities in recent years.[35]

In addition, by allowing other companies to create SIPs under the amendment, [36] the amount of market data available will increase transparency and the new competition will increase efficiency.[37] The competitors will now utilize data from across all platforms, whereas currently SROs can only collect the data that has been recorded on their exchange.[38] The exchanges will give the data to the consolidated competitors at a fee scheme approved by the SEC and the exchanges can use their data for internal analyzations.[39] Although these exchanges and for-profits will continue to receive their information at a slightly faster rate, it will eliminate much of the competitive advantage premiere clients have over everyday investors who do not pay for such a service.[40]

  1. The Exchange’s Attempt to Block the Update

In the past, Nasdaq and NYSE have challenged and successfully blocked the SEC’s attempts to alter applicable exchange regulations, reminding us that the current challenges will help to determine the legality and full impact of the amendment.[41] Currently, it is being argued that the amendment is outside the SEC’s authority under the Exchange Act of 1934 and that the adoption of such amendment would amount to an unconstitutional seizure of property.[42] The NYSE also argues that “the rule is arbitrary, capricious and otherwise not in accordance with law and does not promote efficiency, competition and capital formation.”[43]

Nasdaq, NYSE, and Cboe have access to exclusive SIPs, which gives them a significant advantage over the general public.[44] Nasdaq, NYSE, and Cboe are SROs that gather the transactions occurring on their exchanges and disseminate some of the information to the public.[45] All of the data they analyze comes directly from their exchange.[46] These SROs monitor all the changes in supply and demand, and are able to give their paying clients more in-depth information so they have a better grasp of a stock’s inherent value. [47]

The exchanges argue that it is costly to reproduce all of this data, thus it comes at a premium.[48] They claim it is wasteful to provide such complex information that most investors will not even reference[49] and that the overdrive of information will create confusion and uncertainty.[50] They also contend that the amendment requiring dissemination of such information will increase the workload for SIPs while reducing their profit.[51] In addition, the exchanges claim this effort is redundant, for the new consolidators would be duplicating their efforts as both SROs and the consolidator would be collecting and analyzing the same data and resulting discrepancies in prices could lead to confusion.[52]

  1. Why Change is Necessary

On the other hand, the SEC believes, and I agree, that this change is necessary to increase efficiency and competition and achieve their mission of ensuring fair markets.[53] Some argue such transparency also would protect investors.[54] There have been many advancements in technology and data development since Regulation NMS was initially enacted, and as a result the exclusive members paying for data access information that was not previously easily shared with the public.[55] Computers have completely transformed the nature and structure of stock exchanges and their transactions so the mechanisms that monitor these exchanges must keep up with the transformation.[56] Plus, today more individuals actively take part in the market and control their finances without a broker and from the comfort of their home.[57] It is time, therefore, that Regulation NMS caught up with the current system.

Technology has lowered the cost of collecting and sharing information and enlarges the number of the individuals who can access the information.[58] The current SROs monopoly on information allows them to charge unnecessarily high rates for advanced data, which could be shared with the public at very low cost to the exchanges.[59] Even their loyal paying clients have publicly criticized the exchanges unfair price scheme due to the monopoly on extremely valuable data.[60] Introducing competition lowers the cost for such data and gets it into more hands.[61]  New competition in SIPs will certainly produce new and beneficial data points and, by combining different platforms, they will gather more data and provide it all in one place, ideally lowering the price.

  1. Conclusion

Laws are meant to boost innovative and creativity and regulators must enact laws to foster growth.[62] The new amendment to Regulation NMS will grant more access, further understanding and, hopefully, aid individual investors in making financially sound decisions. [63] As Benjamin Franklin said, “money makes money. And the money that makes money makes more money.”[64] The stock market and active investment fuels economic and financial growth, both individually and on a larger societal scale,[65] and this new amendment will give investors the information necessary to make well educated investment decisions to turn their money into more money.


[1] Press Release, SEC, SEC Adopts Rules to Modernize Key Market Infrastructure Responsible for Collecting, Consolidating, and Disseminating Equity Market Data (Dec. 9, 2020), [hereinafter Adoption Press Release].

[2] See id.

[3] Nasdaq is the oldest electronic market where stocks can be exchanged. See Hans R. Stoll, Electronic Trading in Stock Markets, 20 J. of Econ. Persps. 153, 159 (2006),

[4] The NYSE is the main stock exchange in New York and is owned by the same company as Nasdaq. See New York Stock Exchange, Corp. Fin. Inst., (last visited Feb. 27, 2021).

[5] Cboe Global Markets is the main stock exchange in Chicago. See About Us, Cboe Glob. Mkts., (last visited Feb. 27, 2021).

[6] Alexander Osipovich, Nasdaq, NYSE Sue SEC to Block Market Data Overhaul, The Wall St. J. (Feb. 9, 2021),

[7] See Public Statement, Allison Herren Lee, SEC Commissioner, Statement on Proposed Rule on Market Data Infrastructure (Feb. 14, 2020)

[8] What we Do, SEC, (last visited Feb. 27, 2021).

[9] 15 U.S.C. 78k-1(c)(1)(B).

[10] See Adoption Press Release, supra note 1.

[11] See Stoll, supra note 3, at 153- 58.

[12] See id.

[13] See id.

[14] See id.

[15] See id. at 153.

[16] Paul G. Mahoney & Gabriel V. Rauterberg, The Regulation of Trading Markets: A Survey and Evaluation 241 (2018) (Faculty Scholarship, University of Michigan) (on file with the University of Michigan Law School Scholarship Repository).

[17] See id.

[18] See id.

[19] See Adoption Press Release, supra note 1.

[20] See id.

[21] SEC Release No. 34-90610 at 13 (Dec. 9, 2020) [hereinafter Final Rule].

[22] Andrew J. Ceresney, et. al., SEC Adopts New Market Data Infrastructure Rules to Modernize the National Market System, Implications for Best Execution Obligations, Debevoise In Depth 1, 2 (Jan. 7, 2021).

[23] See id.

[24] Shah Gilani, Forget the Short Squeeze David vs. Goliath Battles: The Real War is Between Exchanges and the SEC, with Retail Investors in the Crosshairs, Shah Gilani’s Total Wealth (Feb. 12, 2021),

[25] See Ceresney, supra note 22, at 5.

[26] It is “40 shares for stocks priced at 250.01 to 1,000 per share; 10 shares for stocks priced at $1,000.01 to $10,000 per share; and one shares for stocks priced at 10,000.01 or more per share.” Id.

[27] See id.

[28] See Gilani, supra note 24.

[29] See Public Statement, Allison Herren Lee, SEC Commissioner, Roadwork Ahead: Upgrading Market Data Infrastructure (Dec. 9, 2020), [hereinafter: Lee Roadmap].

[30] See id. at 19.

[31] See Ceresney, supra note 22, at 2.

[32] See Adoption Press Release, supra note 1.

[33] See id.

[34] See Ceresney, supra note 22, at 5.

[35] See id.

[36] See id. at 2.

[37] See id.

[38] See Final Rule, supra note 21, at 179.

[39] See id. at 180.

[40] Kiran Stacy, U.S Stock Exchange Sue SEC Over Data Rule Changes, Fin. Times (Feb. 9, 2021),

[41] See generally N.Y. Stock Exchange LLC, et. al., v. SEC, No. 19-1042 (D.C. Cir. June 16, 2020) (holding that the SEC cannot test broker bias through by implementing a new stock exchange fee scheme).

[42] See Osipovich, supra note 6.

[43] See Stacy, supra note 40.

[44] See Osipovich, supra note 6.

[45] See Adoption Press Release, supra note 1.

[46] Brief in Support of Motion for Stay Of Market Data Infrastructure Rule by The Nasdaq Stock Market LLC, et. al. 9, The Nasdaq Stock Market LLC, et. al. v. SEC, Release No. 34-90610 File No. S7-03-20 (Feb. 5, 2021), [hereinafter Nasdaq Brief].

[47] See Stacy, supra note 40.

[48] See Osipovich, supra note 6.

[49] See Nasdaq Brief supra note 46, at 8.

[50] See id.

[51] See Osipovich, supra note 6.

[52] See Nasdaq Brief, supra note 46, at 9.

[53] See generally Adoption Press Release supra note 1.

[54] See Adoption Press Release, supra note 1.

[55] See Lee Roadmap, supra note 29.

[56] See id.

[57] Gene D’Avolio, Professor, Harv. Univ., Efi Gildor, Gildor Tranding Company & Andrei Shlefier, Professor, Harv. Univ., Speech at the Federal Reserve Bank of Kansas City: Technology, Information Production, and Market Efficiency (Sept. 18, 2001).

[58] See id.

[59] See id.

[60] Alexander Osipovich, SEC Approves Plan to Bring More Detailed Stock Market Data Public, The Wall St. J. (Dec. 9, 2020),

[61] See id.

[62] Robert Cooter & Thomas Ulen, An Introduction to Law and Economics 3 (6th. ed. 2016) (individuals alter their actions based on regulations, thus when determining regulations, lawmakers should look to the economic benefit).

[63] See id.

[64] In his 1758 publication, Benjamin Franklin eloquently and effectively shares tips and tricks to gain financial success which are still extremely relevant today. Benjamin Franklin, The Way to Wealth 48 (Applewood Books 1986) (1758).

[65] Najeb M.H. Masoud, The Impact of Stock Market Performance upon Economic Growth, 3 Int’l J. of Econ. & Fin. Issues 788, 797 (2016).


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Fordham Journal of Corporate & Financial Law