Notice2021-20554
Securities Exchange Act of 1934
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Published
September 23, 2021
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 86 Issue 182 (Thursday, September 23, 2021)</title>
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[Federal Register Volume 86, Number 182 (Thursday, September 23, 2021)]
[Notices]
[Pages 52933-52937]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-20554]
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SECURITIES AND EXCHANGE COMMISSION
[File No. 4-757; Release No. 93051/September 17, 2021]
Securities Exchange Act of 1934
In the Matter of: Joint Industry Plan; Order Approving, as
Modified, a National Market System Plan Regarding Consolidated
Equity Market Data.
Order Denying Stay
On August 6, 2021, the Commission issued Joint Industry Plan; Order
Approving, as Modified, a National Market System Plan Regarding
Consolidated Equity Market Data, Release, No. 34-92586 (the ``CT Plan
Order''). It was published five days later in the Federal Register. See
86 FR 44,142 (Aug. 11, 2021). Later that month, The Nasdaq Stock Market
LLC, Nasdaq BX, Inc., Nasdaq PHLX LLC,
[[Page 52934]]
New York Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., NYSE
Chicago, Inc., NYSE National, Inc., Cboe BYX Exchange, Inc., Cboe BZX
Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., and
Cboe Exchange, Inc. (the ``exchanges'') filed with the Commission a
motion to stay the effect of the CT Plan Order pending final resolution
of their petitions for review filed in the U.S. Court of Appeals for
the D.C. Circuit that challenge the CT Plan Order and the Order
Directing the Exchanges and the Financial Industry Regulatory Authority
to Submit a New National Market System Plan Regarding Consolidated
Equity Market Data, Release No. 88827, 85 FR 28,702 (May 13, 2020) (the
``NMS Governance Order'').\1\
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\1\ Petitioners filed a stay motion with the Commission dated
August 19, 2021. Due to an administrative oversight, Commission
staff did not learn of the filing and bring it to the Commissioners'
attention until three weeks later. The Commission has issued this
order expeditiously after becoming aware of the filing and, in any
event, well within ``a reasonable period'' under Section 25(c)(2).
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Pursuant to Section 25(c)(2) of the Securities Exchange Act of 1934
(``Exchange Act'') and Section 705 of the Administrative Procedure Act,
the Commission has discretion to stay the CT Plan Order. See 15 U.S.C.
78y(c)(2); 5 U.S.C. 705. As discussed below, however, the exchanges
have not met their burden to demonstrate that a stay of the CT Plan
Order is appropriate. Accordingly, the exchanges' stay motion is
denied.
1. Staying a final agency action pending review is an
``extraordinary remedy.'' 85 FR 36,921, 36,921 (June 18, 2020)
(Commission order denying stay of NMS Governance Order). The Commission
has discretion to grant a stay of its rules pending judicial review if
it finds that ``justice so requires.'' 15 U.S.C. 78y(c)(2); 5 U.S.C.
705. Traditionally, the Commission uses ``the familiar four-factor
framework'' when considering whether a stay during litigation is
appropriate:
Whether there is a strong likelihood that a party will succeed on
the merits in a proceeding challenging the particular Commission action
(or, if the other factors strongly favor a stay, that there is a
substantial case on the merits);
whether the issuance of a stay would likely serve the public
interest;
whether there would be substantial harm to any person if the stay
were granted; and
whether, without a stay, a party will suffer imminent, irreparable
injury. In re Am. Petroleum Inst., Release No. 68197, 2012 WL 5462858,
at *2 (Nov. 8, 2012); see Nken v. Holder, 556 U.S. 418, 434-35 (2009)
(noting that the harm-to-others factor and the public-interest factor
``merge when the Government is the opposing party'').
2. The exchanges have not met their burden to demonstrate a
likelihood of success on the merits. The Commission has previously
addressed the three arguments the exchanges make, not only in the CT
Order itself, but also in denying a stay of the NMS Governance Order
and in the prior litigation challenging that order. None has merit.
First, the exchanges state that the CT Plan Order ``unlawfully
vests representatives of [non-self-regulatory organizations, or non-
SROs] with voting power on the plan's operating committee,'' Mot. 5,
because, in their view, SROs--and only SROs--may have voting power on a
national market system operating committee. This argument
misunderstands the statutory scheme and the Commission's authority.
Section 11A(a)(2) directs the Commission to use its authority under the
Exchange Act to facilitate the establishment of the national market
system in accordance with and in furtherance of Congress's specific
findings and objectives. One of Congress's express objectives in
Section 11A(a)(1) is to assure the availability to brokers, dealers,
and investors of information with respect to quotations for and
transactions in securities. See 15 U.S.C. 78k-1(a)(1)(C). And Congress
expressly authorized the Commission in Section 11A(c)(1)(B) to
prescribe rules ``to assure the prompt, accurate, reliable, and fair
collection, processing, distribution, and publication of information
with respect to quotations for and transactions in'' NMS securities.
Id. Sec. 78k-1(c)(1)(B). Section 11A(a)(3) grants the Commission
additional authority, including ``to authorize or require self-
regulatory organizations to act jointly'' with respect to ``matters as
to which they share authority under this chapter in planning,
developing, operating, or regulating a national market system.'' Id.
Sec. 78k-1(a)(3)(B); see also 17 CFR 242.608(a). Pursuant to its
authority under Section 11A, as the CT Plan Order explained, the
Commission may permit or require the operating committee to include
voting rights for non-SROs. See 86 FR at 44,156-58.
Against this backdrop, the exchanges insist that Section
11A(a)(3)(B) forecloses the Commission from extending voting power to
representatives of non-SROs. But nothing in the text of that provision
constrains the manner in which the Commission can regulate the
operating committee. Section 11A(a)(3)(B) authorizes the Commission to
require the SROs to act ``jointly'' in furtherance of Section 11A's
goals--which the CT Plan Order does. It does not provide that the
Commission can only include the SROs in its regulation of the national
market system or indicate that acting ``jointly'' means acting
``jointly and exclusively.'' CT Plan Order, 86 FR at 44,157.
Indeed, here the Commission is requiring joint action with respect
to the planning, development, and operation of a national market system
plan governing dissemination of consolidated equity market data to
further the goals of Section 11A(c). That provision tasks the
Commission with prescribing rules to ensure ``the prompt, accurate,
reliable, and fair collection, processing, distribution, and
publication of information with respect to quotations for and
transactions in securities and the fairness and usefulness of the form
and content of such information,'' and expressly contemplates the
involvement of non-SROs in that process. See 15 U.S.C. 78k-1(c)(1).
Moreover, as the CT Plan Order stated, ``an operating committee that
takes into account views from non-SRO members that are charged with
carrying out the objectives of the CT Plan will have an overall
improved governance structure that better supports those goals, because
it will reflect a more diverse set of perspectives from a range of
market participants, including significant subscribers of SIP core data
products.'' 86 FR at 44,157.
Relying on the expressio unius canon, the exchanges claim that
Section 11A's reference to the Commission's ability to order SROs to
``act jointly'' categorically precludes the Commission from allowing
any non-SRO entity to participate in plan governance. Mot. 6-7. But,
given the express contemplation of the involvement of non-SROs in the
dissemination of national market system data elsewhere in Section 11A,
see 15 U.S.C. 78k-1(c)(1), this reference to joint SRO action does not
preclude their inclusion. Section 11A's text, structure, and history
demonstrate Congress's intent to provide the Commission with
flexibility in carrying out the enumerated statutory goals. And
granting non-SROs voting power is consistent with Section 11A for the
reasons discussed above.
Nor is the Commission expanding its authority to regulate entities
over which it does not otherwise have authority. Instead, the CT Plan
Order requires the plan operating committee to include non-SROs. Any
specific non-SRO selected to be on an operating
[[Page 52935]]
committee can choose to participate or not.
The exchanges likewise err in arguing that ``Section 11A's
reference to `self-regulatory organizations' would be entirely
superfluous if . . . the statute does not in fact limit the
Commission's `act jointly' authority to SROs alone.'' Mot. 8. As the CT
Plan Order explained, in granting the Commission broad powers, Congress
was cognizant of how doing so could raise antitrust concerns. The
provision allowing or requiring SROs to ``act jointly'' enables the
Commission to require joint activity that otherwise might raise
antitrust concerns. 86 FR at 44,157-58 & n.242; see Brief for NYSE
Group, Inc. as Amicus Curiae, 2007 WL 173673, at *8, in Credit Suisse
Sec. (USA) LLC v. Billing, 551 U.S. 264 (2007) (NYSE previously
acknowledging that the Exchange Act ``enables the Commission to require
joint activity that otherwise might be asserted to have an impact on
competition, where the activity serves the public interest and the
interests of investors''). And even if Section 11A's grant of authority
to permit or require SROs to act jointly could be read as superfluous
or redundant of other Commission authority to oversee SROs, Congress's
decision to remove any doubt that the Commission may authorize joint
action by SROs cannot fairly be read as a conscious choice to limit the
Commission's ability to require non-SRO participation.
The exchanges are on no firmer ground in arguing that, ``even if
the Exchange Act did not foreclose the Commission's effort to grant
voting power to representatives of non-SROs, Rule 608 ``plainly'' does.
Mot. 9. Rule 608 implements Section 11A(a)(3)(B), authorizing joint
action in the creation, operation, and implementation of national
market system plans. Specifically, it provides that ``[a]ny two or more
self-regulatory organizations, acting jointly, may file a national
market system plan'' and that ``[s]elf-regulatory organizations are
authorized to act jointly in'' ``[p]lanning, developing, and operating
any national market subsystem or facility contemplated by a national
market system plan,'' ``[p]reparing and filing a national market system
plan,'' and ``[i]mplementing or administering an effective national
market system plan.'' 17 CFR 242.608(a). Nothing in the rule, which
authorizes the SROs to act jointly, limits the Commission's ability to
extend voting right to non-SROs under the Commission's Section 11A
authority. To ``act jointly'' means to act together or cooperatively.
There is no indication that in using the same phrase as in Section 11A
the Commission intended to attribute a different meaning to that phrase
or to constrain its own discretion in achieving Section 11A's goals.
Nor does the exchanges' reference (Mot. 6) to a remark at oral
argument in the prior litigation regarding the NMS Governance Order
satisfy their burden to show that they now have a likelihood of success
on the merits. See In re Adelphia Commc'ns Corp., 336 B.R. 610, 636
n.44 (Bankr. S.D.N.Y. 2006) (``Thoughts voiced by judges in oral
argument do not always find their way into final decisions, often
intentionally and for good reason.''), aff'd, 342 B.R. 122 (S.D.N.Y.
2006); Bd. of Trade of City of Chicago v. SEC, 883 F.2d 525, 530 (7th
Cir. 1989) (``Comments by Commissioners during a meeting are no more
the `decision' of the Commission than comments by judges of this court
during oral argument are our opinion or judgment.'').
Second, the exchanges contend that ``the CT Plan Order
impermissibly allocates operating committee votes to `exchange
groups'--rather than to each individual affiliated exchange--with each
group limited to a maximum of two votes, no matter the number of
exchanges in the group,'' which under the exchanges' view gives too
much power to non-SROs and also disadvantages affiliated SROs. Mot. 10.
The Commission in the CT Plan Order, just as it did in the NMS
Governance Order, thoroughly considered and rejected that argument.
E.g., CT Plan Order, 86 FR at 44,163-65. The ``proposed allocation of
votes to Non-SRO Voting Representatives will provide the Non-SRO Voting
Representatives a meaningful presence and opportunity to vote on
Operating Committee matters, while assuring that their voting power
does not equal or exceed that of the SRO Voting Representatives.'' Id.
at 44,165. Under this structure, SROs will control two-thirds of the
votes on the new plan operating committee and can collectively govern
the plan without a single vote from a voting member that is not a self-
regulatory organization.
The exchanges assert that it is improper to take into account
corporate affiliations of the exchanges when deciding how votes should
be allocated on the operating committee. Mot. 11. But as the Commission
explained in the CT Plan Order, that argument fails for several
reasons. ``Sometimes, the Commission treats affiliated entities
independently,'' while ``[o]ther times, the Commission takes into
account corporate relationships when deciding how to regulate.'' 86 FR
at 44,164 (citing examples). Here, ``[b]ecause of the concentrated
power affiliated SROs exert in the governance structure of consolidated
equity market data, as demonstrated by the indisputable fact that
affiliated SROs vote as blocs, the Commission has determined that
affiliated exchanges under common management and control should be
treated as one SRO Group limited to one vote, or at most two votes, in
the context of NMS plan governance.'' Id.
Third, the exchanges assert that the CT Plan Order ``arbitrarily
and capriciously requires that the administrator of the CT Plan be
`independent.' '' Mot. 11. But the Commission acted reasonably in
finding that the new plan's administrator should not at the same time
offer for sale its own proprietary data products because such an entity
would have access to confidential information as administrator that
would benefit its proprietary data business. The exchanges claim that
the Commission did not adequately demonstrate that current
administrators have ``misused customer audit data or that the
combination of existing safeguards and the new confidentiality measures
imposed by the CT Plan Order will be insufficient to eliminate that
purported risk.'' Id. at 12. But the exchanges do not dispute the
existence of this conflict of interest, or that such information is
sensitive and commercially valuable. Further, as explained in the CT
Plan Order, the Commission has ``provided evidence of problems in the
current Administrator framework for the existing Equity Data Plans.''
CT Plan Order, 86 FR at 44,195. Moreover, ``the conflicts of interest
faced by a non-independent Administrator are so great that these
conflicts cannot be sufficiently mitigated by policies and procedures
alone.'' Id. And the exchanges' concerns about costs were similarly
addressed and rejected in the CT Plan Order. Id. at 44,196-97.
3. The CT Plan Order serves a strong public interest. The
governance model for the Equity Data Plans was established in 1970s.
Since then, critical developments in the equities markets--including
the heightening of an inherent conflict of interest between the for-
profit and regulatory roles of the exchanges and the concentration of
voting power in the Equity Data Plans among a few large exchange
groups--have demonstrated the need for an updated governance model. See
CT Plan Order, 86 FR at 44,142. The public interest will be served by
the enhanced decisionmaking and potential for innovation in the
provision of equity market data that will result from the governance
changes compelled by the
[[Page 52936]]
CT Plan Order. And the governance of the consolidated data feeds can be
improved by consolidating the three existing, separate Equity Data
Plans into a single New Consolidated Data Plan that will reduce
existing redundancies, inefficiencies, and inconsistencies between and
among the Equity Data Plans. See id.; see also NMS Governance Order, 85
FR at 28,711. Moreover, ``[a]ddressing the issues with the current
governance structure of the Equity Data Plans discussed in [the CT Plan
Order] is a key step in responding to broader concerns about the
consolidated data feeds.'' 86 FR at 44,142. Any further delay in
establishing a new governance structure will impede the achievement of
these benefits, including the Commission's efforts to mitigate the
clear, inherent conflict between the exchanges' commercial interests in
selling proprietary data products and their regulatory obligations to
produce and disseminate consolidated market data. Indeed, the exchanges
nowhere contest that this intractable conflict exists.
The exchanges state that ``the CT Plan Order will not yield any
immediate benefits for market participants'' because the Commission set
forth an implementation schedule. Mot. 15. That argument could be made
every time any agency adopts any rule or order that does not take
effect immediately, yet a stay in those circumstances remains an
extraordinary remedy. The exchanges also claim that any benefit from
the CT Plan is ``purely speculative,'' id. at 16, but the Commission
determined that the exchanges' inherent conflict affects their
incentives to meaningfully enhance the provision of consolidated data
and concluded that the current governance structure of the Equity Data
Plans is inadequate to respond to these changes or to the evolving
needs of investors and other market participants.
The exchanges also claim that the operating committee of the CT
Plan may set the fees for core data at the same level or a higher level
than they are now. Mot. 16. That argument, however, is speculative and
the exchanges offer no reason why that unsubstantiated concern warrants
a stay. And that argument is particularly misplaced because the
exchanges themselves will play a major role in setting those fees. In
any event, the CT Plan Order is reasonably designed to improve the
governance of the national market system by, among other things,
addressing the conflict of interest between the exchanges' for-profit
and regulatory roles.
The exchanges speculate that, if the D.C. Circuit vacates the CT
Plan, there will be market uncertainty regarding the distribution of
core data. Mot. 16-17. But that speculation is insufficient to justify
the extraordinary remedy of a stay, particularly when weighed against
the harms from the delay of efforts to mitigate the undisputed
conflicts of interest faced by the exchanges through their for-profit
and regulatory roles. The Court could act before the CT Plan becomes
operative in August 2022 and, in doing so, confirm the validity of the
plan. And even if the Court were to decide in favor of the exchanges,
the decision may not affect the entirety of the CT Plan. Moreover, the
three Equity Data Plans will not simply cease to exist in August 2022
or automatically lose their ability to fulfill their functions if the
CT Plan Order were vacated.
The exchanges' contention that vacatur would complicate the
implementation of the Market Data Infrastructure rule, see 86 FR 18,596
(Apr. 9, 2021), is likewise off base. As the Commission has already
made clear, its initiatives to improve the governance and
infrastructure of the national market system are mutually reinforcing
but ``[n]either initiative depends on the other initiative being
implemented before it may take effect.'' Order Denying Stay, Market
Data Infrastructure Rule 5, Release No. 34-91397, (Mar. 24, 2021).
Finally, the exchanges argue that ``a decision invalidating the CT Plan
Order would raise a host of legally complicated and practically fraught
questions about the validity of actions already taken by the CT Plan
and the prospective implications of those actions.'' Mot. 17. That
speculative concern is routinely present any time an agency rule or
order is subject to legal challenge and in this case does not warrant a
stay.
4. The exchanges' stay request also mischaracterizes the harm that
will result from their compliance with the CT Plan Order. The exchanges
assert that they will incur ``out-of-pocket expenditures'' and devote
``substantial time and effort'' as they work toward implementing the CT
Plan. Mot. 14. But ``ordinary compliance costs are typically
insufficient to constitute irreparable harm,'' Freedom Holdings, Inc.
v. Spitzer, 408 F.3d 112, 115 (2d Cir. 2005), and ``it proves too much
to suggest that `irreparable' injury exists, as a matter of course,
whenever a regulated party seeks preliminarily to enjoin the
implementation of a new regulatory burden,'' California Ass'n of
Private Postsecondary Sch. v. DeVos, 344 F. Supp. 3d 158, 170 (D.D.C.
2018). Otherwise, a regulated party would always suffer cognizable
irreparable harm whenever it faces compliance costs from agency action
while its legal challenge proceeds. The costs of complying with a new
regulatory burden do not qualify as irreparable harm except in
extraordinary circumstances. See Nat'l Lifeline Ass'n v. FCC, No. 18-
1026, 2018 WL 4154794, at *1 (D.C. Cir. Aug. 10, 2018) (stay justified
where implementation of order ``will result in substantial,
unrecoverable losses . . . that may indeed threaten the future
existence of [petitioners'] businesses'' and ``is likely to result in a
major reduction, or outright elimination, of critical
telecommunications services for many tribal residents, which are vital
for day-to-day medical, educational, family care, and other
functions''). Here, the exchanges have made no attempt to offer even an
estimate of their compliance costs or explain the extent to which those
costs may affect their businesses.
5. Finally, a stay is not warranted under the statutory provision
granting the Commission authority to issue a stay where ``justice so
requires.'' 15 U.S.C. 78y(c)(2). As the Commission has explained, the
traditional four-factor analysis provides ``a useful framework to guide
our consideration'' under the justice-so-requires standard. In re Am.
Petroleum Inst., 2012 WL 5462858, at *2 n.1. As already discussed, the
exchanges have failed to carry their burden to meet the traditional
requirements for a stay. Although the exchanges cite two cases in which
the Commission granted stays under this standard, Mot. 18-19, neither
case involved the Commission's determination that a stay was justified
despite the petitioner's failure to satisfy the traditional four-factor
stay analysis. See In re Rule 610T of Regulation NMS, Release No.
85447, 2019 WL 1424351 (Mar. 28, 2019); In re Motion of Business
Roundtable and the Chamber of Commerce of the United States of America
for Stay of Effect of Commission's Facilitating Shareholder Director
Nominations Rules, Release No. 9149, 2010 WL 3862548 (Oct. 4, 2010).
And in this matter, the exchanges cannot meet any of the factors. The
exchanges have not demonstrated that the Commission should grant a stay
even though they cannot meet their burden to show a strong likelihood
of success on the merits, they have not shown that the issuance of a
stay would serve the public interest, and they offer no evidence of
legally cognizable irreparable harm.
Accordingly, it is ordered, pursuant to Exchange Act Section
25(c)(2) and Section 705 of the Administrative Procedure Act that the
motion for a stay be denied.
[[Page 52937]]
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-20554 Filed 9-22-21; 8:45 am]
BILLING CODE 8011-01-P
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