Notice2024-27644
Joint Industry Plan; Order Approving, as Modified, a National Market System Plan Regarding Consolidated Equity Market Data
Primary source
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Published
November 29, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 230 (Friday, November 29, 2024)</title>
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[Federal Register Volume 89, Number 230 (Friday, November 29, 2024)]
[Notices]
[Pages 94924-94983]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-27644]
[[Page 94923]]
Vol. 89
Friday,
No. 230
November 29, 2024
Part III
Securities and Exchange Commission
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Joint Industry Plan; Order Approving, as Modified, a National Market
System Plan Regarding Consolidated Equity Market Data; Notice
Federal Register / Vol. 89 , No. 230 / Friday, November 29, 2024 /
Notices
[[Page 94924]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101672; File No. 4-757]
Joint Industry Plan; Order Approving, as Modified, a National
Market System Plan Regarding Consolidated Equity Market Data
November 20, 2024.
I. Introduction
On October 23, 2023, Cboe BYX Exchange, Inc. (``Cboe BYX''), Cboe
BZX Exchange, Inc. (``Cboe BZX''), Cboe EDGA Exchange, Inc. (``Cboe
EDGA''), Cboe EDGX Exchange, Inc. (``Cboe EDGX''), Cboe Exchange, Inc.,
Investors Exchange LLC (``IEX''), Long Term Stock Exchange, Inc.
(``LTSE''), MEMX LLC (``MEMX''), MIAX PEARL, LLC (``MIAX PEARL''),
Nasdaq BX, Inc. (``Nasdaq BX''), Nasdaq ISE, LLC (``Nasdaq ISE''),
Nasdaq PHLX LLC (``Nasdaq PHLX''), Nasdaq Stock Market LLC, New York
Stock Exchange LLC, NYSE American LLC (``NYSE American''), NYSE Arca,
Inc. (``NYSE Arca''), NYSE Chicago, Inc. (``NYSE Chicago''), NYSE
National, Inc. (``NYSE National''), and the Financial Industry
Regulatory Authority, Inc. (``FINRA'') (collectively, ``SROs'') \1\
filed with the Securities and Exchange Commission (``Commission''),
pursuant to section 11A of the Securities Exchange Act of 1934
(``Exchange Act'') \2\ and Rule 608 of Regulation National Market
System (``Regulation NMS'') thereunder,\3\ a proposed new single
national market system plan governing the public dissemination of real-
time consolidated equity market data for national market system stocks
(the ``Proposed CT Plan''). The Proposed CT Plan was published for
comment in the Federal Register on January 25, 2024.\4\
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\1\ For purposes of this order, the exchange group consisting of
Cboe BYX, Cboe BZX, Cboe EDGA, Cboe EDGX, and Cboe Exchange, Inc.,
will be referred to collectively as ``Cboe''; the exchange group
consisting of Nasdaq BX, Nasdaq ISE, Nasdaq PHLX, and Nasdaq Stock
Market LLC will be referred to collectively as ``Nasdaq''; and the
exchange group consisting of the New York Stock Exchange LLC, NYSE
American, NYSE Arca, NYSE Chicago, and NYSE National will be
referred to collectively as ``NYSE.''
\2\ 15 U.S.C. 78k-1.
\3\ 17 CFR 242.608.
\4\ See Joint Industry Plan; Notice of Filing of a National
Market System Plan Regarding Consolidated Equity Market Data,
Securities Exchange Act Release No. 99403 (Jan. 19, 2024), 89 FR
5002 (Jan. 25, 2024) (``Notice''). Comments received in response to
the Notice can be found on the Commission's website at: <a href="https://www.sec.gov/comments/4-757/4-757.htm">https://www.sec.gov/comments/4-757/4-757.htm</a>.
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On April 23, 2024, the Commission instituted proceedings pursuant
to Rule 608(b)(2)(i) of Regulation NMS \5\ to determine whether to
approve or disapprove the Proposed CT Plan or to approve the Proposed
CT Plan with such changes or subject to such conditions as the
Commission may deem necessary or appropriate, if it finds that such
plan or amendment is necessary or appropriate in the public interest,
for the protection of investors and the maintenance of fair and orderly
markets, to remove impediments to, and perfect the mechanisms of, a
national market system, or otherwise in furtherance of the purposes of
the Exchange Act.\6\ On July 11, 2024, pursuant to Rule 608(b)(2)(i) of
Regulation NMS,\7\ the Commission extended the period within which to
conclude proceedings regarding the Proposed CT Plan to September 21,
2024.\8\ On September 20, 2024, pursuant to Rule 608(b)(2)(ii) of
Regulation NMS,\9\ the Commission further extended the period within
which to conclude proceedings regarding the Proposed CT Plan to
November 20, 2024.\10\
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\5\ 17 CFR 242.608(b)(2)(i).
\6\ See Joint Industry Plan; Order Instituting Proceedings to
Determine Whether to Approve or Disapprove a National Market System
Plan Regarding Consolidated Equity Market Data, Securities Exchange
Act Release No. 100017 (Apr. 23, 2024), 89 FR 33412 (Apr. 29, 2024)
(``OIP''). Comments received in response to the OIP can be found on
the Commission's website at: <a href="https://www.sec.gov/comments/4-757/4-757.htm">https://www.sec.gov/comments/4-757/4-757.htm</a>.
\7\ 17 CFR 242.608(b)(2)(i).
\8\ See Joint Industry Plan; Notice of Designation of a Longer
Period for Commission Action on a Proposed National Market System
Plan Regarding Consolidated Equity Market Data, Securities Exchange
Act Release No. 100500 (July 11, 2024), 89 FR 58235 (July 17, 2024).
\9\ 17 CFR 242.608(b)(2)(ii).
\10\ See Joint Industry Plan; Notice of Designation of a Longer
Period for Commission Action on a Proposed National Market System
Plan Regarding Consolidated Equity Market Data, Securities Exchange
Act Release No. 101125 (Sept. 20, 2024), 89 FR 78950 (Sept. 26,
2024).
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This order approves the Proposed CT Plan with certain modifications
that the Commission has determined are appropriate, which are described
in detail below. As discussed throughout this order, the Commission
finds that the Proposed CT Plan, as modified, is appropriate in the
public interest, for the protection of investors and the maintenance of
fair and orderly markets, to remove impediments to, and perfect the
mechanism of a national market system, or is otherwise in furtherance
of the purposes of the Exchange Act. A copy of the Proposed CT Plan,
marked to reflect the modifications the Commission has made, is
Attachment A to this order.
II. Discussion and Commission Findings
A. Background
On May 6, 2020, the Commission ordered the SROs to act jointly in
developing and filing with the Commission a proposed new national
market system plan to govern the public dissemination of real-time,
consolidated equity market data for NMS stocks to replace the existing
equity data plans.\11\ The Commission sought to address with the
Governance Order, among other things, the inherent conflicts of
interest between the SROs' role in collecting and disseminating
consolidated equity market data and their interests in selling
proprietary data products. As the Commission stated in the Governance
Order, since the adoption of Regulation NMS in 2005,
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\11\ 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
Act Release No. 88827 (May 6, 2020), 85 FR 28702 (May 13, 2020)
(File No. 4-757) (``Governance Order''). The three NMS plans that
currently govern the collection, consolidation, processing, and
dissemination of equity market data for NMS stocks and oversee the
securities information processors (``SIPs'') for equity market data
for NMS stocks are (1) the Consolidated Tape Association Plan (``CTA
Plan''), (2) the Consolidated Quotation Plan (``CQ Plan''), and (3)
the Joint Self-Regulatory Organization Plan Governing the
Collection, Consolidation, and Dissemination of Quotation and
Transaction Information for Nasdaq-Listed Securities Traded on
Exchanges on an Unlisted Trading Privileges Basis (``UTP Plan'')
(collectively, the ``Equity Data Plans''). See id. at 28703, n.34.
developments in technology and changes in the equities markets have
heightened an inherent conflict of interest between the
Participants' collective responsibilities in overseeing the Equity
Data Plans and their individual interests in maximizing the
viability of proprietary data products that they sell to market
participants. This conflict of interest, combined with the
concentration of voting power in the Equity Data Plans among a few
large ``exchange groups''--multiple exchanges operating under one
corporate umbrella--has contributed to significant concerns
regarding whether the consolidated feeds meet the purposes for them
set out by Congress and by the Commission in adopting the national
market system. Additionally, the Commission believes that the
continued existence of three separate NMS plans for equity market
data creates inefficiencies and unnecessarily burdens ongoing
improvements in the provision of equity market data to market
participants. Addressing the issues with the current governance
structure of the Equity Data Plans . . . is a key step in responding
to broader concerns about the consolidated data feeds.\12\
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\12\ Governance Order, supra note 11, 85 FR at 28702.
Moreover, as stated in the Governance Order, ``[t]he Commission
believes that
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the demutualization of the exchanges and the proliferation of
proprietary exchange data products have heightened the conflicts
between the SROs' business interests in proprietary data offerings and
their obligations as SROs under the national market system to ensure
prompt, accurate, reliable, and fair dissemination of core data through
the jointly administered Equity Data Plans.'' \13\
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\13\ Id. at 28704.
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Thus, the Commission determined that the current governance
structure of the existing Equity Data Plans is ``inadequate to respond
to changes in the market and in the ownership of exchanges, and to the
evolving needs of investors and other market participants,'' \14\ and
the Commission ordered the SROs to develop and file with the Commission
a proposed new NMS plan regarding equity market data with a set of
specified governance provisions designed to address the issues
identified by the Commission,\15\ and to ensure, consistent with the
Exchange Act, the ``prompt, accurate, reliable, and fair collection,
processing, distribution, and publication of information with respect
to quotations for and transactions in such securities and the fairness
and usefulness of the form and content of such information.'' \16\
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\14\ Id. at 28702.
\15\ See id. at 28729-31.
\16\ 15 U.S.C. 78k-1(c)(1)(B).
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On August 11, 2020, the SROs \17\ filed a proposed new NMS plan
pursuant to the Governance Order, and notice of the proposed plan was
published for comment in the Federal Register on October 13, 2020.\18\
After instituting proceedings with respect to the new NMS plan proposed
by the SROs, the Commission ultimately approved, as modified, the new
NMS plan on August 6, 2021 (``2021 CT Plan'').\19\
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\17\ MIAX PEARL was not among the SROs filing that proposed plan
because it did not become national securities exchange for trading
equity securities until after that filing was made. See Order
Approving a Proposed Rule Change, as Modified by Amendment No. 1, To
Establish Rules Governing the Trading of Equity Securities,
Securities Exchange Act Release No. 89563 (Aug. 14, 2020), 85 FR
51510 (Aug. 20, 2020).
\18\ See Joint Industry Plan; Notice of Filing of a National
Market System Plan Regarding Consolidated Equity Market Data,
Securities Exchange Act Release No. 90096 (Oct. 6, 2020), 85 FR
64565 (Oct. 13, 2020) (File No. 4-757).
\19\ See Joint Industry Plan; Order Approving, as Modified, a
National Market System Plan Regarding Consolidated Equity Market
Data, Securities Exchange Act Release No. 92586 (Aug. 6, 2021), 86
FR 44142 (Aug. 11, 2021) (File No. 4-757) (``2021 Approval Order'').
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Nasdaq, NYSE, and Cboe then petitioned the U.S. Court of Appeals
for the District of Columbia Circuit (``D.C. Circuit'') for review of
the Commission's action, challenging three aspects of the Governance
Order and the 2021 Approval Order: (1) the inclusion of non-SRO
representatives as voting members of the 2021 CT Plan's operating
committee; (2) the grouping of SROs by corporate affiliation for
voting; and (3) the requirement that the 2021 CT Plan's administrator
be independent of any SRO that sells its own proprietary equity market
data.\20\
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\20\ See The Nasdaq Stock Market LLC, et al. v. Securities and
Exchange Commission, 38 F.4th 1126, 1131 (D.C. Cir. 2022) (``Nasdaq
v. SEC ''). The petitioners were Nasdaq, NYSE, and Cboe. The
petitioners also filed a motion with the Commission seeking a stay
of the effect of the 2021 Approval Order pending final resolution of
their petitions before the D.C. Circuit, which the Commission
denied. See Order Denying Stay, Securities Exchange Release No.
93051 (Sept. 17, 2021), 86 FR 52933 (Sept. 23, 2021) (File No. 4-
757). The petitioners also filed for and, on October 13, 2021,
received a stay of the 2021 Approval Order from the D.C. Circuit.
See Nasdaq v. SEC, 38 F.4th at 1135.
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On July 5, 2022, the D.C. Circuit granted the exchanges' petition
with respect to the inclusion of non-SRO voting members on the new NMS
plan operating committee, but denied the petition with respect to the
other challenged aspects of the Governance Order and the 2021 Approval
Order, including upholding the Commission's actions with respect to
requiring voting by SRO group and requiring an independent
administrator.\21\ The court vacated the 2021 Approval Order in full,
but ``sever[ed] only those parts of the Governance Order directing [the
SROs] to include non-SRO representation in its proposed plan, leaving
the remainder in place.'' \22\
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\21\ See Nasdaq v. SEC, supra note 20, 38 F.4th at 1131.
\22\ Id. at 1145.
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On September 1, 2023, in light of the court's decision, the
Commission issued an amended order directing the SROs to file a new NMS
plan regarding consolidated equity market data,\23\ and the SROs filed
the Proposed CT Plan pursuant to that Amended Governance Order.\24\
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\23\ Amended Order Directing the Exchanges and the Financial
Industry Regulatory Authority, Inc., to File a National Market
System Plan Regarding Consolidated Equity Market Data, Securities
Exchange Act Release No. 98271 (Sept. 1, 2023), 88 FR 61630, 61631
(Sept. 7, 2023) (File No. 4-757) (``Amended Governance Order'').
\24\ See Notice, supra note 4, 89 FR at 5003.
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Below, this order separately addresses each of the provisions of
the Proposed CT Plan, discussing the comments received and explaining
the modifications, if any, that the Commission is making.
B. The Provisions of the Proposed CT Plan
1. Recitals
Paragraph (a) of the Recitals states the procedural history of the
Proposed CT Plan. Paragraph (a) of the Recitals also establishes that
the Proposed CT Plan is filed with the Commission in response to the
Commission's Amended Governance Order.\25\
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\25\ See Paragraph (a) of the Recitals of the Proposed CT Plan.
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Paragraph (b) of the Recitals states that, as the Members have
already formed the Company \26\ as a limited liability company pursuant
to the Delaware Limited Liability Company Act \27\ by filing a
certificate of formation with the Delaware Secretary of State, the
Proposed CT Plan will become effective on the date (the ``Effective
Date'') when approved by the Commission pursuant to Rule 608 of
Regulation NMS as an NMS plan governing the public dissemination of
real-time consolidated market data for Eligible Securities.\28\
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\26\ For purposes of this order, all capitalized terms not
otherwise defined in this order shall have the same meaning as in
the Proposed CT Plan.
\27\ See Article I, Section 1.1(21) of the Proposed CT Plan (as
approved) (defining ``Delaware Act'' as ``the Delaware Limited
Liability Company Act, Title 6, Chapter 18, Sec. Sec. 18-101, et
seq., and any successor statute, as amended'').
\28\ See Paragraph (b) of the Recitals of the Proposed CT Plan.
Upon approval by the Commission, the Proposed CT Plan will be an
``effective national market system plan'' within the meaning of Rule
600(b)(34) of Regulation NMS, 17 CFR 242.600(b)(34), and an
``effective transaction reporting plan,'' within the meaning of Rule
600(b)(35) of Regulation NMS, 17 CFR 242.600(b)(35).
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Paragraph (c) of the Recitals sets forth the SROs' statement of
their regulatory obligations to the Proposed CT Plan. Specifically,
paragraph (c) states that, in performing their obligations and duties
under the Proposed CT Plan, the Members are performing and discharging
functions and responsibilities related to the operation of the national
market system for and on behalf of the Members in their capacities as
self-regulatory organizations, as required under section 11A of the
Exchange Act, and pursuant to Rule 603(b) of Regulation NMS thereunder.
Paragraph (c) of the Recitals further provides that the Proposed CT
Plan and the operations of the Company shall be subject to ongoing
oversight by the Commission.\29\ Finally this paragraph of the Recitals
sets forth that no provision of the Proposed CT Plan shall be construed
to limit or diminish the obligations and duties of the Members as self-
regulatory
[[Page 94926]]
organizations under the federal securities laws and the regulations
thereunder.\30\
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\29\ See Paragraph (c) of the Recitals of the Proposed CT Plan.
\30\ See Paragraph (b) of the Recitals of the Proposed CT Plan.
The ``Members'' of the Agreement, as defined in the first paragraph
of the Agreement, are the SROs identified in Exhibit A to the
Agreement.
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The Commission is making a non-substantive modification to
paragraph (b) to add the defined term ``Plan'' at the end of the phrase
``an NMS plan governing the public dissemination of real-time
consolidated market data for Eligible Securities.'' This modification
is appropriate because the Proposed CT Plan contains numerous
references to the ``plan,'' which term had not been defined. Apart from
this modification, the Recitals are substantively similar to
corresponding recitals of the 2021 CT Plan approved by the Commission
\31\ and were not required to be modified by the Amended Governance
Order. The Commission received no comments addressing paragraphs (a),
(b), and (c) of the Recitals of the Proposed CT Plan, and the
Commission is approving the Recitals as modified.
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\31\ See 2021 Approval Order, supra note 19, 86 FR at 44143-49
(approving Paragraph (a) of the Recitals of the 2021 CT Plan, as
proposed, Paragraph (b) of the Recitals of the 2021 CT Plan, as
modified, and Paragraph (g) of the Recitals of the 2021 CT Plan as
modified).
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2. Definitions
Article I of the Proposed CT Plan sets forth the defined terms used
throughout, as well as provisions for interpreting, the Proposed CT
Plan and its Exhibits.\32\
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\32\ See Article I, Sections 1.1 and 1.2 of the Proposed CT
Plan.
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(a) Section 1.1 Definitions
While the Commission received no comments on the proposed
definitions, it is, as explained below, making certain modifications to
the proposed definitions.
The Commission is modifying the definition of ``Administrator'' to
delete text that incompletely duplicates part of the provisions of
Article VI, Section 6.2 of the Proposed CT Plan as modified and instead
refer directly to Article VI of the Proposed CT Plan. Specifically, the
Commission is revising the definition to read, `` `Administrator' means
the Person selected by the Company to perform the administrative
functions under Article VI of this Agreement.'' This modification is
appropriate to avoid potential ambiguity between the terms of the
definition as proposed and the provisions of Article VI as modified by
the Commission, in particular the text of Section 6.2 of the Agreement
regarding the independence of the Administrator, as modified by the
Commission.\33\
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\33\ See infra Section II.B.7(b).
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The Commission is modifying Section 1.1 to add a new paragraph (2)
to define the term ``Advisory Committee'' to mean ``the committee
formed in accordance with Section 4.7 of this Agreement.'' \34\ This
modification is appropriate because the term ``Advisory Committee'' is
used throughout the Proposed CT Plan but was undefined. The Commission
is further modifying Section 1.1 to renumber the following paragraphs
of Section 1.1 accordingly.
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\34\ See Section 1.1(2) of the Proposed CT Plan (as approved).
The Commission has also renumbered the paragraphs of Section 1.1 to
reflect this addition.
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The Commission is modifying the definitions of ``Company Identified
Party,'' ``Covered Persons,'' ``Executive Session,'' and ``Party to a
Proceeding'' to delete the acronym ``SRO'' from the term ``SRO Voting
Representative.'' These modifications are appropriate because the
defined term proposed in the Proposed CT Plan is ``Voting
Representative'' rather than ``SRO Voting Representative.'' \35\
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\35\ See Article I, Section 1.1(83) of the Proposed CT Plan (as
approved) (defining ``Voting Representative'').
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The Commission is modifying the definition of ``Agent'' to insert,
immediately after the words ``the Administrator,'' the words ``the
Interim Administrator(s).'' The Commission is also modifying the
definition of ``Covered Persons'' to insert in two places immediately
following the words ``the Administrator,'' the words ``the Interim
Administrator(s).'' \36\ These modifications are appropriate because,
as discussed below in Section II.B.7 of this order, the Commission is
modifying the Proposed CT Plan to permit the appointment by the
Operating Committee of one or more Interim Administrator(s), and these
insertions are needed to conform to that modification.
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\36\ As modified, Section 1.1(14) provides that the term
``Covered Persons'' means ``representatives of the Members
(including the Voting Representative, alternate Voting
Representative, and Member Observers), members of the Advisory
Committee, SRO Applicants, SRO Applicant Observers, the
Administrator, the Interim Administrator(s), and the Processors;
Affiliates, employees, and Agents of the Operating Committee, a
Member, the Administrator, the Interim Administrator(s), and the
Processors; and any third parties invited to attend meetings of the
Operating Committee or subcommittees. Covered Persons do not include
staff of the SEC.''
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The Commission is modifying the definition of ``Highly Confidential
Information'' to specify that ``Highly Confidential Information'' shall
also include the Company's contract negotiations with the Interim
Administrator(s).\37\ This modification is appropriate because the
Company's contract negotiations with the Interim Administrator(s) would
raise confidentiality concerns similar to those of the Company's
contract negotiations with the Administrator, which require
classification as Highly Confidential Information under the
confidentiality provisions of the Proposed CT Plan. The Commission is
further modifying the definition of ``Highly Confidential Information''
\38\ to delete the word ``applicable'' and insert, immediately after
the words ``privilege or immunity'' the words ``recognized under
Applicable Law.'' This modification is appropriate to place clear
limits around the circumstances in which sharing of information with
Advisory Committee members will be restricted under the Confidentiality
Policy by requiring that the ``privilege or immunity'' under which
information may be designated as Highly Confidential Information must
be a ``privilege or immunity recognized under Applicable Law,'' which
is a term defined in Section 1.1 of the Proposed CT Plan.\39\
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\37\ To effect this modification, the Commission is inserting,
immediately after ``Administrator'' the words ``or Interim
Administrator(s).'' See Section 1.1(35) of the Proposed CT Plan (as
approved).
\38\ See Article I, Section 1.1(35) of the Proposed CT Plan (as
approved).
\39\ See infra Section II.B.5(l) (discussing the Confidentiality
Policy set forth in Article IV, Section 4.12 of and Exhibit C to the
Proposed CT Plan).
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The Commission is modifying the definition of ``Operative Date'' to
insert, immediately after ``Exchange Act,'' the words ``and the rules
and regulations thereunder.'' This modification is appropriate to help
ensure that this provision more broadly encompasses all of the laws and
regulations governing the regulatory functions to be performed by the
Members through the Proposed CT Plan. The proposed and approved
definition of ``Operative Date'' also differs from that approved by the
Commission in the 2021 CT Plan \40\ in that it specifies the two major
conditions required to be fulfilled before the Proposed CT Plan has
been fully implemented. This change is appropriate because it ties the
definition of Operative Date to the accomplishment of key milestones.
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\40\ See 2021 Approval Order, supra note 19, 86 FR at 44207.
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Except as described above (and with respect to the removal of
provisions regarding non-SRO representatives, as required by the
Amended Governance Order \41\), the definitions in Section 1.1
[[Page 94927]]
are identical to the corresponding definitions in the 2021 CT Plan
approved by the Commission,\42\ and were not required to be modified by
the Amended Governance Order. The Commission received no comments on
Article I, Section 1.1 of the Proposed CT Plan, and the Commission is
approving Article I, Section 1.1 of the Proposed CT Plan as modified.
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\41\ See Amended Governance Order, supra note 23, 88 FR at 61631
(``In accordance with the D.C. Circuit's ruling, the Commission is
modifying the Governance Order to remove the provisions regarding
the participation of non-SRO representatives as members of the
operating committee of the Revised New Consolidated Data Plan and to
make conforming changes.'').
\42\ See 2021 Approval Order, supra note 19, 86 FR at 44149-50,
44207-10.
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(b) Section 1.2 Interpretation
Section 1.2 of the Proposed CT Plan provides rules for the
interpretation of terms used in the Proposed CT Plan. This provision is
identical to the corresponding plan provisions of the 2021 CT Plan
approved by the Commission \43\ and was not required to be modified by
the Amended Governance Order. The Commission received no comments
addressing Section 1.2, and the Commission is approving Section 1.2 as
proposed.
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\43\ See 2021 Approval Order, supra note 19, 86 FR at 44210.
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3. Organization
Article II of the Proposed CT Plan sets forth provisions governing
the organization of the Company. The SROs have organized the Proposed
CT Plan in the form of a Delaware limited liability company pursuant to
a limited liability company agreement, entitled the Limited Liability
Company Agreement (``Agreement'') of CT Plan LLC (``Company'').\44\ The
Members of the Company will be the national securities exchanges for
equities and FINRA,\45\ each of which will be a ``Participant'' of the
Proposed CT Plan as an effective NMS plan for the dissemination of
consolidated equity market data.
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\44\ See Article II, Section 2.1 of the Proposed CT Plan.
\45\ See Article III, Section 3.1 of the Proposed CT Plan. The
names and addresses of each Member are set forth in Exhibit A to the
Proposed CT Plan.
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The Proposed CT Plan states that the purposes of the Company are to
engage in the following activities on behalf of the Members: (i) the
collection, consolidation, and dissemination of Transaction Reports,
Quotation Information, and such other information concerning Eligible
Securities as the Members shall agree as provided therein; (ii)
contracting for the distribution of such information; (iii) contracting
for and maintaining facilities to support any activities permitted in
the Agreement and guidelines adopted thereunder, including the
operation and administration of the System; \46\ (iv) providing for
those other matters set forth in the Agreement and in all guidelines
adopted thereunder; (v) operating the System to comply with Applicable
Laws; and (vi) engaging in any other business or activity that now or
thereafter may be necessary, incidental, proper, advisable, or
convenient to accomplish any of the foregoing purposes and that is not
prohibited by the Delaware Act, the Exchange Act, or other Applicable
Law.\47\ The Agreement itself, including its appendices, constitutes
the Proposed CT Plan. Under the Proposed CT Plan, the governing body of
the Company would be the Operating Committee.\48\
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\46\ Section 1.1(75) of Article I of the Proposed CT Plan
defines the term ``System'' as ``all data processing equipment,
software, communications facilities, and other technology and
facilities, utilized by the Company or the Processors in connection
with the collection, consolidation, and dissemination of Transaction
Reports, Quotation Information, and other information concerning
Eligible Securities.''
\47\ See Article II, Section 2.4 of the Proposed CT Plan.
\48\ See Article IV, Section 4.1(a) of the Proposed CT Plan.
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Article II of the Proposed CT Plan is identical to the
corresponding plan provisions of the 2021 CT Plan approved by the
Commission \49\ and was not required to be modified by the Amended
Governance Order. The Commission received no comments addressing
Article II of the Proposed CT Plan, and the Commission is approving
Article II of the Proposed CT Plan as proposed for the same reasons
stated in the 2021 Approval Order.\50\
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\49\ See 2021 Approval Order, supra note 19, 86 FR at 44150-52.
\50\ Id.
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4. Membership
Article III of the Proposed CT Plan sets forth provisions relating
to membership in the Company. Pursuant to Article III, Section 3.2(a)
of the Proposed CT Plan, any national securities association or
national securities exchange whose market, facilities, or members, as
applicable, trades Eligible Securities \51\ may become a Member by (i)
providing written notice to the Company; (ii) executing a joinder to
the Agreement; (iii) paying a Membership Fee to the Company as
determined pursuant to Section 3.2(b) (``Membership Fee''); and (iv)
executing a joinder to any other agreements to which all of the other
Members have been made party in connection with being a Member.\52\
Membership Fees paid will be added to the general revenues of the
Company.\53\
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\51\ See Article I, Section 1.1(23) of the Proposed CT Plan (as
approved) (defining ``Eligible Security'' as ``(i) any equity
security, as defined in Section 3(a)(11) of the Exchange Act, or
(ii) a security that trades like an equity security, in each case
that is listed on a national securities exchange'').
\52\ See Article III, Section 3.2(a) of the Proposed CT Plan.
\53\ See Article III, Section 3.2(a) of the Proposed CT Plan.
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Article III, Section 3.2 of the Proposed CT Plan specifies that the
factors that will be considered in determining a Membership Fee are:
(1) the portion of costs previously paid by the Company (or by the
Members prior to the formation of the Company) for the development,
expansion and maintenance of the System which, under generally accepted
accounting principles (``GAAP''), would have been treated as capital
expenditures and would have been amortized over the five years
preceding the admission of the new member; and (2) an assessment of
costs incurred and to be incurred by the Company for modifying the
System or any part thereof to accommodate the new member, which costs
are not otherwise required to be paid or reimbursed by the new
Member.\54\ The Proposed CT Plan prohibits a Member's transfer of its
Membership Interest in the Company, except in connection with the
withdrawal of a Member from the Company, as discussed below.\55\
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\54\ See Article III, Section 3.2(b) of the Proposed CT Plan.
The Proposed CT Plan provides that Participants of the CQ Plan, CTA
Plan, and UTP Plan are not required to pay the Membership Fee. See
Article III, Section 3.2(c) of the Proposed CT Plan.
\55\ See Article III, Section 3.3 of the Proposed CT Plan.
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Pursuant to Article III, Section 3.4, any Member may voluntarily
withdraw from the Company by: (i) providing not less than 30 days'
prior written notice of such withdrawal to the Company, (ii) causing
the Company to file with the Commission an amendment to effectuate the
withdrawal,\56\ and (iii) transferring such Member's Membership
Interest to the Company.\57\ If a Member ceases to be a registered
national securities association or registered national securities
exchange, that Member automatically withdraws from the Company.\58\
Section 3.4 further provides that after withdrawal from Membership, the
Member will remain liable for any obligations arising prior to
withdrawal.\59\ A withdrawing Member
[[Page 94928]]
is entitled to receive a portion of the Net Distributable Operating
Income attributable to the period prior to the Member's withdrawal.\60\
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\56\ See Article III, Section 3.4(a) of the Proposed CT Plan.
\57\ See Article III, Section 3.4(a) of the Proposed CT Plan.
\58\ See Article III, Section 3.4(b) of the Proposed CT Plan.
\59\ See Article III, Section 3.4(d)(i) of the Proposed CT Plan.
\60\ See Article III, Section 3.4(d)(ii) of the Proposed CT
Plan.
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Pursuant to proposed Sections 3.4(d)(iii) and (iv), a Member that
has withdrawn from the Company will no longer have the right to have
its Transaction Reports, Quotation Information, or other information
disseminated over the System, and the Capital Account of that Member
will not be allocated profits and losses of the Company.
Article III, Section 3.5 of the Proposed CT Plan provides that a
Member's bankruptcy under Section 18-304 of the Delaware Act shall not
itself cause a withdrawal of such Member from the Company, so long as
such Member continues to be a national securities association or
national securities exchange. As proposed, Section 3.6 provides that,
following the Operative Date, each Member will be required to comply
with the provisions of the Proposed CT Plan and enforce compliance with
the Proposed CT Plan by its members.\61\
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\61\ See Article III, Section 3.6 of the Proposed CT Plan.
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Article III of the Proposed CT Plan also sets forth the obligations
and liabilities of the Members. Article III, Section 3.7 provides that
Members will not be required to contribute capital or make loans to the
Company, nor will Members have any liability for the debts and
liabilities of the Company.\62\ This section also states that it is the
intent of the Members that no distribution to any Member pursuant to
the Company Agreement will be considered a return of money or other
property paid or distributed in violation of the Delaware Act, and that
any such payment will be considered a compromise within the meaning of
Delaware Act, and the Member receiving any payment will not be required
to return any payment to any person, provided that a Member will be
required to return any payment made due to a clear accounting or
similar error or as otherwise provided in Section 3.7(b).\63\ In
addition, Article III of the Proposed CT Plan provides that no Member,
unless authorized by the Operating Committee, has the authority to
represent the Company or to make any expenditure on behalf of the
Company; provided, however, that the Tax Matters Partner may represent,
act for, sign for or bind the Company as permitted under Sections 10.2
and 10.3 of the Agreement.\64\ Finally, Section 3.7(e) provides that no
Member owes any duty (fiduciary or otherwise) to the Company or to any
other Member other than the duties expressly set forth in the
Agreement.\65\
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\62\ See Article III, Section 3.7(a)-(b) of the Proposed CT
Plan. However, in the event that the Processors or the Administrator
have not been paid pursuant to the terms of the Processor Services
Agreements and Administrative Services Agreement, the Proposed CT
Plan requires each Member to return to the Company its pro rata
share of any moneys distributed to it by the Company until an
aggregated amount equal to the amount owed has been recontributed to
the Company. The Company will pay the amount(s) owed. See Article
III, Section 3.7(b) of the Proposed CT Plan.
\63\ See Article III, Section 3.7(c) of the Proposed CT Plan.
The Proposed CT Plan further provides that if any court of competent
jurisdiction holds that any Member is obligated to make any such
payment, such obligation shall be the obligation of such Member and
not of the Operating Committee. See id.
\64\ See Article III, Section 3.7(d) of the Proposed CT Plan.
\65\ See Article III, Section 3.7(e) of the Proposed CT Plan.
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The Commission is modifying Section 3.6 to replace the ``Operative
Date'' with ``Effective Date'' as that term is defined in the Recitals.
This change is appropriate because the Effective Date of the Agreement
is the date it is approved by the Commission, whereas the Operative
Date is defined as the date that Members conduct, through the Company,
the Processor and Administrator functions related to the public
dissemination of real-time consolidated equity market data and the
Equity Data Plans cease their operations. This modification will
facilitate the implementation of the Proposed CT Plan as, pursuant to
Article XIV of the approved plan, the obligation of each Member to
comply with the provisions of the Agreement and enforce compliance by
its members shall begin when the Agreement is approved.
Aside from the modification to Section 3.6, Article III is, with
immaterial differences, identical to the corresponding provisions of
the 2021 CT Plan approved by the Commission \66\ and was not required
to be modified by the Amended Governance Order. The Commission received
no comments on Article III of the Proposed CT Plan, and the Commission
is approving Article III of the Proposed CT Plan as modified for the
same reasons stated in the 2021 Approval Order.\67\
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\66\ See 2021 Approval Order, supra note 19, 86 FR at 44152-54,
44211-12. With respect to proposed Article III of the Proposed CT
Plan, the differences between the language of the 2021 CT Plan
approved by the Commission in the 2021 Approval Order and that of
the Proposed CT Plan as proposed are the substitution of the word
``will'' for the word ``are'' in Section 3.2(c) as proposed and the
paragraph numbering in Section 3.4(d) as proposed.
\67\ Id.
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5. Management of the Company
Article IV of the Proposed CT Plan establishes the overall
governance structure for the management of the Company.
(a) Operating Committee
As an initial matter, Section 4.1 of the Proposed CT Plan has a
typographical error in that the subsections are numbered in Section 4.1
as (f), (g), and (h), rather than (a), (b), and (c). Accordingly, the
Commission is modifying the Proposed CT Plan to correct this
typographical error, and, for ease of reading, all further references
to Section 4.1 will be to the paragraphs as renumbered. These
modifications are appropriate because they would alleviate confusion on
those referencing the Proposed CT Plan.
Article IV, Section 4.1(a) provides that the Company be managed by
the Operating Committee.\68\ Article IV, Section 4.1(a) also provides
that the Operating Committee has the authority to take actions it deems
necessary to accomplish the purposes of the Company, including: (1)
proposing amendments or implementing policies and procedures; \69\ (2)
selecting, overseeing, specifying the role and responsibilities of, and
evaluating the performance of the Administrator, the Processor, an
auditor, and any other professional service providers; \70\ (3)
developing fair and reasonable fees and consistent terms for
Transaction Reports and Quotation Information; \71\ (4) reviewing the
performance of the Processors and ensuring public reporting of the
Processors' performance and other metrics and information about the
processors; \72\ (5) assessing the marketplace for equity data products
and ensuring that the CT Feeds are priced in a manner that is fair and
reasonable, and designed to ensure the
[[Page 94929]]
widespread availability of CT Feeds data to investors and market
participants; \73\ (6) designing a fair and reasonable formula to be
applied by the Administrator for allocating plan revenues, and
overseeing, reviewing, and revising the formula as needed; \74\ (7)
interpreting the Agreement and its provisions; \75\ and (8) carrying
out other specific responsibilities provided for in the Agreement.\76\
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\68\ See Article IV, Section 4.1(a) of the Proposed CT Plan.
This paragraph further provides that unless otherwise expressly
provided to the contrary in this Agreement, no Member shall have
authority to act for, or to assume any obligation or responsibility
on behalf of, the Company, without the prior approval of the
Operating Committee. See id.
\69\ See Article IV, Section 4.1(a)(i) of the Proposed CT Plan.
\70\ See Article IV, Section 4.1(a)(ii) of the Proposed CT Plan.
\71\ See Article IV, Section 4.1(a)(iii) of the Proposed CT Plan
(providing that that the Operating Committee has the authority to
take actions it deems necessary to accomplish the purposes of the
Company, including ``developing and maintaining fair and reasonable
Fees and consistent terms for the distribution, transmission, and
aggregation of Transaction Reports and Quotation Information in
Eligible Securities''). See id.
\72\ See Article IV, Section 4.1(a)(iv) of the Proposed CT Plan.
\73\ See Article IV, Section 4.1(a)(v) of the Proposed CT Plan.
\74\ See Article IV, Section 4.1(a)(vi) of the Proposed CT Plan.
\75\ See Article IV, Section 4.1(a)(vii) of the Proposed CT
Plan.
\76\ See Article IV, Section 4.1(a)(viii) of the Proposed CT
Plan.
---------------------------------------------------------------------------
Section 4.1(b) proposes to permit the Operating Committee to
delegate all or part of its administrative functions under the Proposed
CT Plan, excluding those administrative functions to be performed by
the Administrator pursuant to Section 6.1, to (1) a subcommittee; (2)
one or more of the Members; or (3) any other Persons (including the
Administrator),\77\ provided that a delegation would not convey the
authority to take action on behalf of the Proposed CT Plan.\78\ And
Section 4.1(c) provides that neither the Company nor the Operating
Committee will have authority over any Member's proprietary systems or
the collection and dissemination of quotation or transaction
information in Eligible Securities in any Member's Market, or, in the
case of FINRA, from FINRA Participants. Section 4.1 as proposed and
approved differs from the corresponding provision of the 2021 CT Plan
approved by the Commission in two ways. First, in lieu of the term
``core data'' in Section 4.1(a)(iii) of the 2021 CT Plan, the Proposed
CT Plan uses the phrase ``Transaction Reports and Quotation Information
in Eligible Securities.'' Second, Section 4.1(b) as proposed and
approved removes a reference to Non-SRO Voting Representatives, which
is consistent with the Amended Governance Order.\79\
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\77\ The limitations on the Operating Committee's authority to
delegate those administrative functions to be performed by the
Administrator pursuant to Section 6.1, to (1) a subcommittee; (2)
one or more of the Members; or (3) any other Persons (including the
Administrator) under Section 4.1(b) of the Proposed CT Plan apply
equally with respect to those administrative functions to be
performed by the Interim Administrator(s) appointed pursuant to
Section 6.5 of the Proposed CT Plan.
\78\ See Article IV, Section 4.1(b) of the Proposed CT Plan.
\79\ See Amended Governance Order, supra note 23, 88 FR at 61631
(``In accordance with the D.C. Circuit's ruling, the Commission is
modifying the Governance Order to remove the provisions regarding
the participation of non-SRO representatives as members of the
operating committee of the Revised New Consolidated Data Plan and to
make conforming changes.'').
---------------------------------------------------------------------------
One commenter states that the Commission should ``encourage the
Revised CT Plan to consider'' whether current policies of the Equity
Data Plans, ``such as those surrounding non-display use reporting and
professional versus non-professional designations, are necessary or
merely add unnecessary complexity and confusion.'' \80\ The commenter
states that a ``benefit of transparent, simple, fee schedules and
policies governing consolidated equity market data is that they [would]
also likely reduce the scope of services that the Plan Administrator
would need to provide to the Revised CT Plan, thereby reducing Plan
costs.'' \81\ Another commenter states that the policies for the
Proposed CT Plan ``must be improved'' from those of the Equity Data
Plans.\82\ This commenter states that ``there must be greater
transparency in the various stages of the workstreams and alternative
views considered'' and that the ``seemingly rent-seeking behavior that
has plagued the Existing Plans must be addressed, and every aspect
surrounding the governance and administration of Consolidated Data must
be reimagined.'' \83\ Another commenter suggests that, in developing
policies, consideration should be given to ``invit[ing] potential RFP
respondents to present their thoughts on issues and potential solutions
for the new plan.'' \84\
---------------------------------------------------------------------------
\80\ Letter from Krista Ryan, SVP, Deputy General Counsel and
Holly Grotnik, Head of Consolidated Data Services, Fidelity
Investments, at 5 (Feb. 26, 2024) (``Fidelity Letter'') at 5.
\81\ Id.
\82\ Letter from Stan Sater, Legal Counsel, Polygon.io, Inc.
(Feb. 26, 2024) (``Polygon Letter''), at 1.
\83\ Id. at 2.
\84\ Letter from Thomas Jordan, President, Jordan & Jordan, at 2
(June 12, 2024) (``Jordan Letter'').
---------------------------------------------------------------------------
With respect to the comments addressing the policies to be
developed for the Proposed CT Plan, including comments suggesting that
such policies should improve upon those of the Equity Data Plans with
respect to their complexity, effectiveness, and transparency,\85\ and
for the participants to the Proposed CT Plan to consider whether such
policies are necessary,\86\ these comments provide insufficient detail
with respect to the measures or specific plan language that, in the
commenters' views, would be necessary to address the commenters'
concerns. Additionally, the requirements of the Proposed CT Plan, as
proposed and approved, provide appropriate guidelines for the
development and implementation of such policies. For example, the
Proposed CT Plan, as proposed and approved, requires that the Operating
Committee implement ``policies and procedures as necessary to ensure
prompt, accurate, reliable, and fair collection, processing,
distribution, and publication of information with respect to
Transaction Reports and Quotation Information in Eligible Securities
and the fairness and usefulness of the form and content of that
information.'' \87\ Moreover, any plan policies or operational
interpretations adopted by the Operating Committee must be consistent
with the terms of the Plan.
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\85\ See Fidelity Letter, supra note 80, at 5; Polygon Letter,
supra note 82, at 1.
\86\ See Fidelity Letter supra note 80, at 5.
\87\ Article IV, Section 4.1(a)(1) of the Proposed CT Plan (as
approved).
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With respect to the concerns based on the commenters' experience
with the Equity Data Plans as it relates to equity market data or plan
policies in general,\88\ these commenters provide insufficient detail
with respect to the measures that, in the commenters' views, are
necessary to address the expressed concerns. Regarding the plan
policies to be developed, the Proposed CT Plan includes specified
provisions designed to, among other things, address the governance
concerns identified by the Commission with respect to the governance of
the Equity Data Plans.\89\ Implementing the governance reforms in the
Proposed CT Plan, as approved in this order, is a key step in
responding to broader concerns about whether the Equity Data Plans
continue to serve their regulatory purpose.\90\ These changes,
including, as approved in this order, a reallocation of
[[Page 94930]]
voting power,\91\ broader representation from members of the Advisory
Committee,\92\ as well as the appointment of an Administrator meeting
the independence requirements of Section 6.2 of the Proposed CT
Plan,\93\ should, when combined into a single new NMS plan,
significantly enhance the governance of the Proposed CT Plan.\94\ They
should also facilitate enhanced decision-making and innovation in the
provision of equity market data, including with respect to the
development of plan-related policies. Additionally, replacing the
Equity Data Plans' two current administrators with the single
independent Administrator upon full implementation of the Proposed CT
Plan should improve upon the policies of the Equity Data Plans by
facilitating both uniform plan policies and the uniform application of
those policies. Moreover, the Proposed CT Plan will provide for a
broader set of Advisory Committee members than the Equity Data Plans
do, and the Advisory Committee will have the opportunity to provide
input from a broader selection of market participants on any proposed
policies prior to the adoption of those policies by the Operating
Committee.\95\ Accordingly, the Commission is not modifying the
Proposed CT Plan in response to these comments.
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\88\ See Fidelity Letter, supra note 80, at 5; Polygon Letter,
supra note 82, at 1-2.
\89\ See Amended Governance Order, supra note 23, 88 FR at
61631. In the Governance Order, ``[t]he Commission sought to address
. . . , among other things, the inherent conflicts of interest
between the self-regulatory organizations' role in collecting and
disseminating consolidated equity market data and their interests in
selling proprietary data products.'' See 2021 Approval Order, supra
note 19, 86 FR at 44142. See also Governance Order, supra note 11
(``[T]he Commission believes that the demutualization of the
exchanges and the proliferation of proprietary exchange data
products have heightened the conflicts between the SROs' business
interests in proprietary data offerings and their obligations as
SROs under the national market system to ensure prompt, accurate,
reliable, and fair dissemination of core data through the jointly
administered Equity Data Plans. And these conflicts bear on the
exchanges' incentives to meaningfully improve the provision of core
data.'') (citations omitted)).
\90\ See Governance Order, supra note 11, 85 FR at 28705 (citing
to Securities Exchange Act Release No. 87906 (Jan. 8, 2020), 85 FR
2164, 2173 (Jan. 14, 2020) (File No. 4-757).
\91\ See Article IV, Section 4.3 (establishing requirements for
action of the Operating Committee of the Proposed CT Plan).
\92\ See Article IV, Section 4.7 of the Proposed CT Plan
(governing, among other things, the formation, composition,
function, and rights of the Advisory Committee of the Proposed CT
Plan).
\93\ See Article VI, Section 6.2 of the Proposed CT Plan
(governing independence requirements for the Administrator of the
Proposed CT Plan).
\94\ As the Commission stated in the Governance Order, changes
to the governance structure of the SIPs are appropriate to create a
governance structure that will reduce obstacles to ongoing
improvement of the consolidated market data feeds in ways that the
current governance structure of the Equity Data Plans has not; and
making these governance changes will facilitate decision-making
regarding operational changes. See Governance Order, supra note 11,
85 FR at 28707.
\95\ See, e.g., Article IV, Sections 4.1 and 4.7 of the Proposed
CT Plan.
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As discussed above, Section 4.1 of Article IV of the Proposed CT
Plan is substantively similar to the corresponding provision of the
2021 CT Plan approved by the Commission,\96\ and, other than for the
removal of provisions regarding non-SRO representatives, which is
consistent with the Amended Governance Order,\97\ Section 4.1 was not
required to be modified by the Amended Governance Order. For the same
reasons stated in the 2021 Approval Order (apart from those pertaining
to the participation of non-SRO representatives as members of the
operating committee of the 2021 CT Plan, which is not included in the
Proposed CT Plan),\98\ the Commission is approving Section 4.1 of
Article IV of the Proposed CT Plan as proposed.
---------------------------------------------------------------------------
\96\ See 2021 Approval Order, supra note 19, 86 FR at 44156-63.
\97\ See Amended Governance Order, supra note 23, 88 FR at 61631
(stating that ``[i]n accordance with the D.C. Circuit's ruling, the
Commission is modifying the Governance Order to remove the
provisions regarding the participation of non-SRO representatives as
members of the operating committee of the Revised New Consolidated
Data Plan and to make conforming changes'').
\98\ See 2021 Approval Order, supra note 19, 86 FR at 44156-63.
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(b) Composition and Selection of Operating Committee
Article IV, Section 4.2 governs the composition and selection of
the Operating Committee members. Article IV, Section 4.2(a) provides
that each SRO group \99\ and each non-affiliated SRO \100\ will
designate a Voting Representative to serve on the Operating Committee
and vote on its behalf.\101\ Article IV, Section 4.2(b) of the Proposed
CT Plan provides that entities that have not yet been registered with
the Commission as national securities exchanges may appoint, subject to
Section 4.4(i), an individual to attend regularly scheduled Operating
Committee meetings (an ``SRO Applicant Observer'').\102\ Paragraph (b)
of Section 4.2 further provides that if the SRO Applicant's Form 1
petition or Section 19(b)(1) filing is withdrawn, returned, or is
otherwise not actively pending with the Commission for any reason, then
the SRO Applicant will no longer be eligible to have an SRO Applicant
Observer attend Operating Committee meetings. Article IV, Section
4.2(c) of the Proposed CT Plan provides that in the event that a non-
affiliated SRO, or that all national securities exchanges in an SRO
group, cease operations as a market (or have not commenced operation of
a market), those entities will not be permitted to appoint a Voting
Representative. Such a non-affiliated SRO or SRO group will, however,
be permitted to attend meetings of the Operating Committee as an
observer, except for Executive Sessions.\103\ If such a non-affiliated
SRO or SRO group does not commence operations within six months of
first attending an Operating Committee meeting as a non-operational
exchange(s), it will no longer be permitted to attend Operating
Committee meetings until it resumes operations as a market.\104\
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\99\ For example, New York Stock Exchange LLC, NYSE American,
NYSE Arca, NYSE Chicago, and NYSE National would be one SRO group
for purposes of the Proposed CT Plan and would select one individual
to represent the SRO group on the Operating Committee.
\100\ Currently, the non-affiliated SROs are FINRA, IEX, LTSE,
MEMX, and MIAX PEARL.
\101\ See Article IV, Section 4.2(a) of the Proposed CT Plan.
Section 4.2(a) further provides that each SRO group and each non-
affiliated SRO may designate an alternate individual or individuals
who shall be authorized to vote on behalf of such SRO group or such
non-affiliated SRO, respectively, in the absence of the designated
SRO Voting Representative. See id.
\102\ See Article IV, Section 4.2(b) of the Proposed CT Plan.
This section further provides that each SRO Applicant may designate
an alternate individual or individuals who shall be authorized to
act as the SRO Applicant Observer on behalf of the SRO Applicant in
the absence of the designated SRO Applicant Observer. See id.
\103\ See Article IV, Section 4.2(c) of the Proposed CT Plan.
\104\ See Article IV, Section 4.2(c) of the Proposed CT Plan.
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The text of Section 4.2 of the Proposed CT Plan is substantively
similar to the corresponding provision of the 2021 CT Plan approved by
the Commission, except for the following differences, which are
consistent with the requirements of the Amended Governance Order: \105\
(1) the removal of all provisions regarding the participation of non-
SRO representatives as members of the operating committee (``Non-SRO
Voting Representatives''), consistent with requirements of the Amended
Governance Order; (2) the replacement of references to ``SRO Voting
Representatives'' with references to ``Voting Representatives'' which,
as discussed above, conforms to the defined term; and (3) the
renumbering of paragraphs in proposed Section 4.2 to conform the
section with the foregoing deletions. The Commission received no
comments on Section 4.2 of the Proposed CT Plan. The Commission is
approving Section 4.2 as proposed for the reasons stated in the 2021
Approval Order (apart from those pertaining to the participation of
non-SRO representatives as members of the operating committee of the
2021 CT Plan, which is not included in the Proposed CT Plan).
---------------------------------------------------------------------------
\105\ See Amended Governance Order, supra note 23, 88 FR at
61631.
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(c) Action of Operating Committee
Article IV, Section 4.3 of the Proposed CT Plan sets forth the
voting allocation and voting structure for actions of the Operating
Committee.
(i) Allocation of Votes
Consistent with the requirements of the Amended Governance
Order,\106\ Article IV, Section 4.3(a) of the Proposed CT Plan provides
that each
[[Page 94931]]
Voting Representative will have one vote to cast on behalf of the SRO
group or non-affiliated SRO that he or she represents, with a second
vote provided if the SRO group or non-affiliated SRO has a market
center or centers that trade more than 15 percent of consolidated
equity market share \107\ for four of the six calendar months preceding
a vote of the Operating Committee.\108\ Commenters addressed the
allocation of votes in the Proposed CT Plan.\109\
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\106\ See Amended Governance Order, supra note 23, 88 FR at
61639.
\107\ See Article IV, Section 4.3(a) of the Proposed CT Plan.
Section 4.3(a) further provides that, for purposes of Section
4.3(a), ``consolidated equity market share'' means the average daily
dollar equity trading volume of Eligible Securities of an SRO group
or non-affiliated SRO as a percentage of the average daily dollar
equity trading volume of all of the SRO groups and non-affiliated
SROs, as reported under this Agreement or under the CQ, CTA, and UTP
Plans. See id.
\108\ See Article IV, Section 4.3(a) of the Proposed CT Plan.
Article IV, Section 4.3(a) of the Proposed CT Plan states that FINRA
shall not be considered to operate a market center within the
meaning of this Section 4.3(a) solely by virtue of facilitating
quoting on the FINRA Alternative Display Facility or reporting on
behalf of FINRA participants of transactions effected otherwise than
on an exchange.
\109\ See Letter from Patrick Sexton, EVP, General Counsel &
Corporate Secretary, Cboe Global Markets, Inc. (Jan. 26, 2024)
(``Cboe Letter I''); Fidelity Letter, supra note 80; Letter from
Sarah Bessin, Deputy General Counsel, Securities Regulation and Nhan
Nguyen, Associate General Counsel, Securities Regulation, Investment
Company Institute (Feb. 26, 2024) (``ICI Letter''); Letter from
Adrian Griffiths, Head of Market Structure, MEMX LLC (Feb. 26, 2024)
(``MEMX Letter''); Letter from Erika Moore, Vice President and
Corporate Secretary, Nasdaq, Inc. (Feb. 26, 2024) (``Nasdaq
Letter''); Letter from Hope Jarkowski, General Counsel, NYSE Group,
Inc. (Feb. 26, 2024) (``NYSE Letter''); Letter from Ellen Greene,
managing Director, Equities & Options Market Structure and Joseph
Corcoran, Managing Directors, Associate General Counsel, Securities
Industry and Financial Markets Association (Feb. 26, 2024) (``SIFMA
Letter''); Letter from Patrick Sexton, EVP, General Counsel &
Corporate Secretary, Cboe Global Markets, Inc. (May 20, 2024)
(``Cboe Letter II''); Jordan Letter, supra note 84; Letter from
Adrian Griffiths, Head of Market Structure, MEMX, John Ramsay, Chief
Market Policy Officer, IEX, Christopher Solgan, VP, Senior Counsel,
MIAX Pearl, and Alanna Barton, Director and Senior Counsel, Markets
and Regulation, LTSE (Aug. 16, 2024) (``MEMX-IEX-MIAX Pearl-LTSE
Letter''); Letter from Patrick Sexton, EVP, General Counsel &
Corporate Secretary, Cboe Global Markets, Inc. (Sept. 18, 2024)
(``Cboe Letter III'').
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(A) The Allocation of Votes by SRO Group and Trading Volume
Several commenters support approving the allocation of votes as
proposed.\110\ One commenter agrees with the Proposed CT Plan provision
that the voting power on the Operating Committee should be limited to
one vote per exchange group, with the ability to obtain a second vote
if the exchange group maintains a consolidated market share of at least
fifteen percent for at least four of the six calendar months preceding
a vote of the Operating Committee.\111\ One commenter states that it
supports the allocation of votes as proposed because it would reduce
the ``concentration of voting authority that is currently held by a
minority of Participant organizations that control several votes
today.'' \112\
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\110\ See Fidelity Letter, supra note 80, at 3; MEMX Letter,
supra note 109, at 2; ICI Letter, supra note 109, at 1-2; SIFMA
Letter, supra note 109, at 2; MEMX-IEX-MIAX Pearl-LTSE Letter, supra
note 109, at 1-5.
\111\ See Fidelity Letter, supra note 80, at 3.
\112\ MEMX Letter, supra note 109, at 2, 10.
---------------------------------------------------------------------------
Conversely, certain commenters state that, while the Commission
stated in the 2021 Approval Order that its voting framework was
designed to reflect the importance of those SROs that oversee trading
activity that generates a significant amount of equity market data, the
15-percent consolidated equity market share necessary for a second vote
is not rationally related to the Commission's goal.\113\ Specifically,
these commenters state that the Proposed CT Plan's voting framework
violates the Exchange Act and is arbitrary and capricious under the
Administrative Procedure Act (``APA'').\114\
---------------------------------------------------------------------------
\113\ See Cboe Letter I, supra note 109, at 2-5; Cboe Letter II,
supra note 109, at 2, 3-6; Nasdaq Letter, supra note 109, at 2-5;
NYSE Letter, supra note 109, at 5-7.
\114\ See Cboe Letter I, supra note 109, at 3-6; Nasdaq Letter,
supra note 109, at 2; NYSE Letter, supra note 109, at 7.
---------------------------------------------------------------------------
One commenter states that the proposed allocation of voting power
is ``illogical and violative of the APA'' because it (1) ``lacks a
rational basis'' and ``any rational connection'' to this commenter's
consolidated equity market share, (2) treats the commenter's SRO group
the same as dissimilarly situated non-affiliated exchanges, while
treating the commenter's SRO group differently from other similarly
situated SRO groups, and (3) unjustifiably equates this commenter's
significance to the market to that of the much smaller, non-affiliated
exchanges, thus yielding results that are ``antithetical'' and
inconsistent with the Commission's statement that voting should reflect
the ``significance within the national market system of those exchanges
that, in their roles as SROs, oversee trading activity that generates a
significant amount of equity market data.'' \115\
---------------------------------------------------------------------------
\115\ Cboe Letter I, supra note 109, at 2, 3-4; see also Cboe
Letter II, supra note 109, at 3-6; Cboe Letter III, supra note 109,
at 7-8.
---------------------------------------------------------------------------
This commenter further states that consolidated market share
statistics for 2023 and year-to-date (``YTD'') 2024 support its
argument against allocating to its SRO group the same single vote
allocated to each of the unaffiliated SROs.\116\ Specifically, the
commenter states that for YTD August 2024, the consolidated equity
market share of its SRO group is more than four times that of two
unaffiliated SROs, almost ten times more than a third unaffiliated SRO,
and approaching more than 2600 times more volume than a fourth
unaffiliated SRO.\117\ This commenter further states that for YTD
August 2024, the combined consolidated equity market share of these
four non-affiliated exchanges was little more than 50% of the
consolidated equity market share alone of this commenter's SRO
group.\118\ The commenter states that, by allocating the non-affiliated
exchanges four total votes and the commenter's SRO group one vote, the
Commission has effectively given the non-affiliated exchanges eight
times more voting power for their market share relative to the
commenter's, which the commenter states is unsupported by reasoned
analysis.\119\
---------------------------------------------------------------------------
\116\ See Cboe Letter II, supra note 109, at 3.
\117\ See Cboe Letter III, supra note 109, at 7.
\118\ See Cboe Letter II, supra note 109, at 3.
\119\ See id. at 4; Cboe Letter III, supra note 109, at 8.
---------------------------------------------------------------------------
One commenter states that the Commission should consider more than
just trading market share when considering the significance of
exchanges and SRO groups to the national market structure, saying that
it would not be reasonable for the Commission to conclude that an
exchange group that operates one or more listing exchanges, attracts
significant quoting and trading activity, generates a substantial
portion of equity market data, and commands more than 10% of the
trading market share is no longer ``significant'' enough to warrant a
second vote (and have the same voting power as an exchange with zero
percent market share).\120\
---------------------------------------------------------------------------
\120\ See NYSE Letter, supra note 109, at 6.
---------------------------------------------------------------------------
Another commenter states that consideration should be given to
comments favoring a ``more market oriented'' approach to the allocation
of votes under the Proposed CT Plan because, as proposed, the voting
mechanism seems ``somewhat arbitrary,'' with one SRO group and much
smaller unaffiliated SROs having equivalent voting power.\121\ This
commenter states that, based on average daily volume for the first week
of June 2024, one SRO group executed over 1400 times the volume of one
of the unaffiliated SROs.\122\ This commenter
[[Page 94932]]
questions whether it is appropriate for the basis for an equity market
data voting structure to differ from that of other regulations and
states that Section 31 fees, the Trading Activity Fee (``TAF'') and
Consolidated Audit Trail (``CAT'') fees are, for example, all based on
either notional amount of sales multiplied by a fixed assessment fee or
total number of round turn transactions multiplied by a fixed fee or
number of shares executed or even an income assessment based on gross
revenue.\123\
---------------------------------------------------------------------------
\121\ Jordan Letter, supra note 84, at 2.
\122\ See id. This commenter further states that approval of the
Proposed CT Plan, including its proposed voting structure, would
likely lead to litigation with consequent delays to the
implementation of the Proposed CT Plan. See id.
\123\ See id.
---------------------------------------------------------------------------
The Commission disagrees that the allocation of the same voting
power to a single SRO and to a group of several SROs--even if an SRO
group operates one or more listing exchanges, attracts significant
quoting and trading activity, generates a substantial portion of equity
market data, and commands more than 10% of the trading market share--is
without rational basis or inconsistent with the APA. As the Commission
stated in the Governance Order:
Congress charged the Commission with ensuring the ``prompt,
accurate, reliable, and fair collection, processing, distribution,
and publication of information with respect to quotations for and
transactions in such securities and the fairness and usefulness of
the form and content of such information.'' In furtherance of this
responsibility, the Commission seeks through its rules and
regulations to help ensure that certain ``core data'' is widely
available for reasonable fees. The Commission has recognized that
investors must have this core data ``to participate in the U.S.
equity markets.'' And the purpose of the Equity Data Plans, adopted
pursuant to Regulation NMS, is to facilitate the collection and
dissemination of core 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.'' \124\
---------------------------------------------------------------------------
\124\ Governance Order, supra note 11, 85 FR at 28705 (citations
omitted).
However, as the Commission also stated, ``exchange consolidation has
altered the relative voting power of SROs such that exchange groups
under common management now have greater voting power with respect to
plan governance. Exchanges that historically had only one vote on NMS
plans have now been consolidated into exchange groups that can control
blocks of four or five votes.'' \125\ Thus, as the Commission explained
in the Governance Order, ``the current governance structure [of the
Equity Data Plans] provides voting power based on each exchange license
and thereby concentrates voting power in a small number of exchange
group stakeholders, which also have inherent conflicts of interest with
respect to the operation of the Plans,'' \126\ that these conflicts
have ``perpetuated disincentives for the Equity Data Plans to make
improvements to the SIP data products'' \127\ and ``contributed to
significant concerns regarding whether the consolidated feeds meet the
purposes for them set out by Congress and by the Commission in adopting
the national market system,'' \128\ and that ``modernizing plan
governance by reallocating votes by exchange group should help to
ensure the prompt, accurate, reliable, and fair collection, processing,
distribution, and publication of information with respect to quotations
for and transactions in NMS stocks and the fairness and usefulness of
the form and content of that information.'' \129\
---------------------------------------------------------------------------
\125\ Id. at 28712.
\126\ Id. at 28713.
\127\ Id.
\128\ Id. at 28702.
\129\ Id. at 28713.
---------------------------------------------------------------------------
Moreover, in ruling on the petition challenging the 2021 Approval
Order, the D.C. Circuit confirmed that the allocation of votes in the
CT Plan by exchange group is consistent with Section 11A of the
Exchange Act and Rule 608 of Regulation NMS.\130\ Inherent in that
structure--which was included in both the Governance Order and the
Amended Governance Order--is the provision of the same voting power to
some SRO groups with larger market share and exchanges with smaller
trading volume. And, at most, the largest SRO groups would have only
twice the voting power of the smallest unaffiliated exchange. By
implication, in upholding these provisions, the Court concluded that
these features were rational.\131\ Moreover, although commenters have
opposed granting similar voting power to SRO groups and non-affiliated
SROs with significantly different trading volumes,\132\ the existing
system for allocating votes in the Equity Data Plans, which is favored
by these commenters, allocates voting power without any consideration
of trading volume. The existing system also provides the large SRO
groups disproportionate influence over the Equity Data Plans through
casting the vote of multiple consolidated SROs as a unified block.\133\
Addressing this allocation of disproportionate voting power to SRO
groups with conflicts of interest--not simply favoring non-affiliated
SRO groups or denying the SRO groups a majority of voting power \134\--
remains the Commission's purpose in allocating votes among SROs in the
Amended Governance Order.
---------------------------------------------------------------------------
\130\ See Nasdaq v. SEC, supra note 20, 38 F.4th at 1138-42.
\131\ See id. at 1139-42 (addressing the petitioners' arguments
that the Commission's decision to ``limit SRO votes according to an
SRO's corporate affiliation with another SRO'' was arbitrary,
capricious, and contrary to section 11A of the Exchange Act); see
also infra notes 189-197 and accompanying text.
\132\ See supra notes 116-120, 122, 123 and accompanying text.
\133\ See Governance Order, supra note 11, 85 FR at 28713
(citing the ``disproportionate influence affiliated exchange groups
currently exercise in Plan matters by voting as a block,'' as well
as the ``need to rebalance voting power in Plan governance'' to
address this concern).
\134\ See Cboe Letter II, supra note 109, at 2.
---------------------------------------------------------------------------
Finally, while one commenter also questions whether it is
appropriate for the voting structure of the Proposed CT Plan to differ
from other regulations--such as the allocation of Section 31 fees, the
TAF, and CAT fees--the voting scheme required by the Amended Governance
Order is designed to address issues specific to the Equity Data Plans:
the concentration of voting power in a small number of exchange group
stakeholders with inherent conflicts of interest with respect to the
operation of the Equity Data Plans, which has perpetuated disincentives
for the Equity Data Plans to make improvements to the SIP data
products.\135\ Moreover, if the Commission allocated voting power on
the Proposed CT Plan purely by trading volume, similar to the fees
cited by the commenter, the result would be an even greater
concentration of voting power than currently exists in the Equity Data
Plans, perpetuating the existing disincentives to improve the SIP data
products.
---------------------------------------------------------------------------
\135\ See Governance Order, supra note 11, 85 FR at 28713;
Amended Governance Order, supra note 23, 88 FR at 61632. See also
Nasdaq v. SEC, supra note 20, 38 F.4th at 1140-41 (finding that the
Commission had justified its ``differing treatment of SROs for
voting'' in the 2021 Approval Order).
---------------------------------------------------------------------------
(B) Market Changes Since 2020
Several commenters also state that, because of changes that have
taken place in the markets since the Commission set the 15-percent
threshold in the Governance Order, that threshold is no longer
supportable and should be reconsidered. One commenter states that the
15-percent threshold for obtaining a second vote has become ``stale''
since the Commission first proposed it in 2020.\136\ This commenter
states that, since the Commission justified the 15-percent threshold in
the Governance Order, there has been a proliferation of non-affiliated
exchanges, with three independent exchanges having launched (LTSE,
MEMX, and MIAX PEARL), BOX
[[Page 94933]]
Exchange LLC having received approval of its registration as an
exchange, and that three other entities have announced plans to launch
new exchanges.\137\
---------------------------------------------------------------------------
\136\ NYSE Letter, supra note 109, at 2.
\137\ See id. at 5.
---------------------------------------------------------------------------
This commenter further states that the Commission's concerns in
2020 and 2021 about exchange consolidation were unfounded when
rejecting a 10% threshold.\138\ This commenter states that the
Commission justified the 15-percent threshold in 2020 as reflecting
``the significance within the national market system of those exchanges
that, in their roles as SROs, oversee trading activity that generates a
significant amount of equity market data,'' and by pointing to the
market shares of the three SRO groups at that time, which the commenter
says were all ``comfortably above'' the 15-percent threshold but have
since declined.\139\
---------------------------------------------------------------------------
\138\ See id. See also Nasdaq Letter, supra note 109, at 4
(stating that, as new exchanges have entered the market over the
past three years, the trend of liquidity moving toward non-exchange
venues has continued).
\139\ NYSE Letter, supra note 109, at 5 (quoting the 2021
Approval Order, supra note 19, 86 FR at 44164).
---------------------------------------------------------------------------
The commenter states that the Commission ``clearly did not foresee
this turn of events,'' and that, ``[b]y the Commission's own reasoning,
if the Proposed Plan does not allocate a second vote to the SRO Groups
that oversee the vast majority of on-exchange quoting, trading, and
related market data creation, then the voting threshold is incorrectly
set.'' \140\ The commenter states that, given the increasing
fragmentation of the market and decline of SRO-group market share, an
exchange group that manages to achieve 14, or 12, or even 10 percent
market share should qualify for a second vote,\141\ and observes that,
``while the four independent exchanges have collectively managed to
achieve almost 8 percent market share, none of them individually has
had a market share of more than 4 percent, and one of them has
essentially zero percent.'' \142\
---------------------------------------------------------------------------
\140\ Id. at 6.
\141\ See id.
\142\ Id.
---------------------------------------------------------------------------
Another commenter also states that the Commission based its
analysis on the erroneous assumption that the largest exchange groups
would have a market share ranging from 17 percent to 22 percent \143\--
with the 15-percent threshold well below that range--and that data show
the actual range to be approximately 4 points below that, between 13
and 18 percent, with the threshold in the middle of that range, a
downward trend that is likely to endure.\144\ According to this
commenter, the 15-percent threshold is therefore ``not fit for
purpose'' because it is too high to differentiate between exchanges
that oversee trading activity that generates a significant amount of
equity market data and those that do not.\145\ This commenter further
states that the Commission must examine the relevant data and
articulate a satisfactory explanation for its action including a
rational connection between the facts found and the choice made.\146\
The commenter states that the data does not support the proposed voting
scheme.\147\
---------------------------------------------------------------------------
\143\ See Nasdaq Letter, supra note 109, at 3 (citing Governance
Order, supra note 11, 85 FR at 28714).
\144\ See id. at 4.
\145\ Id.
\146\ See id.
\147\ See id. at 4-5.
---------------------------------------------------------------------------
Some commenters that support the proposed voting allocation state
that ``relative market share trends are fluid and subject to constant
change,'' and therefore are not relevant to the proper effectuation of
the SROs' shared regulatory responsibilities in the Proposed CT Plan's
voting framework.\148\
---------------------------------------------------------------------------
\148\ MEMX-IEX-MIAX Pearl-LTSE Letter, supra note 109, at 5.
---------------------------------------------------------------------------
The Commission agrees with commenters that stated that relative
market share trends are by their nature fluid and subject to constant
change and that the court's ruling did not suggest that a transitory
change in market share between competitors is relevant to the question
of how to properly effectuate the SROs' shared regulatory
responsibilities in the Proposed CT Plan's voting framework, or that
that proposed voting structure is now, after its long procedural
history, inconsistent with the Exchange Act.\149\
---------------------------------------------------------------------------
\149\ See id. at 3-4.
---------------------------------------------------------------------------
Additionally, while the commenters opposing the voting allocation
of the Proposed CT Plan \150\ state that there has been a proliferation
of non-affiliated exchanges and a decline in SRO-group market share,
and that the 15-percent threshold is now inconsistent with the
Commission's observation in the Governance Order that the consolidated
equity market share of the largest exchange groups was ``already well
above 10 percent and continues to range from 17 percent to 22
percent,'' \151\ and the Commission's statement that the threshold
``reflects the significance within the national market system of those
exchanges that, in their roles as SROs, oversee trading activity that
generates a significant amount of equity market data,'' \152\ the
Commission did not define ``significant'' to mean that each of the
three SRO groups would, in perpetuity, receive a second vote on the new
NMS plan's Operating Committee. That two SRO groups, as opposed to all
three, would receive a second vote under the current distribution of
trading volume, does not invalidate the Commission's decision to permit
a second vote only for those unaffiliated SROs or SRO groups with at
least a 15-percent market share.
---------------------------------------------------------------------------
\150\ See Cboe Letter I, supra note 109, at 2-6; Cboe Letter II,
supra note 109, at 2-8; Cboe Letter III, supra note 109, at 2-4;
NYSE Letter, supra note 109, at 1-7; Nasdaq Letter, supra note 109,
at 1-5.
\151\ See Governance Order, supra note 11, 85 FR at 28714.
\152\ See Cboe Letter I, supra note 109, at 3 (quoting 2021
Approval Order, supra note 19, 86 FR at 44164); see also Cboe Letter
II, supra note 109, at 4-5; Cboe Letter III, supra note 109, at 5,
8; NYSE Letter, supra note 109, at 2; Nasdaq Letter, supra note 109,
at 1-2 (citing 2021 Approval Order, supra note 19, 86 FR at 44164).
---------------------------------------------------------------------------
Moreover, the Commission specifically rejected a lower threshold in
the Governance Order precisely because adopting a lower threshold would
have created the expectation that SRO groups would receive a third vote
at a higher level of market share:
Setting the threshold for a second vote at 10 percent consolidated
equity market share would create the expectation that exchange
groups should receive a third vote at the same interval threshold
above 10 percent (e.g., 20 percent). However, the Commission is not
permitting the exchange groups, regardless of their consolidated
equity market share, to have a third vote as this would lead to a
continuing concentration of voting power.\153\
---------------------------------------------------------------------------
\153\ Governance Order, supra note 11, 85 FR at 28714.
And, in fact, the alternative voting framework proposed by one of the
SRO groups, and discussed in detail below,\154\ would do precisely
that: lower the threshold for a second vote such that certain SRO
groups would receive a third vote, increasing the concentration of
voting power on the Operating Committee in the SRO groups.
---------------------------------------------------------------------------
\154\ See infra Section II.B.5(c)(i)(D).
---------------------------------------------------------------------------
The Commission, in issuing the Governance Order, also agreed with a
``commenter's assertion that the two-vote cap would serve to deter
actions, such as establishing a new exchange or further consolidation
of existing exchanges into groups, taken for the sole purpose of
gaining additional voting power on the operating committee.'' \155\ The
Commission remains concerned that, as it stated in the Governance
Order, a lower market-share threshold ``may be too easy to achieve
through consolidation, which would result in too low a threshold for
obtaining an additional vote and could lead to a
[[Page 94934]]
continuing concentration of voting power.'' \156\
---------------------------------------------------------------------------
\155\ Id.
\156\ Governance Order, supra note 11, 85 FR at 28714.
---------------------------------------------------------------------------
And although commenters state that further growth in the number of
equities exchanges and further dispersion of trading volume across
venues counter the Commission's concerns about exchange consolidation--
and that, by the Commission's own reasoning, the threshold for a second
vote was incorrectly set because it would now fail to assign a second
vote to one of the three SRO groups--the ability of an SRO group or
unaffiliated SRO to cross the threshold over time, in either direction,
is entirely consistent with the voting scheme's express purpose. That
purpose, as the Commission stated in the Governance Order, is ``to
rebalance voting power in Plan governance to address the
disproportionate influence of affiliated exchange groups.'' \157\
Indeed, that an SRO group's market share has crossed the threshold for
a second vote since 2020 demonstrates that the threshold selected by
the Commission was set at a level that would, over time, continue to
distinguish the very largest SRO groups and non-affiliated SROs--which
will receive two votes on the Operating Committee--from the other SRO
groups and non-affiliated exchanges--which would receive one vote.
Thus, an analysis of the relevant data--the current distribution of
equity trading volume across the exchanges and exchange groups, as well
as the future distribution of voting power on the Operating Committee
of the Proposed CT Plan--supports the Proposed CT Plan's allocation of
a second vote on the Operating Committee only to SRO groups or non-
affiliated SROs with at least a 15-percent share of equities trading
volume.
---------------------------------------------------------------------------
\157\ Id. at 28713.
---------------------------------------------------------------------------
(C) Commission Rulemaking
One commenter states that a proposed Commission rulemaking would
affect the distribution of trading volume in a way that would undercut
the rationale behind the 15-percent threshold for a second vote. This
commenter states that the Commission's October 2023 proposal regarding
volume-based exchange transaction pricing for NMS stocks would drive
trading volumes away from exchanges to off-exchange venues where
volume-based pricing would still be available.\158\ The commenter
states that the Commission's proposed changes to on- and off-exchange
minimum pricing increments and exchange access fees \159\ are likely to
further impact the distribution of trading across on- and off-exchange
venues, as well as the market shares of individual exchanges and SRO
groups.\160\
---------------------------------------------------------------------------
\158\ See NYSE Letter, supra note 109, at 6 (citing Volume-Based
Exchange Transaction Pricing for NMS Stocks, Securities Exchange Act
Release No. 98766 (Oct. 18, 2023), 88 FR 76282 (Nov. 6, 2023) (File
No. S7-18-23) (Proposed Rule)).
\159\ See Regulation NMS: Minimum Pricing Increments, Access
Fees, and Transparency of Better Priced Orders, Securities Exchange
Act Release No. 101070 (Sept. 18, 2024), 89 FR 81620 (Oct. 8, 2024)
(File No. S7-30-22) (Final Rules) (``Regulation NMS Amendments'').
\160\ See NYSE Letter, supra note 109, at 6-7.
---------------------------------------------------------------------------
The Commission does not agree that a potential future change in the
distribution of trading in the equities markets, including from the
Commission's recently adopted amendments to Regulation NMS,\161\ would
merit changing the volume threshold for a second vote on the Proposed
CT Plan's Operating Committee. And if rules adopted by the Commission
were to significantly change the distribution of on- versus off-
exchange trading, then the Commission could consider whether the
threshold should be revisited, whether by proposed plan amendment or
Commission rulemaking. For example, if the commenter were correct that
Commission rulemaking would move significant trading volume off
exchange, then lowering the threshold might be appropriate. However,
the only recent rule amendments with expected distributional effects on
order flow are the recently adopted Regulation NMS Amendments.\162\
However, far from sending order flow off exchange, the net effect of
the rules is expected to be additional order flow on the exchanges,
potentially increasing the overall market share of the exchanges.\163\
Directionally this effect would be opposite to the commenter's position
and does not support its rational for lowering the threshold.
---------------------------------------------------------------------------
\161\ See Regulation NMS Amendments, supra note 159.
\162\ See id.
\163\ See id., 89 FR at 81760.
---------------------------------------------------------------------------
Changes in the distribution of trading may occur for many reasons
in the future.\164\ And that one SRO group has experienced a decline in
market share crossing the 15-percent threshold does not undermine the
rationale in initially setting that threshold. Indeed, the Commission
considered such a possibility at the time the 15-percent threshold was
set,\165\ and this eventuality is consistent with the Commission's
purpose in selecting the 15-percent threshold, which was to rebalance
voting power to address the disproportionate influence of affiliated
exchange groups.\166\
---------------------------------------------------------------------------
\164\ See Notice of Proposed 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 Act Release No. 87906 (Jan. 8, 2020), 85 FR
2164, 2176 (Jan. 14, 2020) (File No. 4-757) (``While exchange group
market share has remained relatively steady over the past several
years, competition for order flow among the exchanges and the
registration of new national securities exchanges that trade
equities may lead to more significant changes in market share.'')
(citation omitted).
\165\ See Governance Order, supra note 11, 85 FR at 28714
(``[U]sing a look-back period of at least four of the six calendar
months preceding a vote of the operating committee for determining
whether an exchange group or an unaffiliated exchange has met the
threshold for a second vote would allow the voting structure of the
New Consolidated Data Plan to adapt over time to potential
fluctuations in trading volume among exchanges, while avoiding
frequent changes in vote allocations resulting from short-term
changes in trading activity.'').
\166\ See Governance Order, supra note 11, 85 FR at 28713.
---------------------------------------------------------------------------
(D) Alternative Proposed Voting Framework
One commenter suggests,\167\ and another commenter supports,\168\
modifying the Proposed CT Plan to provide for a three-tiered voting
framework in which SRO groups and non-affiliated SROs would receive
either one, two, or three votes based on their consolidated equity
market share. Pursuant to the commenter's suggestion, all SRO groups or
unaffiliated SROs would receive at least one vote; SRO groups or
unaffiliated SROs with between 5 and 15-percent consolidated equity
market share would receive two votes; and those with more than 15-
percent consolidated equity market share would receive three
votes.\169\ This commenter suggests that the Proposed CT Plan require a
two-thirds majority vote for Plan action and that the calculation of
consolidated equity market share in the Proposed CT Plan \170\ be
modified by removing 50 percent of the transaction volume reported by
the Transaction Reporting Facilities (``TRFs'') \171\ because,
according to the commenter, the TRFs contribute ``only trades, while
exchanges contribute both trades and quotes, and any calculation of
consolidated equity market share should
[[Page 94935]]
recognize this distinction.'' \172\ Another commenter states that
including the TRF volume is an error, and while it would remove the TRF
volume from the calculation of consolidated equity market share
altogether, it supports the other commenter's suggestion of removing 50
percent of transaction volume on the TRFs as a reasonable
compromise.\173\
---------------------------------------------------------------------------
\167\ See Cboe Letter I, supra note 109, at 6-11; Cboe Letter
II, supra note 109, at 4.
\168\ See Nasdaq Letter, supra note 109, at 5.
\169\ See Cboe Letter I, supra note 109, at 3, 6-11.
\170\ See Article IV, Section 4.3 of the Proposed CT Plan.
\171\ See Cboe Letter I, supra note 109, at 3, 6-11. This
commenter further states that its suggested voting allocation would
support, as proposed, the Proposed CT Plan's provision that an
exchange would be eligible to vote on the Proposed CT Plan's
operating committee only if it operates a trading venue. See id.
\172\ Cboe Letter I, supra note 109, at 3.
\173\ See Nasdaq Letter, supra note 109, at 5.
---------------------------------------------------------------------------
Another commenter states that the Commission should consider more
than just trading market share when evaluating the significance of the
SRO or SRO group in the trading ecosystem because, according to the
commenter, it would not be reasonable to conclude that an exchange
group that generates a substantial portion of equity market data and
commands more than 10 percent of the trading market share is no longer
significant enough to warrant a second vote.\174\
---------------------------------------------------------------------------
\174\ See NYSE Letter, supra note 109, at 6.
---------------------------------------------------------------------------
As discussed above and in the Governance Order,\175\ one reason
that the Commission selected the 15-percent threshold for a second vote
was to avoid creating the expectation that SRO groups should receive a
third vote at a higher market share (e.g., 20 percent), which would
perpetuate the ability of two exchange groups to command a majority of
votes, which would perpetuate the status quo.\176\ The Proposed CT
Plan's vote allocation should not be designed to perpetuate the
concentration of voting power among SRO groups or provide incentives
for further exchange-group consolidation. Therefore, an individual SRO
group should not receive a third vote on the Proposed CT Plan's
Operating Committee, regardless of trading volume.
---------------------------------------------------------------------------
\175\ See supra notes 153-156 and accompanying text; Governance
Order, supra note 11, 85 FR at 28714.
\176\ Governance Order, supra note 11, 85 FR at 28714.
---------------------------------------------------------------------------
The Commission disagrees with commenters suggesting that the
calculation of ``consolidated equity market share'' should be modified
to remove some or all TRF volume from that calculation, because, as the
Commission stated in the Governance Order, the threshold for a second
vote on the Operating Committee is designed to reflect ``the importance
to the national market system of those exchanges that, in their roles
as SROs, therefore oversee trading activity that generates a
significant amount of equity market data,'' \177\ and removing from the
calculation some or all of the trading volume that occurs off exchange
would serve to exaggerate the share of trading activity that occurs on
any given exchange. Further, the Proposed CT Plan's inclusion of TRF
volume is not an ``error,'' as characterized by a commenter,\178\ as
the vote allocation scheme and underlying calculation in the Proposed
CT Plan are consistent with the requirements of both the Governance
Order and the Amended Governance Order.\179\
---------------------------------------------------------------------------
\177\ Id.
\178\ See supra note 173 and accompanying text.
\179\ See Governance Order, supra note 11, 85 FR at 28712
(``[T]he term `consolidated equity market share' means the average
daily dollar equity trading volume of an exchange group or
unaffiliated SRO as a percentage of the average daily dollar equity
trading volume of all of the SROs, as reported by the Equity Data
Plans or the New Consolidated Data Plan.'' (emphasis added; citation
omitted)); Amended Governance Order, supra note 23, 88 FR at 61639
(providing that the threshold for a second vote on the Operating
Committee is ``consolidated equity market share of more than 15
percent during four of the previous six months preceding a vote of
the operating committee'').
---------------------------------------------------------------------------
(E) The Effect of the D.C. Circuit's Ruling
Some commenters state that while the D.C. Circuit held that the
Commission could not allocate votes to non-SRO market participants, the
Commission should not ``relitigate'' the allocation of votes to SRO
groups because the court already found that the arguments opposing the
voting allocation in the Proposed CT Plan were without merit.\180\
These commenters state that ``the court's ruling is clear: the
Commission is free to consider the policy objectives it identified in
allocating votes, and the mandated allocation of votes among SROs was
proper.'' \181\ Thus, these commenters state that the proposed
allocation of votes, including the 15-percent threshold for a second
vote, is consistent with the Exchange Act and request that the
Commission approve the Proposed CT Plan without change to the proposed
voting structure.\182\
---------------------------------------------------------------------------
\180\ MEMX-IEX-MIAX Pearl-LTSE Letter, supra note 109, at 2-4.
\181\ Id. at 3.
\182\ Id. at 5.
---------------------------------------------------------------------------
In response, another commenter states that ``the D.C. Circuit did
not consider whether the 15% voting threshold was consistent either
with the Exchange Act or the . . . APA . . . because that issue was
never presented to the Court.'' \183\ This commenter states that the
Commission is not precluded from considering this commenter's
alternative voting framework.\184\ The commenter further states that
the D.C. Circuit ruled only on the three issues raised by the
petitioning exchanges,\185\ and did not rule that any of the other
mandates in the Governance Order were proper.\186\ Moreover, this
commenter states, because the D.C. Circuit vacated the 2021 Approval
Order in its entirety, this had the procedural effect of ``sending the
SEC and the SROs back to the drawing board on how to structure voting
under the Plan.'' \187\ Finally, this commenter states that the
Commission ``did not limit the scope of the issues that could be raised
by commenters,'' and instead broadly sought comment on the Proposed CT
Plan.\188\
---------------------------------------------------------------------------
\183\ Cboe Letter III, supra note 109, at 2.
\184\ See id. at 3. See also supra Section II.B.5(c)(i)(D)
(discussing the commenter's suggested alternative voting framework).
\185\ See supra note 20 and accompanying text.
\186\ See Cboe Letter III, supra note 109, at 3.
\187\ Id. at 3.
\188\ Id. at 3-4.
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The Commission agrees that the D.C. Circuit's ruling does not
preclude consideration of comments on any aspect of the Proposed CT
Plan or the Amended Governance Order, including the voting framework
for the Proposed CT Plan. The Commission disagrees, however, that the
D.C. Circuit's decision did not address or uphold the allocation of
votes to SROs in the Governance Order. The precise allocation of votes
to SROs in the Governance Order and the 2021 Approval Order--which is
identical to that required by the Amended Governance Order \189\--was
upheld by the court.\190\ In challenging the 2021 Approval Order, the
SRO groups \191\ contended that ``the Commission's use of SRO Groups
departs from the Commission's past practice of treating affiliated SROs
as distinct legal entities in other regulatory settings and subjects
affiliated SROs to less favorable treatment as compared to unaffiliated
SROs.'' \192\ The petitioning SROs argued that the Commission's ``bare
assertion that its arbitrary 15% threshold for a second `SRO Group'
vote reflects the significance of those SROs' contributions to the
national market system is . . . insufficient because it fails to
justify affording the same number of votes to SRO groups that exceed
the 15-percent threshold no matter their market share or the number of
SROs in the group.'' \193\ They argued that the Commission
``arbitrarily selected a 15% threshold for acquiring a second vote
solely to dilute the
[[Page 94936]]
affiliated SROs' voting power,'' \194\ and that there could be no
``justifiable reason for treating an SRO group with 14% market share
differently from an otherwise identical SRO group with 15% market
share.'' \195\ The court, however, found the petitioners' arguments
about the allocation of votes to SROs and SRO groups to be ``without
merit.'' \196\ Further, the D.C. Circuit did not qualify in any way its
judgment upholding the voting allocation scheme in the Governance
Order. Thus, the court's decision did not cast any doubt on the
Commission's reasoning in the Governance Order, and in fact left the
allocation of votes to SROs unchanged. The Commission has considered
the comments regarding the voting scheme, including alternatives
suggested by commenters. However, as discussed above, the voting
allocation in the Governance Order remains appropriate.\197\
---------------------------------------------------------------------------
\189\ See Amended Governance Order, supra note 23, 88 FR at
61639.
\190\ See Nasdaq v. SEC, supra note 20; see also Cboe Letter I,
supra note 109; Cboe Letter II supra note 109; Cboe Letter III,
supra note 109; Nasdaq Letter, supra note 109, NYSE Letter, supra
note 109.
\191\ See supra note 190 and accompanying text.
\192\ Nasdaq v. SEC, supra note 20, 38 F.4th at 1140.
\193\ Nasdaq v. SEC, supra note 20, Reply Brief for Petitioners,
2022 WL 225906 at *24.
\194\ Nasdaq v. SEC, supra note 20, Opening Brief for
Petitioners, 2022 WL 225907 at *16.
\195\ Id., 2022 WL 225907 at *52-53.
\196\ Id.
\197\ Commenters' statements about other commenters' underlying
interests or motivations do not affect the Commission's analysis.
See, e.g., Cboe Letter III, supra note 109, at 6; MEMX-IEX-MIAX
Pearl-LTSE Letter, supra note 109, at 4.
---------------------------------------------------------------------------
(F) SRO Revisions to Section 4.3
Section 4.3(a) of Article IV of the Proposed CT Plan differs from
the corresponding provision of the 2021 CT Plan approved by the
Commission in three respects. First, and consistent with the Amended
Governance Order, proposed Section 4.3(a) omits provisions regarding
the participation of non-SRO representatives as members of the
Operating Committee and modifies the voting provisions to conform with
modifications required by the Amended Governance Order.\198\ Second, as
proposed, Section 4.3(a), specifies that the average daily dollar
equity trading volume used in the calculation of consolidated equity
market share for purposes of establishing the SRO voting allocation
pursuant to that section shall be that as reported under the Proposed
CT Plan, or under the CQ, CTA, and UTP Plans, rather than as solely as
reported under the CT Plan. The textual addition to Section 4.3(a) is
appropriate because the average daily dollar equity trading volume of
the Equity Data Plans, as proposed, would inform the initial allocation
of SRO votes pursuant to this section. Thereafter, and for all
subsequent allocation of SRO votes, it is the Proposed CT Plan's
average daily dollar equity trading volume--and not that of the Equity
Data Plans--that will be required to form the basis of that
calculation. Finally, proposed Section 4.3(a) differs from the
corresponding provision of the 2021 CT Plan in that the provision adds
``quoting on the FINRA Alternative Display Facility'' to the non-
exhaustive list of activities that shall not cause FINRA to be
considered to operate a market center within the meaning of Section
4.3. This change to proposed Section 4.3(a) makes clear that quoting
activity outside the Proposed CT Plan, such as that on the FINRA
Alternative Display Facility, will not figure into calculation for
allocating SRO votes pursuant to Section 4.3(a) of the Proposed CT
Plan.
---------------------------------------------------------------------------
\198\ See Amended Governance Order, supra note 23, at 61631-32.
---------------------------------------------------------------------------
For the reasons discussed above, the Commission is approving
Article IV, Section 4.3(a) of the Proposed CT Plan as proposed.
(ii) Operating Committee Actions and Voting
Article IV, Section 4.3(b) of the Proposed CT Plan provides that
(with the limited exceptions listed in Section 4.3(c)) all actions of
the Operating Committee will require the affirmative vote of not less
than two-thirds of all votes on the Operating Committee, allocated in
the manner provided for in Section 4.3(a).
As proposed, Section 4.3(c) provides that, notwithstanding the
provisions of Section 4.3(b) the following Operating Committee actions
that would require a majority vote of the Operating Committee: (1) the
selection of the Advisory Committee; \199\ (2) the decision to enter
into Executive Session; \200\ (3) the decision to discuss a matter in a
legal subcommittee pursuant to Section 4.8(d) of the Proposed CT Plan;
\201\ and (4) decisions concerning the operation of the Company as an
LLC.\202\
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\199\ See Article IV, Section 4.7 of the Proposed CT Plan
(providing for, among other things, the formation, composition, and
function of the Advisory Committee).
\200\ See Article IV, Section 4.3(c)(ii) of the Proposed CT Plan
(providing that the decision to enter into Executive Session will be
subject to a majority vote of the Operating Committee).
\201\ See Article IV, Section 4.3(c)(iii) of the Proposed CT
Plan (providing that the decision to discuss a matter in a legal
subcommittee pursuant to Section 4.8(d) of the Proposed CT Plan will
require only a majority vote of the Operating Committee).
\202\ See Article IV, Section 4.3(c)(iv) of the Proposed CT Plan
(providing that decisions concerning the operation of the Company as
an LLC as specified in Section 10.3 and Section 11.2 of the Proposed
CT Plan will require a majority vote of the Operating Committee).
See also Article X, Section 10.3 of the Proposed CT Plan (providing
that any compromise or settlement of any tax audit or litigation
affecting members, as well as any material proposed inaction or
election to be taken by the Partnership Representative, require a
majority vote of Members); and Article XI, Section 11.2 of the
Proposed CT Plan (providing that the distribution of proceeds from
the liquidation of the Company to Members is subject to a majority
vote of the Members).
---------------------------------------------------------------------------
In the OIP, the Commission solicited comment on, among other
things, whether there were additional actions of the Proposed CT Plan
that should not be subject to the two-thirds voting requirement in
Section 4.3(b) of the Proposed CT Plan.\203\ The Commission received
several comments addressing the two-thirds voting requirement in
Section 4.3(b) of the Proposed CT Plan. One commenter states that the
Proposed CT Plan should be modified to provide that a simple--rather
than two-thirds--majority vote would be required for most actions of
the Operating Committee, including those relating to implementation of
the Proposed CT Plan, such as selection of the independent
administrator, or filing of required fee amendments.\204\ This
potential modification, the commenter states, would streamline the
Proposed CT Plan's decision-making process and reduce the risk of the
delay in implementing the Proposed CT Plan.\205\ This commenter states
that the proposed two-thirds voting requirement is likely to be
unworkable in practice, leading to gridlock, inaction, and delays in
implementation.\206\ This commenter states that another option would be
to require different voting thresholds depending on the subject matter
under consideration, adding that the commenter would not be opposed to
requiring a two-thirds supermajority for more significant Proposed CT
Plan amendments that are subject to a unanimous vote under the Equity
Data Plans.\207\
---------------------------------------------------------------------------
\203\ See OIP, supra note 6, 89 FR at 33413.
\204\ See MEMX Letter, supra note 109, at 12.
\205\ See id.
\206\ See id.
\207\ See id.
---------------------------------------------------------------------------
One commenter opposes the proposed two-thirds rather than simple
majority-vote threshold, stating that it is, in conjunction with the
allocation of voting by SRO group, ``a compromise, rather than striking
an appropriate balance in the divergence between private rights and
social costs,'' that will ``cause stagnation rather than encourage
innovation,'' and that the Operating Committee will ``continue to be a
bureaucracy with countless arguments among SROs and with the Advisory
Committee, while market participants continue to suffer from ever
higher market data and connectivity costs.'' \208\
---------------------------------------------------------------------------
\208\ Letter from Kelvin To, Founder and President, Data Boiler
Technologies, LLC, (Feb. 26, 2024) (``Data Boiler Letter''), at 2,
4.
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[[Page 94937]]
The Commission agrees that certain additional actions by the
Operating Committee should be subject to a majority vote pursuant to
Section 4.3(c), beyond those proposed, in order to facilitate efficient
operation of the Operating Committee and the Proposed CT Plan.
Specifically, the Commission is modifying Section 4.3(c) to permit the
election of the Chair and other Officers of the Plan by majority vote
of the Operating Committee, rather than by the proposed two-thirds
majority.\209\ This modification is appropriate because requiring a
two-thirds majority vote of the Operating Committee, as proposed, could
provide opportunities for a minority of the votes allocated on the
Operating Committee to obstruct a purely administrative action
necessary for the day-to-day operations of the Proposed CT Plan.\210\
Thus, modifying this section to require a majority vote of the
Operating Committee to elect the Chair and Officers of the Proposed CT
Plan is appropriate because it will reduce the likelihood of
unnecessary delays in the administration and implementation of the
Proposed CT Plan.
---------------------------------------------------------------------------
\209\ To effect this modification, the Commission is inserting,
under Section 4.3(c)(i), the words ``the election of the Chair and
other Officers of the Plan;'' and renumbering proposed Section
4.3(c)(i)-(iv) as Section 4.3(c)(ii-v) accordingly. See Article IV,
Section 4.3 of the Proposed CT Plan (as approved).
\210\ With respect to the Equity Data Plans, unless otherwise
specified, a majority vote of the Participants entitled to vote is
required to constitute the action of the Operating Committees,
including the election of a Chair. See Exhibit A, Article V, Section
2, and Article IV(a) of the CTA Plan; Article IV.C-D of the UTP
Plan.
---------------------------------------------------------------------------
Further expanding the list of actions that can be taken by a
majority vote of the Operating Committee is not warranted. While
commenters raise concerns about potential gridlock, stagnation, or
inefficiency, as the Commission stated in the Amended Governance Order:
the requirement for a two-thirds majority strikes an appropriate
balance between ensuring that plan action has broad support among
members of the operating committee while also preventing a single
SRO group or unaffiliated SRO from vetoing plan action. Moreover,
requiring a two-thirds, rather than a simple, majority of SRO votes,
in conjunction with allocating votes by exchange group, prevents a
small number of SRO groups from dictating plan action without
further support from other SRO members.\211\
---------------------------------------------------------------------------
\211\ Amended Governance Order, supra note 23, 88 FR at 61632.
Section 4.3(b) differs from the corresponding provision in 2021 CT
Plan approved by the Commission in that it conforms to the requirements
of the Amended Governance Order by: (1) removing provisions regarding
the participation of non-SRO representatives as members of the
Operating Committee, and (2) modifying voting provisions to provide
that all actions by the Operating Committee shall require a two-thirds
majority vote of the votes allocated to the Operating Committee, except
for the actions specified in Section 4.3(c).\212\ Section 4.3(c)
differs from the corresponding provision in the 2021 CT Plan in that it
conforms to requirements of the Amended Governance Order by removing
provisions relating to the participation of non-SROs representatives as
members of the Operating Committee and by requiring a majority vote of
the Operating Committee for the selection of members of the Advisory
Committee pursuant to Section 4.7. Separately, Section 4.3(c) adds to
the actions requiring only a majority vote of the Operating Committee:
(1) the election of the Chair and Officers of the Plan, as modified by
the Commission, as well as (2) the decision to discuss a matter in a
legal subcommittee pursuant to Section 4.8(d) of the Proposed CT
Plan,\213\ which, as discussed above, is consistent with the Amended
Governance Order.
---------------------------------------------------------------------------
\212\ See id. at 61639-41.
\213\ See id.
---------------------------------------------------------------------------
For the reasons discussed above, the Commission is approving
Sections 4.3(b) as proposed and Section 4.3(c) as renumbered and
modified.
(d) Meetings of the Operating Committee
Article IV, Section 4.4 of the Proposed CT Plan addresses meetings
of the Operating Committee. Sections 4.4(a) through 4.4(f) contain
general provisions regarding Operating Committee meetings, and Section
4.4(g) contains provisions specific to meetings in Executive Session.
Sections 4.4(a) through 4.4(f) are identical to the corresponding
provisions of the 2021 CT Plan approved by the Commission,\214\ with
the following exceptions, all of which are consistent with the
requirements of the Amended Governance Order.\215\ First, as proposed,
Section 4.4(a) adds a reference to ``Advisory Committee members'' \216\
and corrects a cross-reference to reflect the numbering of paragraphs
in the Proposed CT Plan. Second, proposed Section 4.4(c) deletes
language regarding quorum requirements of Voting Representatives,
consistent with the requirements of the Amended Governance Order.\217\
And third, for the same reason as explained above--that the replaced
term is the defined term--proposed Section 4.4(e) replaces reference to
``SRO Voting Representatives'' with reference to ``Voting
Representatives.'' \218\ The Commission is, however, modifying the text
of Section 4.4(e)(ii) to replace the reference to ``Section 4.3'' in
the first sentence of paragraph (ii) of Section 4.4(e) with a reference
to ``Section 4.3(c),'' to conform this provision to the Commission's
modifications to Section 4.3(c)(i) regarding the election of the Chair
and other officers of the Proposed CT Plan.\219\ Separately, the
Commission is modifying Section 4.4(e) to replace the term ``Operative
Date'' with the term ``Effective Date'' as that term is defined in the
Recitals. This change is appropriate because the Effective Date of the
Agreement is the date it is approved by the Commission, whereas the
Operative Date, as defined, does not occur until the date that Members
conduct, through the Company, the Processor and Administrator functions
related to the public dissemination of real-time consolidated equity
market data and the Equity Data Plans cease their operations. As
proposed, Section 4.4(e) states that the Chair of the Operating
Committee shall be elected beginning with the first quarterly meeting
of the Operating Committee following the Operative Date. The
modification will, consistent with the role and functions of the Chair
as outlined in Section 4.4(e), facilitate the implementation of the
Proposed CT Plan, as the Chair will be able to be elected following the
Effective Date and will be able to enter into contracts on behalf of
the Company.
---------------------------------------------------------------------------
\214\ See 2021 Approval Order, supra note 19, 86 FR at 44166-68,
44213-14.
\215\ See Amended Governance Order, supra note 23, 88 FR at
61639-41.
\216\ See id. at 61632 (stating that ``because non-SRO
representatives will no longer be required to be included as voting
members of the operating committee of the Revised New Consolidated
Data Plan, the Commission is modifying the Governance Order's
requirements to provide that the Revised New Consolidated Data Plan
must provide for participation by non-SROs in the operation of the
plan as members of an advisory committee'').
\217\ See id.
\218\ See Article I, Section 1.1(84) of the Proposed CT Plan (as
approved) (defining the term ``Voting Representative'').
\219\ See supra note 209 and accompanying text.
---------------------------------------------------------------------------
The Commission received no comments on Section 4.4(a)-(d) and (f)
of the Proposed CT Plan, and for the foregoing reasons, as well as for
the reasons stated with respect to the corresponding provisions in the
2021 Approval Order,\220\ the Commission is approving Section 4.4(a)-
(d), and (f) of
[[Page 94938]]
the Proposed CT Plan as proposed, and Section 4.4(e) as modified.\221\
---------------------------------------------------------------------------
\220\ See 2021 Approval Order, supra note 19, 86 FR at 44166-68.
\221\ See id. at 44166-72.
---------------------------------------------------------------------------
Article IV, Section 4.4(g) of the Proposed CT Plan provides that,
notwithstanding any other provision of the Proposed CT Plan, the Voting
Representatives, Member Observers, SEC staff, and other persons as
deemed appropriate by a majority vote of the Voting Representatives may
meet in an Executive Session of the Operating Committee to discuss an
item of business for which it is appropriate to exclude the Advisory
Committee. A request to meet in Executive Session must be included on
the written agenda for an Operating Committee meeting, along with a
clearly stated rationale as to why that item would be appropriate for
discussion in Executive Session.\222\ A majority vote of the Voting
Representatives would be required to create an Executive Session.\223\
The Voting Representatives would be permitted to discuss only the topic
for which the Executive Session was created and would disband upon
fully discussing the topic.\224\
---------------------------------------------------------------------------
\222\ See Article IV, Section 4.4(g) of the Proposed CT Plan.
\223\ See id.
\224\ See Article IV, Section 4.4(g) of the Proposed CT Plan.
---------------------------------------------------------------------------
Article IV, Section 4.4(g)(i) of the Proposed CT Plan also provides
that topics discussed in Executive Session ``should'' be limited to the
following: (1) any topic that requires discussion of Highly
Confidential Information; (2) Vendor or Subscriber Audit Findings; (3)
litigation matters; (4) responses to regulators with respect to
inquiries, examinations, or findings; and (5) other discrete matters
approved by the Operating Committee.\225\ Section 4.4(g)(ii) states
that the mere fact that a topic is controversial or a matter of dispute
does not, by itself, make a topic appropriate for Executive
Session.\226\ This section further provides that the minutes for an
Executive Session must include the reason for including any item in an
Executive Session.\227\ Section 4.4(g)(iii) provides that requests to
discuss a topic in Executive Session must be included on the written
agenda for the Operating Committee meeting, along with the clearly
stated rationale for each topic as to why such discussion is
appropriate for Executive Session.\228\ This section further provides
that the rationale may be that the topic to be discussed falls within
the list of topics that may be discussed pursuant to paragraph
4.4(g)(i).\229\
---------------------------------------------------------------------------
\225\ See Article IV, Section 4.4(g)(i)(A)-(E) of the Proposed
CT Plan.
\226\ See Article IV, Section 4.4(g)(ii) of the Proposed CT
Plan.
\227\ See id.
\228\ See Article IV, Section 4.4(g)(iii) of the Proposed CT
Plan.
\229\ See id.
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The Commission received one comment on Section 4.4(g).
Specifically, one commenter suggests that the Proposed CT Plan should
be modified to: (1) use non-discretionary, rather than permissive
language, with respect to the scope of potential items that could be
discussed in Executive Session and (2) preclude discussions regarding
contract negotiations with the plan processors or the plan
administrator in Executive Session.\230\ This commenter states that
``similar policy rationales for narrowly tailoring the use of Executive
Sessions or other exclusive meeting forums apply where non-SROs are
Advisory Committee members'' rather than voting non-SRO members, as
provided in the 2021 CT Plan.\231\
---------------------------------------------------------------------------
\230\ See ICI Letter, supra note 109, at 3, n.11.
\231\ Id. See also Section 4.4(g)(i) of the 2021 CT Plan; 2021
Approval Order, supra note 19, 86 FR at 44214.
---------------------------------------------------------------------------
The Commission agrees with the commenter that the Proposed CT Plan
should provide clear boundaries with respect to the scope of potential
topics permitted to be discussed in an Executive Session.\232\ Thus,
for the same reasons discussed in the 2021 Approval Order,\233\ the
Commission is modifying Article IV, Section 4.4(g)(i) of the Proposed
CT Plan to require that the items for discussion in an Executive
Session ``shall be'' limited to the topics enumerated in subsections
4.4(g)(i)(A)-(E) of the Proposed CT Plan.\234\
---------------------------------------------------------------------------
\232\ See 2021 Approval Order, supra note 19, 86 FR at 44170
(stating that ``the topics that may be discussed in Executive
Session should be specifically enumerated in the CT Plan to provide
transparent and clear boundaries'').
\233\ See id. (modifying Article IV, Section 4.4(g)(i) of the
2021 CT Plan to require that the items for discussion in an
Executive Session ``shall be'' limited to the topics enumerated in
subsections 4.4(g)(i)(A)-(E) of that plan).
\234\ To effect this change, the Commission is modifying
proposed Section 4.4(g)(i) of the Proposed CT Plan to delete the
word ``should'' and replace it with ``shall.'' The Commission is
also making a conforming change to proposed Section 4.4(g)(i) of the
Proposed CT Plan to remove the word ``as'' that appears after
``topics'' in that subsection.
---------------------------------------------------------------------------
As the Commission stated in the 2021 Approval Order, ``not every
topic that may be appropriate for Executive Session can be foreseen,
and . . . some provision must therefore be made in the CT Plan for
unanticipated topics suitable for Executive Session.'' \235\ The
language in Section 4.4(g)(i)(E) that permits the SROs to meet in
Executive Session to discuss ``[o]ther discrete matters approved by the
Operating Committee'' provides the necessary flexibility for
unanticipated topics to be addressed without altering the list of
permissible topics for Executive Session into a non-exclusive list of
suggestions.
---------------------------------------------------------------------------
\235\ 2021 Approval Order, supra note 19, 86 FR at 44171.
---------------------------------------------------------------------------
The Commission does not agree with the commenter's suggestion that
the Proposed CT Plan provide that ``discussions regarding contract
negotiations with the Processors or Administrator'' do not qualify for
discussion in Executive Session.\236\ While the Commission specifically
added this language to the plan it approved in the 2021 Approval
Order,\237\ that was in the context of an Operating Committee that
included Non-SRO Voting Representatives as full members, and the
Commission did not believe that it was appropriate for any members of
the Operating Committee to be excluded from such discussions by holding
the discussions in an SRO-only Executive Session.\238\ In the Proposed
CT Plan, however, the Operating Committee will not include any non-SRO
representatives,\239\ and it is therefore appropriate, and consistent
with the Amended Governance Order, for the Operating Committee to meet
in Executive Session to discuss ``[a]ny topic that requires discussion
of Highly Confidential Information,'' which, by definition, includes
discussion concerning contract negotiations with the Processors or the
Administrator.
---------------------------------------------------------------------------
\236\ ICI Letter, supra note 109, at 3.
\237\ See 2021 Approval Order, supra note 19, 86 FR at 44170-71.
\238\ See id.
\239\ See Amended Governance Order, supra note 23, 88 FR at
61639-41.
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Section 4.4(g) of the Proposed CT Plan differs from the
corresponding provision of the 2021 CT Plan approved by the Commission
\240\ in several respects. First, this section conforms to requirements
of the Amended Governance Order by removing provisions governing the
participation of non-SROs as members of the Operating Committee, and,
relatedly, by using the terms ``Voting Representatives'' rather than
``SRO Voting Representatives,'' and ``Advisory Committee'' rather than
``Non-SRO Voting Representatives.'' Separately, Section 4.4(g)(i)
differs in that it (1) removes, as a topic not permitted for discussion
within an Executive Session, discussions regarding contract
negotiations with the Processor or the Administrator for the reasons
discussed, and (2) removes a provision addressing voting requirements
for actions requiring a vote in Executive Session,
[[Page 94939]]
which reduces redundancy because such requirements are set forth in
Section 4.3(a). The modification made by the Commission to Section
4.4(g)(i) (to replace ``should'' with ``shall'') is appropriate because
it conforms this provision with the corresponding provision of the 2021
CT Plan approved by the Commission.\241\ For the foregoing reasons, as
well as those stated in the 2021 Approval Order with respect to the
corresponding provisions of the 2021 CT Plan, (apart from those
pertaining to the participation of non-SROs representatives as members
of the operating committee of the 2021 CT Plan, which is not included
in the Proposed CT Plan),\242\ the Commission is approving Section
4.4(g) as modified.
---------------------------------------------------------------------------
\240\ See 2021 Approval Order, supra note 19, 86 FR at 44168-71.
\241\ See id. at 44170.
\242\ See id. at 44168-71.
---------------------------------------------------------------------------
(e) Certain Transactions
Article IV, Section 4.5 of the Proposed CT Plan states that the
Company is not prohibited from employing or dealing with persons in
which an SRO or any of its affiliates has a connection or a direct or
indirect interest. Specifically, the section provides that the fact
that a Member or any of its Affiliates is directly or indirectly
interested in or connected with any person employed by the Company to
render or perform a service, or from which or to whom the Company may
buy or sell any property, shall not prohibit the Company from employing
or dealing with such person.
Section 4.5 is identical to the corresponding provision of the 2021
CT Plan approved by the Commission,\243\ and was not required to be
modified by the Amended Governance Order. The Commission received no
comment on Section 4.5 of the Proposed CT Plan, and for the same
reasons stated in the 2021 Approval Order,\244\ the Commission is
approving Section 4.5 of the Proposed CT Plan as proposed.
---------------------------------------------------------------------------
\243\ See id.
\244\ See id.
---------------------------------------------------------------------------
(f) Company Opportunities
Article IV, Section 4.6(a) of the Proposed CT Plan provides that
each Member, its Affiliates, and each of its respective equity holders,
controlling persons, and employees may have business interests and
engage in business activities in addition to those relating to the
Company.\245\ Section 4.6(b) provides that Members are permitted to
have, and may presently or in the future have, investments or other
business relationships with persons engaged in the business of the
Company other than through the Company, and that Members have and may
develop strategic relationships with businesses that are and may be
competitive or complementary with the Company.\246\ Section 4.6(b)
further provides that none of the SROs shall be obligated to recommend
or take any action that prefers the interest of the Company or any
other Member over its own interests, prohibited from pursing and
engaging in other activities, nor obligated to inform or present to the
Company any opportunity, relationship, or investment.\247\ Finally,
this section states that Members will not acquire or be entitled to any
interest or participation in any other business as a result of the
participation therein of any of the other Members, and that the
involvement of another Member in any other business does not constitute
a conflict of interest by such person with respect to the Company. This
provision defines investments or other business relationships with
persons engaged in the business of the Company other than through the
Proposed CT Plan as ``Other Business.'' \248\ Separately, Exhibit B
(``Disclosures'') of the Proposed CT Plan provides a list of questions
and instructions tailored to elicit responses that disclose potential
conflicts of interest.
---------------------------------------------------------------------------
\245\ See Article IV, Section 4.6(a). This Section further
provides that neither the Company nor any Member shall have any
rights by virtue of this Agreement in any business ventures of any
such Person. See id.
\246\ See Article IV, Section 4.6(b) of the Proposed CT Plan.
\247\ See id.
\248\ See id.
---------------------------------------------------------------------------
Section 4.6 is identical to the corresponding provision of the 2021
CT Plan approved by the Commission,\249\ and was not required to be
modified by the Amended Governance Order. The Commission received no
comment on Section 4.6 of the Proposed CT Plan, and, for the same
reasons stated in the 2021 Approval Order,\250\ the Commission is
approving Section 4.6 of the Proposed CT Plan as proposed.
---------------------------------------------------------------------------
\249\ See 2021 Approval Order, supra note 19, 86 FR at 44173-74.
\250\ See id.
---------------------------------------------------------------------------
(g) Advisory Committee
Article IV, Section 4.7 of the Proposed CT Plan governs the
formation, composition, and function of the Advisory Committee to the
Proposed CT Plan. Section 4.7(a) provides that, notwithstanding any
other provision of the Proposed CT Plan, an Advisory Committee to the
Proposed CT Plan shall be formed and shall function in accordance with
the provisions set forth in that section.\251\ Section 4.7(b) governs
the composition of the Advisory Committee. Specifically, this section
provides that the members of the Advisory Committee will be selected by
the Operating Committee for two-year terms as follows: (1) by
affirmative vote of a majority of the Members entitled to vote, the
Operating Committee will select at least one representative from each
of the following categories to be members of the Advisory Committee:
(A) an institutional investor; (B) a broker-dealer with a predominantly
retail investor customer base; (C) a broker-dealer with a predominantly
institutional investor customer base; (D) a securities market data
vendor that is not affiliated or associated with a Member, broker-
dealer, or investment adviser with third-party clients; (E) an issuer
of NMS stock that is not affiliated or associated with a Member,
broker-dealer, or investment adviser with third-party clients; and (F)
a Retail Representative.\252\ Section 4.7(b)(i) further addresses
Advisory Committee selections and provides that the Operating Committee
will not be permitted to select any person employed by or affiliated
with any Member or its affiliates or facilities.\253\ Section
4.7(b)(ii) governs Member selections and provides that each Member will
have the right to select one member of the Advisory Committee,
provided, however, that a Member will not be permitted to select any
person employed by or affiliated with any Member or its affiliates or
facilities.
---------------------------------------------------------------------------
\251\ See Article IV, Section 4.7(a) of the Proposed CT Plan.
\252\ See Article IV, Section 4.7(b)(i) of the Proposed CT Plan.
\253\ See Article IV, Section 4.7(b)(ii) of the Proposed CT
Plan.
---------------------------------------------------------------------------
Section 4.7(c), as proposed, sets forth the function of the
Advisory Committee. Specifically, Section 4.7(c) provides that members
of the Advisory Committee will have the right to submit their views to
the Operating Committee on Plan matters, prior to a decision by the
Operating Committee on such matters.\254\ This section further provides
that such matters will include, but not be limited to, any new or
modified product, fee, contract, or pilot program that is offered or
used pursuant to the Plan.\255\ Finally, Section 4.7(d), as proposed,
clarifies that members of the Advisory Committee are not Members of the
Company.\256\
---------------------------------------------------------------------------
\254\ See Article IV, Section 4.7(c) of the Proposed CT Plan.
\255\ See id.
\256\ See Article IV, Section 4.7(d) of the Proposed CT Plan.
---------------------------------------------------------------------------
One commenter supports provisions addressing the composition and
attendance at Operating Committee and subcommittee meetings by members
of
[[Page 94940]]
the Advisory Committee, stating that this feature of the Proposed CT
Plan is essential to providing non-SRO market participants with the
transparency needed to continue to provide their views to the Operating
Committee and participate in plan governance.\257\
---------------------------------------------------------------------------
\257\ See ICI Letter, supra note 109, at 2.
---------------------------------------------------------------------------
As required by the Amended Governance Order, the Proposed CT Plan
provides for participation by non-SROs in the operation of the Proposed
CT Plan as members of an advisory committee.\258\ Further, the
provisions of Section 4.4(a) (permitting attendance by Advisory
Committee members at meetings of the Operating Committee, except for
Executive Sessions), Section 4.4(b) (requiring the provision of
subcommittee minutes to members of the Advisory Committee), and Section
4.8(c) (permitting attendance by Advisory Committee members at
subcommittee meetings, other than a legal subcommittee) provide
transparency in the operations of the Proposed CT Plan, as supported by
the commenter.
---------------------------------------------------------------------------
\258\ See Amended Governance Order, supra note 23, 88 FR at
61632, 61639.
---------------------------------------------------------------------------
The Commission is, however, modifying proposed Section 4.7 to
further conform provisions regarding the composition and selection of
members of the Advisory Committee with the requirements of the Amended
Governance Order. First, the Commission is modifying Section 4.7(b) to
require that selection of members of the Advisory Committee shall be by
majority vote of the Operating Committee,\259\ as required by the
Amended Governance Order,\260\ rather than ``[b]y affirmative vote of a
majority of the Members entitled to vote,'' as proposed. The
modification is appropriate to conform the Proposed CT Plan to the
requirements of the Amended Governance Order, which requires that votes
on the Operating Committee shall be allocated by SRO Group or Non-
Affiliated SRO rather than by individual SROs. To effect this
modification the Commission, is deleting, from paragraph (b)(i) of
proposed Section 4.7 the following text: ``Members of the Advisory
Committee shall be selected for two-year terms as follows: (i)
Operating Committee Selections. By affirmative vote of a majority of
the Members entitled to vote.'' \261\ The Commission is further
modifying Section 4.7(b), as renumbered, to insert, in its first
sentence, the words ``by majority vote,'' and is moving the phrase
``Members of the Advisory Committee shall be selected for two-year
terms'' to a new Section 4.7(c).\262\
---------------------------------------------------------------------------
\259\ See Article IV Section 4.3(c)(ii) of the Proposed CT Plan
(as approved).
\260\ See Amended Governance Order, supra note 23, 88 FR at
61639 (``The Revised New Consolidated Data Plan shall provide for a
non-voting Advisory Committee to be selected by majority vote of the
operating committee.'').
\261\ The Commission is further modifying Section 4.7(b)(i) to
(1) remove, from its first sentence, the comma and spacing after
``vote,'' as well as the ``t'' that immediately follows, and (2)
substitute, for the stricken ``t,'' a capital ``T.'' See Article IV,
Section 4.3(c)(ii) of the Proposed CT Plan (as approved).
\262\ Accordingly, the Commission is renumbering proposed
Sections 4.7(c) and (d) as Section 4.7(d) and (e), respectively.
---------------------------------------------------------------------------
Further, the Commission is modifying the Proposed CT Plan by
deleting Section 4.7(b)(ii) in its entirety. Section 4.7(b)(ii) would
have provided each SRO with the ability to appoint a person to serve on
the Advisory Committee. That provision, however, is inconsistent with
the requirement of the Amended Governance Order:
The Revised New Consolidated Data Plan shall provide for a non-
voting Advisory Committee to be selected by majority vote of the
operating committee. The Advisory Committee shall consist of
individuals representing each of the following categories: an
institutional investor, a broker-dealer with a predominantly retail
investor customer base, a broker-dealer with a predominantly
institutional investor customer base, a securities market data
vendor, an issuer of NMS stock, and a person who represents the
interests of retail investors (``retail representative''), provided
that the representatives of the securities market data vendor and
the issuer are not permitted to be affiliated or associated with an
SRO, a broker-dealer, or an investment adviser with third-party
clients.\263\
---------------------------------------------------------------------------
\263\ Amended Governance Order, supra note 23, 88 FR at 61639.
The Amended Governance Order thus requires that members of the Advisory
Committee be selected by a majority vote of the Operating Committee and
lists the categories of persons who shall constitute the Advisory
Committee to allow for participation by non-SROs in the operation of
the new NMS plan.\264\ The modification to delete Section 4.7(b)(ii) of
the Proposed CT Plan is appropriate because, as discussed above, that
provision is inconsistent with requirements of the Amended Governance
Order.\265\ Permitting each of the SROs that are ``Members'' of the
Proposed CT Plan to appoint its own member to the Advisory Committee
would create an Advisory Committee numerically dominated by the chosen
representatives of individual SROs, rather than one reflecting the
broader industry perspectives provided by the six required categories
specified by the Amended Governance Order.
---------------------------------------------------------------------------
\264\ See id.
\265\ See id.
---------------------------------------------------------------------------
For the foregoing reasons, the Commission is approving Section 4.7
of the Proposed CT Plan as modified.
(h) Subcommittees
Section 4.8 of Article IV of the Proposed CT Plan governs the
Operating Committee's discretion to create and disband subcommittees,
as well as the selection of subcommittee chairs, permissible attendees
at subcommittee meetings, minutes of subcommittee meetings, and special
provisions applicable to meetings of a legal subcommittee.
(i) Selection of Subcommittee Chairs
Paragraph (a) of Section 4.8 permits the Operating Committee to
create and disband subcommittees and to determine the duties,
responsibilities, powers, and composition of any of its
subcommittees.\266\ This paragraph also requires that subcommittee
chairs be selected by the Operating Committee from Voting
Representatives.\267\ Furthermore, this paragraph provides that the
Operating Committee may not delegate to a subcommittee the
administrative functions to be performed by the Administrator of the
Proposed CT Plan.\268\
---------------------------------------------------------------------------
\266\ See Article IV, Section 4.8(a) of the Proposed CT Plan.
\267\ See id.
\268\ See id.
---------------------------------------------------------------------------
One commenter supports the provision of the Proposed CT Plan
precluding subcommittees from carrying out administrative functions of
the independent administrator.\269\
---------------------------------------------------------------------------
\269\ See ICI Letter, supra note 109, at 2.
---------------------------------------------------------------------------
Article IV, Section 4.8(a) is consistent with requirements of the
Amended Governance Order \270\ and differs from the corresponding
provision of the 2021 CT Plan approved by the Commission \271\ in that,
consistent with requirements of the Amended Governance Order, it (1)
removes all references to ``SRO Voting Representatives,'' (2) replaces
the term ``SRO Voting Representatives'' with Voting Representatives,
and (3) prohibits the Operating Committee from delegating to a
subcommittee the administrative functions to be performed by the
Administrator.\272\ For the foregoing reasons, as well as those in the
2021 Approval Order (apart from those pertaining to the participation
of
[[Page 94941]]
non-SRO representatives as members of the operating committee of the
2021 CT Plan, which is not included in the Proposed CT Plan),\273\ the
Commission is approving Section 4.8(a) as proposed.
---------------------------------------------------------------------------
\270\ See Amended Governance Order, supra note 23, 88 FR at
61641.
\271\ See 2021 Approval Order, supra note 19, 86 FR at 44214.
\272\ See Amended Governance Order, supra note 23, 88 FR at
61631, 61641.
\273\ See 2021 Approval Order, supra note 18, 86 FR 44174.
---------------------------------------------------------------------------
(ii) Transparency of Subcommittee Meetings
Paragraph (b) of Section 4.8 provides that, except that as provided
for minutes of the legal subcommittee in Section 4.8(d), the Secretary
or designee will prepare minutes of all subcommittee minutes and that
such minutes will be made available to the Operating Committee and
members of the Advisory Committee.\274\
---------------------------------------------------------------------------
\274\ See Article IV, Section 4.8(b) of the Proposed CT Plan.
---------------------------------------------------------------------------
One commenter supports the provisions of the Proposed CT Plan
addressing the preparation and distribution of all meeting
minutes.\275\
---------------------------------------------------------------------------
\275\ See ICI Letter, supra note 109, at 2.
---------------------------------------------------------------------------
Section 4.8(b) differs from the corresponding provision of the 2021
CT Plan approved by the Commission in that it conforms this provision
with requirements of the Amended Governance Order regarding
transparency of subcommittee meetings.\276\ Accordingly, the Commission
is approving Section 4.8(b) as proposed.
---------------------------------------------------------------------------
\276\ See Amended Governance Order, supra note 23, 88 FR at
61638, 61641.
---------------------------------------------------------------------------
(iii) Permissible Attendees of Subcommittee Meetings
Paragraph (c) of Section 4.8 of the Proposed CT Plan states that
Voting Representatives, the Advisory Committee, Member Observers, SEC
staff, and other persons as deemed appropriate by the Operating
Committee may attend subcommittee meetings.\277\
---------------------------------------------------------------------------
\277\ See Article IV, Section 4.8(c) of the Proposed CT Plan.
---------------------------------------------------------------------------
Section 4.8(c) is consistent with requirements of the Amended
Governance Order \278\ and substantively similar to the corresponding
provision of the 2021 CT Plan approved by the Commission,\279\ other
than for replacing the term ``Non-SRO Voting Representatives'' with
``the Advisory Committee,'' consistent with requirements in the Amended
Governance Order.\280\ The Commission received no comments on Section
4.8(c), and, for the same reasons as stated in the 2021 Approval Order
(apart from those pertaining to participation of non-SRO
representatives as member of the operating committee of the 2021 CT
Plan, which is not part of the Proposed CT Plan),\281\ the Commission
is approving Section 4.8(c) as proposed.
---------------------------------------------------------------------------
\278\ See Amended Governance Order, supra note 23, 88 FR at
61631, 61638-39.
\279\ See 2021 Approval Order, supra note 19, 86 FR at 44175,
44214.
\280\ See Amended Governance Order, supra note 23, 88 FR at
61631-32.
\281\ See 2021 Approval Order, supra note 19, 86 FR at 44175,
44214.
---------------------------------------------------------------------------
(iv) Legal Subcommittee
Article IV, Section 4.8(d) provides that Voting Representatives,
Member Observers, and other persons as deemed appropriate by majority
vote of the Voting Representatives may meet in a subcommittee to
discuss an item that exclusively affects the Members with respect to
the following: (1) litigation matters or responses to regulators with
respect to inquiries, examinations, or findings; and (2) other discrete
legal matters approved by the Operating Committee.\282\ Section 4.8(d)
further provides that the Secretary will prepare the minutes of legal
subcommittee meetings, and that such minutes will include the
following: (i) attendance at the meeting; (ii) the subject matter of
each item discussed; (iii) sufficient non-privileged information to
identify the rationale for referring the matter to the legal
subcommittee, and (iv) the privilege or privileges claimed with respect
to that item.\283\ This paragraph further provides that such minutes
will be made available only to the Voting Representatives, Member
Observers, and other persons deemed appropriate by a majority vote of
the Operating Committee.\284\
---------------------------------------------------------------------------
\282\ See Article IV, Section 4.8(d) of the Proposed CT Plan.
\283\ See id.
\284\ See id.
---------------------------------------------------------------------------
One commenter supports the provisions of the Proposed CT Plan
addressing the preparation and distribution of all meeting
minutes.\285\ This commenter also states that the Commission should
reincorporate provisions of the 2021 CT Plan approved by the Commission
that were intended to promote the role of non-SROs, including expanding
the scope of information required to justify referral of a matter to a
legal subcommittee.\286\ This commenter states that similar policy
rationales for narrowly tailoring the use of Executive Sessions or
other exclusive meetings apply when non-SROs are Advisory Committee
members.\287\
---------------------------------------------------------------------------
\285\ See ICI Letter, supra note 109, at 2, n.6.
\286\ See id. at 3, 4.
\287\ See id. at 3, n.11.
---------------------------------------------------------------------------
The provisions of proposed Section 4.8(d) sufficiently limit the
matters that may be discussed in a legal subcommittee meeting of the
Proposed CT Plan. Proposed Section 4.8(d) specifically requires that a
matter referred to the legal subcommittee be limited to ``an item that
exclusively affects the Members'' in two circumstances: (1) litigation
matters or responses to regulators with respect to inquiries,
examinations, or findings; and (2) other discrete legal matters
approved by the Operating Committee.\288\ Moreover, referral to the
legal subcommittee must be approved by a majority vote of the Operating
Committee. The SROs have a right to consult with legal counsel with
respect to such items, and permitting non-SROs to attend discussions
regarding those items might cause a waiver of the SROs' attorney-client
privilege.
---------------------------------------------------------------------------
\288\ See Section 4.8(d) of the Proposed CT Plan.
---------------------------------------------------------------------------
Moreover, the provisions of proposed Section 4.8(d) provide
sufficient accountability regarding the use by the SROs of the legal
subcommittee. Minutes of legal subcommittee meetings will be required,
and those minutes must, for each matter discussed, identify the
privilege claimed and include sufficient non-privileged information to
identify the reason the matter was referred to the legal subcommittee.
These minutes, like all CT Plan documents, will be available to the
Commission and its staff,\289\ which will provide accountability
regarding use of the legal subcommittee, while preserving, to the
extent appropriate, the SROs' attorney-client privilege with respect to
discussions at legal subcommittee meetings.
---------------------------------------------------------------------------
\289\ See Section 4.10 of the Proposed CT Plan (Commission
Access to Information and Records).
---------------------------------------------------------------------------
Therefore, the provisions of proposed Section 4.8(d) are consistent
with the requirements of the Amended Governance Order.\290\ Moreover,
other than for differences to conform to requirements of the Amended
Governance Order, including (1) the omission of references to Non-SRO
Voting Representatives,\291\ which are no longer part of the Proposed
CT Plan, (2) the use of the term ``Voting Representative'' rather than
``SRO Voting Representative,'' \292\ as well as (3) the addition of
specific requirements regarding the content, preparation, and
distribution of subcommittee minutes,\293\ the provisions of Section
4.8(d) are substantively similar to the corresponding provisions of the
2021 CT Plan approved by the
[[Page 94942]]
Commission.\294\ For the foregoing reasons, as well as those in the
2021 Approval Order (apart from those pertaining to the participation
of non-SRO representatives as members of the operating committee of the
2021 CT Plan, which is not included in the Proposed CT Plan),\295\ the
Commission is approving Section 4.8(d) as proposed.
---------------------------------------------------------------------------
\290\ See Amended Governance Order, supra note 23, 88 FR at
61638-39.
\291\ See id. at 61631.
\292\ See id.
\293\ See id. at 61641.
\294\ See 2021 Approval Order, supra note 19, 86 FR at 44175-77.
\295\ See 2021 Approval Order, supra note 19, 86 FR at 44175-77.
---------------------------------------------------------------------------
(i) Officers
Section 4.9 of Article IV of the Proposed CT Plan governs the
selection of CT Plan Officers. Paragraph (a) of Section 4.9 provides
that, other than the Chair, the Operating Committee may, from time to
time, designate and appoint one or more persons as Officers of the
Company.\296\ This paragraph further provides that other than the
Chair, no such officer need be a Voting Representative.\297\ Pursuant
to this paragraph, any officer so designated will have such authority
and perform such duties as the Operating Committee may, from time to
time, delegate to them, and that any such delegation may be revoked at
any time by the Operating Committee.\298\ Paragraph (a) of Section 4.9
further provides that the Operating Committee may assign titles to
particular Officers, and that each Officer will hold office until a
successor is designated, or until the Officer's death, resignation, or
removal, as provided in the Proposed CT Plan.\299\ This paragraph
further provides that an individual may hold any number of offices, and
that Officers shall not be entitled to receive salary or other
compensation, unless approved by the Operating Committee.\300\ This
section further provides that any Officer may resign at any time, that
such resignation must be made in writing, and that it shall take effect
at the time specified in the notice, or if no time be specified, at the
time of its receipt by the Operating Committee.\301\ Pursuant to this
section, the acceptance of a resignation will not be necessary to make
it effective.\302\ Finally, this section provides that any officer may
be removed at any time by a majority vote of the Members.\303\
---------------------------------------------------------------------------
\296\ See Article IV, Section 4.9(a) of the Proposed CT Plan.
\297\ See id.
\298\ See id.
\299\ See id.
\300\ See id.
\301\ See Article IV, Section 4.9(b) of the Proposed CT Plan.
\302\ See id.
\303\ See Article IV, Section 4.9(c) of the Proposed CT Plan.
---------------------------------------------------------------------------
The Commission is modifying Section 4.9 to provide that a majority
vote of the Operating Committee, rather than of its Members, shall be
required to remove any Officer. To effect this modification, the
Commission is therefore deleting, from proposed Section 4.9(c), the
word ``Members,'' and substituting the words ``Operating Committee.''
This modification is appropriate to make the provision consistent with
the requirements of Section 4.3(a) of the Proposed CT Plan, which
governs the allocation of votes to the Members of the Proposed CT Plan.
As required by the Amended Governance Order, Section 4.3 allocates
votes to SRO Groups and Non-Affiliated SROs--not to each individual SRO
that is a Member of the Proposed CT Plan.\304\
---------------------------------------------------------------------------
\304\ See Article IV, Section 4.3(a) of the Proposed CT Plan.
---------------------------------------------------------------------------
Other than as modified by the Commission to conform to Amended
Governance Order requirements regarding action of the Operating
Committee,\305\ as discussed above, Section 4.9 is, other than for
immaterial differences,\306\ substantively similar to the corresponding
provision of the 2021 CT Plan approved by the Commission.\307\ The
Commission received no comments addressing Section 4.9 of the Proposed
CT Plan, and, for the reasons discussed above, as well as for the
reasons stated in the 2021 Approval Order (apart from those pertaining
to the participation of non-SRO representatives as members of the
operating committee of the 2021 CT Plan, which is not included in the
Proposed CT Plan),\308\ the Commission is approving Section 4.9 of the
Proposed CT Plan as modified.
---------------------------------------------------------------------------
\305\ See Amended Governance Order, supra note 23, 88 FR at
61631.
\306\ Article IV, Section 4.9 of the Proposed CT Plan
corresponds to Article IV, Section 4.8 of the 2021 CT Plan. See 2021
Approval Order, supra note 19, 86 FR at 44215.
\307\ See 2021 Approval Order, supra note 19, 86 FR at 44178.
\308\ See id.
---------------------------------------------------------------------------
(j) Commission Access to Information and Records
Section 4.10 of Article IV of the Proposed CT Plan provides that
``[n]othing in this Agreement shall be interpreted to limit or impede
the rights of the Commission or SEC staff to access information and
records of the Company or any of the Members (including their
employees) pursuant to U.S. federal securities laws and the rules and
regulations promulgated thereunder.'' \309\ This provision is identical
to the corresponding provision of the 2021 CT Plan approved by the
Commission,\310\ and was not required to be modified by the Amended
Governance Order. The Commission received no comments addressing this
provision, and the Commission is approving Section 4.10 of the Proposed
CT Plan as proposed.
---------------------------------------------------------------------------
\309\ See Article IV, Section 4.10 of the Proposed CT Plan.
\310\ See 2021 Approval Order, supra note 19, at 86 FR at 44178.
---------------------------------------------------------------------------
(k) Disclosure of Potential Conflicts of Interest; Recusal
Article IV, Section 4.11 of the Proposed CT Plan sets forth the
disclosure requirements with respect to conflicts of interest, and the
provisions for recusal, as approved by the Commission \311\ with
certain modified requirements as set forth in the Amended Governance
Order.\312\
---------------------------------------------------------------------------
\311\ See Securities Exchange Act Release Nos. 88823 (May 6,
2020), 85 FR 28046 (May 12, 2020); 88824 (May 6, 2020), 85 FR 28119
(May 12, 2020) (collectively, the ``Conflicts of Interest Approval
Orders''). In the Governance Order, as well as in the Amended
Governance Order, the Commission ordered the SROs to incorporate
into the new NMS plan provisions consistent with the Conflicts of
Interest Approval Orders. See Governance Order, supra note 11, 85 FR
at 28726; Amended Governance Order, supra note 23, 88 FR at 61633-
34, 61640.
\312\ See Amended Governance Order, supra note 23, 88 FR at
61634-35, 61640.
---------------------------------------------------------------------------
(i) Disclosure Requirements
Section 4.11 of Article IV provides that the Members (including any
Member Observers), the Processors, the Administrator, and each service
provider or subcontractor (each a ``Disclosing Party'') engaged in
Company business (including the audit of Subscribers' data usage) that
has access to Restricted \313\ or Highly Confidential Information \314\
(``Disclosing Parties''), as defined in the Plan,\315\ shall complete a
prescribed questionnaire and be subject to the disclosure requirements
as described in Section 4.11(c) and Exhibit B to the Plan to disclose
all material facts necessary to identify potential conflicts of
interest.\316\ Exhibit B to the Proposed CT Plan provides a list of
questions and instructions tailored to elicit responses that disclose
potential conflicts of interest.\317\ Section 4.11(a) also states that
the Operating Committee, a Member, Processors, or Administrator
[[Page 94943]]
may not use a service provider or subcontractor on Company business
unless that service provider or subcontractor has agreed in writing to
provide the disclosures required by this section and has submitted
completed disclosures to the Administrator prior to starting work.\318\
---------------------------------------------------------------------------
\313\ See Article I, Section 1.1(64) of the Proposed CT Plan
(defining ``Restricted Information'').
\314\ See Article I, Section 1.1(34) of the Proposed CT Plan
(defining ``Highly Confidential Information'').
\315\ See supra notes 313-314 and accompanying text.
\316\ See Article IV, Section 4.11(a) of the Proposed CT Plan.
\317\ See Article IV, Section 4.11(c) of and Exhibit B to the
Proposed CT Plan.
\318\ See Article IV, Section 4.11(a) of the Proposed CT Plan.
---------------------------------------------------------------------------
Section 4.11(a) further provides that if state laws, rules, or
regulations, or applicable professional ethics rules or standards of
conduct, would act to restrict or prohibit a Disclosing Party from
making any particular required disclosure, a Disclosing Party must
refer to such law, rule, regulation, or professional ethics rule or
standard and include in response to that disclosure the basis for its
inability to provide a complete response, and further, that this would
not relieve the Disclosing Party from disclosing any information it is
not restricted from providing.\319\
---------------------------------------------------------------------------
\319\ See id.
---------------------------------------------------------------------------
Section 4.11(a) also describes circumstances in which a potential
conflict of interest may exist,\320\ provides for required updates of
disclosures,\321\ provides for public dissemination of
disclosures,\322\ and provides that Disclosing Parties that are not
Members or members of the Advisory Committee to comply with the
required disclosure and recusal provisions in their respective
agreements with the Company, a Member, the Administrator, or the
Processors.\323\
---------------------------------------------------------------------------
\320\ See Article IV, Section 4.11(a)(i) of the Proposed CT
Plan.
\321\ See Article IV, Section 4.11(a)(ii) of the Proposed CT
Plan.
\322\ See Article IV, Section 4.11(a)(iii) of the Proposed CT
Plan.
\323\ See Article IV, Section 4.11(a)(iv) of the Proposed CT
Plan.
---------------------------------------------------------------------------
Section 4.11(a) differs substantively from the corresponding
provision of the 2021 CT Plan approved by the Commission only in that,
consistent with the Amended Governance Order,\324\ the term ``Non-SRO
Voting Representatives'' has been struck where it appeared and has been
replaced by ``members of the Advisory Committee'' in Section
4.11(a)(iv). The Commission is modifying proposed Section 4.11(a) to
add ``members of the Advisory Committee'' to the first sentence of this
section, which defines ``Disclosing Parties.'' It is appropriate that
members of the Advisory Committee be included in the definition, given
that they are replacing the Non-SRO Voting Representatives, will have
access to Restricted or Highly Confidential Information, and are
referenced in Section 4.11(a)(iv) as a Disclosing Party, they should be
subject to the requirements of Section 4.11, including disclosing all
material facts necessary to identify potential conflicts of interest
and be recused consistent with Section 4.11(b) (discussed below).
Additionally Exhibit B (the disclosure questionnaire) differs
substantively from the corresponding portion of the 2021 CT Plan
approved by the Commission \325\ only in that, consistent with the
Amended Governance Order,\326\ it replaces references to Non-SRO Voting
Representatives with references to members of the Advisory Committee.
The Commission received no comments on Section 4.11(a) of the Proposed
CT Plan, and for the foregoing reasons, the Commission is approving
Section 4.11(a) as modified and Exhibit B as proposed.
---------------------------------------------------------------------------
\324\ See Amended Governance Order, supra note 23, 88 FR at
61631-32.
\325\ See 2021 Approval Order, supra note 19, 86 FR at 44178-82,
44221-22.
\326\ See Amended Governance Order, supra note 23, 88 FR at
61631-32.
---------------------------------------------------------------------------
(ii) Recusal
Article IV, Section 4.11(b) of the Proposed CT Plan discusses
recusals and expressly prohibits a Member from appointing as its Voting
Representative, alternate Voting Representative, or a Member Observer a
person that is responsible for or involved with procurement for, or
development, modeling, pricing, licensing (including all functions
related to monitoring or ensuring a subscriber's compliance with the
terms of the license contained in its data subscription agreement and
all functions relating to the auditing of subscriber data usage and
payment), or sale of proprietary market data product offered to
customers of the CT Feeds,\327\ if the person has a financial interest
(including compensation) that is tied directly to the Disclosing
Party's market data business or the procurement of market data, and if
that compensation would cause a reasonable objective observer to expect
the compensation to affect the impartiality of the representative.\328\
Section 4.11(b) further requires recusal of a Disclosing Party
(including its representative(s), employees, and agents) from
participating in Company activities if it has not submitted the
required disclosure form, or the Operating Committee votes that the
Disclosing Party's disclosure form is materially deficient. Pursuant to
this paragraph (ii), such recusal will be in effect until the
Disclosing Party submits a sufficiently complete disclosure form to the
Administrator.\329\ Section 4.11(b)(iii) provides that a Disclosing
Party, including its representatives(s), and its Affiliates and their
representatives(s), is recused from voting on matters in which it or
its Affiliate is seeking a position or contract with the Company or has
a position or contract with the Company and whose performance is being
evaluated by the Company.\330\ Section 4.11(b)(iv) requires that all
recusals, including a person's determination of whether to voluntarily
recuse himself or herself, be reflected in the meeting minutes.\331\
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\327\ See Article I, Sections 1.16-1.18 of the Proposed CT Plan
(as approved).
\328\ See Article IV, Section 4.11(b)(i) of the Proposed CT
Plan.
\329\ See Article IV, Section 4.11(b)(ii) of the Proposed CT
Plan.
\330\ See Article IV, Section 4.11(b)(iii) of the Proposed CT
Plan.
\331\ See Article IV, Section 4.11(b)(iv) of the Proposed CT
Plan.
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One commenter supports the provision of the Proposed CT Plan that
prohibits an SRO from appointing a representative that is involved with
licensing of proprietary data products.\332\ This commenter also
supports the Proposed CT Plan's inclusion of provisions applying the
conflicts-of-interest policies to any SRO-designated person, including
a member observer, that attends operating committee and subcommittee
meetings as proposed under this section.\333\
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\332\ See ICI Letter, supra note 109, at 2, n.6.
\333\ See id.
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Proposed Section 4.11(b) differs substantively from the
corresponding provision of the 2021 CT Plan approved by the Commission
\334\ only in that it includes language specified by the Commission in
the Amended Governance Order.\335\ Accordingly, the Commission is
approving Section 4.11(b) as proposed.
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\334\ See 2021 Approval Order, supra note 19, 86 FR at 44178-82,
44215.
\335\ See Amended Governance Order, supra note 23, 88 FR at
61635, 61640 (requiring that the term ``licensing'' include ``all
functions related to monitoring or ensuring a subscriber's
compliance with the terms of the license contained in its data
subscription agreement and all functions relating to the auditing of
subscriber data usage and payment'').
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(iii) Required Disclosures
Article IV, Section 4.11(c) of the Proposed CT Plan provides that,
as part of the disclosure regime, the Members, the Processors, the
Administrator, members of the Advisory Committee, and service providers
and subcontractors must respond to questions that are tailored to
elicit responses that disclose the potential conflicts of interest as
set forth in Exhibit B.
[[Page 94944]]
Proposed Section 4.11(c) differs substantively from the
corresponding 2021 CT Plan provision approved by the Commission \336\
only in that, consistent with the Amended Governance Order,\337\ it
replaces a reference to ``Non-Voting SRO Representatives'' with a
reference to ``members of the Advisory Committee.'' The Commission
received no comments addressing Section 4.11(c) of the Proposed CT
Plan, and the Commission is approving Section 4.11(c) as proposed.
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\336\ See 2021 Approval Order, supra note 19, 86 FR at 44181-82,
44215.
\337\ See Amended Governance Order, supra note 23, 88 FR at
61631-32.
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(l) Confidentiality Policy
Article IV, Section 4.12 provides that all Covered Persons are
subject to the Confidentiality Policy set forth in Exhibit C to the
Proposed CT Plan.\338\ This Section further provides that the Company
will arrange for Covered Persons that are not Voting Representatives,
Member Observers, or members of the Advisory Committee to comply with
the Confidentiality Policy under their respective agreements with
either the Company, a Member, the Administrator, or the
Processors.\339\
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\338\ See Article IV, Section 4.12 of the Proposed CT Plan. See
also Section 1.1(3) of the Proposed CT Plan (defining ``Covered
Persons'').
\339\ See Article IV, Section 4.12 of the Proposed CT Plan.
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This provision is identical to the corresponding provision of the
2021 CT Plan approved by the Commission,\340\ and it was not required
to be modified by the Amended Governance Order. The Commission received
no comments addressing Section 4.12 of the Proposed CT Plan, and the
Commission is approving Section 4.12 of the Proposed CT Plan as
proposed.
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\340\ See 2021 Approval Order, supra note 19, 86 FR at 44182-90.
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Exhibit C to the Proposed CT Plan constitutes the Confidentiality
Policy and describes the purpose and scope of the policy, including,
among other things, the procedures regarding the custodian of and
designations for all documents, as well as the procedures concerning
Restricted Information, Highly Confidential Information, and
Confidential Information.
The Commission received no comments on Exhibit C.
Paragraph (a) of the Confidentiality Policy lays out the purpose
and scope of the policy. Paragraph (a) is unchanged from the
corresponding provision of the 2021 CT Plan approved by the
Commission,\341\ and it was not required to be modified by the Amended
Governance Order. The Commission is approving paragraph (a) of Exhibit
C as proposed.
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\341\ See id. at 44182-89, 44222-24.
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Paragraph (b) of the Confidentiality Policy lays out the procedures
for treatment and disclosure of Restricted Information, Highly
Confidential Information, and Confidential Information. Paragraph
(b)(i) is identical to the corresponding 2021 CT Plan provisions
approved by the Commission,\342\ and it was not required to be modified
by the Amended Governance Order. The Commission is approving paragraph
(b)(i) of the Exhibit C as proposed.
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\342\ See id.
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Paragraph (b)(ii) of Exhibit C sets forth the procedures concerning
Restricted Information. While paragraph (b)(ii) was not required to be
modified by the Amended Governance Order, this paragraph has been
reorganized from the corresponding provisions of the 2021 CT Plan
approved by the Commission,\343\ and the substance of the provisions
has not changed. The Commission is, however, making one modification to
this paragraph. In paragraph (b)(ii)(A)(2), where the policy states
that any authorization to disclose Restricted Information must identify
the Covered Persons or third party authorized to receive information,
the Commission is modifying this sentence to specify that the
Restricted Information to be disclosed must also be specified: ``Any
authorization to disclose Restricted Information must specify the
information to be disclosed and identify the Covered Persons or third
party authorized to receive the Restricted Information. . . .'' This
modification is appropriate, as it is designed to help ensure that the
Restricted Information is tightly controlled and that only the
Restricted Information specified is permitted to be disclosed.
Accordingly, the Commission is approving paragraph (b)(ii) of Exhibit C
as modified.
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\343\ See id.
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Paragraph (b)(iii) of Exhibit C sets forth the procedures
concerning Highly Confidential Information. While paragraph (b)(iii)
was not required to be modified by the Amended Governance Order, this
paragraph has been reorganized from the corresponding provisions of the
2021 CT Plan approved by the Commission,\344\ and the substance of the
provisions has changed in only three respects.
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\344\ See id.
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First, for the reasons explained above, references to a ``Non-SRO
Voting Representative'' have been replaced by references to ``a member
of the Advisory Committee.'' \345\ Second, proposed paragraph
(b)(iii)(A)(2) would permit Voting Representatives to share certain
Highly Confidential Information with ``officers and employees'' of a
Member who have direct or supervisory responsibility for the Member's
participation in the plan, rather than with only ``officers'' as in the
2021 CT Plan. The addition of ``employees'' to the list of persons who
may receive certain Highly Confidential Information is appropriate
because disclosure would still be limited to those with direct or
supervisory responsibility for the Member's participation in the plan
and because not all persons with such responsibilities may formally be
``officers'' of a Member.
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\345\ See Amended Governance Order, supra note 23, 88 FR at
61631-32.
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And third, proposed paragraph (b)(iii)(A)(1) would permit
disclosures of Highly Confidential Information in specified
circumstances ``or as otherwise required by law (such as those required
to receive the information to ensure the Member complies with its
regulatory obligations).'' In the 2021 Approval Order, the Commission
specifically removed identical quoted language in response to
commenters' concern that it was too broad and their request for greater
clarity. Consequently, the Commission in the 2021 CT Plan separately
permitted the disclosure of Highly Confidential Information ``as
required by Applicable Law'' because it provided greater specificity as
to when Highly Confidential Information could be disclosed, consistent
with the defined term.\346\ Moreover, paragraph (b)(iii)(A)(2) of the
Proposed CT Plan would permit a Voting Representative to share Highly
Confidential Information with ``officers or employees of a Member who
have direct or supervisory responsibility for the Member's
participation in the Plan, or with agents for the Member supporting the
Member's participation in the Plan,'' which would thereby facilitate
the Member's ability to meet its regulatory obligations with respect to
the operations of the Proposed CT Plan. Accordingly, it is appropriate
to modify paragraph (b)(iii)(A)(1) of Exhibit C to delete the phrase
``or as otherwise required by law (such as those required to receive
the information to ensure the Member complies with its regulatory
obligations).''
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\346\ See 2021 Approval Order, supra note 19, 86 FR at 44186;
see also Paragraph (b)(iii)(A)(4) of Exhibit C.
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The Commission is also modifying paragraph (b)(iii) to make the
following
[[Page 94945]]
typographical corrections. In paragraph (b)(iii)(A)(1), the Commission
is correcting a cross-reference to read ``Section 4.8(d)'' instead of
``Section 4.7(c).'' In paragraph (b)(iii)(A)(2), the Commission is
correcting two references to ``SRO Voting Representatives'' to read
``Voting Representatives'' because that is the defined term in the
Proposed CT Plan,\347\ and the Commission is also correcting a
reference to ``Restricted Information'' to read ``Highly Confidential
Information'' because the paragraph in fact relates to procedures
concerning Highly Confidential Information. In paragraph
(b)(iii)(A)(5), which discusses disclosures to third parties, the
Commission is striking two references to ``Covered Persons'' because
the paragraph discusses disclosure to identified third parties that are
acting as Agents, rather than to Covered Persons. There are two
paragraphs numbered (b)(iii)(A)(5), and the Commission is renumbering
the second of those paragraphs as paragraph (b)(iii)(A)(6). The
Commission is also correcting a reference to ``SRO Voting
Representatives'' in paragraph (b)(iii)(B) to read ``Voting
Representative'' because other references to SRO Voting Representatives
in the Proposed CT Plan have been removed and replaced with references
to Voting Representatives to conform to the Amended Governance
Order.\348\ These modifications are appropriate because they would
alleviate confusion on those referencing the Proposed CT Plan by
correcting typographical errors. For the reasons discussed above, the
Commission is approving paragraph (b)(iii) of Exhibit C as modified.
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\347\ See supra Section II.B.2.
\348\ See id.
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Paragraph (b)(iv) of Exhibit C to the Proposed CT Plan governs
procedures concerning Confidential Information. With one exception,
paragraph (b)(iv) as proposed is identical to the corresponding
provisions of the 2021 CT Plan approved by the Commission,\349\ and it
was not required to be modified by the Amended Governance Order. That
exception is that the word ``only'' was removed from the corresponding
provision in the 2021 CT Plan that stated, ``Additionally, a Covered
Person may disclose Confidential Information only to other persons who
need to receive such information to fulfill their responsibilities to
the Plan, including oversight of the Plan.'' (Emphasis added.) Although
the Commission added the word ``only'' to this sentence in the 2021
Approval Order,\350\ the general provision of paragraph (a)(iii) of
Exhibit C--which provides that ``Covered Persons may not disclose
Restricted, Highly Confidential, or Confidential information except as
consistent with this Policy and directed by the Operating Committee''--
sufficiently limits the authorization provided by paragraph (b)(iv)(A)
without adding the word ``only'' in the sentence described above. The
Commission is, however, modifying the last phrase of paragraph
(b)(iv)(A), ``or as may be otherwise required by law,'' to read, ``or
as may be otherwise required by Applicable Law.'' The modification is
appropriate because it uses a term specifically defined in the Proposed
CT Plan, thus adding clarity to the application of the phrase, and
because the modification will make paragraph (b)(iv)(A) consistent with
paragraph (b)(iii)(A)(4) as proposed, which also uses the term
``Applicable Law.''
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\349\ See 2021 Approval Order, supra note 19, 86 FR at 44182-89,
44222-24.
\350\ See id. at 44188, 44223.
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For the reasons discussed above, the Commission is approving
paragraph (b)(iv) of Exhibit C as modified.
6. The Processors; Information; Indemnification
Article V of the Proposed CT Plan sets forth the provisions related
to the Processors.
(a) General Functions of the Processors
Pursuant to Article V, Section 5.1, the Company, under the
direction of the Operating Committee, shall be required to enter into
agreements with the Processors obligating the Processors to perform
certain processing functions on behalf of the Company (the ``Processor
Services Agreements'').\351\ The Proposed CT Plan specifies that, among
other things, the Company shall require the Processors to collect from
the Members, and consolidate and disseminate to Vendors and
Subscribers, Transaction Reports and Quotation Information in Eligible
Securities in a manner designed to ensure the prompt, accurate, and
reliable collection, processing, and dissemination of information with
respect to all Eligible Securities in a fair and non-discriminatory
manner.\352\
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\351\ See Article V, Section 5.1 of the Proposed CT Plan.
\352\ See id.
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Proposed Section 5.1 is identical to the corresponding provision of
the 2021 CT Plan approved by the Commission,\353\ and was not required
to be modified by the Amended Governance Order. The Commission received
no comments addressing this provision, and the Commission is approving
Section 5.1 as proposed.
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\353\ See 2021 Approval Order, supra note 19, 86 FR at 44190-91,
44215.
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(b) Evaluation of the Processors
Article V, Section 5.2 of the Proposed CT Plan requires that the
Processors' performance of their functions under the Processor Services
Agreements shall be subject to review at any time as determined by an
affirmative vote of the Operating Committee, provided, however, that a
review will be conducted at least once every two calendar years but not
more than once each calendar year unless the Processors have materially
defaulted under the Processor Services Agreement and the default has
not been cured within the applicable cure period established in the
Processor Services Agreement, in which case such limitations will not
apply.\354\ This section further provides that the Operating Committee
may review the Processors at staggered intervals.\355\
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\354\ See Article V, Section 5.2 of the Proposed CT Plan.
\355\ See id.
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Proposed Section 5.2 is identical to the corresponding provision of
the 2021 CT Plan approved by the Commission,\356\ and was not required
to be modified by the Amended Governance Order. The Commission received
no comments addressing this provision, and the Commission is approving
Section 5.2 as proposed.
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\356\ See 2021 Approval Order, supra note 19, 86 FR at 44191-92,
44215.
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(c) Process for Selecting New Processors
Article V, Section 5.3 of the Proposed CT Plan requires that the
Operating Committee, by an affirmative vote pursuant to Section 4.3 of
the Proposed CT Plan,\357\ establish procedures for selecting a new
Processor (the ``Processor Selection Procedures'').\358\ The Proposed
CT Plan requires that the Processor Selection Procedures be established
no later than upon the termination or withdrawal of a Processor or the
expiration of a Processor Services Agreement with a Processor.\359\ The
Processor Selection Procedures are required to set forth, at a minimum:
(i) the minimum technical and operational requirements to be fulfilled
by the Processor; (ii) the criteria for selecting the Processor; (iii)
the entities (other than Voting Representatives) that are eligible to
comment on the selection of the Processor; and (iv) the entity that
will:
[[Page 94946]]
(A) draft the Operating Committee's request for proposal for a new
Processor; (B) assist the Operating Committee in evaluating bids for
the new Processor; and (C) otherwise provide assistance and guidance to
the Operating Committee in the selection process.\360\ The Operating
Committee, as part of the process of establishing the Processor
Selection Procedures, is permitted to solicit and consider the timely
comment of any entity affected by the operation of the Proposed CT
Plan.\361\
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\357\ See Article V, Section 5.3(a) of the Proposed CT Plan.
\358\ See id.
\359\ See id.
\360\ See Article V, Section 5.3(b)(i)(A)-(C) of the Proposed CT
Plan.
\361\ See Article V, Section 5.3(a) of the Proposed CT Plan.
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Section 5.3 provides that the Operating Committee does not need to
establish Processor Selection Procedures ``if the Operating Committee
initially selects the CQ Plan and CTA Plan's processor and the UTP
Plan's processor to provide the same services to the Company that are
currently provided under the CQ Plan, CTA Plan, and UTP Plan.'' \362\
In the Transmittal Letter, the SROs state that, because the focus of
the Amended Governance Order is the selection of a new independent
Administrator rather than new Processors, the SROs believe it is
reasonable for the Operating Committee to have the option of continuing
with the current processors without having to go through an extensive
procedure for selecting the processors.\363\ The SROs state that this
option would also allow for quicker implementation of the plan by
allowing the Operating Committee to focus on the selection of the new
Administrator.\364\
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\362\ Id.
\363\ See Letter from James P. Dombach, Davis Wright Tremaine
LLP, to Vanessa Countryman, Secretary, Commission, at 2 (Oct. 23,
2023) (``Transmittal Letter'').
\364\ See Transmittal Letter, supra note 363, at 2.
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With respect to Section 5.3(a), one commenter states that it
supports the proposal to provide the Operating Committee with the
option of selecting an existing NMS plan processor to serve as
processor for the Proposed CT Plan, provided that selection of the
current processor is for the sole purpose of expediting transition to
the competing consolidator model, and that such processor be fully
retired at the end of the transition period.\365\ Another commenter
agrees that it is reasonable for the Operating Committee to have the
option to continue with the current processors.\366\ This commenter
states its ``expectation'' that the Commission and the SROs ``will
promptly take the requisite steps necessary to transition to a
competitive decentralized consolidation model for consolidated market
data such that the role of a CT Plan Processor is time-limited,
mitigating the need to create new procedures for Plan Processor
selection.'' \367\
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\365\ See Letter from Christina Qi, Chief Executive Officer,
Luca Lin, Chief Technology Officer, Zach Banks, Engineering
Director, Databento Inc., at 1-2 (Mar. 15, 2024) (``Databento
Letter'').
\366\ See Fidelity Letter, supra note 80, at 6.
\367\ Id.
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[…truncated; see source link]Indexed from Federal Register on November 29, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.