Markets Media caught up with Jeff Kimsey, Vice President and Head of Global Product Management at Nasdaq, to discuss the regulation of market data. Kimsey will speak on a panel addressing the topic at the World Financial Information Conference, Wednesday morning in Vancouver.
How would you characterize the state of market data regulation currently?
It is an interesting time in market data regulation to say the least. Today, the SEC and the exchange data providers have conflicting visions of how regulation should operate, especially when it comes to fees and prices of proprietary products. Regulation also is slow to adapt to change, and we think there are some reforms that are overdue. Specifically we have put out a TotalMarkets agenda to address many of these reforms including changes at the Securities Information Processor (SIP) to give the industry a voice, support infrastructure changes and lower costs to consumers. The SEC put out some proposals last month to make changes at the SIP, but we do not believe these proposals are the right path forward. The SEC proposals are a solution in search of a problem, and do not address issues created by long delays by the SEC in evaluating prior filings. We think it’s important to note the improvements that have been made to the SIP and to the arena of market data as a whole. The SIP is faster and more transparent than ever before and most of the investing public can access quality market data at little or no cost.
What are the specific public policy and regulatory issues arising from the SEC and ESMA?
The issue we are facing in the U.S. is how changes in data fees are approved by the regulator. It’s a serious point of contention right now and sits with the courts again, after the SEC Commission overturned a judge’s ruling that found that proprietary data products are part of a competitive, free market. Lobbying groups have essentially asked for government price controls in place of a free market; and we believe that would be bad for the industry. ESMA is facing a similar issue in Europe. ESMA has consulted the industry on the price of market data and whether the current regulatory framework is fit for its purpose. In the same consultation, ESMA has asked the industry on what an EU consolidated tape could look like. ESMA is to deliver a report to the European Commission on both topics at the end of the year; in turn, the European Commission is expected to propose measures to the co-legislator (European Parliament and Member States) in the second half of 2020.
What are the challenges and opportunities in market data regulation for exchanges like Nasdaq?​
From a regulatory perspective, the challenge is asking regulators to be nimble and responsive enough to respond to the industry. Many of the things that are creating pain points for our customers can be traced to outdated or unclear regulations such as the Vendor Display Rule and the definition of professional and non-professional. Simple, common-sense reforms that already have a lot of consensus could go a long way. We also think there is a lot of misinformation and misconceptions around exchanges’ data businesses, and we’ve been working hard to dispel myths that have been prevalent. And the issues with market data regulation provide us with an opportunity to seek to address our customer concerns on our own. We are faster than the regulator, and we’ve been doing things to address market data costs such as expanding our enterprise license program and create new products that will alleviate pressures on our clients.
How is Nasdaq working with its clients, who may have different motivations, on the issue of market data regulation?
Our focus first and foremost is on addressing issues with our clients. Apart from any regulatory issues, we’ve been working to help our clients save money. For example, Nasdaq Basic has saved users more than $250 million since its launch, and we’ve driven forward with enterprise license programs that enable cost savings on a large scale. We also work with our clients on the regulatory front by working to make sure their voices are heard by regulators and that they are involved in the process. We proposed last year that advisors be more involved on the operating committee for the SIPs, and we’re glad to see that becoming a reality. And our TotalMarkets agenda released earlier this year was devised after extensive talks with clients on finding pain points in the marketplace and how markets could be made better.
What is happening in the area of consolidated tapes in the US and Europe?
In the U.S., we see strong demand and a certain level of consensus. Some of the exchanges’ most outspoken critics agree with us on creating a consolidated tape in the U.S., and we’re proposing a consolidated tape plan in the U.S. that will lower cost to the industry. There is a lot going on in the U.S. and there have been significant improvements in the SIP over the last decade. The exchanges have increased SIP transparency around operations and revenue and the SIP is faster than it has ever been and promises to be even faster. We have made progress in giving advisors a bigger role and including odd lots in the SIP. There is a consensus around the consolidated tape in the U.S. and there are great signs of further improvements still on the way. In Europe, we have not seen the same level of customer demand for a consolidated tape, and the lack of viable use cases has meant that a tape has failed to materialize. In its recent consultation, ESMA is looking to get more information before making any decisions. We believe that an end-of-day tape of record will meet the needs of the few use cases that have been presented.
What is the future of market data regulation? Is there an endgame or will this area continually evolve?
To a certain extent regulation will be continually evolving because technology and the needs of the investing public are continually evolving. Free markets, like democracy, require constant vigilance on all sides. Our TotalMarkets and Revitalize agendas, if enacted, will put us in a better place from a regulatory perspective. So there’s a short-term endgame of sorts there. These issues have been discussed for the last 20 years and will continue to be discussed for the next 20 and we will never be aligned on every topic, but there is significant change we can make in the short term that sets us up for long term success.
