April 30, 2013 / 3:10 PM / in 5 years

UPDATE 4-Court rules for NYSE, Nasdaq in market data-pricing case

By Herbert Lash

NEW YORK, April 30 (Reuters) - The New York Stock Exchange and the Nasdaq Stock Market will have greater latitude to increase revenue from the sale of market data, under a U.S. appeals court ruling on Tuesday that dismissed a complaint brought by a group of Internet companies and a trade group for brokers.

The court said the Dodd-Frank law stripped it of jurisdiction in the case, forcing it to rule against the Internet companies, grouped together as the NetCoalition, and the Securities Industry and Financial Markets Association (SIFMA), a lobby for the banking, brokerage and asset management industry.

The U.S. Court of Appeals for the District of Columbia Circuit said Congress, in enacting Dodd-Frank, eased the review process the Securities and Exchange Commission had followed when the exchanges filed for new data fees.

Changes to rules setting fees for market data now “take effect upon filing with the commission,” the court said.

The ruling cleared a potential obstacle to plans by the exchanges to increase revenue from data sales, a key goal, since revenue from trading has sharply declined in recent years.

“We’re gratified by the court’s decision, and we will continue to provide our customers with high quality data at reasonable rates in this competitive market,” said Joseph Christinat, a spokesman for Nasdaq.

“We’re pleased with the decision,” said SEC spokesman John Nester.


The petitioners in the case said the ruling did not resolve the issue of whether the new data fees are “fair and reasonable,” a standard the SEC must enforce and exchanges must comply with.

SIFMA and the NetCoalition companies will ask the SEC to set aside the rate increases, said Carter Phillips, a partner at Sidley Austin LLP who represented SIFMA in the case.

“It almost certainly will not do that, and we will challenge once again in the DC Circuit the SEC’s failure for not complying with NetCoalition I,” Phillips said, referring to an earlier ruling in the case.

Ira Hammerman, general counsel at SIFMA, said he hoped the decision would help to open a dialogue about market data between the exchanges, the SEC and those in the industry.

Brokers, traders, investors and exchange officials were unable to resolve the contentious issue during a series of SEC hearings and studies from 1999 to 2005.

In a ruling in 2010 involving the same parties, the court said there must be evidence that competition is constraining the fees the exchanges charge for the data feeds that stream stock quotations, share prices and other market data.

The appeals court sent the case back to the SEC, citing a lack of evidence that competition existed among the exchanges for the sale of their proprietary data.

SIFMA and a predecessor organization had insisted for years that the cost of producing market data is negligible and the fees the exchanges charge are far in excess of cost.

The Securities Traders Association, which was not part of the case, also had strongly complained data fees are too high.

SIFMA and the NetCoalition, which included Google Inc and Yahoo Inc, had challenged amendments to the Securities Exchange Act that were part of Dodd-Frank. The changes allowed the NYSE and Nasdaq to file for new fees that were “immediately effective” and sidestep regulatory review.

SIFMA and NetCoalition had complained that the SEC had abdicated its duty to ensure market data fees were “fair and reasonable.”

Bloomberg LP, a member of the NetCoalition, and Thomson Reuters Corp, which was not part of the case, are leading vendors of market data.


The court said the abandonment of the review requirement made that part of its prior ruling inoperative and Dodd-Frank “ousts us of jurisdiction.” But, the court said “NetCoalition I remains a controlling statement of law.”

Nasdaq’s U.S. sales of proprietary data rose to $150 million last year, a two-thirds increase since 2007. How much of that was driven by higher prices or rising sales is unclear.

The NYSE on April 1 raised fees for several of its data products by 50 percent or more. Fees for NYSE OpenBook, a “depth-of-book” product, rose to $21,000 a month from $14,000, according to an NYSE filing with the SEC. In another example, fees rose about 60 percent for vendors and for a broker-dealer almost 190 percent.

NYSE has been undercharging for its proprietary data and has not raised its prices for years, two NYSE sources recently said.

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