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Nasdaq, NYSE Lose SEC Market Data Infrastructure Rule Challenge

May 24, 2022, 5:09 PM

Nasdaq, the New York Stock Exchange, and other stock exchanges failed to show a recent SEC rule on market data infrastructure is arbitrary and capricious, the D.C. Circuit said Tuesday.

The ruling upholds the 2020 rule, which includes more detailed trading information in the core data definition and adopted a competitive model for data feeds.

It “clearly represents a reasonable balancing of the objectives Congress directed” the Securities and Exchange Commission to “address in a complex and technical area,” the US Court of Appeals for the D.C. Circuit said.

The exchanges—including Nasdaq Stock Market LLC, New York Stock Exchange LLC, Cboe BYX Exchange Inc., and related entities—use data generated through trades on their platforms to develop and sell proprietary market data products.

They argued that the rule “rests on speculation” and “will exacerbate, not reduce, information asymmetries in the data market,” Judge Judith W. Rogers’ opinion said.

The asymmetry argument “misconstrues” the SEC’s goal, Rogers said. The agency “aimed not to require that every market participant have access to the same data at the same speed, but rather to address a dearth of options for consumers with widely divergent data needs in the existing marketplace,” she said.

The rule gives consumers who can’t afford existing products more options, Rogers said

As for the speculation argument, the SEC “acknowledged that there was some uncertainty,” but “exhaustively explained” the basis for its prediction that the “market would see ‘a sufficient number’ of entrants to promote competition,” according to the opinion.

The exchanges also argued that the new rule was contrary to the goals and policies of federal securities law. The agency allegedly failed to weigh economic impacts, protect the public, and promote fair market data collection and distribution.

But “the record demonstrates that the Commission considered each of petitioners’ concerns and reasonably determined, based on the information available to it, that the Rule was warranted,” Rogers said, denying the petitions for review.

Judges Neomi Rao and A. Raymond Randolph Randolph joined Rogers’ opinion.

Gibson, Dunn & Crutcher LLP represents the Nasdaq entities. Davis Polk & Wardwell LLP represents the NYSE entities. ArentFox Schiff LLP represents the Cboe entities.

The consolidated case is Nasdaq Stock Mkt. LLC v. SEC, 2022 BL 178200, D.C. Cir., No. 21-01100 consolidated with Nos. 21-01101 and 21-01102, 5/24/22.

To contact the reporter on this story: Jennifer Bennett in Washington at jbennett@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Steven Patrick at spatrick@bloomberglaw.com