A Hot Topic: Market Data User Fees Take Center Stage at SEC Committee Meeting

In the third of an ongoing series of meetings for the Securities and Exchange Commission's (SEC) Advisory Committee on Market Information, the hot topic of market data fees came full circle. The committee, which gathered to address a packed agenda of five major topics, managed to make their way through three of those topics and raise some of the major issues concerning a fourth. That fourth topic, though, seems to be the basis of why the committee was formed in the first place.

The issue of how user fees are determined and how revenues are allocated was first brought up in a petition by Charles Schwab, leading to a SEC Concept Release on the matter--which ultimately led to the formation of the advisory committee. The committee started out with discussions on a variety of topics, including market information consolidation, the governance of consolidators and potential consolidated quotation display and consolidated last sale display mandates for vendors and broker/dealers.

Though the consolidation discussions of this meeting did not take into account the issue of multiple competing consolidators of market information, participants did discuss how the industry could improve upon the existing model of consolidating and disseminating the data. In fact, a subcommittee, to be headed by Professor Donald Langevoort of the Georgetown University Law Center, has been set up to explore alternatives.

But at the end of the day, the committee came back to where they started--discussing the issue of user fees and revenue allocation. Professor Joel Seligman, committee chair and Dean of the Washington University School of Law, emphasized that this was only the beginning of the discussions on the topic. But he got a debate rolling when he asked whether members advocated a cost-based standard, as opposed to the current "fair and reasonable'' approach that is currently in place.

While most agreed that the cost-based approach would not be beneficial, there was still some support for the idea. Seligman, therefore, asked those who advocated a cost-based approach to "articulate, mechanically and precisely how this would work," and submit those comments by March 15th. On the other hand, in his conclusion, Seligman said to, "remember that we (the SEC) exist as an agency whose greatest achievement is a full disclosure statue rather than a rate making agency." He also advised members to recall that "the motion of using transparency or disclosure as a regulatory technique, rather than rate making, has a long pedigree."

So, for the committee's next meeting, the agenda once again will focus on the issue of fees, with an in-depth look at the pros and cons of both sides. "I would like to continue under this general rubric of fees, but I would like to parse it down much more precisely," said Seligman. He added that the committee has not yet addressed technological issues to a great extent, and submitted to the committee that they decide individually the extent to which they would like to address the technology-related issues and send him comment letters. Other issues on the agenda for the next committee meeting, which is scheduled to take place on April 12th, include administrative issues--such as improving the operational efficiency of the Self Regulatory Organizations (SROs).