January 4, 2007
SEC and Market Data Fees
The SEC is reviewing its rule that the NYSE Group can charge for the distribution of quotes on its Arca electronic exchange. Insiders to the trading markets know how important this is; to the rest of the country it is a just technical side of the trading business that desired little attention. The insiders are right. With consolidation of our securities trading exchanges (and markets) there is new focus on how those exchanges charge for their services, particularly since many of the exchanges and markets are now for-profit corporations. The SEC has taken its traditional approach to the problem -- the wrong approach-- and viewed the regulation situation as akin to regulating a public utility. In other words, the SEC approves any rates charged. The calculation of proper rates has always been extremely difficult in the past and will become more so. The markets want a rate of return on their costs, other data providers, such as Google, want free or low cost access to data, investors want free or low cost access to data. These fee decisions, when they come up, attract significant comment and, whatever the SEC's decision, stretch the SEC's ability to rationally justify its rulings. The SEC should just get out of this business, let the markets charge whatever they want, and let market participants choose among markets based on the fees (and other aspects of the trading service). Exchanges that charge too much will suffer as competitors who charge less will attract a wider distribution of their quotes and therefore more trading on their markets. The SEC needs to get out of the micro-management of the details of our securities trading markets. [See Release No. 54597 and Petition for Commission Review].
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