Opinion ID: 8410533
Heading Depth: 3
Heading Rank: 1

Heading: Proprietary Data Feeds

Text: Under Regulation NMS, each exchange must transmit certain information concerning trades on that exchange to a central network where the information is consolidated and then distributed. 17 C.F.R. § 242.603. This consolidated data feed provides basic real-time trading information, such as the national best bid and offer for a given stock. At issue in this case is the exchanges’ provision to firms of additional, costly proprietary data feeds that include more detailed information regarding trading activity. At the most detailed and expensive level, a proprietary data feed may provide data on every bid and order for a given stock on an exchange. Furthermore, although the exchanges are prohibited from releasing data on the proprietary feeds earlier than the data on the consolidated feed, see Regulation NMS, at 37,567, the proprietary data generally reach market participants faster because, unlike the consolidated data, they do not need to be aggregated. See Regulation NMS, 70 Fed. Reg. at 37,567. The SEC has “authorized] the independent distribution of market data outside of what is required by the [NMS] Plans,” so long as such distribution is “fair and reasonable” and “not unreasonably discriminatory.” Id. at 37,566-67. Applying this standard, the SEC has approved various exchanges’ proposals to offer proprietary feeds. See, e.g., Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving Proposed Rule Change to Establish Fees for NYSE Trades, 74 Fed. Reg. 13,293 (Mar. 26, 2009). At the same time, it has instituted enforcement proceedings against exchanges for providing proprietary data feeds that are not in compliance with SEC rules. See, e.g., N.Y. Stock Exch. LLC, Exchange Act Release No. 34-67857, 104 SEC Docket 2455, 2012 WL 4044880 (Sept. 14, 2012) (settled action). According to plaintiffs, because these proprietary feeds are cost prohibitive for ordinary investors ■ like plaintiffs, HFT firms receive more information at a faster rate and so are able trade on information earlier, which allows them to successfully “front-run” other market participants. Plaintiffs allege that, as a result, ordinary investors are greatly disadvantaged.