Consolidated Tape Association; Order Disapproving the Thirty-Seventh Substantive Amendment to the Second Restatement of the CTA Plan and the Twenty-Eighth Substantive Amendment to the Restated CQ Plan

I. Introduction

On November 5, 2021, the Participants in the Second Restatement of the Consolidated Tape Association (“CTA”) Plan and the Restated Consolidated Quotation (“CQ”) Plan (collectively “CTA/CQ Plans” or “Plans”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 11A of the Securities Exchange Act of 1934 (“Act”) and Rule 608 of Regulation National Market System (“NMS”) thereunder, a proposal (the “Proposed Amendments”) to amend the Plans to implement the non-fee-related aspects of the Commission's Market Data Infrastructure Rules (“MDI Rules”). The Proposed Amendments were published for comment in the Federal Register on November 29, 2021.

On February 24, 2022, the Commission instituted proceedings pursuant to Rule 608(b)(2)(i) of Regulation NMS, to determine whether to approve or disapprove the Proposed Amendments or to approve the Proposed Amendments with any changes or subject to any conditions the Commission deems necessary or appropriate after considering public comment. On May 19, 2022, pursuant to Rule 608(b)(2)(i) of Regulation NMS, the Commission extended the period within which to conclude proceedings regarding the Proposed Amendments to July 27, 2022, and on July 21, 2022, the Commission further extended the period within which to conclude proceedings regarding the Proposed Amendments to September 25, 2022.

This order disapproves the Proposed Amendments.

II. Overview

Pursuant to Regulation NMS and the Equity Data Plans, the national securities exchange and national securities associations (“self-regulatory organizations” or “SROs”) must provide certain information with respect to quotations for and transactions in NMS stocks (“NMS information”) to an exclusive plan securities information processor (“exclusive SIP”), which consolidates the NMS information and makes it available to market participants on the consolidated tapes. The purpose of the Equity Data Plans is to facilitate the collection and dissemination of SIP data so that the public has ready access to a “comprehensive, accurate, and reliable source of information for the prices and volume of any NMS stock at any time during the trading day.” Because the infrastructure for the collection, consolidation, and dissemination of this data had not been significantly updated since its initial implementation in the 1970s, the Commission adopted amendments to Regulation NMS that increase the content of NMS information and amend the manner in which such NMS information is collected, consolidated, and disseminated by the Equity Data Plans. In the MDI Rules Release, the Commission stated, “[t]he widespread availability of timely market information promotes fair and efficient markets and facilitates the ability of brokers and dealers to provide best execution to their customers.”

The MDI Rules increase the content of NMS information and modify the manner in which NMS information is collected, consolidated, and disseminated. Significantly, under the MDI Rules, the Commission required the introduction of a competitive decentralized consolidation model under which competing consolidators and self-aggregators will replace the exclusive SIPs that collect, consolidate, and disseminate equity market data under the Equity Data Plans. Although the exclusive SIPs will no longer disseminate consolidated information for an individual NMS stock, the Equity Data Plans will continue to play an important role—they will develop and propose fees for the data content underlying consolidated market data, collect and allocate revenues collected for this data, develop the monthly performance metrics for competing consolidators, and provide an annual assessment of competing consolidator performance.

Rule 614(e) of Regulation NMS requires the participants of the effective national market system plan(s) for NMS stocks to file an amendment pursuant to Rule 608 of Regulation NMS to conform the plan(s) to the decentralized consolidation model. Specifically, Rule 614(e)(1) directs the participants to file an amendment to conform the plan(s) to reflect the provision of information with respect to quotations for and transactions in NMS stocks that is necessary to generate consolidated market data by the SROs to competing consolidators and self-aggregators. The Proposed Amendments were filed by the Participants pursuant to this requirement.

As explained below, however, the Proposed Amendments do not comply with Rule 614(e)(1) because they do not conform the Plans to reflect the provision of information with respect to quotations for and transactions in NMS stocks that is necessary to generate consolidated market data by the SROs to competing consolidators and self-aggregators. For example, inconsistent with the decentralized consolidation model and with the requirements of Rule 614(e), the Proposed Amendments: (1) amend the Plans to reflect that they will disseminate consolidated market data to competing consolidators and self-aggregators, even though the Plans will not be disseminating any consolidated market data; (2) fail to amend the CTA Plan to require the individual Participants to disseminate data necessary to generate consolidated market data to competing consolidators and self-aggregators; (3) fail to distinguish competing consolidators from vendors and subscribers; (4) fail to amend the Plans to reflect that the Processors will no longer have the responsibility to disseminate regulatory halt notices once the decentralized consolidation model has been implemented; (5) fail to include requirements for the Participants to timestamp every element of data necessary to generate consolidated market data; and (6) fail to amend the Plans to remove references to a single processor.

Because the Proposed Amendments are inconsistent with the MDI Rules, specifically Rule 614(e), the Commission must disapprove the Proposed Amendments under Rule 608(b)(2) of Regulation NMS because it cannot find that they are necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act.

III. Summary of the Proposed Amendments

The Participants propose to amend the Plans to comply with Rule 614(e) of the MDI Rules. Under Rule 614(e), participants to the effective national market system plan(s) for NMS stocks were required to file by November 5, 2021, an amendment with the Commission that includes each of the requirements of Rule 614(e)(1)-(5).

Specifically, Rule 614(e)(1) requires the amendment to conform the effective national market system plan(s) for NMS stocks to reflect that, under the decentralized consolidation model, the national securities exchange and national securities association participants will provide to competing consolidators and self-aggregators the information, with respect to quotations for and transactions in NMS stocks, that is necessary to generate consolidated market data.

Rule 614(e)(2) requires the amendment to include the application of timestamps by the national securities exchange and national securities association participants on all information with respect to quotations for and transactions in NMS stocks that is necessary to generate consolidated market data, including the time that such information was generated as applicable by the national securities exchange or national securities association and the time the national securities exchange or national securities association made such information available to competing consolidators and self-aggregators.

Rule 614(e)(3) requires the amendment to include assessments of competing consolidator performance, including speed, reliability, and cost of data provision and the provision of an annual report of such assessment to the Commission.

Rule 614(e)(4) requires the amendment to include the development, maintenance, and publication of a list that identifies the primary listing exchange for each NMS stock.

Rule 614(e)(5) requires the amendment to include the calculation and publication on a monthly basis of consolidated market data gross revenues for NMS stocks as specified by (i) listed on the NYSE; (ii) listed on Nasdaq; and (iii) listed on exchanges other than NYSE or Nasdaq.

The following is a summary of the changes proposed to be made to the Plans by the Proposed Amendments.

CTA Plan Proposed Amendments

Preface

Under the Proposed Amendments, the CTA Plan would include the following new provision: “Terms used in this plan have the same meaning as the terms are defined in Rule 600(b) under the Act.”

Section I.—Definitions

The Proposed Amendments add, as Section I.(x), a definition of “Primary Listing Exchange,” which means “the national securities exchange on which an Eligible Security is listed.” The proposed definition further states, “[i]f an Eligible Security is listed on more than one national securities exchange, Primary Listing Exchange means the exchange on which the security has been listed the longest.”

Section IV.—Administration of the CTA Plan

The Proposed Amendments add new Section IV.(e), Plan website Disclosures, requiring CTA to publish on the CTA Plan's website the Primary Listing Exchange for each Eligible Security, and, on a monthly basis, the consolidated market data gross revenues for Eligible Securities as specified by Tape A and Tape B securities. The Participants explain that this addition is intended to comply with Rule 614(e)(4) and Rule 614(e)(5)(i) and (iii).

Section V.—The Processor and Competing Consolidators

The Proposed Amendments amend the title of Section V. to include competing consolidators, such that it is now titled “The Processor and Competing Consolidators,” and to add new Section V.(f), Evaluation of Competing Consolidators, to require the Operating Committee to assess the performance of competing consolidators on an annual basis and to submit an annual report to the Commission containing that assessment. The Proposed Amendments require this annual report to include an analysis with respect to competing consolidators' speed, reliability, and cost of data provision. The Participants explain that these changes are intended to comply with the requirements of Rule 614(e)(3).

In addition, the Proposed Amendments require the Operating Committee, in conducting the analysis, to review the monthly performance metrics to be published by competing consolidators pursuant to Rule 614(d)(5). Rule 614(d)(5) requires competing consolidators to publish on their websites monthly performance metrics as defined by the effective national market system plan(s) for NMS stocks. The Proposed Amendments add the following monthly performance metrics to this section:

(i) Capacity statistics, including system tested capacity, system output capacity, total transaction capacity, and total transaction peak capacity;

(ii) Message rate and total statistics, including peak output rates on the following bases: 1-millisecond, 10-millisecond, 100-millisecond, 500-millisecond, 1-second, and 5-second;

(iii) System availability statistics, including system up-time percentage and cumulative amount of outage time;

(iv) Network delay statistics, including quote and trade zero window size events, quote and trade retransmit events, and quote and trade message total; and

(v) Latency statistics, including distribution statistics up to the 99.99th percentile, for the following:

(A) When a Participant sends an inbound message to a competing consolidator and when the competing consolidator receives the inbound message;

(B) When the competing consolidator receives the inbound message and when the competing consolidator sends the corresponding consolidated message to a customer of the competing consolidator; and

(C) When a Participant sends an inbound message to a competing consolidator and when the competing consolidator sends the corresponding consolidated message to a customer of the competing consolidator.

The Participants explain that they have proposed to amend Section V. to define the monthly performance metrics in accordance with Rule 614(d)(5).

Section VI.—Consolidated Tape

The Proposed Amendments amend Section VI.(c), Reporting Format and Technical Specifications, to include a reference to competing consolidators and self-aggregators such that last sale price information relating to a completed transaction in an Eligible Security reported to competing consolidators and self-aggregators by any Participant or other reporting party shall be in the format required in Section VI.(c).

In addition, the Proposed Amendments amend Section VI.(c) to delete from the required format the time of the transaction (reported in microseconds) as identified in the Participant's matching engine publication timestamp, and to replace it with the time the last sale price information was generated by the Participant (reported in microseconds). Furthermore, the Proposed Amendments amend Section VI.(c) to add to the required format, with respect to reports to competing consolidators and self-aggregators, the time the Participant made the last sale price information available to competing consolidators and self-aggregators (reported in microseconds). The Participants explain that the proposed references to competing consolidators and self-aggregators and the proposed requirement to report in microseconds the time that a Participant made the last sale price information available to competing consolidators and self-aggregators are intended to comply with Rule 614(e)(1) and (2).

With respect to FINRA, the Proposed Amendments amend a statement in Section VI.(c) that the time of the transaction shall be the time of execution that a FINRA member reports to a FINRA trade reporting facility in accordance with FINRA rules. The Proposed Amendments amend this statement to state that the time the last sale price information was generated by a Participant shall be the time that a FINRA member reports to a FINRA trade reporting facility in accordance with FINRA rules. The Proposed Amendments also add references to competing consolidators and self-aggregators such that—if FINRA's trade reporting facility provides a proprietary feed of trades reported by the trade reporting facility to the Processor, competing consolidators, and self-aggregators—the FINRA trade reporting facility shall also furnish the Processor, competing consolidators, and self-aggregators with the time of the transmission as published on the facility's proprietary feed.

The Proposed Amendments also delete Section VI.(g), ITS Transactions, which concerns last sale prices reflecting ITS transactions. The Participants explain that they are proposing to remove this provision because the ITS is obsolete.

Section VIII. Collection and Reporting of Last Sale Data

The Proposed Amendments amend Section VIII.(a), Responsibility of Exchange Participants, to remove a list of exchange participants and the requirement that each collect and report to the Processor all last sale price information to be reported to it relating to transactions in Eligible Securities taking place on its floor. The Proposed Amendments amend this statement to state that each Participant agrees to collect and report to the Processor all last sale price information to be reported by it relating to transactions in Eligible Securities.

The Proposed Amendments also add to the CTA Plan a statement that “[e]ach Participant further agrees to collect and report to Competing Consolidators and Self-Aggregators all last sale price information to be reported to it related to transactions in Eligible Securities in the same manner and using the same methods, including all methods of access and the same format, as such Participant makes available any information with respect to quotations for and transactions in Eligible Securities to any person.” In addition, the Proposed Amendments amend Section VIII.(b), FINRA Responsibility, to add references to competing consolidators and self-aggregators such that the provision states: “The FINRA shall develop and adopt rules governing the reporting of last sale price information to be reported by its members to both the Processor for inclusion on the consolidated tape and to Competing Consolidators and Self-Aggregators. Such rules shall . . . (ii) be designed to avoid duplicate reporting of transactions on the consolidated tape or to Competing Consolidators and Self Aggregator. . . .” The Participants explain that these additions are designed to comply with Rule 614(e)(1).

Finally, the Proposed Amendments delete Section VIII.(c), Description of Reporting Procedures, which states that each Participant and each other reporting party has prepared and submitted to CTA and the Commission a description of the procedures by which it collects and reports to the Processor last sale price information reported by it pursuant to the CTA Plan. The Participants explain that this provision is no longer relevant under the MDI Rules.

Section IX.—Receipt and Use of CTA Information

In Sections IX.(a), Requirements for Receipt and Use of Information, (b), Approvals of Redisseminators and Terminations of Approvals, and (c), Subscriber Terminations, the Proposed Amendments replace several references to “each CTA network's information,” “a CTA network's information,” “that CTA network's information,” and “that CTA network's last sale price information” with the term “consolidated market data.”

The Proposed Amendments also amend Section IX.(a) to include references to competing consolidators and self-aggregators. Proposed Section IX.(a) states that, “[p]ursuant to fair and reasonable terms and conditions, each CTA network's administrator shall provide for: (i) the dissemination of consolidated market data on terms that are not unreasonably discriminatory to Competing Consolidators, Self-Aggregators, vendors, newspapers, Participants, Participant members and member organizations, and other persons over that network's ticker and over the high speed line; and (ii) the use of consolidated market data by Competing Consolidators, Self-Aggregators, vendors, subscribers, newspapers, Participants, Participant members and member organizations and other persons.” Additionally, the section now states that each CTA network's Participants will determine the terms and conditions applying in respect of a particular manner of receipt or use of consolidated market data, including whether the manner of receipt or use will require recipients or users to enter into agreements with the CTA network's administrator, and that these determinations will be made in a reasonably uniform manner to subject all parties that receive or use consolidated market data in a particular manner to terms and conditions that are substantially similar.

In addition, the Proposed Amendments amend Section IX.(a) to state that the Participants expect their CTA network's administrator to require the following parties to enter into agreements with the CTA network administrator: (i) any party that receives a CTA network's information by means of a direct computer-to-computer interface with the Processor or competing consolidator; (ii) any competing consolidator or self-aggregator that receives last sale transaction information directly from a Participant for the purpose of creating consolidated market data; (iii) vendors and other parties that redisseminate consolidated market data to others; and (iv) persons that use consolidated market data for such purposes as that CTA network's administrator may from time to time identify.

The Participants explain that the proposed revisions to Section IX.(a) are intended to make clear that the current market data contracts regarding the receipt of market data will be applicable to competing consolidators and self-aggregators. The Participants state that the change is consistent with Rule 614(e)(1) and is necessary because competing consolidators and self-aggregators would be receiving and using consolidated market data and should be subject to the same contracts applicable to vendors and subscribers.

The Proposed Amendments amend Section XI.(b), Approvals of Redisseminators and Terminations of Approvals, to state that all vendors and other parties that redisseminate consolidated market data (“data redisseminators”) shall be required to be approved by a CTA network's administrator. Additionally, the Proposed Amendments amend Section XI.(c), Subscriber Terminations, to state that a CTA network's administrator may determine that circumstances warrant directing a data redisseminator to cease providing consolidated market data to a subscriber, and that the CTA network's Participants may direct the data redisseminator to cease providing consolidated market data to the subscriber if a majority of those Participants determine that (i) such action is necessary or appropriate in the public interest or for the protection of investors, or (ii) the subscriber has breached any agreement required by the CTA network's administrator pursuant to Section IX.

Section XI.—Operational Matters

The Proposed Amendments delete from Section XI.(a), Regulatory and Operational Halts, the definition of “Primary Listing Market” in Section XI.(a)(i)(H) and the definition of “Trading Center” in Section XI.(a)(i)(N).

The Proposed Amendments add a reference to competing consolidators and self-aggregators to Section XI.(a)(ii), Operational Halts, to state that a Participant shall notify competing consolidators and self-aggregators if it has concerns about its ability to collect and transmit quotes, orders, or last sale prices, or where the Participant has declared an Operational Halt or suspension of trading in one or more Eligible Securities, pursuant to the procedures adopted by the Operating Committee. In addition, the Proposed Amendments add a reference to competing consolidators and self-aggregators to Section XI.(a)(viii), Communications, to require a Primary Listing Exchange for an Eligible Security to notify competing consolidators and self-aggregators if it determines to initiate a Regulatory Halt.

The Proposed Amendments also replace references to “Primary Listing Market” with “Primary Listing Exchange” throughout Section XI.

The Participants state that their revisions to Section XI to include references to notifying competing consolidators and self-aggregators in connection with Regulatory and Operational Halts are consistent with Rule 614(e)(1) and would ensure that competing consolidators and self-aggregators are notified of information related to Regulatory and Operational Halts and that competing consolidators can disseminate this information to their customers.

CQ Plan Proposed Amendments

Preface

Under the Proposed Amendments, the CQ Plan would include the following new provision: “Terms used in this plan have the same meaning as the terms are defined in Rule 600(b) under the Act.”

Section I.—Definitions

The Proposed Amendments define “Primary Listing Exchange” in Section I.(v) to mean “the national securities exchange on which an Eligible Security is listed.” The proposed definition further states, “[i]f an Eligible Security is listed on more than one national securities exchange, Primary Listing Exchange means the exchange on which the security has been listed the longest.”

The Proposed Amendments amend the definition of “Quotation Information” in Section I.(x) (formerly, Section I.(w)) to change a reference to “consolidated BBO” to “NBBO,” such that Quotation Information now means, among other things, “(iii) each NBBO contained in the foregoing information and any identifier associated therewith. . . .”

Section IV.—Administration of this CQ Plan

The Proposed Amendments add new Section IV.(d), Plan website Disclosures, requiring the Operating Committee to publish on the CQ Plan's website the Primary Listing Exchange for each Eligible Security and, on a monthly basis, the consolidated market data gross revenues for Eligible Securities as specified by Tape A and Tape B securities. The Participants explain that this addition is intended to comply with Rule 614(e)(4) and Rule 614(e)(5)(i) and (iii).

Section V.—The Processor and Competing Consolidators

The Proposed Amendments amend the title of Section V. to include competing consolidators, such that it is now titled “The Processor and Competing Consolidators,” and to add new Section V.(f), Evaluation of Competing Consolidators, to require the Operating Committee to assess the performance of competing consolidators on an annual basis and to submit an annual report to the Commission containing the assessment. The Proposed Amendments require this annual report to include an analysis with respect to competing consolidators' speed, reliability, and cost of data provision. The Participants explain that these changes are intended to comply with the requirements of Rule 614(e)(3).

In addition, the Proposed Amendments require the Operating Committee, in conducting the analysis, to review the monthly performance metrics to be published by competing consolidators pursuant to Rule 614(d)(5). Rule 614(d)(5) requires competing consolidators to publish on their websites monthly performance metrics as defined by the effective national market system plan(s) for NMS stocks. The Proposed Amendments add the following monthly performance metrics to this section:

(i) Capacity statistics, including system tested capacity, system output capacity, total transaction capacity, and total transaction peak capacity;

(ii) Message rate and total statistics, including peak output rates on the following bases: 1-millisecond, 10-millisecond, 100-millisecond, 500-millisecond, 1-second, and 5-second;

(iii) System availability statistics, including system up-time percentage and cumulative amount of outage time;

(iv) Network delay statistics, including quote and trade zero window size events, quote and trade retransmit events, and quote and trade message total; and

(v) Latency statistics, including distribution statistics up to the 99.99th percentile, for the following:

(A) When a Participant sends an inbound message to a competing consolidator and when the competing consolidator receives the inbound message;

(B) When the competing consolidator receives the inbound message and when the competing consolidator sends the corresponding consolidated message to a customer of the competing consolidator; and

(C) When a Participant sends an inbound message to a competing consolidator and when the competing consolidator sends the corresponding consolidated message to a customer of the competing consolidator.

Section VI.—Collection and Reporting of Quotation Information

The Proposed Amendments amend Section VI.(a), Responsibilities of Participants, to state, “Each Participant agrees to collect, and furnish to the Processor in a format acceptable to the Operating Committee, all quotation information required to be made available by such Participant by Rules [sic] 602(b)(1) of Regulation NMS. Each Participant further agrees to collect and report to Competing Consolidators and Self Aggregators all quotation information required to be made available by such Participant by Rule 603(b) of Regulation NMS, including all data necessary to generated consolidated market data.”

In addition, under the Proposed Amendments, Section VI.(a) states that each bid and offer with respect to an Eligible Security furnished to the Processor, competing consolidators, and self-aggregators by any Participant pursuant to the Plan would be accompanied by (i) the information required by Rules 602(b)(1) or 603(b) of Regulation NMS, as applicable, and (ii) the time of the bid or offer as identified by: (A) in the case of a national securities exchange, the reporting Participant's matching engine publication timestamp (reported in microseconds); or (B) in the case of a national securities association, the quotation publication timestamp that the association's bidding or offering member reports to the association's quotation facility in accordance with FINRA rules. Each bid and offer with respect to an Eligible Security furnished to competing consolidators and self-aggregators by any Participant must be accompanied by the time (reported in microseconds) the Participant made the bid and offer available to competing consolidators and self-aggregators.

With respect to national securities associations, under the Proposed Amendments, if a national securities association quotation facility provides a proprietary feed of its quotation information, then the quotation facility shall also furnish the Processor, competing consolidators, and self-aggregators with the time of the quotation as published on the quotation facility's proprietary feed, and the national securities association shall convert any quotation times reported to it in seconds or milliseconds to microseconds and shall furnish such times to the Processor, competing consolidators, and self-aggregators in microseconds. Additionally, Section VI.(a), as proposed to be amended, states, “Each bid and offer with respect to an Eligible Security made by a broker or dealer otherwise than on the floor of an exchange and furnished to the Processor, Competing Consolidators, and Self-Aggregators by any Participant which is a national securities association shall, at the time furnished, be accompanied by an appropriate symbol designated by the Operating Committee identifying such broker or dealer as required by paragraph (b)(i) of the Rule.”

The Proposed Amendments also amend Section VI.(b), Timeliness of Reporting, to add the following requirement: “Each Participant further agrees to furnish quotation information, and changes in any such information, to the Competing Consolidator[s] and Self-Aggregators in the same manner and using the same methods, including all methods of access and the same format, as such Participant makes available any information with respect to quotations for and transactions in NMS stocks to any person.” The Participants explain that this addition is designed to comply with the requirements of Rule 614(e)(1).

In addition, the Proposed Amendments would amend Section VI.(c), High Speed Line and Market Identifiers, to remove a reference to an “ITS/CAES BBO” as excepted from the requirement that each bid or offer with respect to an Eligible Security furnished to the processor by a Participant that is a national securities association shall be accompanied by the symbol identifying the broker or dealer who was reported to the Processor as having made such bid or offer otherwise than on the floor of an exchange. The Participants explain that they propose to remove this reference because references to ITS/CAES are outdated.

The Proposed Amendments also amend Section VI.(e), Unusual Market Conditions, to include references to competing consolidators and self-aggregators and to remove a reference to Rule 602(b)(1) and replace it with a reference to Rules 601(b)(1) and 603(b) of Regulation NMS. The Proposed Amendments also remove a reference to vendors in Section VI.(e).

Finally, the Proposed Amendments delete Section VI.(f), Description of Reporting Procedures, which requires each Participant and each other reporting party to prepare and submit to the Operating Committee and the Processor a description of the procedures by which it intends to comply with its obligations under the CQ Plan. The Participants explain that the provisions of Section VI.(f) are no longer relevant.

Section VII.—Receipt and Use of Quotation Information

In Sections VII.(a), Requirements for Receipt and Use of Information, (b), Approvals of Redisseminators and Terminations of Approvals, and (c), Subscriber Terminations, the Proposed Amendments replace several references to a “CQ network's quotation information” with the term “consolidated market data.”

The Proposed Amendments would also amend Section VII.(a) to include references to competing consolidators and self-aggregators such that, pursuant to fair and reasonable terms and conditions, each network's administrator shall provide for: (i) the dissemination of each CQ network's quotation information on terms that are not unreasonably discriminatory to competing consolidators and self-aggregators; and (ii) the use of that CQ network's quotation information by competing consolidators and self-aggregators.

In addition, the Proposed Amendments would amend Section VII.(a) to state that the Participants in both CQ networks expect that their network's administrator will require the following parties to enter into agreements with the network's administrator: (i) any party that receives consolidated market data by means of a direct computer-to-computer interface with the Processor or competing consolidators; (ii) any competing consolidator or self-aggregator that receives quotation information directly from a Participant for the purpose of creating consolidated market data; (iii) vendors and other parties that redisseminate consolidated market data; and (iv) persons that use consolidated market data for such purposes as the CQ network's administrator may from time to time identify.

The Participants explain that the proposed revisions intend to make clear that the current market data contracts regarding the receipt of market data will be applicable to competing consolidators and self-aggregators. The Participants state that the change is consistent with Rule 614(e)(1) and is necessary, stating that competing consolidators and self-aggregators would be receiving and using consolidated market data and should be subject to the same contracts applicable to vendors and subscribers.

The Proposed Amendments would also amend Section VII.(b), Approvals of Redisseminators and Terminations of Approvals, to state that all vendors of and other parties that redisseminate consolidated market data (“data redisseminators”) shall be required to be approved by a CTA network's administrator. Additionally, the Proposed Amendments amend Section XI.(c), Subscriber Terminations, to state that a network's administrator may determine that circumstances warrant directing a data redisseminator to cease providing consolidated market data to a subscriber, and that the CQ network's Participants may direct the data redisseminator to cease providing consolidated market data to the subscriber if a majority of those Participants determine that (i) such action is necessary or appropriate in the public interest or for the protection of investors, or (ii) the subscriber has breached any agreement required by the CTA network's administrator pursuant to Section VII.

IV. Discussion

A. The Applicable Standard of Review

Under Rule 608(b)(2) of Regulation NMS, the Commission shall approve a national market system plan or proposed amendment to an effective national market system plan, with such changes or subject to such conditions as the Commission may deem necessary or appropriate, if it finds that the plan or amendment is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act. The Commission shall disapprove a national market system plan or proposed amendment if it does not make such a finding. Furthermore, Rule 700(b)(3)(ii) of the Commission's Rules of Practice states:

The burden to demonstrate that a NMS plan filing is consistent with the Exchange Act and the rules and regulations issued thereunder that are applicable to NMS plans is on the plan participants that filed the NMS plan filing. Any failure of the plan participants that filed the NMS plan filing to provide such detail and specificity may result in the Commission not having a sufficient basis to make an affirmative finding that an NMS plan filing is consistent with the Exchange Act and the rules and regulations issued thereunder that are applicable to NMS plans.

For the reasons discussed below, the Commission does not find that the Participants have met their burden to demonstrate that the Proposed Amendments are consistent with the Act. Specifically, the Commission does not find that the Participants have demonstrated that the Proposed Amendments are consistent with either Rule 614(e) of Regulation NMS or Rule 608 of Regulation NMS. The Proposed Amendments clearly do not comply with the requirements of the MDI Rules. Accordingly, the Commission cannot make a finding that the Proposed Amendments are necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act.

B. The Requirements of the MDI Rules Regarding the Proposed Amendments

As adopted by the Commission, the MDI Rules implement a decentralized consolidation model in which competing consolidators would replace the exclusive plan processors of the Equity Data Plans as the entities responsible for disseminating consolidated market data. The MDI Rules Release provides for an “initial parallel operation period” of 180 days during which the existing exclusive SIPs for the Equity Data Plans would operate in parallel with the competing consolidators, and further provides for the transition from the initial parallel operation period to the retirement of the exclusive SIPs for equity market data:

Within 90 days of the end of the initial parallel operation period, the Operating Committee will make a recommendation to the Commission as to whether the exclusive SIPs should be decommissioned. The Commission will consider an effective national market system plan amendment to effectuate a cessation of the operations of the exclusive SIPs and, if consistent with the requirements of Rule 608 and the Exchange Act, approve such an amendment.

Pursuant to Rule 614(e)(1) of Regulation NMS, and as discussed in the MDI Rules Release, the Participants to the Plans were required to file an amendment to conform the Plans to reflect the provision of information with respect to quotations for and transactions in NMS stocks that is necessary to generate consolidated market data by the national securities exchange and national securities association participants to competing consolidators and self-aggregators.

C. Whether the Proposed Amendments Are Consistent With Rule 614(e)(1) of Regulation NMS

1. Consistency With the Decentralized Consolidation Model

Two commenters recommend disapproval of the Proposed Amendments because the amendments do not properly conform the Plans to the MDI Rules in that the amendments fail to accurately reflect the decentralized consolidation model. One commenter states, “[t]he MDI rule represents a fundamental shift to a decentralized consolidation model. The Plan amendments need to reflect that throughout the body and exhibits of the Plans.” The commenter also states that the Proposed Amendments did not include any revisions to the exhibits, stating that Exhibit A to the current version of the CTA Plan (“Restated Articles of Association of Consolidated Tape Association”) “does not reflect the shifting purpose of the Plan to provide underlying content for the creation of consolidated market data,” and argues that the Proposed Amendments must “[a]cknowledge that the Plan is no longer responsible for the creation, distribution and pricing of consolidated market data.”

This commenter further argues that “[t]he language of the Plan Amendments that states that competing consolidators and self-aggregators will be receiving and using consolidated market data is inconsistent with their role in actually generating consolidated market data based on the receipt of NMS information,” and reiterates that only competing consolidators would externally distribute and charge for consolidated market data and that the Plans would only be selling underlying content. This commenter also disagrees with what it describes as the Proposed Amendments' treatment of competing consolidators as vendors. The commenter states that “[s]ubjecting competing consolidators to the same fees and contractual requirements as data vendors and subscribers that receive consolidated market data from the exclusive SIP fails to recognize that competing consolidators are SIPs and not similarly situated to today's data vendors.” The commenter further states that competing consolidators will take on added risk and expense, “including the costs associated with generating consolidated market data, disclosing operational and performance metrics, registering with the SEC, and ongoing compliance with Rule 614.”

Another commenter also argues that the Proposed Amendments' treatment of competing consolidators as market data vendors contravenes the MDI Rules. This commenter argues that the Commission's MDI Rules replace the exclusive SIPs with competing consolidators and that competing consolidators should therefore be “treated in the same manner as the exclusive SIPs are today.” This commenter states that the Participants are, through the Proposed Amendments, “acting in an unreasonably discriminatory manner, effectively disregarding these Exchange Act mandates in addition to the Commission's directive in the Infrastructure Rule.”

One commenter argues that the sections of the Plans that discuss vendors' and subscribers' contractual relationships with the Plans should be “removed or significantly altered to reflect that the Plans no longer have agreements with vendors and end users and instead have agreements with the competing consolidators and self-aggregators related specifically to the cost of content underlying core market data.” This commenter states that “the relationship between competing consolidators and their customers should not include a contractual relationship with the plan” because vendors would be receiving consolidated market data from competing consolidators rather than from the Plans. The commenter also states that contracts applicable to vendors would be inappropriate for competing consolidators because, unlike vendors, competing consolidators would be receiving data underlying consolidated market data from the exchanges, not consolidated market data from the exclusive SIPs. This commenter also objects to the continued references to subscribers and vendors in the Plans as recipients of data from the Processor, arguing that under the decentralized consolidation model, “only competing consolidators would sell consolidated market data to vendors and subscribers.”

One commenter objects to the retention of the concept of a single processor in the Proposed Amendments. Another commenter also states that “it is worth noting that the Plans do not reflect the decentralized consolidation model nor do they acknowledge the parallel period.” This commenter requests clarification of how the CTA and CQ Plans will operate during the parallel operation period, such as the inclusion in the Plans of objective criteria for ending the parallel period and the addition of a section devoted to competing consolidators and self-aggregators to help distinguish between their obligations and the obligations of the exclusive SIPs during the parallel period. The commenter recommends that the Proposed Amendments clarify that all content underlying consolidated market data will be provided to competing consolidators and self-aggregators and provide validation procedures to be followed by competing consolidators. The commenter also suggests specific modifications to CTA Plan Sections V. and VI. to make clear that the functions of the Processor apply only during the parallel operation period and to embed in the body of the Plans the contractual terms regarding the provision of capacity forecasts to competing consolidators, data correction requirements, and indemnification (of competing consolidators from Participants) from CQ Plan Exhibit A and CTA Plan Exhibit B.

The Participants submitted a comment letter in which they argue that maintaining the exclusive SIPs through the parallel operation period is consistent with the MDI Rules Release, stating:

[P]ursuant to the phased transition period set forth in the MDI Rules Release, the Plans must operate a parallel operation period during which the decentralized consolidation model introduced by the MDI Rules will run in parallel to the existing exclusive SIP model. . . . After completion of the parallel operation period, the Plans are required to submit an amendment to effectuate a cessation of the operations of the exclusive SIPs, which would include removing references of the exclusive SIPs from the text of the Plans.

The Participants also maintain that the exclusive SIPs will continue to provide market data under the current Equity Data Plans during the parallel operation period and that the inclusion of the exclusive SIPs in the Equity Data Plans (as provided for in the Proposed Amendments) until the submission of a further amendment after the parallel operation period is consistent with the MDI Rules Release.

The Commission agrees with the commenters who argue that the Proposed Amendments do not properly conform the Plans to the decentralized consolidation model. First, under the MDI Rules, the SROs are required to make available to competing consolidators and self-aggregators the data necessary to generate consolidated market data, and competing consolidators and self-aggregators will then generate consolidated market data, rather than receive consolidated market data from the Plans. The Participants, however, propose to amend the Plans to provide for the dissemination of consolidated data to competing consolidators and self-aggregators. This is not consistent with the decentralized consolidation model.

Specifically, Rule 614(d) provides that competing consolidators shall collect any information with respect to quotations for and transactions in NMS stocks as provided in Rule 603(b) that is necessary to create a consolidated market data product from each national securities exchange and national securities association, calculate and generate a consolidated market data product, and make the consolidated market data product available to subscribers. Self-aggregators will receive information with respect to quotations for and transactions in NMS stocks, including all data necessary to generate consolidated market data, and generate consolidated market data solely for their internal use. Additionally, pursuant to Rule 603(b), the Participants shall make available to all competing consolidators and self-aggregators “all data necessary to generate consolidated market data.” Accordingly, the Plans' modified role under the decentralized consolidation model will be to develop and file with the Commission the fees associated with the underlying data, to collect and allocate revenues for that data, to develop monthly performance metrics for competing consolidators, and to provide an annual assessment of competing consolidator performance. Therefore, the Proposed Amendments impermissibly provide for the dissemination by the Plans of consolidated market data to competing consolidators and self-aggregators, which is inconsistent with Rule 603(b), which requires the Participants to make available the data necessary to generate consolidated market data to competing consolidators and self-aggregators so that, pursuant to Rule 614(d), those entities can generate consolidated market data themselves.

Second, while Rule 603(b) requires national securities exchanges and associations on which an NMS stock is traded to make available to all competing consolidators and self-aggregators their information with respect to quotations for and transactions in NMS stocks, including all data necessary to generate consolidated market data, the Proposed Amendments do not add this requirement to the CTA Plan. Instead, the Proposed Amendments add to the CTA Plan a requirement that each Participant agrees to collect and report to competing consolidators and self-aggregators all “last sale price information”—not all data necessary to generate consolidated market data. Last sale price information is but one component of “core data” adopted by the MDI Rules, and core data is itself only one component of consolidated market data. Rule 603(b) requires the Participants to make available all data necessary to generate consolidated market data to competing consolidators and self-aggregators, not just last sale price information.

Third, under the Proposed Amendments, the Plans would treat competing consolidators in the same manner as vendors and subscribers with respect to market data contracts. Under Rule 600(b)(16), a competing consolidator is, by definition, either a SIP required to register under Rule 614 or an SRO. The Participants, however, would apply current market data contracts for vendors and subscribers to competing consolidators and self-aggregators, arguing that this “is necessary since the Competing Consolidators and Self-Aggregators will [sic] receiving and using consolidated market data, and any such party should be subject to the same contracts applicable to vendors and subscribers.”

The Commission agrees with the commenters who argue that applying contract provisions for vendors and subscribers to competing consolidators is inconsistent with the MDI Rules, because unlike vendors and subscribers, competing consolidators will not receive consolidated market data from the Plans. Instead, as replacements for the exclusive SIPs, competing consolidators will generate consolidated market data themselves and disseminate it to subscribers. In the MDI Rules Release, the Commission clearly distinguished competing consolidators from vendors. For example, the Commission explained that only entities that receive information with respect to quotations for and transactions in NMS stocks directly from an SRO pursuant to an effective national market systems plan and that generate consolidated market data products for dissemination must register as competing consolidators. By comparison, the Commission stated, “[a] market data vendor that purchases proprietary data feeds from an SRO or SROs, or that purchases data from a competing consolidator, and aggregates and disseminates such data to its customers, will not be required to register as a competing consolidator,” but “vendors that do not register as competing consolidators would not be permitted to purchase the NMS information necessary to generate consolidated market data from the SROs at prices established by an effective national market system plan.”

Fourth, the Proposed Amendments are inconsistent in certain other ways with the decentralized consolidation model provided for in the MDI Rules. Under the decentralized consolidation model, the primary listing exchanges will be required to collect, calculate, and make available regulatory data, which includes information relating to regulatory halts, to competing consolidators and self-aggregators in accordance with the definition of “regulatory data” in Rule 600(b)(78). ¹⁰⁶ The Proposed Amendments, however, do not reflect this requirement with respect to regulatory data. For example, the Proposed Amendments fail to amend the CTA and CQ Plans to reflect that the Processors will no longer have the responsibility to disseminate regulatory halt notices once the decentralized consolidation model has been implemented.

The Proposed Amendments also do not include requirements for the Participants to timestamp every element of data necessary to generate consolidated market data. Rule 614(e)(2) requires the application of timestamps by the Participants on all information with respect to quotations for and transactions in NMS stocks that is necessary to generate consolidated market data, including the time that such information was generated by the Participant and the time the Participant made such information available to competing consolidators and self-aggregators. While the Proposed Amendment to the CTA Plan requires that a Participant that reports last sale price information to competing consolidators and self-aggregators timestamp in microseconds the time the Participant generated the last sale price information and made the last sale price information available to those entities, this proposed timestamp provision does not satisfy the requirements of Rule 614(e)(2), because it applies only to last sale price information, not to “all information with respect to quotations for and transactions in NMS stocks that is necessary to generate consolidated market data” as required under the rule. And while the Proposed Amendment to the CQ Plan amends the section governing the collection and reporting of Quotation Information to require any Participant that furnishes bids and offers to competing consolidators and self-aggregators to timestamp the time the Participant made such bid and offer available to competing consolidators and self-aggregators, this proposed timestamp provision does not apply to “all information with respect to quotations for and transactions in NMS stocks that is necessary to generate consolidated market data.” Additionally, the Proposed Amendment to the CQ Plan states that each bid and offer furnished to competing consolidators and self-aggregators shall be accompanied by the information required by Rule 602(b)(1) or Rule 603(b), but it does not specifically require that each Participant timestamp the data necessary to generate consolidated market data upon generation and upon the time it is made available to competing consolidators and self-aggregators, as required by Rule 614(e)(2).

And finally, the Commission disagrees with the Participants' statement that the continued references to the role of the Processor in the Plans, as amended by the Proposed Amendments, comply with the MDI Rules Release's implementation schedule for parallel operation of the exclusive SIPs and the competing consolidators. Rule 614(e)(1) requires the Participants to amend the Plans to reflect the provision of information with respect to quotations for and transactions in NMS stocks that is necessary to generate consolidated market data by the SROs to competing consolidators and self-aggregators, i.e., to conform the Plans to reflect the decentralized consolidation model. However, the Proposed Amendments are not consistent with the decentralized consolidation model and do not conform to the fact that a single processor will no longer be in operation once the decentralized consolidation model has been fully implemented.

And while the MDI Rules Release contemplates the filing of a second amendment by the Plans “to effectuate a cessation of the operations of the exclusive SIPs,” the current Proposed Amendments were required to conform the Plans to reflect the provision of information with respect to quotations for and transactions in NMS stocks that is necessary to generate consolidated market data by the SROs to competing consolidators and self-aggregators, which, as discussed above, they have failed to do. Moreover, the failure of the Participants to explain in the Proposed Amendments how the Plans will function under the fully implemented decentralized consolidation model upon cessation of the exclusive SIPs not only denies market participants the opportunity to comment on those proposed provisions now, but it increases the uncertainty that firms face in determining whether to become competing consolidators or self-aggregators during the initial parallel operation period, thus hampering the implementation of the decentralized consolidation model required by the MDI Rules.

Because the Proposed Amendments clearly do not comply with the plain terms of the MDI Rules and are thus inconsistent with the requirements of Rule 614(e)(1), the Commission also does not find that the Participants have met their burden to demonstrate that the Proposed Amendments are consistent with Rule 608 as necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act.

2. Technical Comments

One commenter criticizes the failure of the Proposed Amendments to incorporate the definitions of the MDI Rules. This commenter states, “[t]he definitions in each of the Plans should be updated to reflect the decentralized consolidation model. It is insufficient to simply refer to Rule 600(b), in large part because there seems to be confusion within the Plans as to the role of competing consolidators, self-aggregators, the exclusive SIPs and vendors.” Specifically, this commenter suggests that the Proposed Amendments add definitions of the following terms: competing consolidator, self-aggregator, consolidated market data, content underlying consolidated market data, initial parallel period, and parallel period, as well as a definition of the content that would be disseminated by the exclusive SIP to the Plans. This commenter also suggests updating the existing definitions of Processor, System, and Consolidated Quotation System, and clarifying the existing definitions of Subscriber, Vendor, and the CQ Network's Quotation Information to reflect the decentralized consolidation model.

This commenter also describes several other technical criticisms of the Proposed Amendments. The commenter states that the Proposed Amendments should have removed the addition of a new SRO participant from the Plans' ministerial amendment list, arguing that competing consolidators and self-aggregators would need more time to update their systems to handle the new Participant's data. The commenter also states that the Proposed Amendments need to support the timestamps required by the MDI Rules to the microsecond, and that validation procedures to be used by competing consolidators need to be added to the Plans to describe the Participants' and the competing consolidator's obligations. The commenter further suggests that the Plans' capacity planning process needs to apply to competing consolidators and self-aggregators so that these entities can meet SRO-expected capacity requirements. Finally, the commenter states that the Plans' conflict of interest and confidentiality provisions need to apply to competing consolidators since they will be replacing the exclusive SIPs.

The Commission agrees with the commenter that the failure to include the definitions established by the MDI Rules contributes to ambiguity within the Plans. In lieu of incorporating the MDI Rules' definitions, the Proposed Amendments add a statement to each Plan that “[t]erms used in this plan have the same meaning as the terms defined in Rule 600(b) under the Act.” This creates ambiguity because the Proposed Amendments use the terms adopted by the MDI Rules but do not include definitions of those terms, so their applicability and the obligations they create are unclear or are not reflected in the Proposed Amendments. For example, the Proposed Amendment to the CQ Plan adds a requirement for the collection and reporting of Quotation Information, stating that each Participant agrees to collect and transmit to competing consolidators and self-aggregators “all data necessary to generated [sic] consolidated market data.” However, the Proposed Amendments do not define “consolidated market data” or even the data necessary to generate it. The Plans thus fail to include an express requirement for the Participants to disseminate to competing consolidators and self-aggregators all of the elements of consolidated market data ( e.g., core data, regulatory data, and administrative data) in accordance with the definition of “consolidated market data” in Rule 600(b)(19) and Rule 603(b). The absence of that definition in the Plans, especially in light of the instances described above in which the Proposed Amendments have failed to reflect the full scope of data required to be made available to competing consolidators and self-aggregators, would lead to ambiguity about the Participants' obligations with respect to consolidated market data.

Relatedly, Rule 614(e)(2) requires the Participants to amend the Plans to apply timestamps to all information with respect to quotations for and transactions in NMS stocks that is necessary to generate consolidated market data. However, because there is no definition of “consolidated market data” in the Plans, there is thus no requirement in the language of the Plans for the Participants to timestamp the data components that constitute consolidated market data, such as the elements of core data (another definition established by the MDI Rules that the Proposed Amendments failed to include in the Plans), which include auction information, odd-lot information, and depth of book data. This is another instance in which the absence of definitions in the Plans would lead to ambiguity about the Participants' obligations with respect to consolidated market data.

In addition, as discussed above, under the MDI Rules, the primary listing exchanges are required to collect, calculate, and make available regulatory data to competing consolidators and self-aggregators in accordance with the definition of “regulatory data” in Rule 600(b)(78)(i). The Proposed Amendments, however, do not add the definition of “regulatory data” to the Plans. Therefore, there is no unambiguous requirement in the Plans that the primary listing exchanges perform these functions.

Further, the CTA Plan Proposed Amendment would require that the CTA network enter into agreements with vendors and other parties that redisseminate consolidated market data to others, without including the definition of “consolidated market data.” Also, as stated by a commenter, the MDI Rules define a competing consolidator as a securities information processor, but the Proposed Amendments fail to add the definition of “competing consolidator” the Plans. The Proposed Amendments also fail to treat competing consolidators as securities information processors, instead treating them, incorrectly, as vendors and subscribers. The failure to incorporate into the Plans the full text of the definitions established by the MDI Rules thus increases the likelihood of ambiguity.

V. Conclusion

For the reasons set forth above, the Commission finds, pursuant to Section 11A of the Act, and Rule 608(b)(2) thereunder, that the Proposed Amendments are inconsistent with the requirements of the Act and the rules and regulations thereunder applicable to an NMS plan amendment.

It is therefore ordered, pursuant to Section 11A of the Act, and Rule 608(b)(2) thereunder, that the Proposed Amendments (File No. SR-CTA/CQ-2021-02) be, and hereby are, disapproved.