[Federal Register Volume 85, Number 57 (Tuesday, March 24, 2020)]
[Proposed Rules]
[Pages 16726-16886]
[FR Doc No: 2020-03760]

Vol. 85

Tuesday,

No. 57

March 24, 2020

Part II

Securities and Exchange Commission

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17 CFR Parts 240, 242, and 249

Market Data Infrastructure; Proposed Rule

Federal Register / Vol. 85, No. 57 / Tuesday, March 24, 2020 /
Proposed Rules

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240, 242, and 249

[Release No. 34-88216; File No. S7-03-20]
RIN 3235-AM61

Market Data Infrastructure

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'' or
``SEC'') is proposing to amend 17 CFR 242, Rules 600 and 603 and to
adopt new Rule 614 of Regulation National Market System (``Regulation
NMS'') under the Securities Exchange Act of 1934 (``Exchange Act'') to
update the national market system for the collection, consolidation,
and dissemination of information with respect to quotations for and
transactions in national market system (``NMS'') stocks (``NMS
information''). Specifically, the Commission proposes to expand the
content of NMS information that is required to be collected,
consolidated, and disseminated as part of the national market system
under Regulation NMS and proposes to amend the method by which such NMS
information is collected, calculated, and disseminated by introducing a
decentralized consolidation model where competing consolidators replace
the exclusive securities information processors.

DATES: Comments should be received on or before May 26, 2020.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/proposed.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number S7-03-20 on the subject line.

Paper Comments

     Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.

    All submissions should refer to File Number S7-03-20. This file
number should be included on the subject line if email is used. To help
us process and review your comments more efficiently, please use only
one method. The Commission will post all comments on the Commission's
internet website (http://www.sec.gov/rules/proposed.shtml). Comments
are also available for website viewing and printing in the Commission's
Public Reference Room, 100 F Street NE, Washington, DC 20549-1090 on
official business days between the hours of 10:00 a.m. and 3:00 p.m.
All comments received will be posted without change; we do not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly.
    Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any materials will
be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Kelly Riley, Senior Special Counsel,
at<PHONE_NUMBER>; Ted Uliassi, Senior Special Counsel, at (202) 551-
6095; Elizabeth C. Badawy, Senior Accountant, at<PHONE_NUMBER>; Leigh
Duffy, Special Counsel, at<PHONE_NUMBER>; Yvonne Fraticelli, Special
Counsel, at<PHONE_NUMBER>; Steve Kuan, Special Counsel, at (202) 551-
5624; or Joshua Nimmo, Attorney-Advisor, at<PHONE_NUMBER>, Division of
Trading and Markets, Commission, 100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is proposing to expand the
content of NMS information that is required to be collected,
consolidated, and disseminated as part of the national market system
under Regulation NMS by proposing several new defined terms under Rule
600 of Regulation NMS, including ``consolidated market data,'' ``core
data,'' ``regulatory data,'' ``administrative data,'' and ``exchange-
specific program data.'' To implement the decentralized consolidation
model, the Commission is proposing to amend Rule 603 under Regulation
NMS to remove the requirement that all consolidated information for
individual NMS stocks be disseminated through a single plan processor
and to require each national securities exchange and national
securities association to make available its NMS information in the
same manner and using the same methods, including all methods of access
and the same format, as the exchange or association makes available any
quotation or transaction information for NMS stocks to any person. In
addition, the Commission is proposing to add new Rule 614 and a new
Form CC to govern the registration and responsibilities of competing
consolidators. Further, the Commission is proposing that the effective
national market system plan(s) for NMS stocks be amended to reflect the
decentralized consolidation model. Finally, the Commission is proposing
to amend Regulation SCI to expand the definition of ``SCI entities'' to
include competing consolidators.
    In particular, the Commission is proposing: (1) Amendments to Rule
600 [17 CFR 242.600] to add new definitions of ``administrative data,''
``auction information,'' ``competing consolidator,'' ``consolidated
market data,'' ``core data,'' ``depth of book data,'' ``exchange-
specific program data,'' ``primary listing exchange,'' ``regulatory
data,'' ``round lot,'' and ``self-aggregator;'' (2) amendments to Rule
603 [17 CFR 242.603] to require national securities exchanges and
national securities associations to make available NMS information to
competing consolidators and self-aggregators and to remove the
requirement that all consolidated information for individual NMS stocks
be disseminated through a single plan processor; (3) adoption of Rule
614 [17 CFR 242.614] and Form CC to require registration of competing
consolidators; (4) that the participants to the effective national
market system plan(s) relating to NMS stocks amend such plan(s) to
reflect the definition of ``consolidated market data'' and the
implementation of a decentralized consolidation model; (5) amendments
to Rule 1000 [17 CFR 242.1000] to include competing consolidators in
the definition of ``SCI entities;'' and (6) conforming changes and
updating cross-references in Rule 201(a)(3) [17 CFR 242.201(a)(3)],
Rule 201(b)(1)(ii) [17 CFR 242.201(b)(1)(ii)], Rule 201(b)(3) [17 CFR
242.201(b)(3)], Rule 600(b)(43) [17 CFR 242.600(b)(43)], Rule
600(b)(61) [17 CFR 242.600(b)(61)], and Rule 602 [17 CFR 242.602].

Table of Contents

I. Introduction
II. Current Market Data Infrastructure under Regulation NMS and the
Equity Data Plans
    A. Consolidated Market Data and Proprietary Data
    B. NMS Regulatory Framework
    C. Other Regulatory Data
    1. Regulation SHO
    2. Limit-Up Limit-Down Plan
    3. Market-Wide Circuit Breakers
    4. Odd-Lot Transaction Reports and Aggregated Odd-Lot Orders
III. Proposed Enhancements to NMS Information
    A. Introduction
    B. Proposed Definition of ``Consolidated Market Data''
    C. Proposed Definition of ``Core Data''
    1. Round Lot Size

    2. Depth of Book Data
    3. Auction Information
    D. Proposed Definition of ``Regulatory Data''
    1. Regulation SHO
    2. Limit Up-Limit Down Plan
    3. Market-Wide Circuit Breakers
    4. Other Regulatory Data
    E. Proposed Definition of ``Administrative Data''
    F. Proposed Definition of ``Exchange-Specific Program Data''
IV. Need for and Proposed Enhancements to Provision of Consolidated
Market Data
    A. Existing Centralized Consolidation Model
    B. Proposed Decentralized Consolidation Model
    1. Access to Data
    2. Competing Consolidators
    3. Self-Aggregators
    4. Amendment to the Effective National Market System Plan(s) for
NMS Stocks
    5. Effects on the National Market System Plan Governing the
Consolidated Audit Trail
    6. Transition Period
    C. Alternatives to the Centralized Consolidation Model
    1. Distributed SIP Alternative
    2. Single SIP Alternative
V. Paperwork Reduction Act
    A. Summary of Collection of Information
    1. Registration Requirements and Form CC
    2. Competing Consolidator Duties and Data Collection
    3. Recordkeeping
    4. Reports and Reviews
    5. Amendment to the Effective National Market System Plan(s) for
NMS Stocks
    6. Collection and Dissemination of Information by National
Securities Exchanges and National Securities Associations
    B. Proposed Use of Information
    1. Registration Requirements and Form CC
    2. Competing Consolidator Duties and Data Collection
    3. Recordkeeping
    4. Reports and Reviews
    5. Amendment to the Effective National Market System Plan(s) for
NMS Stocks
    6. Collection and Dissemination of Information by National
Securities Exchanges and National Securities Associations
    C. Respondents
    D. Total Annual Reporting and Recordkeeping Burden
    1. Registration Requirements and Form CC
    2. Competing Consolidator Duties and Data Collection
    3. Recordkeeping
    4. Reports and Reviews
    5. Amendment to the Effective National Market System Plan(s) for
NMS Stocks
    6. Collection and Dissemination of Information by National
Securities Exchanges and National Securities Associations
    E. Collection of Information is Mandatory
    F. Confidentiality
    1. Registration Requirements and Form CC
    2. Competing Consolidator Duties and Data Collection and
Maintenance
    3. Recordkeeping
    4. Reports and Reviews
    5. Amendment to the Effective National Market System Plan(s) for
NMS Stocks
    6. Collection and Dissemination of Information by National
Securities Exchanges and National Securities Associations
    G. Revisions to Current Regulation SCI Burden Estimates
    H. Request for Comments
VI. Economic Analysis
    A. Introduction and Market Failures
    1. Introduction
    2. Market Failures
    B. Baseline
    1. Current Regulatory Process for Equity Data Plans and SIP Data
    2. Current Process for Collecting, Consolidating, and
Disseminating Market Data
    3. Competition Baseline
    4. Request for Comments on Baseline
    C. Economic Effects of the Rule
    1. Core Data and Consolidated Market Data
    2. Decentralized Consolidation Model
    3. Economic Effects of Form CC
    4. Economic Effects From the Interaction of Changes to Core Data
and the Decentralized Consolidation Model
    5. Request for Comments on the Economic Effects of the Proposed
Rule
    D. Impact on Efficiency, Competition, and Capital Formation
    1. Efficiency
    2. Competition
    3. Capital Formation
    4. Request for Comments on Impact on Efficiency, Competition,
and Capital Formation
    E. Alternatives
    1. Introduce Decentralized Consolidation Model With Additional
Changes in Core Data Definition
    2. Introduce Changes in Core Data and Introduce a Distributed
SIP Model
    3. Require Competing Consolidators' Fees be Subject to the
Commission's Approval
    4. Do Not Extend Regulation SCI to Include Competing
Consolidators
    5. Require Competing Consolidators to Submit Form CC in the
EDGAR System Using the Inline XBRL Format
    6. Require Competing Consolidators to Submit Monthly Disclosures
in the EDGAR System Using the Inline XBRL Format
    7. Prescribing the Format of NMS Information
    8. Request for Comments on Alternatives
    F. Request for Comments on the Economic Analysis
VII. Consideration of Impact on the Economy
VIII. Regulatory Flexibility Certification
IX. Statutory Authority

I. Introduction

    The widespread availability of NMS information \1\ has been an
essential element in the success of the U.S. securities markets.
Congress recognized the importance of market information to the U.S.
securities markets with the enactment of Section 11A of the Exchange
Act. Section 11A(a)(2) of the Exchange Act \2\ directs the Commission,
having due regard for the public interest, the protection of investors,
and the maintenance of fair and orderly markets, to use its authority
under the Exchange Act to facilitate the establishment of a national
market system for securities in accordance with the Congressional
findings and objectives set forth in Section 11A(a)(1) of the Exchange
Act.\3\ Among the findings and objectives in Section 11A(a)(1) are that
``[n]ew data processing and communications techniques create the
opportunity for more efficient and effective market operations'' \4\
and ``[i]t is in the public interest and appropriate for the protection
of investors and the maintenance of fair and orderly markets to assure
. . . the availability to brokers, dealers, and investors of
information with respect to quotations for and transactions in
securities . . . '' \5\
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    \1\ See infra Section II.A for a discussion of the NMS
information that is consolidated and disseminated in the U.S.
securities markets.
    \2\ 15 U.S.C. 78k-1(a)(2).
    \3\ 15 U.S.C. 78k-1(a)(1).
    \4\ 15 U.S.C. 78k-1(a)(1)(B).
    \5\ 15 U.S.C. 78k-1(a)(1)(C). The Senate Report for the
enactment of Section 11A stated that ``it is critical for those who
trade to have access to accurate, up-to-the-second information as to
the prices at which transactions in particular securities are taking
place (i.e., last sale reports) and the prices at which other
traders have expressed their willingness to buy or sell (i.e.,
quotations).'' S. Rep. No. 94-75 at 8 (1975) (``Senate Report'').
The Senate Report continued that ``[f]or this reason, communications
systems designed to provide automated dissemination of last sale and
quotation information with respect to securities will form the heart
of the national market system.'' Id. at 6.
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    As discussed below, the Commission exercised its authority under
Section 11A of the Exchange Act through the adoption of a series of
rules that have been incorporated into Regulation NMS. Those rules
address both the content of, and the means by which, NMS information is
collected, consolidated, and disseminated.\6\ In particular, Section
11A(c)(1)(B) of the Exchange Act authorizes the Commission to prescribe
rules, as necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of
the Exchange Act, that ``assure the prompt, accurate, reliable, and
fair collection, processing, distribution, and publication of
information with respect to quotations for and transactions in such
securities and the fairness and usefulness of the form and content of
such information.'' \7\ Among other

things, the Commission required the self-regulatory organizations
(``SROs'') to act jointly pursuant to NMS plans \8\ to disseminate,
through a single plan processor, a consolidated national best bid and
national best offer, along with last sale data, for each NMS stock.\9\
While the Commission has periodically revised certain of its NMS rules
with the goal of ensuring that the regulatory framework continues to
fulfill the goals of Section 11A of the Exchange Act,\10\ the
Commission has not significantly updated the rules that govern the
content and distribution of NMS information since their initial
implementation in the late 1970s.
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    \6\ See 17 CFR 242.601-603; infra Section II.B.
    \7\ See 15 U.S.C. 78k-1(c)(1)(B); Senate Report, supra note 5,
at 189 (``Examples of the types of subjects as to which the SEC
would have the authority to promulgate rules under these provisions
include: The hours of operation of any type or quotation system,
trading halts, what and how information is displayed and
qualifications for the securities to be included on any tape or
within any quotation system.'').
    \8\ On January 8, 2020, the Commission issued a notice of
proposed order directing the SROs to submit a new, single NMS plan
for NMS stocks (``New Consolidated Data Plan''). See Securities
Exchange Act Release No. 87906 (Jan. 8, 2020), 85 FR 2164 (Jan. 14,
2020) (``Proposed Governance Order''). The existing NMS plans for
NMS stocks are: (1) The Consolidated Trade Association (``CTA'')
Plan; (2) the Consolidated Quotation (``CQ'') Plan; and (3) the
Nasdaq Unlisted Trading Privileges (``Nasdaq UTP'') Plan
(collectively the ``Equity Data Plans''). See infra note 13 and
Section II.A. The Commission is proposing provisions in new Rule 614
that would require the participants to amend the effective national
market system plan(s) for NMS stocks. See infra Section IV.B.4. If
adopted, the proposed amendments would apply to any effective
national market system plan for NMS stocks. In response to the
Proposed Governance Order, the NYSE submitted a comment letter that
also discussed a number of market structure issues that are
addressed in this release (e.g., expanding SIP data content and
modernizing SIP data delivery such as through a potential competing
consolidator model). See Letter from Elizabeth K. King, Chief
Regulatory Officer, ICE, and General Counsel and Corporate
Secretary, NYSE, to Vanessa Countryman, Secretary, Commission, 5
(Feb. 5, 2020) (``NYSE Governance Letter''). As with various other
comments referenced herein, including, without limitation, comments
received in connection with the Roundtable on Market Data and Market
Access, see infra note 17, the NYSE Governance Letter was not
provided with reference to the specific proposals discussed in this
release. To the extent that the NYSE or other commenters wish to
modify or supplement their prior comments to reflect the particulars
of the proposals discussed herein, the Commission welcomes such
comments.
    \9\ See Exchange Act Rule 11Aa3-1 (renumbered and renamed as
Exchange Act Rule 601, Dissemination of transaction reports and last
sale data with respect to transactions in NMS stocks); Exchange Act
Rule 11Ac1-1 (renumbered and renamed as Exchange Act Rule 602,
Dissemination of quotations in NMS securities); Exchange Act Rule
11Ac1-2 (renumbered and renamed as Exchange Act Rule 603,
Distribution, consolidation, and display of information with respect
to quotations for and transactions in NMS stocks.).
    \10\ See, e.g., Securities Exchange Act Release Nos. 51808 (June
9, 2005), 70 FR 37496 (June 29, 2005) (``Regulation NMS Adopting
Release''); 84528 (Nov. 2, 2018), 83 FR 58338 (Nov. 19, 2018)
(adopting amendments to Rule 606 to require additional disclosures
by broker-dealers to customers regarding the handling of their
orders).
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    The 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.\11\ The structure
of the equity markets has changed dramatically since the Commission
adopted the rules now known as Regulation NMS in 2005 and approved the
three existing Equity Data Plans under Rule 608 \12\ of Regulation
NMS.\13\ In 2005, a substantial amount of trading was conducted on
relatively slow manual markets, and for any given stock, concentrated
on its listing exchange. Today, the U.S. equity markets have evolved
into high-speed, latency-sensitive electronic markets where trading is
dispersed among a wide range of competing market centers \14\ and even
small degrees of latency affect trading strategies.\15\ Sophisticated
order routing algorithms dependent on low-latency, high-quality market
information are widely used to execute securities transactions.\16\
Despite the evolution of latency-sensitive markets, the provision of
NMS information that is centrally consolidated and disseminated by the
Equity Data Plans is meaningfully slower than certain proprietary
market data products distributed by the exchanges.\17\ Today, the
exchanges sell

proprietary data products that are fast, low-latency products designed
for automated trading systems and include content, such as depth of
book \18\ and order imbalance information for opening and closing
auctions (``proprietary DOB products'') that are not provided under the
Equity Data Plans.\19\ The Commission believes that the content and
operating model under which NMS information is collected, consolidated,
and disseminated have not kept pace with technological and market
developments and are no longer satisfying the needs of many investors.
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    \11\ Section 11A(a)(1) of the Exchange Act, 15 U.S.C. 78k-
1(a)(1). See also Senate Report supra note 5, at 8; Securities
Exchange Act Release No. 42208 (Dec. 9, 1999), 64 FR 70613, 70614
(Dec. 17, 1999) (``Market Information Concept Release''); Concept
Release on Equity Market Structure, Securities Exchange Act Release
No. 61358 (Jan. 14, 2010), 75 FR 3593, 3600 (Jan. 21, 2010)
(``Equity Market Structure Concept Release'').
    \12\ 17 CFR 242.608.
    \13\ The Equity Data Plans are effective national market system
plans as defined in Rule 600(b)(22) for NMS stocks. See Second
Restatement of the Plan Submitted to the Securities and Exchange
Commission Pursuant to Rule 11Aa3-1 under the Securities Exchange
Act of 1934, composite as of Dec. 6, 2019, available at https://www.ctaplan.com/publicdocs/ctaplan/notifications/trader-update/CTA_Plan_Composite_as_of_December_6_2019.pdf; Restatement of Plan
Submitted to the Securities and Exchange Commission Pursuant to Rule
11Ac1-1 under the Securities Exchange Act of 1934, composite as of
Dec. 6, 2019, available at https://www.ctaplan.com/publicdocs/ctaplan/notifications/trader-update/CQ_Plan_Composite_as_of_December_6_2019.pdf; Joint Self-Regulatory
Organization Plan Governing the Collection, Consolidation and
Dissemination of Quotation and Transaction Information for Nasdaq-
listed Securities Traded on Exchanges on an Unlisted Trading
Privilege Basis, available at http://www.utpplan.com/DOC/Nasdaq-UTPPlan_after_46th_Amendment-Excluding_21st_36th_38th_42nd_44th_45th_Amendments.pdf; Proposed
Governance Order, supra note 8.
    \14\ Rule 600(b)(38) defines a market center as ``any exchange
market maker, OTC market maker, alternative trading system, national
securities exchange, or national securities association.'' 17 CFR
242.600(b)(38).
    \15\ See Eric Budish, et al., Will the Market Fix the Market? A
Theory of Stock Exchange Competition and Innovation, University of
Chicago, Becker Friedman Institute for Economics Working Paper No.
2019-72 (May 2019), available at SSRN: https://ssrn.com/abstract=3391461; Andriy Shkilko and Konstantin Sokolov, Every Cloud
Has a Silver Lining: Fast Trading, Microwave Connectivity and
Trading Costs (Apr. 2019), available at https://ssrn.com/abstract=2848562; Equity Market Structure Concept Release, supra
note 11 (``NYSE-listed stocks were traded primarily on the floor of
the NYSE in a manual fashion until October 2006. At that time, NYSE
began to offer fully automated access to its displayed
quotations.''). In contrast to NYSE, stocks on the Nasdaq Stock
Market LLC (``Nasdaq'') traded in a highly automated fashion at many
different trading centers following the introduction of SuperMontage
in 2002. See Securities Exchange Act Release No. 46429 (Aug. 29,
2002), 67 FR 56862 (Sept. 5, 2002); Steven Quirk, Senior Vice
President, Trader Group, TD Ameritrade, Testimony before the U.S.
Senate Committee on Homeland Security and Governmental Affairs,
Permanent Subcommittee on Investigations, Hearing on ``Conflicts of
Interest, Investor Loss of Confidence, and High Speed Trading in
U.S. Stock Markets'' (June 17, 2014), available at https://www.hsgac.senate.gov/imo/media/doc/STMT%20-%20Quirk%20-%20TD%20Ameritrade%20(June%2017%202014).pdf%20 (citing statistics
that average execution speed has improved by 90% since 2004--from 7
seconds to 0.7 seconds in 2014). Today, trading speed is measured in
microseconds and is moving towards nanoseconds. See, e.g., Vera
Sprothen, Trading Tech Accelerates Toward Speed of Light, Wall
Street Journal (Aug. 8, 2016), available at https://www.wsj.com/articles/trading-tech-accelerates-toward-speed-of-light-1470559173;
Alexander Osipovich, NYSE Aims to Speed Up Trading With Core Tech
Upgrade, Wall Street Journal (Aug. 5, 2019), available at https://www.wsj.com/articles/nyse-aims-to-speed-up-trading-with-core-tech-upgrade-11565002800.
    \16\ See, e.g., Equity Market Structure Concept Release, supra
note 11; Eric Budish, et al., supra note 15; Andrew Morgan, The
impact of high frequency trading on algorithms and smart order
routing, Algorithmic Trading & Smart Order Routing, 3d. ed. (2009),
available at https://pdfs.semanticscholar.org/ba0b/5e952b27cc48513825cb7e4f6d15803e6973.pdf.
    \17\ See infra Section II.A. In addition, as discussed more
fully below, on October 25-26, 2018, the Division of Trading and
Markets hosted roundtables to gather information on market data and
market access. See generally Equity Market Structure Roundtables,
Oct. 25-26, 2018: Roundtable on Market Data and Market Access,
https://www.sec.gov/spotlight/equity-market-structure-roundtables
(``Roundtable''). Transcripts for both days of the Roundtable are
available at https://www.sec.gov/spotlight/equity-market-structure-roundtables/roundtable-market-data-market-access-102518-transcript.pdf (``Roundtable Day One Transcript'') and https://www.sec.gov/spotlight/equity-market-structure-roundtables/roundtable-market-data-market-access-102618-transcript.pdf
(``Roundtable Day Two Transcript''). Panelists at the Roundtable
noted that the geographical delays inherent in the nature of a
centralized processor results in significant latencies between the
Equity Data Plans' feeds and proprietary data feeds that cannot be
eliminated in the current infrastructure. Roundtable Day One
Transcript at 145 (Simon Emrich, Norges Bank Investment Management)
(``And part of that, the most interesting part of the delay for me
is really the location of the consolidator, the geographical delay
that's introduced, and the data connection element to the
consolidator. Right? So from our perspective, the latency of the
consolidator itself, the consolidation engine, the improvements that
we've made are remarkable over the years. But it just doesn't
measure the physical reality of the brokers that we're using.'');
148 (Michael Blaugrund, NYSE) (``[T]he method of transmission of
that information and the timing of the aggregation of that
information into a consolidated feed plays a role. As I think we all
acknowledge, the aggregation time has improved dramatically. As
we've seen that decline, it highlights the fact that the geographic
latency becomes a more meaningful portion of the overall time
line.''). See also Ivy Schmerken, Speeding Up the SIP Isn't Enough,
Say Market Pros at Baruch Conference, InformationWeek: Wall Street &
Technology (Oct. 17, 2014), available at http://www.wallstreetandtech.com/infrastructure/speeding-up-the-sip-isnt-enough-say-market-pros-at-baruch-conference/d/d-id/1316724.html
(``Since the SIP is slower than proprietary data feeds that firms
can obtain directly from exchanges, critics have said that the SIP
enables `latency arbitrage' between high-speed traders using fast
data and those trading off of stale quotes from the consolidated
feed.'').
    \18\ ``Depth of book,'' or ``DOB,'' refers to open buy and sell
orders resting on a limit order book at prices away from the top of
book (i.e., orders to buy at prices that are below the best bid and
orders to sell that are higher than the best offer).
    \19\ See, e.g., Nasdaq, Data Products, available at http://www.nasdaqtrader.com/Trader.aspx?id=DPSpecs (last accessed Jan. 7,
2020) (describing low-latency DOB data products); NYSE, Real-Time
Data, available at https://www.nyse.com/market-data/real-time (last
accessed Jan. 7, 2020) (describing low-latency DOB data products);
Cboe, Market Data Services: U.S. Equities, available at https://markets.cboe.com/us/equities/market_data_services/ (last accessed
Jan. 7, 2020) (describing low-latency DOB data products).
Particularly when aggregated, proprietary DOB market data products
provide a consolidated view of the market with greater content and
lower latency. The exchanges also sell other data products that are
limited in content, such as an exchange's top of book (``TOB'')
quotation information and transaction information, that are designed
largely for the non-automated segment of the market (e.g., retail
investors and wealth managers) that is less sensitive to latency
(``proprietary TOB products''). Examples of such proprietary TOB
products include NYSE BBO (https://www.nyse.com/market-data/real-time/bbo), NASDAQ Basic (https://business.nasdaq.com/intel/GIS/nasdaq-basic.html), and Cboe One Feed (https://markets.cboe.com/us/equities/market_data_services/cboe_one). NYSE BBO provides TOB data.
Nasdaq Basic and Cboe One's Summary Feed provide TOB and last sale
information. Nasdaq Basic also provides Nasdaq Opening and Closing
Prices and other information, including Emergency Market Condition
event messages, System Status, and trading halt information. Cboe
One, however, also offers a Premium Feed that includes DOB data.
Each of these products is sold separately by the relevant exchange
group. See Letter from Matthew J. Billings, Managing Director,
Market Data Strategy, TD Ameritrade, 5-8 (Oct. 24, 2018) (``TD
Ameritrade Letter''), available at https://www.sec.gov/comments/4-729/4729-4560068-176205.pdf (stating that the lower cost of exchange
TOB products, coupled with costs associated with the process to
differentiate between retail professionals and non-professionals
imposed by the Equity Data Plans, and associated audit risk, favors
retail broker-dealer use of exchange TOB products).
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    Today, the dissemination of NMS information relies upon a
centralized consolidation model, where the SROs provide certain NMS
information for each NMS stock to an exclusive processor (``exclusive
SIP'').\20\ The exclusive SIP then consolidates this NMS information
and makes it available to market participants.\21\ Market participants
also may independently consolidate NMS information by purchasing
individual exchange proprietary market data products \22\ and
consolidating that information for their own use, or obtain NMS
information that has been consolidated by a vendor that provides a data
aggregation service. As discussed further below, proprietary DOB
products collected through this decentralized consolidation model
typically contain enhanced information compared to the market
information provided through the Equity Data Plans, such as information
about all orders on an individual exchange's order book.\23\ Market
participants also are able to consolidate and use the data obtained in
this manner more quickly than market participants relying on NMS
information provided through the Equity Data Plans.
---------------------------------------------------------------------------

    \20\ An ``exclusive processor'' is defined in Section
3(a)(22)(B) of the Exchange Act as ``any [SIP] or [SRO] which,
directly or indirectly, engages on an exclusive basis on behalf of
any national securities exchange or registered securities
association, or any national securities exchange or registered
securities association which engages on an exclusive basis on its
own behalf, in collecting, processing, or preparing for distribution
or publication any information with respect to (i) transactions or
quotations on or effected or made by means of any facility of such
exchange or (ii) quotations distributed or published by means of any
electronic system operated or controlled by such association.'' 15
U.S.C. 78c(a)(22)(B). A securities information processor (``SIP'')
is defined in Section 3(a)(22)(A) of the Exchange Act as ``any
person engaged in the business of (i) collecting, processing, or
preparing for distribution or publication, or assisting,
participating in, or coordinating the distribution or publication
of, information with respect to transactions in or quotations for
any security (other than an exempted security) or (ii) distributing
or publishing (whether by means of a ticker tape, a communications
network, a terminal display device, or otherwise) on a current and
continuing basis, information with respect to such transactions or
quotations.'' 15 U.S.C. 78c(a)(22)(A). See infra note 42 and
accompanying text.
    \21\ See Rule 603(b) of Regulation NMS. Rule 603(b) provides
that all information for an individual NMS stock must be
disseminated through a single plan processor. 17 CFR 242.603(b). See
Rule 600(b)(59), which defines a plan processor as ``any self-
regulatory organization or securities information processor acting
as an exclusive processor in connection with the development,
implementation and/or operation of any facility contemplated by an
effective national market system plan.'' 17 CFR 242.600(b)(59).
    \22\ See infra Section II.A (discussing proprietary DOB and
proprietary TOB).
    \23\ See supra note 19.
---------------------------------------------------------------------------

    As noted above, Section 11A of the Exchange Act specifically
highlights the importance of making information with respect to
quotations for and transactions in securities available to brokers,
dealers, and investors in a prompt, accurate, reliable, and fair manner
and directs the Commission to act in accordance with this finding.
Accordingly, the Commission proposes to amend Regulation NMS to better
achieve the goal of assuring ``the availability to brokers, dealers and
investors of information with respect to quotations for and
transactions in securities'' \24\ that is prompt, accurate, reliable,
and fair.\25\ The Commission preliminarily believes that the proposals
described herein would promote fair and efficient markets and would
facilitate the best execution of investor orders, and reduce
information asymmetries between market participants who currently rely
on market data provided through the exclusive SIPs and those who
purchase the proprietary market data products offered by the national
securities exchanges.\26\
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    \24\ Section 11A(a)(1)(C)(iii), 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \25\ Section 11A(c)(1)(B), 15 U.S.C. 78k-1(c)(1)(B). Section
11A(c)(1)(B) provides the Commission with the authority to prescribe
rules and regulations as necessary or appropriate in the public
interest, for the protection of investors or otherwise in
furtherance of the purposes of the Exchange Act to ``assure the
prompt, accurate, reliable, and fair collection, processing,
distribution, and publication of information with respect to
quotations for and transactions in such securities and the fairness
and usefulness of the form and content of such information.'' Id.
    \26\ See Section 11A(a)(1)(C), 15 U.S.C. 78k-1(a)(1)(C) (stating
that it is in the public interest and appropriate for the protection
of investors and the maintenance of fair and orderly markets to
assure ``fair competition among brokers and dealers,'' ``the
availability to brokers, dealers, and investors of information with
respect to quotations for and transactions in securities,'' and
``the practicability of brokers executing investors' orders in the
best market'').
---------------------------------------------------------------------------

    The proposed amendments include two key parts, and the Commission
preliminarily believes that the proposals are complementary, but can be
independently justified. First, the amendments would update the content
of the information with respect to quotations for and transactions in
NMS stocks that must be made available under Regulation NMS. In
particular, the Commission proposes to expand the NMS information that
is required to be collected, consolidated, and

disseminated under Regulation NMS to include: (1) Information about
orders in sizes smaller than the current round lot size for certain
higher priced stocks; \27\ (2) information about certain orders that
are outside of the best bid and best offer (i.e., certain depth of book
data); and (3) information about orders that are participating in
opening, closing, and other auctions. The Commission preliminarily
believes that enhancing the content of NMS information in this manner
should help ensure that all market participants have ready access to
that market information in order to facilitate participation in today's
markets.
---------------------------------------------------------------------------

    \27\ See proposed Rule 600(b)(81) (defining ``round lot'' as 100
shares, 20 shares, 10 shares, 2 shares, or 1 share depending upon
the prior calendar month's average closing price for each NMS
stock).
---------------------------------------------------------------------------

    Second, the amendments introduce a decentralized consolidation
model whereby competing consolidators would assume responsibility for
the collection, consolidation, and dissemination functions currently
performed by the exclusive SIPs.\28\ To facilitate this decentralized
consolidation model, the Commission proposes that each SRO would be
required to make all of its market data that is necessary to generate
consolidated market data (as proposed to be defined) directly available
to two new categories of entities: (1) Competing consolidators and (2)
self-aggregators. Competing consolidators would be either SROs or SIPs
registered with the Commission pursuant to proposed Rule 614, and would
be responsible for collecting, consolidating, and disseminating
consolidated market data to the public. Self-aggregators would be
brokers or dealers that elect to collect and generate consolidated
market data for their own internal use.
---------------------------------------------------------------------------

    \28\ The Commission is proposing to include competing
consolidators in the definition of ``SCI entities;'' therefore,
competing consolidators would be subject to the requirements of
Regulation SCI. See Rule 1000(a) of Regulation SCI, 17 CFR
242.1000(a). See Securities Exchange Act Release No. 73639 (Nov. 19,
2014), 79 FR 72252 (Dec. 5, 2014) (``Regulation SCI Adopting
Release''). See also infra Section IV.B.2(f).
---------------------------------------------------------------------------

    Non-SRO competing consolidators would be required to register with
the Commission.\29\ All competing consolidators, SRO and non-SRO, would
be subject to appropriate standards with respect to the promptness,
accuracy, reliability, and fairness of their consolidated market data
distribution. While self-aggregators would not be subject to a separate
registration requirement, as registered broker-dealers, they would be
subject to the full broker-dealer regulatory regime.\30\ To support
this proposed decentralized consolidation model, each SRO would be
required to make all of its own data that is necessary to generate
consolidated market data available to competing consolidators and self-
aggregators directly from its data center, and in the same manner and
using the same methods, including all methods of access and the same
format, as it makes its proprietary market data products available to
any market participant.
---------------------------------------------------------------------------

    \29\ As discussed further below, only those entities that are
SIPs would be required to register with the Commission pursuant to
proposed Rule 614 and proposed Form CC. SROs that wish to act as
competing consolidators would not be required to register pursuant
to proposed Rule 614 and proposed Form CC but would be required to
comply with the competing consolidator obligations set forth in
proposed Rule 614(d). See infra Section IV.B.
    \30\ See infra Section IV.B.3.
---------------------------------------------------------------------------

    Under the proposed structure, the effective national market system
plan(s) would continue to serve an important role in the national
market system by, among other things, governing the SROs' provision of
the data necessary to generate consolidated market data, including
setting fees for the provision of such SRO data to competing
consolidators and self-aggregators.\31\ The Commission preliminarily
believes that, by introducing competition and market forces into the
collection, consolidation, and dissemination process, the decentralized
consolidation model would help ensure that consolidated market data is
delivered to market participants in a more timely, efficient, and cost-
effective manner than the current centralized consolidation model.\32\
---------------------------------------------------------------------------

    \31\ See Proposed Governance Order, supra note 8.
    \32\ See infra Section IV.B.
---------------------------------------------------------------------------

II. Current Market Data Infrastructure Under Regulation NMS and the
Equity Data Plans

A. Consolidated Market Data and Proprietary Data

    Today, in accordance with the centralized consolidation model, the
SROs act jointly pursuant to the three Equity Data Plans to collect,
consolidate, and publicly disseminate real-time, NMS information.\33\
For each NMS stock, the SROs are required, pursuant to Regulation NMS
and the Equity Data Plans, to provide certain quotation \34\ and
transaction \35\ data to the designated exclusive SIP for each Equity
Data Plan.\36\ Each exclusive SIP collects, consolidates, and
disseminates NMS information to the public on the consolidated tape,
described below. The NMS information that is consolidated and made
available under the Equity Data Plans generally includes: ``(1) The
price, size, and exchange of the last sale; (2) each exchange's current
highest bid and lowest offer, and the shares available at those prices;
and (3) the national best bid and offer (i.e., the highest bid and
lowest offer currently available on any exchange).'' \37\ In general,
these data elements form what historically has commonly been referred
to as ``core data.''
---------------------------------------------------------------------------

    \33\ See supra note 13.
    \34\ See Rule 602 of Regulation NMS, 17 CFR 242.602.
    \35\ See Rule 601 of Regulation NMS, 17 CFR 242.601.
    \36\ Rule 603(b) of Regulation NMS provides that ``the
dissemination of all consolidated information for an individual NMS
stock'' shall be through a single plan processor (i.e., exclusive
SIP). 17 CFR 242.603(b).
    \37\ See In the Matter of the Application of Bloomberg L.P.,
Securities Exchange Act Release No. 83755 at 3 (July 31, 2018)
(``Bloomberg Decision''), available at https://www.sec.gov/litigation/opinions/2018/34-83755.pdf; accord In the Matter of the
Application of Sec. Indus. & Fin. Markets Ass'n for Review of Action
Taken by Nyse Arca, Inc., & Nasdaq Stock Mkt. LLC, Securities
Exchange Act Release No. 84432 (Oct. 16, 2018) (``In the Matter of
the Application of SIFMA'') (citing NetCoalition v. SEC., 615 F.3d
525, 529 (DC Cir. 2010)); Securities Exchange Act Release No. 87193
(Oct. 1, 2019), 84 FR 54794, 54795 (Oct. 11, 2019) (``Effective on
Filing Proposal'').
---------------------------------------------------------------------------

    In addition to disseminating core data, the exclusive SIPs collect,
calculate, and disseminate certain regulatory data, including
information required by the NMS Plan to Address Extraordinary Market
Volatility (``LULD Plan''),\38\ information relating to regulatory
halts and market-wide circuit breakers (``MWCBs''),\39\ and information
regarding short sale circuit breakers pursuant to Rule 201.\40\ The
exclusive SIPs also collect and disseminate other NMS stock data and
disseminate certain administrative messages.\41\ For purposes

of this release, these existing market data elements, together with the
historical ``core data'' described above, are referred to as ``SIP
data.''
---------------------------------------------------------------------------

    \38\ See Securities Exchange Act Release Nos. 85623 (Apr. 11,
2019), 84 FR 16086 (Apr. 17, 2019) (approving LULD Plan on a
permanent basis); 67091 (May 31, 2012), 77 FR 33498 (June 6, 2012)
(approving LULD Plan, as modified by Amendment No. 1, on a pilot
basis); Limit Up Limit Down Plan: Overview, available at http://www.luldplan.com/index.html (last accessed Dec. 16, 2019).
    \39\ See Securities Exchange Act Release No. 67090 (May 31,
2012), 77 FR 33531 (June 6, 2012) (SR-BATS-2011-038; SR-BYX-2011-
025; SR-BX-2011-068; SR-CBOE-2011-087; SR-C2-2011-024; SR-CHX-2011-
30; SR-EDGA-2011-31; SR-EDGX-2011-30; SR-FINRA-2011-054; SR-ISE-
2011-61; SR-NASDAQ-2011-131; SR-NSX-2011-11; SR-NYSE-2011-48; SR-
NYSEAmex-2011-73; SR-NYSEArca-2011-68; SR-Phlx-2011-129).
    \40\ See Rule 201(b)(3) of Regulation SHO, 17 CFR 242.201(b)(3).
    \41\ The exclusive SIPs also provide other data regarding NMS
stocks pursuant to SRO rules that are described in the Equity Data
Plans' technical specifications, such as data relating to retail
liquidity programs, market and settlement conditions, and the
financial condition of the issuer. In addition, the Nasdaq UTP SIP
separately provides Over-the-Counter Bulletin Board (``OTCBB'')
data, and the CTA Plan allows participants to use the CTA/CQ SIP to
disseminate last sale prices for corporate bonds and information
about indices.
---------------------------------------------------------------------------

    The Equity Data Plans set the terms for the operation of the
exclusive SIPs.\42\ There are two exclusive SIPs, each of which is
physically located in a different data center. The exclusive SIP for
the CTA and CQ Plans, which covers Tape A (i.e., securities listed on
the New York Stock Exchange (``NYSE'')) and Tape B (i.e., securities
listed on exchanges other than NYSE or Nasdaq),\43\ is located in
Mahwah, New Jersey (``CTA/CQ SIP''), while the Nasdaq UTP Plan
exclusive SIP, which covers Tape C (i.e., Nasdaq-listed securities), is
located in Carteret, New Jersey (``Nasdaq UTP SIP''). Tapes A, B, and C
are commonly referred to as the ``consolidated tapes.''
---------------------------------------------------------------------------

    \42\ See supra note 20. The exclusive SIPs are the plan
processors for the Equity Data Plans. The Securities Industry
Automation Corporation (``SIAC''), a wholly owned, indirect
subsidiary of Intercontinental Exchange (``ICE''), of which the NYSE
is also a subsidiary, is the plan processor for Tapes A and B;
Nasdaq is the plan processor for Tape C.
    \43\ Tape B includes securities listed on exchanges other than
NYSE or Nasdaq, including Cboe, NYSE Arca, and NYSE American.
---------------------------------------------------------------------------

    The exchanges' primary data centers are in four different physical
locations, namely Mahwah, Carteret, Secaucus, and Weehawken, New
Jersey, and they all have back-up data centers in Chicago.\44\ Broker-
dealers may report transactions effected otherwise than on an exchange
(i.e., ``over-the-counter'' or ``OTC'') to trade reporting facilities
(``TRFs''), which are facilities of FINRA. There are currently three
active TRFs: FINRA/Nasdaq TRF in Carteret, FINRA/Nasdaq TRF in Chicago,
and FINRA/NYSE TRF in Mahwah.\45\
---------------------------------------------------------------------------

    \44\ See NYSE Trader Update: NYSE and NYSE MKT Equity Emergency
Procedures and New DR Plans (Sept. 9, 2016), available at https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_and_NYSE_MKT_DR_Trader_Update_Final.pdf; UTP Plan
Administration Data Policies (Oct. 2018), available at http://www.utpplan.com/DOC/Datapolicies.pdf; NYSE Chicago Disaster Recovery
FAQs (July 2019), available at https://www.nyse.com/publicdocs/nyse/markets/nyse-chicago/NYSE_Chicago_Disaster_Recovery_FAQs.pdf; Cboe:
US Equities/Options Connectivity Manual, Version 10.0.0 (Oct. 7,
2019), available at https://cdn.cboe.com/resources/membership/US_Equities_Options_Connectivity_Manual.pdf; Securities Exchange Act
Release No. 78101 (June 17, 2016), 81 FR 41142, 41154 (June 23,
2016).
    \45\ See FINRA, Trade Reporting Facility (TRF), available at
https://www.finra.org/filing-reporting/trade-reporting-facility-trf
(last accessed Jan. 22, 2020). As of October 2019, the FINRA/Nasdaq
TRF in Carteret handled approximately 30% of the share volume in OTC
reported transactions. See Cboe Global Markets, U.S. Equities Market
Volume Summary (month-to-date), available at https://markets.cboe.com/us/equities/market_share/ (last accessed Oct. 21,
2019).
---------------------------------------------------------------------------

    With this centralized consolidation model, each exchange and FINRA
must first transmit its quotation and transaction information \46\ from
its own data center to the appropriate exclusive SIP's data center for
consolidation, at which point SIP data is then further transmitted to
market data end-users, which are often located in other data centers.
The SROs today typically transmit their market data through fiber optic
cables to the exclusive SIPs and, in the case of the CTA/CQ SIP,
through infrastructure owned and mandated by the NYSE.\47\
---------------------------------------------------------------------------

    \46\ See supra notes 34-35 and accompanying text.
    \47\ The NYSE operates the CTA/CQ SIP and has required that
access to the CTA/CQ SIP be through the use of the NYSE's IP local
area network. The NYSE represents that this access requirement was
mandated due to the IP network's security, resiliency, and
redundancy. See Securities Exchange Act Release No. 86865 (Sept. 4,
2019), 84 FR 47592, 47594, n.12 (Sept. 10, 2019) (``NYSE Low-Latency
SIP Filing''). See also Consolidated Tape System (CTS) Participant
Input Binary Specification, 60, available at https://www.ctaplan.com/publicdocs/ctaplan/notifications/trader-update/CTS_BINARY_INPUT_SPECIFICATION.pdf, and Consolidated Quotation
System (CQS) Participant Input Binary Specification, 42, available
at https://www.ctaplan.com/publicdocs/ctaplan/notifications/trader-update/CQS_BINARY_INPUT_SPECIFICATION.pdf (both depicting that the
participants of those plans use ICE Data Services' Secure Financial
Transaction Infrastructure (``SFTI'') network to transmit data to
those exclusive SIPs). SFTI provides connectivity to the individual
ICE and NYSE Group markets including NYSE and NYSE Arca equities.
SFTI also provides connectivity to the data center for the CTA and
CQ Plans in Mahwah.
---------------------------------------------------------------------------

    In addition to the provision of SIP data pursuant to the Equity
Data Plans, the national securities exchanges separately sell their
individual proprietary market data products, which include the SIP data
elements as well as a variety of additional data elements.\48\ As noted
above, the proprietary DOB products are generally characterized as
fast, low-latency products designed for automated trading systems that
include additional content.\49\ In addition to SIP data, proprietary
DOB products typically include odd-lot quotations; orders at prices
above and below the best prices (i.e., depth of book data); and
information about orders participating in auctions, including auction
order imbalances.\50\
---------------------------------------------------------------------------

    \48\ In adopting Regulation NMS in 2005, the Commission
determined not to require that DOB information be included in core
data, reasoning that investors who needed DOB information would be
able to obtain such information from markets or third-party vendors.
See Regulation NMS Adopting Release, supra note 10, at 37567. In
making that determination, the Commission stated that this would be
``a competition-driven outcome [that] would benefit investors and
the markets in general.'' See id. at 37530.
    \49\ In contrast, proprietary TOB products are generally limited
in content, such as the exchange's top of book quotation information
and transaction information and are designed largely for the non-
automated segment of the market (e.g., retail or non-professional
investors and wealth managers that access market data visually). But
see CBOE One Feed Specification, CBOE, available at https://cdn.cboe.com/resources/membership/Cboe_US_Equities_Cboe_One_Feed_Specification.pdf (highlighting that
CBOE offers a non-automated product with a five-level depth of book
option).
    \50\ See, e.g., Nasdaq TotalView and NYSE Integrated.
---------------------------------------------------------------------------

    In addition to proprietary DOB products, the exchanges offer a
variety of connectivity options, such as co-location at primary data
centers, fiber optic connectivity, wireless connectivity, and point-of-
presence connectivity at third-party data centers.\51\ Typically, the
data for proprietary DOB products is transmitted directly from each
exchange to the data center of the subscriber, where the subscriber's
broker-dealer or vendor (or the subscriber itself) privately may
consolidate such data with the proprietary data of the other exchanges.
Furthermore, for many market participants, proprietary data is
transmitted using wireless connectivity (often provided by the
exchanges), such as microwave or laser technology,\52\ that allows
faster data transmission than the fiber optic cables that are typically
used by the exclusive SIPs for the purposes of transmitting SIP data.
The exchanges charge fees for these proprietary data products,\53\ as
well as for each of their connectivity options for co-location (e.g.,
physical ports, cross-connects, and field programmable gate array
(``FPGA'') services) and for communications services providing
connectivity between data centers (e.g., microwave and fiber optics).
In the context of the Division of Trading and Markets' Roundtable on
Market Data and Market Access in October 2018, some market participants
commented that, in their view, they need the more content-rich
proprietary data feeds and low latency connectivity to provide best
execution to their clients

and to competitively participate in the markets.\54\
---------------------------------------------------------------------------

    \51\ The exchanges have an inherent competitive advantage in the
provision of connectivity services within exchange facilities, while
connectivity options made available elsewhere, such as point-of-
presence connectivity at third-party data centers, are fully
competitive.
    \52\ See, e.g., Nasdaq, Trade Management Services: Wireless
Connectivity Suite, available at http://n.nasdaq.com/WirelessConnectivitySuite (last accessed Dec. 16, 2019); ICE Global
Network, New Jersey Metro, available at https://www.theice.com/market-data/connectivity-and-feeds/wireless/new-jersey-metro (last
accessed Dec. 16, 2019).
    \53\ See, e.g., Letter to Vanessa Countryman, Secretary,
Commission, from Robert Toomey, Managing Director and Associate
General Counsel, SIFMA, 1-2 (Jan. 13, 2020) (stating that exchange
market data products are ``complementary'' and result in ``not only
supra-competitive prices, but supra-monopoly prices'').
    \54\ See, e.g., Roundtable Day One Transcript at 27 (Doug Cifu,
Virtu Financial). See also Sections III.C.1(c), III.C.2(c), and
III.C.3(b).
---------------------------------------------------------------------------

B. NMS Regulatory Framework

    The Commission exercised its authority under Section 11A of the
Exchange Act to facilitate the collection, consolidation, and
dissemination of NMS information primarily by adopting five rules under
Regulation NMS.\55\
---------------------------------------------------------------------------

    \55\ See also supra Section I (discussing Section 11A of the
Exchange Act).
---------------------------------------------------------------------------

    Rule 601 of Regulation NMS governs the dissemination of transaction
reports \56\ and last sale data \57\ with respect to transactions in
NMS stocks. In particular, Rule 601 requires each national securities
exchange and association to file a transaction reporting plan with the
Commission that, among other things, must specify the manner of
collecting, processing, sequencing, making available, and disseminating
transaction reports and last sale data.\58\
---------------------------------------------------------------------------

    \56\ Rule 600(b)(84) defines a transaction report as ``a report
containing the price and volume associated with a transaction
involving the purchase or sale of one or more round lots of a
security.'' 17 CFR 242.600(b)(84).
    \57\ Rule 600(b)(34) defines last sale data as ``any price or
volume data associated with a transaction.'' 17 CFR 242.600(b)(34).
    \58\ 17 CFR 242.601(a)(2).
---------------------------------------------------------------------------

    Rule 602 of Regulation NMS governs the dissemination of quotations
in NMS securities. Specifically, under Rule 602 each national
securities exchange and association is required to collect, process,
and make available certain quotation data to vendors,\59\ including the
best bid, best offer,\60\ quotation sizes,\61\ and aggregate quotation
sizes.\62\
---------------------------------------------------------------------------

    \59\ Rule 600(b)(87) defines a vendor as ``any securities
information processor engaged in the business of disseminating
transaction reports, last sale data, or quotations with respect to
NMS securities to brokers, dealers, or investors on a real-time or
other current and continuing basis, whether through an electronic
communications network, moving ticker, or interrogation device.'' 17
CFR 242.600(b)(87).
    \60\ Rule 600(b)(8) defines best bid and best offer as ``the
highest priced bid and the lowest priced offer.'' 17 CFR
242.600(b)(8).
    \61\ Under Rule 600(b)(67), quotation size, ``when used with
respect to a responsible broker's or dealer's bid or offer for an
NMS security, means: (i) [T]he number of shares (or units of
trading) of that security which such responsible broker or dealer
has specified, for purposes of dissemination to vendors, that it is
willing to buy at the bid price or sell at the offer price
comprising its bid or offer, as either principle or agent; or (ii)
[i]n the event such responsible broker or dealer has not so
specified, a normal unit of trading for that NMS security.'' 17 CFR
242.600(b)(67).
    \62\ Rule 600(b)(2) defines aggregate quotation size as ``the
sum of the quotation sizes of all responsible brokers or dealers who
have communicated on any national securities exchange bids or offers
for an NMS security at the same price.'' 17 CFR 242.600(b)(2).
---------------------------------------------------------------------------

    Rule 603 of Regulation NMS governs the distribution, consolidation,
and display of information with respect to quotations for and
transactions in NMS stocks. Specifically, Rule 603(a)(1) requires any
exclusive processor,\63\ or any broker or dealer with respect to
information for which it is the exclusive source, that distributes
information with respect to quotations for or transactions in an NMS
stock to a securities information processor \64\ to do so on terms that
are fair and reasonable. Rule 603(a)(2) requires any national
securities exchange, national securities association, broker, or dealer
that distributes information with respect to quotations for or
transactions in an NMS stock to a securities information processor,
broker, dealer, or other persons to do so on terms that are not
unreasonably discriminatory.\65\
---------------------------------------------------------------------------

    \63\ See supra note 20.
    \64\ Id.
    \65\ See 17 CFR 242.603(a)(2). Proprietary data cannot be made
available sooner than current core data is transmitted to the
exclusive SIPs. See Regulation NMS Adopting Release, supra note 10,
at 37567 (``[I]ndependently distributed data could not be made
available on a more timely basis than core data is made available to
a Network processor. Stated another way, adopted Rule 603(a)
prohibits an SRO or broker-dealer from transmitting data to a vendor
or user any sooner than it transmits the data to a Network
processor.'').
---------------------------------------------------------------------------

    Rule 603(b) requires each national securities exchange and
association to act jointly pursuant to one or more NMS plans to
disseminate consolidated information, including an NBBO,\66\ on
quotations for and transactions in NMS stocks.\67\ Further, the rule
states that such plan or plans shall provide for the dissemination of
all consolidated information for an individual NMS stock through a
single plan processor.
---------------------------------------------------------------------------

    \66\ Rule 600(b)(43) defines national best bid and national best
offer (``NBBO'') as ``with respect to quotations for an NMS
security, the best bid and best offer for such security that are
calculated and disseminated on a current and continuing basis by a
plan processor pursuant to an effective national market system plan
. . .'' 17 CFR 242.600(b)(43).
    \67\ 17 CFR 242.603(b).
---------------------------------------------------------------------------

    Rule 608 of Regulation NMS governs the procedures for the filing
and Commission approval of NMS plans and plan amendments. The
Commission approved the Equity Data Plans under Rule 608. Finally, Rule
609 of Regulation NMS governs the registration of exclusive SIPs.

C. Other Regulatory Data

    As noted above, certain regulatory data is required--pursuant to
Commission and exchange rules and NMS plans--to be generated by primary
listing exchanges and the exclusive SIPs and included in the current
SIP data. The availability of this data is critical to allowing market
participants to understand when and where permissible trading may
occur.
1. Regulation SHO
    Rule 201(b)(1)(i) of Regulation SHO \68\ requires a trading center
\69\ to establish, maintain, and enforce written policies and
procedures reasonably designed to prevent the execution or display of a
short sale order of a covered security \70\ at a price that is less
than or equal to the current national best bid,\71\ if the price of
that covered security decreases by 10% or more from the covered
security's closing price, as determined by the listing market \72\ for
the covered security as of the end of regular trading hours \73\ on the
prior day (the ``Short Sale Circuit Breaker''). The rule requires that
the trading center impose the Short Sale Circuit Breaker for the
remainder of the day and the following day when a national best bid for
the covered security is calculated and disseminated on a current and
continuing basis by a ``plan processor'' \74\ pursuant to an effective
national market system plan.\75\
---------------------------------------------------------------------------

    \68\ 17 CFR 242.201(b)(1)(i).
    \69\ Rule 201(a)(9) states the term trading center shall have
the same meaning as in 242.600(b)(82). 17 CFR 242.201(a)(9).
    \70\ Rule 201(a)(1) states the term covered security shall mean
any NMS stock as defined in 242.600(b)(48). 17 CFR 242.201(a)(1).
    \71\ Rule 201(a)(4) states the term national best bid shall have
the same meaning as in 242.600(b)(43). 17 CFR 242.201(a)(4).
    \72\ Rule 201(a)(3) states the term listing market shall have
the same meaning as the term ``listing market'' as defined in the
effective transaction reporting plan for the covered security. Rule
201(a)(2) states the term effective transaction reporting plan for a
covered security shall have the same meaning as in 242.600(b)(23).
17 CFR 242.201(a)(2)-(3).
    \73\ Rule 201(a)(7) states the term regular trading hours shall
have the same meaning as in 242.600(b)(68). 17 CFR 242.201(a)(7).
    \74\ Rule 201(a)(6) states the term plan processor shall have
the same meaning as in 242.600(b)(59). 17 CFR 242.201(a)(6).
    \75\ Rule 201(c) provides an exception for a broker-dealer that
has adopted and enforces its own such policies and procedures. More
specifically, if such broker-dealer identifies a short sale order as
being at a price above the current national best bid at the time of
submission, such broker-dealer may mark the order as ``short
exempt.'' However, such broker-dealer must establish, maintain, and
enforce written policies and procedures reasonably designed to
prevent incorrect identification of orders for purposes of the
``short exempt'' exception. Policies and procedures designed to
create the appearance of technical compliance with Rule 201 but
which otherwise are designed to circumvent, or assist others in
circumventing, the Rule, would not be compliant. For example, any
arrangement between market participants in which the execution price
appears to be compliant with the Short Sale Circuit Breaker, but
also includes a post-trade payment (i.e., fee, commission, or other
payment) that effectively renders the execution price non-compliant
with the Short Sale Circuit Breaker, would not be consistent with
the Rule's requirements. Further, in the Adopting Release for Rule
201, the Commission stated that, ``any conduct by trading centers,
or other market participants, that facilitates short sales in
violation of Rule 201 could also lead to liability for aiding and
abetting or causing a violation of Regulation SHO, as well as
potential liability under the anti-fraud and anti-manipulation
provisions of the Federal securities laws, including Sections 9(a),
10(b), and 15(c) of the Exchange Act, and Rule 10b-5 thereunder.''
Securities Exchange Act Release No. 61595 (Feb. 26, 2010), 75 FR
11232, 11260 (Mar. 10, 2010).

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    Rule 201(b)(3) of Regulation SHO provides that the determination
regarding whether the Short Sale Circuit Breaker has been triggered
shall be made by the listing market for the covered security, and, if
the Short Sale Circuit Breaker has been triggered, the listing market
shall immediately notify the ``single plan processor'' (i.e., the
exclusive SIP responsible for consolidation of information for the
covered security pursuant to Section 242.603(b)). The exclusive SIP
must then disseminate this information.
2. Limit-Up Limit-Down Plan
    The LULD Plan \76\ sets forth procedures that provide for market-
wide limit up-limit down (``LULD'') requirements to prevent trades in
individual NMS stocks from occurring outside of specified price bands
and reduce the negative impacts of extraordinary volatility in NMS
stocks caused by momentary gaps in liquidity or erroneous trades. These
price bands are coupled with the provision of trading pauses to
accommodate more fundamental price moves.
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    \76\ See Securities Exchange Act Release Nos. 85623, supra note
38; 67091, supra note 38.
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    Under the LULD Plan, the applicable exclusive SIP for an NMS stock
is required to perform certain key functions, including: (1)
Calculating the applicable price bands,\77\ (2) disseminating flags
identifying quotes that are not executable,\78\ (3) disseminating flags
identifying quotes that are in a ``limit state,'' \79\ (4)
disseminating trading pause messages received from the primary listing
exchanges,\80\ and (5) disseminating reopening auction information from
the primary listing exchanges.\81\
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    \77\ During regular trading hours for an NMS stock, the
exclusive SIP for that stock uses a reference price, which it also
calculates, to calculate and disseminate to the public a lower and
upper price band. The reference price for each NMS stock equals the
arithmetic mean price of eligible reported transactions for the NMS
stock over the immediately preceding five-minute period (see LULD
Plan Section V(A)(1)) and must remain in effect for at least 30
seconds. See LULD Plan Section V(A)(2). The exclusive SIP calculates
a pro-forma reference price on a continuous basis during regular
trading hours, and when that price has moved by 1% or more from the
reference price currently in effect, the pro-forma reference price
becomes the reference price, and the plan processor disseminates new
price bands based on the new reference price. See LULD Plan Section
V(A)(2). The price bands for an NMS stock are calculated by applying
the appropriate percentage parameter for the stock, specified by the
LULD Plan, to the stock's reference price, with the lower price band
as a percentage parameter below the reference price and the upper
price band as a percentage parameter above the reference price. See
LULD Plan Section V(A)(1).
    \78\ When a national best bid is below the lower price band or a
national best offer is above the upper price band for an NMS stock,
the exclusive SIP is required to disseminate the national best bid
or national best offer with an appropriate flag identifying it as
non-executable. See LULD Plan Section VI(A)(2).
    \79\ When a national best bid is equal to the lower price band
or a national best offer is equal to the upper price band for an NMS
stock, the exclusive SIP is required to distribute the national best
bid or national best offer with an appropriate flag identifying it
as a ``Limit State Quotation.'' See id.; LULD Plan Section VI(B)(2).
    \80\ If trading for an NMS stock does not exit a limit state
within 15 seconds of entry during regular trading hours, then the
primary listing exchange is required to declare a trading pause in
that NMS stock and notify the exclusive SIP. See LULD Plan Section
VII(A)(1). The exclusive SIP is required to disseminate trading
pause information to the public. See LULD Plan Section VII(A)(3).
    \81\ Five minutes after declaring a trading pause for an NMS
stock, if the primary listing exchange has not declared a regulatory
halt, the primary listing exchange is required to attempt to reopen
trading using its established reopening procedures. The exclusive
SIP publishes the following information that the primary listing
exchange provides to the exclusive SIP in connection with such
reopening: Auction reference price; auction collars; and number of
extensions to the reopening auction. See LULD Plan Section
VII(B)(1). In addition, the applicable exclusive SIP for an NMS
stock is required to receive and disseminate to the public
information from primary listing exchanges regarding their inability
to reopen trading due to a systems or technology issue.
Specifically, the primary listing exchange is required to notify the
exclusive SIP if it is unable to reopen trading in an NMS stock due
to a systems or technology issue and if it has not declared a
regulatory halt. The exclusive SIP is required to disseminate this
information to the public. See LULD Plan Section VII(B)(2).
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3. Market-Wide Circuit Breakers
    All of the equity exchanges and FINRA have adopted uniform rules,
on a pilot basis, relating to MWCBs.\82\ The purpose of an MWCB is to
address extraordinary market-wide volatility by halting trading across
the markets when price declines reach certain specified levels.\83\
These levels are reached when the S&P 500 Index declines a specified
percentage from the prior day's closing price. Currently, there are
three thresholds: 7% (Level 1), 13% (Level 2), and 20% (Level 3). A
Level 1 or Level 2 market decline after 9:30 a.m. ET and before 3:25
p.m. ET would halt the equity and options markets for 15 minutes, while
Level 1 and 2 declines at or after 3:25 p.m. ET would not halt trading.
A Level 3 market decline at any time during the trading day would halt
equity and options trading until the primary listing exchange opens the
next trading day.
---------------------------------------------------------------------------

    \82\ See supra note 39.
    \83\ Id.
---------------------------------------------------------------------------

    The primary listing exchanges and the exclusive SIPs work together
to implement the MWCB rules. The CTA/CQ SIP monitors the S&P 500 Index
throughout the trading day and would send a message to the primary
listing exchanges and the Nasdaq UTP SIP in the event a Level 1, Level
2, or Level 3 circuit breaker was triggered. Upon receipt of such a
message, the applicable primary listing exchange would impose a
regulatory halt by sending the appropriate message to the applicable
exclusive SIP, which would then disseminate the regulatory halt message
to market participants. Trade resumption messages would be generated at
the appropriate time by the primary listing exchange and similarly
disseminated to market participants through the applicable exclusive
SIP.
4. Odd-Lot Transaction Reports and Aggregated Odd-Lot Orders
    As discussed further below, while Regulation NMS only requires NMS
stock quotation and transaction data in round lots to be reported to
the exclusive SIPs, SRO rules and the Equity Data Plans include some
odd-lot information in the SIP data.\84\ Pursuant to exchange rules,
odd-lot quotations that, when aggregated, equal or exceed a round lot
are reported to the exclusive SIPs as round lots.\85\ Moreover, the
Equity Data Plans were amended in 2013 to include odd-lot transaction
reports in the SIP data.\86\
---------------------------------------------------------------------------

    \84\ See infra Section III.C.1.
    \85\ See infra notes 159-160 and accompanying text.
    \86\ See infra notes 160-161 and accompanying text.
---------------------------------------------------------------------------

III. Proposed Enhancements to NMS Information

A. Introduction

    The Commission is proposing to expand the content of the NMS
information that would be required to be collected, consolidated, and
disseminated under the rules of the national market system to better
meet the needs of today's investors and other market participants.
Specifically, the Commission proposes to amend Regulation NMS by
introducing, in Rule 600, new defined terms for ``consolidated market
data,'' ``core data,'' ``regulatory data,'' ``administrative data,''
``exchange-specific program data,'' ``round lot,'' ``depth of book
data,'' and ``auction information'' and by amending the current
definitions of ``national best bid and national best offer'' and
``protected

bid or protected offer.'' The Commission preliminarily believes that
these amendments will enhance the availability and usefulness of the
NMS information that is required to be provided under the rules of the
national market system for a wide variety of market participants. The
Commission also preliminarily believes that expanding the content of
NMS information would help to reduce information asymmetries between
market participants who rely upon current SIP data and those who
purchase proprietary data feeds from the national securities
exchanges.\87\
---------------------------------------------------------------------------

    \87\ See supra note 26.
---------------------------------------------------------------------------

    The Commission's objectives in expanding and modernizing the
content of NMS information that would be collected, consolidated, and
disseminated under the rules of the national market system reflect that
different market participants and different trading applications have
different needs for NMS information. For example, the needs of some
retail investors that visually consume NMS information (e.g., humans
looking at quotes on a screen) differ from those of institutional
trading systems that electronically consume NMS information (e.g.,
algorithmic trading systems or smart order routers (``SORs'').\88\ This
proposal to expand and modernize the content of NMS information is not
intended solely to meet the needs of a narrow segment of the NMS
information market; rather, the proposal is intended to address the
needs of a broad cross-section of market participants.\89\ The
Commission intends for the NMS information to promote both fair and
efficient markets, be useful to a broad cross-section of market
participants, reduce information asymmetries, and facilitate best
execution.\90\
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    \88\ SORs employ the use of algorithms (e.g., by broker-dealers
on behalf of a client) designed to optimally send parts of an order
(child orders) to various market centers (e.g., exchange and ATSs)
so as to optimally access market liquidity while minimizing
execution costs.
    \89\ This proposal is also not designed to expand the content of
NMS information to meet all needs of all market participants; the
proprietary data market, which includes information that is not
included in the proposed definition of core data, is expected to
continue to fulfill additional needs beyond those that are met by
the proposed definition of core data.
    \90\ While this proposal is intended to facilitate best
execution, the Commission is not specifying minimum data elements
needed to achieve best execution.
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B. Proposed Definition of ``Consolidated Market Data''

    The Commission is proposing to amend Rule 600(b) to add a
definition of ``consolidated market data'' that would include
information that is currently disseminated by the exclusive SIPs as
well as additional new information. Specifically, under proposed Rule
600(b)(19), consolidated market data would be defined as the following
data, consolidated across all national securities exchanges and
national securities associations: (1) Core data; (2) regulatory data;
(3) administrative data; (4) exchange-specific program data; and (5)
additional regulatory, administrative, or exchange-specific program
data elements defined as such pursuant to the effective national market
system plan or plans required under Rule 603(b).
    As discussed below, the Commission proposes to add definitions of
the terms ``core data,'' ``regulatory data,'' ``administrative data,''
and ``exchange-specific program data.'' The proposed definition of core
data would include those data elements that are currently considered
core data \91\ as well as reflect additional information that would be
required to be collected, consolidated, and disseminated under
Regulation NMS, including certain depth of book, odd-lot, and auction
information, which would improve the usefulness of core data for market
participants. The proposed definition of regulatory data would specify
certain regulatory messages that must be provided under Regulation NMS,
which would facilitate compliance with Commission, NMS plan, or SRO
requirements. The proposed definition of administrative data would
refer to the administrative or technical messages that are currently
required by the Equity Data Plans, or their technical specifications,
and would facilitate the efficient utilization of proposed consolidated
market data. The proposed definition of ``exchange-specific program
data'' would include information currently included in SIP data related
to retail liquidity programs that certain exchanges have established,
as well as information related to new programs that individual
exchanges may develop in the future,\92\ but only if the effective
national market system plan or plans required under Rule 603(b) are
amended to include data elements related to any such new programs in
consolidated market data.\93\
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    \91\ See supra note 37 and accompanying text.
    \92\ Any new exchange programs would have to be filed with the
Commission pursuant to Section 19(b) of the Exchange Act, 15 U.S.C.
78s(b), and Rule 19b-4 thereunder, 17 CFR 240.19b-4.
    \93\ See infra Section III.F.
---------------------------------------------------------------------------

    Finally, the Commission proposes to include a provision that would
allow for additional regulatory, administrative, or exchange-specific
program data elements \94\ to be included within ``consolidated market
data'' pursuant to amendments to the effective national market system
plan(s).\95\ The Commission preliminarily believes that this provision
would help to ensure that additional information in these specific
categories may be proposed to be included in consolidated market data
in the future in response to market and regulatory developments and
that such additional information would be required to be made available
by the SROs to competing consolidators and self-aggregators, and as a
result, competing consolidators would be required to, among other
things, calculate and generate consolidated market data that includes
this additional information. The Commission preliminarily believes that
new administrative, regulatory, and exchange-specific program data
elements may emerge from time to time, and that the proposed definition
of consolidated market data should provide flexibility for such data
elements to be included by NMS plan amendment. This provision would
also maintain the current practice whereby SIP data of this type can be
expanded through the NMS plan amendment process.
---------------------------------------------------------------------------

    \94\ Amendments to the proposed definition of core data would
only be able to be made by the Commission. To the extent that there
are changes in the national market system, such as, in the provision
of trading services, that suggest that the definition of core data
should be updated, the Commission could exercise its authority to
propose amendments to the proposed definition. See, e.g., Section
11A(c)(1)(B) of the Exchange Act which provides that the Commission
shall prescribe rules as necessary or appropriate in the public
interest, for the protection of investors or otherwise to assure the
prompt, accurate, reliable, and fair collection, processing,
distribution, and publication of information with respect to NMS
information and the fairness and usefulness of the form and content
of such information.
    \95\ Pursuant to Rule 608(a)(1), any two or more SROs, acting
jointly, may propose an amendment to an NMS plan. 17 CFR
242.608(a)(1). The Equity Data Plans also have provisions regarding
the proposal of amendments to the Plans, which currently require a
vote of the Plans' operating committee. See CTA Plan, supra note 13,
at Section IV(b)(i); CQ Plan supra note 13, at Section IV.(c)(i) of
the CQ Plan; Nasdaq UTP Plan, supra note 13, at Sections IV.C.1.a.
and XVI.
---------------------------------------------------------------------------

    National market system plans and amendments thereto must be filed
with, and typically are not effective unless they are approved by, the
Commission under Rule 608 of Regulation NMS.\96\

Pursuant to Rule 608(b), the Commission would publish for comment an
amendment to add new consolidated market data elements, and thereafter,
the Commission would evaluate any such proposed amendment and approve
it if the Commission finds the 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 [Exchange] Act.'' \97\
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    \96\ A proposed NMS plan amendment may be put into effect upon
filing if designated by the sponsors as: ``(i) Establishing or
changing a fee or other charge collected on behalf of all of the
sponsors and/or participants in connection with access to, or use
of, any facility contemplated by the plan or amendment (including
changes in any provision with respect to distribution of any net
proceeds from such fees or other charges to the sponsors and/or
participants); (ii) Concerned solely with the administration of the
plan, or involving the governing or constituent documents relating
to any person (other than a self-regulatory organization) authorized
to implement or administer such plan on behalf of its sponsors; or
(iii) Involving solely technical or ministerial matters.'' 17 CFR
242.608(b)(3). As stated above, the Commission has proposed
amendments to this provision. Effective on Filing Proposal, supra
note 37 (proposing to rescind the provision of Rule 608 that allows
a proposed amendment to an effective national market system plan(s)
to become effective upon filing if the proposed amendment
establishes or changes a fee or other charge).
    \97\ 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------

    The Commission preliminarily believes that the proposed definition
of consolidated market data, as well as the other definitions included
therein, would, by expanding the NMS information that is required to be
provided under the rules of the national market system, support more
informed trading and investment decisions by market participants in
today's markets and facilitate the best execution of customer orders by
the full range of broker-dealers.\98\ In addition, the proposed
definition would be referenced in the amendments to Rule 603(b) and
proposed Rule 614, both of which propose to implement the decentralized
consolidation model.\99\
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    \98\ As discussed below, the Commission is not requiring broker-
dealers to subscribe to or utilize every component of proposed
consolidated market data to meet their regulatory obligations. See
infra notes 306-309 and accompanying text.
    \99\ See infra Sections IV.B.1 and IV.B.2(e)(ii).
---------------------------------------------------------------------------

    The Commission requests comment on the proposed definition of
consolidated market data under proposed Rule 600(b)(19). Throughout
this release, we request comment from the points of view of all
interested parties. With regard to any comments, we note that such
comments are of greatest assistance to our rulemaking initiative if
accompanied by supporting data and analysis of the issues addressed in
those comments.
    In particular, the Commission solicits comment on the following:
    1. Do commenters believe that the Commission should adopt a
definition of consolidated market data? Why or why not? Should the
Commission take an alternative approach? Why or why not?
    2. Does the proposed definition of consolidated market data capture
the market data that would be useful to market participants for trading
and regulatory compliance purposes? Please explain. Does the proposed
definition of consolidated market data include any market data that
should not be included? Please explain. The Commission is seeking input
from commenters on whether the proposed definition of consolidated
market data should include additional market data or whether the
definition should otherwise be modified.
    3. Should the definition of consolidated market data be set forth
in an effective national market system plan(s) instead of, or in
addition to, Rule 600(b)? Please explain. Do commenters have views on
the most appropriate process through which the content of proposed
consolidated market data should be expanded or modified? Do commenters
believe that the proposed definition of consolidated market data should
include a provision stating that additional regulatory, administrative,
or exchange-specific program data elements can be defined pursuant to
the effective national market system plan or plans required under
Section 242.603(b)? Please explain. Should the proposed definition of
core data be able to be amended through the effective national market
system plan process (for example, should the term ``core data'' be
included in proposed Rule 600(b)(19)(v))? Why or why not? Do commenters
believe that any data elements should not require an amendment to the
effective national market system plan(s) to be added to consolidated
market data? Please explain and describe what process would be
appropriate for adding any such data elements.

C. Proposed Definition of ``Core Data''

    Regulation NMS does not currently define core data. Rather, today,
core data generally refers to the price, size, and exchange of the last
sale; each exchange's highest bid and lowest offer (``BBO'') and the
number of shares available at those prices; and the NBBO.\100\
---------------------------------------------------------------------------

    \100\ See supra note 37 and accompanying text.
---------------------------------------------------------------------------

    The core data that is provided today by the exclusive SIPs is of
considerable utility to some market participants for certain
purposes.\101\ However, it is of limited use to other market
participants for other purposes (e.g., as the primary data source for
automated trading systems) because of its limited content. The
Commission preliminarily believes that the content of current core data
has not kept pace with market developments. For example, decimalization
in 2001 improved prices and narrowed spreads but also reduced the size
of the top of book liquidity that is displayed and disseminated as part
of current core data.\102\ Further, individual odd-lot quotations,
especially for stocks with share prices that have risen
substantially,\103\ have become more important to market participants
as odd-lot quotations can represent significant amounts of liquidity
that are not reflected in current core data.\104\ Finally, an
increasing proportion of total trading volume is executed during
opening and closing auctions, which are significant liquidity events
every trading day, but important information about auctions is not
included within current core data provided by the exclusive SIPs.\105\
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    \101\ For example, current core data includes the NBBO, which is
useful to market participants for informational purposes and to
inform trading and investment decisions. See, e.g., Roundtable Day
One Transcript at 57 (Doug Cifu, Virtu Financial) (``. . . the SIP
is an eyeball product.''); Roundtable Day One Transcript at 65
(Mehmet Kinak, T. Rowe Price) (``So the SIP for us is kind of what
we look at. Obviously, investment decisions are probably made by
eyeballs and looking at the SIP itself from either our Bloomberg or
FactSet terminals.''). It is also used as a back-up for automated
trading systems that otherwise rely on proprietary data feeds from
the exchanges and to support less sophisticated automated trading
systems. See, e.g., Roundtable Day One Transcript at 140 (Mark
Skalabrin, Redline Trading Solutions) (``the SIP . . . has been
relegated to a backup feed, really. It's a fail-over to the real
feed you need to do the job.'').
    \102\ See infra notes 276-279.
    \103\ See infra note 162.
    \104\ As explained below, odd-lot quotations are only reflected
in SIP data to the extent that they are aggregated into round lots
pursuant to exchange rules. See infra notes 157-158 and accompanying
text.
    \105\ See infra notes 330-332.
---------------------------------------------------------------------------

    Because the content of current core data does not reflect these
important market developments,\106\ many market participants state that
they are unable to rely solely on SIP data to trade competitively and
provide best execution to customer orders in today's markets.\107\ The
Commission preliminarily believes that the data that is required to be
collected, consolidated, and disseminated under the rules of the
national market system is no longer fulfilling the goals of Section 11A
of the

Exchange Act.\108\ The Commission is proposing a definition of core
data that would incorporate the information that is currently provided
in SIP data as well as additional information, including quotation data
for smaller-sized orders for higher-priced stocks, certain depth of
book data, and additional auction information.\109\ As explained below,
the Commission preliminarily believes that each of the new elements of
core data, as proposed, would enhance the usefulness of the content of
the NMS information that is collected, consolidated, and disseminated
under the rules of the national market system.\110\
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    \106\ As discussed below, the existing centralized consolidation
model for collecting, consolidating, and disseminating SIP data also
has not kept pace with the needs of today's investors and market
participants. See infra Section IV.A.
    \107\ See several of the Roundtable comments summarized below in
Sections III.C.1, III.C.2, and III.C.3.
    \108\ See supra notes 2-5 and accompanying text.
    \109\ See infra Sections III.C.1-III.C.3 for detailed
discussions of the proposed definitions of ``round lot,'' ``depth of
book data,'' and ``auction information.''
    \110\ Section 11A(c)(1)(B) of the Exchange Act, 15 U.S.C. 78k-
1(c)(1)(B).
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    The Commission is proposing to define core data in Rule 600(b) to
include all of the elements that currently are referred to as core
data,\111\ as well as the following data elements that are not
currently provided by the exclusive SIPs: (1) Quotation data for
smaller-sized orders for higher-priced stocks (pursuant to a new
definition of ``round lot''), (2) data on certain quotations below the
best bid or above the best offer (pursuant to a new definition of
``depth of book data''), and (3) information about orders participating
in auctions (pursuant to a new definition of ``auction information'').
As discussed below, certain OTCBB and corporate bond and index data
that are currently provided by the exclusive SIPs would not be included
in the proposed definition of core data.\112\ Further, as noted above,
the proposed term core data is reflected in the proposed definition of
consolidated market data, which is referenced in proposed Rule 603(b)
and proposed Rule 614.\113\
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    \111\ See supra note 37 and accompanying text.
    \112\ See infra notes 122-127 and accompanying text.
    \113\ As explained below, pursuant to Rule 603(b), as proposed
to be amended, national securities exchanges and associations would
be required to make available to competing consolidators and self-
aggregators, as proposed to be defined, all data necessary to
generate consolidated market data. See infra Section IV.B.1.
Competing consolidators would be required to calculate and generate
consolidated market data and make it available to subscribers. See
proposed Rule 614(d).
---------------------------------------------------------------------------

    Specifically, under proposed Rule 600(b)(20), core data would be
defined as the following information with respect to quotations for and
transactions in NMS stocks: (1) Quotation sizes; (2) aggregate
quotation sizes; (3) best bid and best offer; (4) national best bid and
national best offer; (5) protected bid and protected offer; (6)
transaction reports; (7) last sale data; (8) odd-lot transaction data
disseminated pursuant to the effective national market system plan or
plans required under Rule 603(b) as of [date of Commission approval of
this proposal]; (9) depth of book data; and (10) auction information.
For purposes of the calculation and dissemination of core data by
competing consolidators, and the calculation of core data by self-
aggregators, the best bid and best offer, national best bid and
national best offer, and depth of book data would include odd-lots that
when aggregated are equal to or greater than a round lot, with such
aggregation occurring across multiple prices and disseminated at the
least aggressive price.\114\ Protected quotations, however, would only
include odd-lots at a single price that when aggregated are equal to or
greater than 100 shares.\115\
---------------------------------------------------------------------------

    \114\ See infra notes 157-158 and accompanying text (discussing
odd-lot aggregation).
    \115\ Id. A protected quotation is defined as ``a protected bid
or a protected offer.'' See Rule 600(b)(62) of Regulation NMS, 17
CFR 242.600(b)(62). A protected bid or protected offer is defined as
``a quotation in an NMS stock that: (i) [i]s displayed by an
automated trading center; (ii) [i]s disseminated pursuant to an
effective national market system plan; and (iii) [i]s an automated
quotation that is the best bid or best offer of a national
securities exchange, the best bid or best offer of The Nasdaq Stock
Market, Inc., or the best bid or best offer of a national securities
association other than the best bid or best offer of The Nasdaq
Stock Market, Inc.'' See Rule 600(b)(61) of Regulation NMS, 17 CFR
242.600(b)(61).
---------------------------------------------------------------------------

    Some of the components of the proposed definition of core data--
namely, quotation sizes, aggregate quotation sizes, BBO, NBBO,
protected quotations, transaction reports, last sale data, and odd-lot
transaction data \116\--are already defined in Regulation NMS or are
currently included in SIP data.\117\ The Commission preliminarily
believes that these data elements continue to be necessary and useful
for informed market participation. This baseline information about the
best quotations and recent transactions across the national market
system provides the foundation of transparency and price discovery in
the U.S. securities markets, and the Commission preliminarily believes
investors and other market participants need it today to make informed
trading and investment decisions.\118\ Therefore, the Commission
preliminarily believes that these data elements should be included in
the definition of core data as proposed.
---------------------------------------------------------------------------

    \116\ See infra notes 159-161 and accompanying text (discussing
the addition of odd-lot transaction data to SIP data through NMS
plan amendments approved in 2013).
    \117\ As discussed below, some of these proposed data elements--
namely, the BBO and NBBO--will be derived from smaller sized
quotations as a result of the Commission's proposed definition of
round lot, and the Commission is proposing amendments to the
definitions of protected bid and protected offer and national best
bid and offer to accommodate its proposed amendments to expand
consolidated market data and implement a decentralized consolidation
model with competing consolidators and self-aggregators.
    In addition, today, the exclusive SIPs collect, consolidate, and
disseminate protected quotations, which in almost all cases, are the
best bid or best offer of a trading center. Accordingly, the NBBO
today reflects protected quotations. As discussed below, the
Commission is proposing to amend the definition of ``protected bid
or protected offer'' to require that protected bids and protected
offers be at least 100 shares. In addition, the Commission is
proposing a new round lot size definition, which would be less than
100 shares for higher-priced NMS stocks. See infra Section
III.C.1(d)(i). Accordingly, if adopted, there would be an increase
in instances where the best bid or best offer and the NBBO would not
be protected quotations. See infra Section III.C.1(d)(ii).
    \118\ See supra note 101.
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    As discussed in detail below, the Commission is proposing to
include certain depth of book data and auction information in the
proposed definition of core data. Because of the dispersion of
liquidity to prices away from the best bids and best offers \119\ and
the increasing proportion of orders that are executed during
auctions,\120\ the Commission preliminarily believes that market
participants need depth of book data and auction information to fully
participate in the markets and the information would facilitate best
execution.\121\ The Commission preliminarily believes that the proposed
depth of book data and auction information would enhance the usefulness
of proposed core data.
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    \119\ See infra notes 276-279 and accompanying text.
    \120\ See infra notes 330, 348 and accompanying text.
    \121\ See infra Sections III.C.2(d) and III.C.3(c).
---------------------------------------------------------------------------

    As discussed above, SIP data currently includes certain data that
would not be included in the definition of core data under the
Commission's proposed definition.\122\ Currently, Nasdaq UTP Plan Level
1 subscribers can obtain OTCBB quotation and transaction feeds for
unlisted stocks.\123\ Similarly, the CTA Plan permits the dissemination
of ``concurrent use'' data relating to corporate bonds and
indexes.\124\ This information would not be included in the proposed
definitions of core data or consolidated market data. OTCBB stocks,
corporate bonds, and

indices are not NMS securities as defined in Regulation NMS \125\ and,
therefore, the Regulation NMS rules related to the collection,
consolidation, and dissemination of information regarding NMS
securities, and the NMS plan(s) required under Rule 603(b) for NMS
stocks,\126\ do not apply. Accordingly, this information is not
included in the proposed definition of core data.\127\
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    \122\ In addition, because this data does not fall under the
proposed definitions of regulatory data or administrative data, it
would not be part of proposed ``consolidated market data'' either.
    \123\ See Nasdaq UTP DataFeed Approval Request, available at
http://www.utpplan.com/datafeed_approval (last accessed Sept. 8,
2019); supra note 41.
    \124\ See CTA Plan, supra note 13, at Section XIII; supra note
41.
    \125\ ``NMS security'' is defined as ``any security or class of
securities for which transaction reports are collected, processed,
and made available pursuant to an effective transaction reporting
plan, or an effective national market system plan for reporting
transactions in listed options.'' 17 CFR 242.600(b)(47). ``Effective
transaction reporting plan'' is defined as ``any transaction
reporting plan approved by the Commission pursuant to Sec.
242.601.'' 17 CFR 242.600(b)(23). Rule 601 requires a transaction
reporting plan to be filed and approved pursuant to Rule 608 and to
specify ``[t]he listed equity and Nasdaq securities or classes of
such securities for which transaction reports shall be required by
the plan.'' 17 CFR 242.601(a)(2). Therefore, OTCBB securities are
not NMS securities.
    \126\ ``NMS stock'' is defined as ``any NMS security other than
an option.'' 17 CFR 242.600(b)(48). See also 17 CFR 242.600(b)(47)
(defining NMS security).
    \127\ One commenter suggested that this ``extraneous'' data
should be removed from the exclusive SIPs. See Nasdaq, Total
Markets: A Blueprint for a Better Tomorrow, 18 (``Nasdaq Total
Markets Report''), available at https://www.nasdaq.com/docs/Nasdaq_TotalMarkets_2019_2.pdf.
---------------------------------------------------------------------------

    However, the Commission's proposed definitions of core data and
consolidated market data would not prohibit the independent provision
of other types of market data by the SROs, and, as discussed below,
under the decentralized consolidation model, competing consolidators
would be permitted to collect data from the SROs and offer data
products to subscribers that go beyond what is proposed to be defined
as core data or consolidated market data. Therefore, the exclusion of
OTCBB and concurrent use data from the proposed definitions of core
data and consolidated market data does not preclude the provision of
this data to market participants who wish to receive it.
    Finally, the proposed definition of core data requires that the
BBO, NBBO, and the proposed depth of book data include odd-lots that
when aggregated are equal to or greater than a round lot, and that such
aggregation would occur across multiple prices and be disseminated at
the least aggressive price of all such aggregated odd-lots. Several
national securities exchanges today have rules that provide for a
similar odd-lot aggregation procedure for purposes of providing
quotation data to the exclusive SIPs.\128\ Although not currently
required by Regulation NMS, odd-lot aggregation increases the amount of
quotation data that is included in SIP data and provides transparency
into trading interest would not otherwise have been represented in such
data. The Commission preliminarily believes that this information is
important and should uniformly be included in the proposed core data
disseminated to investors and market participants.\129\ In addition,
for similar reasons, the Commission proposes to include odd-lots that,
when aggregated, form a round lot for purposes of the new proposed
definition of depth of book data.\130\
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    \128\ See infra note 157 and accompanying text.
    \129\ As discussed below, SROs may make the data necessary to
generate consolidated market data available to competing
consolidators and self-aggregators through their existing
proprietary data products. See infra Section IV.B.1. Accordingly,
any odd-lot quotations that are aggregated in an SRO's existing
proprietary data products would be required to be aggregated in a
manner consistent with the method set forth in the proposed
definition of core data. See also proposed Rule 603(b). However,
self-aggregators would only be required to aggregate odd-lots as
prescribed in Rule 600(b)(20) to the extent that generating a
particular component of proposed core data is necessary for that
self-aggregator to comply with applicable regulatory requirements.
For example, to the extent that a self-aggregator's activities
require the self-aggregator to generate the NBBO, the self-
aggregator shall do so as described in Rule 600(b)(20).
    \130\ Today, odd-lots are only aggregated into round lots for
purposes of providing an exchange's best bids and offers to the
exclusive SIPs. See infra note 157.
---------------------------------------------------------------------------

    The Commission preliminarily believes, however, that the proposed
definition of core data should require a different procedure with
respect to the aggregation of odd-lots for purposes of protected
quotations.\131\ For the reasons discussed below, the scope of Rule 611
would not be extended to protected quotations of less than 100
shares.\132\ The Commission preliminarily believes that aggregating
odd-lots across multiple price points for purposes of determining
protected quotations would effectively extend trade-through protection
to quotes of less than 100 shares at different prices.\133\ Therefore,
the proposed definition of core data provides that, for purposes of the
calculation and dissemination of proposed core data by competing
consolidators, and the calculation of proposed core data by self-
aggregators, protected quotations would only include odd-lots at a
single price that, when aggregated, are equal to or greater than 100
shares. However, the Commission is seeking comment on whether and how
odd-lots should be aggregated and the specific proposed core data
elements to which such aggregation should apply.
---------------------------------------------------------------------------

    \131\ See supra note 115 for the definition of ``protected
quotation.'' Odd-lot quotations are not protected quotations under
Rule 611. However, as explained below, many exchanges, pursuant to
their own rules, aggregate odd-lots across multiple price points
into round lots for purposes of providing protected quotations to
the exclusive SIPs. See infra notes 157-158 and accompanying text.
Although not required by Rule 611 or contemplated upon adoption of
Regulation NMS, this has become the prevailing practice. The odd-lot
aggregation methodology set forth in the Commission's proposed
definition of core data would modify this practice. See infra
Section VI.C.1(c)(i).
    \132\ See infra Section III.C.1(d)(ii).
    \133\ See infra Section III.C.1(d)(ii) for a discussion of the
proposed changes to protected bid and protected offer.
---------------------------------------------------------------------------

    The Commission requests comment on the proposed amendment to Rule
600(b)(20) to introduce a definition of core data. In particular, the
Commission solicits comment on the following:
    4. Do commenters believe Rule 600 should be amended to include a
definition of core data? Why or why not?
    5. Do commenters believe that the Commission's proposed definition
of core data captures the key components of information with respect to
quotations for and transactions in NMS stocks that are useful for
participating in today's markets? Are there any other useful market
data elements that should be included in the proposed definition? Does
the proposed definition include any elements that are not useful for
trading? Please explain.
    6. Do commenters believe that there is sufficient demand for OTCBB,
concurrent use, or other data currently provided by the exclusive SIPs
that would not fall within the proposed definition of core data such
that an independent market for the provision of this data would
develop? Why or why not? Would the SROs or other entities that
currently disseminate this data through the exclusive SIPs provide it
through other means (i.e., to competing consolidators or directly to
interested market participants)? Please explain.
    7. The Commission is proposing to include protected quotations in
the proposed definition of core data. Do commenters believe that there
is a need for a ``national protected best bid or offer'' analogous to
the NBBO that would represent a snapshot of the single best protected
bid and single best protected offer from among all the protected bids
and offers of each SRO? Would this be a useful metric for competing
consolidators to calculate and disseminate for market participants for
either routing or regulatory compliance (e.g., the order execution
disclosures required under Rule 605) purposes? Would firms that intend
to self-aggregate produce such a metric on their own? Please explain.

1. Round Lot Size
    Today, SIP data includes quotation information in round lots and
transaction information in both round lots and odd-lots. Market
participants interested in quotation data for individual odd-lot orders
must purchase it from exchange proprietary feeds. As share prices for
many widely-held stocks have risen, individual odd-lot orders now often
represent economically significant trading opportunities at prices that
are better than the prices of displayed and disseminated round
lots.\134\ Accordingly, information about individual odd-lot orders has
gained increased importance with investors and market participants, and
some have suggested that odd-lot orders should be included in SIP
data.\135\
---------------------------------------------------------------------------

    \134\ See infra note 166 and accompanying text, and infra text
accompanying notes 166-170 for staff analysis of odd-lot activity
for the top 500 securities by dollar volume.
    \135\ See infra notes 170-177.
---------------------------------------------------------------------------

    The Commission is proposing to include certain information about
quotations that are currently defined as odd-lots \136\ in proposed
core data by introducing a tiered definition of the term ``round lot.''
As proposed, the definition of round lot would assign different round
lot sizes to individual NMS stocks depending upon their stock price.
The Commission preliminarily believes this would improve the usefulness
of proposed consolidated market data, promote fair competition,\137\
and, like the addition of odd-lot transaction data to SIP data, would
provide important information to investors and other market
participants that would enhance transparency and price discovery.\138\
Moreover, since odd-lot quotes often represent opportunities to trade
at prices that are superior to the prices disseminated by the Equity
Data Plans,\139\ the inclusion of more of these quotes in proposed core
data would facilitate the best execution analyses of broker-dealers who
do not subscribe to proprietary data feeds that include all odd-lot
information.\140\ Further, it would facilitate the ability of investors
to use proposed core data to verify that their broker-dealers are
providing best execution by providing investors with additional
information on the pricing of smaller-sized orders.
---------------------------------------------------------------------------

    \136\ Rule 600(b)(51) defines odd-lot as ``an order for the
purchase or sale of an NMS stock in an amount less than a round
lot.''
    \137\ See 15 U.S.C. 78k-1(a)(1)(C)(ii) (``The Congress finds
that . . . [i]t is in the public interest and appropriate for the
protection of investors and the maintenance of fair and orderly
markets to assure . . . fair competition among brokers and dealers,
among exchange markets, and between exchange markets and markets
other than exchange markets.'').
    \138\ See infra notes 159-160 and accompanying text.
    \139\ See infra notes 166-170 and accompanying text.
    \140\ Statements made by market participants suggest that a
significant number of broker-dealers do not subscribe to all
proprietary market data products. See Roundtable Day One Transcript
at 178 (James Brooks, ICE Data Services) (``[R]oughly half of the
global investment banks take the most comprehensive New York Stock
Exchange order-by-order feed, the other half do not.''); Roundtable
Day One Transcript at 181 (Michael Friedman, Trillium Management)
(``[T]he big fish . . . are the major consumers of depth-of-book
data. I think there was some evidence . . . that there were only 50
to 100 firms, period who buy all of the depth-of-book feeds.'').
---------------------------------------------------------------------------

(a) Regulatory Background
    Round lot, though not defined in the Exchange Act or Regulation
NMS, typically refers to orders or quotes for 100 shares or multiples
thereof. Exchange rules typically define a round lot as 100 shares, but
they also allow the exchange discretion to define it otherwise.\141\
The technical specifications for the Equity Data Plans provide similar
definitions. For example, the CTA Plan defines round lot as
``[t]ypically 100 shares of stock or any number of shares that is a
multiple of 100 (i.e., 100, 600, 1,600, etc.).'' \142\ The exclusive
SIP feeds also disseminate quotation and transaction information for
stocks that have a round lot size of 10 or 1.\143\
---------------------------------------------------------------------------

    \141\ See, e.g., NYSE Rule 55 (``Securities traded on the
Exchange shall be quoted in round lots (generally 100 shares),
except that in the case of certain stocks designated by the Exchange
the round lot shall be such lesser number of shares as may be
determined by the Exchange, with respect to each stock so
designated.''); Nasdaq Rule 5005(a)(39) (```Round Lot' or `Normal
Unit of Trading' means 100 shares of a security unless, with respect
to a particular security, Nasdaq determines that a normal unit of
trading shall constitute other than 100 shares.''). According to
NYSE Trade and Quote (``TAQ'') Data, as of August 2019, twelve
stocks, all of which are listed on NYSE or NYSE American, had a
round lot size other than 100. Ten stocks had a round lot of ten and
two stocks had a round lot of one.
    \142\ Consolidated Tape System, Multicast Output Binary
Specification, 85 (May 8, 2018), available at https://www.ctaplan.com/publicdocs/ctaplan/notifications/trader-update/CTS_BINARY_OUTPUT_SPECIFICATION.pdf. The technical specifications
for the Nasdaq UTP Plan note that ``[f]or most NASDAQ issues, the
round lot size is 100 shares.'' UTP Data Feed Services
Specification, 22, available at http://www.utpplan.com/DOC/UtpBinaryOutputSpec.pdf (last accessed Jan. 7, 2020).
    \143\ See supra note 141.
---------------------------------------------------------------------------

    Regulation NMS defines ``odd-lot'' as ``an order for the purchase
or sale of an NMS stock in an amount less than a round lot.'' \144\
Exchange definitions of odd-lot are similar, as is the definition of
odd-lot in the technical specifications for the CTA Plan.\145\
---------------------------------------------------------------------------

    \144\ 17 CFR 242.600(b)(51).
    \145\ See, e.g., Cboe BZX Rule 11.10 (``One hundred (100) shares
shall constitute a `round lot,' any amount less than 100 shares
shall constitute an `odd lot,' and any amount greater than 100
shares that is not a multiple of a round lot shall constitute a
`mixed lot.' ''); Consolidated Tape System, Multicast Output Binary
Specification, 84 (May 8, 2018), available at https://www.ctaplan.com/publicdocs/ctaplan/notifications/trader-update/CTS_BINARY_OUTPUT_SPECIFICATION.pdf (defining ``odd lot'' as ``[a]n
order amount for a security that is less than the normal unit of
trading for that particular asset. Odd lots are considered to be
anything less than the standard units of trade of 1, 10 or 100
shares.'').
---------------------------------------------------------------------------

    Despite the absence of a round lot definition, other key defined
terms in Regulation NMS--such as ``bid or offer,'' ``best bid and best
offer,'' and ``quotation''--refer, directly or indirectly, to round
lot. The effect of these references to round lot is that odd-lot
quotation information is not currently collected or disseminated under
Regulation NMS.\146\ For example, Rule 601 refers to ``transaction
reports,'' \147\ the definition of which refers to round lot.\148\ Rule
602 refers to ``bids'' and ``offers,'' \149\ the definition of which
also refer to round lot.\150\ Rule 603 refers to a ``national best bid
and national best offer,'' \151\ which ultimately refers back to round
lot.\152\ Rules 610 (access to quotations) \153\ and 611 (order
protection rule) \154\ do not apply to odd-lot orders. Rule 604
(display of customer limit orders) also refers to bids and offers \155\
and specifically excludes odd-lot orders.\156\
---------------------------------------------------------------------------

    \146\ The Commission's proposal to add a definition of round lot
will result in the inclusion of additional quotation data for
smaller-sized orders in proposed core data, and, as discussed below
in Section III.C.1(d)(i), will also affect the firm quote
requirements of Rule 602(b), the customer limit order display
requirements of Rule 604, the order execution disclosures required
under Rule 605, the requirements under Rule 610(c) regarding fees
for accessing quotations, and the Short Sale Circuit Breaker
requirements of Rule 201. As discussed below in Section
III.C.1(d)(ii), the Commission is also proposing certain amendments
to the definition of ``protected bid or protected offer'' so that
the scope of the order protection requirements of Rule 611 and the
locked and crossed market prevention requirements of Rule 610(c) are
not extended to the proposed smaller round lot sizes.
    \147\ See Rule 601, 17 CFR 242.601.
    \148\ See Rule 600(b)(84), 17 CFR 242.600(b)(84).
    \149\ See Rule 602, 17 CFR 242.602.
    \150\ See Rule 600(b)(9), 17 CFR 242.600(b)(9).
    \151\ See Rule 603, 17 CFR 242.603.
    \152\ See Rule 600(b)(43), 17 CFR 242.600(b)(43); Rule
600(b)(9), 17 CFR 242.600(b)(9).
    \153\ See Rule 610, 17 CFR 242.610.
    \154\ See Rule 611, 17 CFR 242.611.
    \155\ See Rule 604, 17 CFR 242.604.
    \156\ See Rule 604(b)(3), 17 CFR 242.604(b)(3).
---------------------------------------------------------------------------

    Several exchanges, however, pursuant to their own rules, aggregate
odd-lot orders into round lots and report such aggregated odd-lot
orders as quotation information to the exclusive SIPs. Exchange rules
specify how the

aggregation process works in different terms and with different levels
of specificity,\157\ but many exchanges aggregate odd-lots across
multiple prices and provide them to the exclusive SIPs at the least
aggressive price if the combined odd-lot interest is equal to or
greater than a round lot.\158\
---------------------------------------------------------------------------

    \157\ See, e.g., NYSE Rule 7.36 (``The best-ranked non-
marketable displayed Limit Order(s) to buy and the best ranked non-
marketable displayed Limit Order(s) to sell in the Exchange Book and
the aggregate displayed size of such orders associated with such
prices will be collected and made available to quotation vendors for
dissemination pursuant to the requirements of Rule 602 of Regulation
NMS under the Exchange Act. If non-marketable odd-lot sized orders
at multiple price levels can be aggregated to equal at least a round
lot, such odd-lot sized orders will be displayed as the best ranked
displayed orders to sell (buy) at the least aggressive price at
which such odd-lot sized orders can be aggregated to equal at least
a round lot.''); Nasdaq Rule 4756 (``Pursuant to Rule 602 of
Regulation NMS under the Exchange Act, Nasdaq will transmit for
display to the appropriate network processor for each System
Security: (i) The highest price to buy wherein the aggregate size of
all displayed buy interest in the System greater than or equal to
that price is one round lot or greater; (ii) the aggregate size of
all displayed buy interest in the System greater than or equal to
the price in (i), rounded down to the nearest round lot; (iii) the
lowest price to sell wherein the aggregate size of all displayed
sell interest in the System less than or equal to that price is one
round lot or greater; and (iv) the aggregate size of all displayed
sell interest in the System less than or equal to the price in
(iii), rounded down to the nearest round lot.''); Cboe BZX Rule
11.9(c)(2) (``Odd Lot Orders are only eligible to be Protected
Quotations if aggregated to form a round lot.''); supra Section
III.C for a discussion of odd-lot aggregation. As noted above, the
proposed definition of core data sets forth a methodology for odd-
lot aggregation for the components of core data. Any odd-lot
quotations that are aggregated in an SRO's existing proprietary data
products would be required to be aggregated in a manner consistent
with the method set forth in the proposed definition of core data.
See supra note 129.
    \158\ See id. For example, if there are three sell orders on an
exchange for a particular NMS stock--30 shares at $10.08, 20 shares
at $10.09, and 50 shares at $10.10--the exchange will post 100
shares at $10.10 as a protected round lot quote to the exclusive
SIP. See infra Section VI.C.1(c)(i).
---------------------------------------------------------------------------

    In 2013, the participants to the Equity Data Plans filed proposed
amendments to the Plans to add odd-lot transactions to SIP data.\159\
In support of the proposed amendments, the participants to the Equity
Data Plans noted that ``odd-lot transactions account for a not
insignificant percentage of trading volume, [and] the Participants have
determined that including odd-lot transactions on the consolidated tape
. . . would add post-trade transparency to the marketplace.'' \160\ In
approving the amendments, the Commission agreed that ``odd-lot
transactions comprise a noteworthy percentage of total trading
volume,'' and stated that ``including odd-lot transactions on the
consolidated tape will enhance post-trade transparency, as well as
price discovery, and consequently would further the goals of the
[Exchange] Act,'' and that ``information about odd-lot transactions
would provide important information to investors and other market
participants and therefore represents a positive development in the
provision of market data.'' \161\
---------------------------------------------------------------------------

    \159\ Odd-lot transaction data that is required to be collected,
consolidated, and disseminated pursuant to the Equity Data Plans
would be included in the proposed definition of consolidated market
data pursuant to proposed Rule 600(b)(20)(viii).
    \160\ Securities Exchange Act Release Nos. 70793 (Oct. 31,
2013), 78 FR 66788 (Nov. 6, 2013) (order approving Amendment No. 30
to the UTP Plan to require odd-lot transactions to be reported to
consolidated tape); 70794 (Oct. 31, 2013), 78 FR 66789 (Nov. 6,
2013) (order approving Eighteenth Substantive Amendment to the
Second Restatement of the CTA Plan to require odd-lot transactions
to be reported to consolidated tape).
    \161\ Id. at 66789-66790.
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(b) Market Evolution