SEC Chairman Jay Clayton has overseen the commission’s efforts to crack down on exchanges’ market-data practices.
Photo: Andrew Harrer/Bloomberg NewsWall Street’s chief regulator and the nation’s antitrust watchdog agreed to a formal partnership that could result in greater scrutiny of the fees charged by stock exchanges for crucial market data.
The Securities and Exchange Commission and the U.S. Justice Department unveiled the memorandum of understanding Monday at an event in Washington. The SEC has recently clashed with exchanges over the fees levied for their most robust data products. Now, the move to involve the Justice Department, with its authority over competitive markets, will beef up the SEC’s ability to examine whether exchanges abuse their quasi-monopoly status to overcharge for data, as a number of big banks, brokerages and trading firms allege.
SEC Chairman Jay Clayton, who has overseen the commission’s recent efforts to crack down on exchanges’ market-data practices, said in a discussion broadcast online Monday that many Wall Street firms had complained about the cost of data and it was the SEC’s job to review proposed fee hikes.
The SEC “has a compelling regulatory responsibility to analyze concerns about the fairness and reasonableness of exchange fees for proprietary data,” he said.
The DOJ’s antitrust division could help the SEC determine whether exchanges’ data fees are subject to competition, Mr. Clayton added, seated alongside Assistant Attorney General Makan Delrahim, the DOJ’s top antitrust official. Mr. Delrahim spearheaded the Trump administration’s unsuccessful effort to block the merger of AT&T Inc. and Time Warner, and he is overseeing the department’s antitrust review of Silicon Valley tech giants.
The DOJ’s antitrust cops have also been involved in efforts to police practices on Wall Street. A yearslong effort to address manipulation of market benchmarks, such as the London interbank offered rate, included claims that banks colluded to rig the rates.
“Competition offers numerous consumer benefits regardless of the underlying market,” Mr. Delrahim said Monday. “A regulatory scheme that omits competition considerations is likely to leave, as they say, money on the table, and consumers disadvantaged.”
Wall Street banks, brokers and high-speed trading firms have complained for years that the country’s big three stock-exchange operators charge too much for market data, particularly the feeds that provide the most complete view of market activity. The exchanges counter that their fees are reasonable and that firms can buy cheaper, public data feeds instead.
“We welcome any additional reviews from the SEC and/or DOJ as we are fully confident in the integrity of our market data business,” said a spokesman for Nasdaq Inc. Representatives of the New York Stock Exchange and Cboe Global Markets Inc. declined to comment.
The SEC in 2018 rejected a pair of market-data price increases from the NYSE and Nasdaq, creating a new agency precedent for reviewing such fee hikes.
The precedent was short-lived. A federal appeals court earlier this month vacated the SEC’s decision, saying the agency had misused an administrative process and couldn’t challenge fees that had already taken effect.
The regulator still has the power to review whether new price increases for market-data products are fair, and has signaled it is willing to suspend them if they don’t pass muster. Last year, it outlined some of the factors it would consider, asking exchanges to submit more detailed evidence showing why a fee change should be allowed.
NYSE parent Intercontinental Exchange Inc., Nasdaq and Cboe dominate the U.S. stock-exchange landscape and together handle around 60% of daily equities trading volume, with the rest being executed in various off-exchange platforms.
From 2014 to 2017, total annual revenue from market-data services for the big three exchange companies surged 45% to $2.3 billion, according to an analysis by the Committee on Capital Markets Regulation, a group whose members include banks and asset managers. Exchanges have disputed the group’s analysis.
Much of the controversy has focused on proprietary data feeds that provide sophisticated firms with ultrafast access to the exchanges’ latest stock prices, quotes and information on buy and sell orders. Wall Street banks and high-speed traders say such data are critical for their businesses.
Smaller firms and retail brokerages like TD Ameritrade Holding Corp. use another, cheaper set of public data feeds operated by the NYSE and Nasdaq that are slower and contain less data. Under Mr. Clayton, the SEC has also proposed improving such public feeds, which would make them a more compelling alternative to the exchanges’ more lucrative proprietary feeds.
Write to Dave Michaels at dave.michaels@wsj.com and Alexander Osipovich at alexander.osipovich@dowjones.com
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