NBIM outlines potential barriers in proposed US equity market data infrastructure reform

Norges Bank Investment Management (NBIM) has welcomed the progress on the development of the Market Data Infrastructure Rule, but warned that aspects of the current proposals could have a negative impact.

In a letter to the Securities and Exchange Commission (SEC), NBIM said it was supportive of the need to reform and modernise the market data infrastructure of US equity markets.

However, the asset manager noted that the fee amendment, as currently proposed, could have a negative impact on the introduction of competition in the provision of consolidated market data feeds and the pricing power of exchanges as data providers to the data feeds.

The SEC’s Market Data Infrastructure Rule will create a definition of ‘core data’ for the first time, and requires core data and proprietary data to be transmitted using the same format, hardware and method of transmission, with the aim of reducing latency.

Although it welcomed the progress made so far, NBIM warned that the differentiation in pricing power between latency-sensitive market participants and less latency-sensitive market participants would continue under the current proposals.

It questioned the appropriateness of basing the pricing of consolidated feed on the value of direct feeds, and said it was unlikely that latency-sensitive market participants would view the consolidated feed as a credible substitute for direct feeds under the reforms.

NBIM also argued that locating processors at the same data centre as most institutional brokers/dealers would provide a consolidated market feed that was uniquely useful for asset managers, and the benefit of competitive, geographically dispersed consolidated market data providers would be “substantial”.

“Such a feed would enable a more accurate monitoring of the best execution efforts of the broker/dealers that we employ as agents,” the letter stated.

“This has the potential to improve the outcome for investors through lower market impact costs.

"From this perspective, ensuring the competitive viability of geographically dispersed consolidated market data providers is critical.

“We view the proposed fee schedule, including the imposition of redistribution fees on competing processors, as inimical to this viability.”

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