Appeals court plumbs Nasdaq objections to securities rule

WASHINGTON (CN) — An attorney for Nasdaq urged the D.C. Circuit on Friday to vacate the Securities and Exchange Commission’s market data rule, arguing it will exacerbate the competition and efficiency problems it seeks to fix.

“The problem isn’t that it’s bringing competition,” attorney Thomas Hungar told a three-judge panel. "The problem is that its rationale for the regime that it has set up is directly contradicted by its own findings about how that regime is going to work."

The commission claims the rule aims to eliminate the current two-tiered market in which several large stock brokers say that to keep up with competition they have to pay for private stock data feeds that are often costlier than public feeds.

But Hungar said it will actually “make things worse” by creating a multitiered market, which contradicts the commission’s stated goal of increasing competition and efficiency.

A judge asked from whose “perspective” will it make things worse.

Hungar said the commission admitted in its own findings that the rule may cause increased latency, or slower data and less content.

“Simply, as a matter of physics, it has to be true because the competing consolidators and the self-aggregators will receive the data at the same time,” he said. “They will then process it in whatever way they choose, and then the competing consolidators will have to transfer that data to their customers while the self aggregators are self-trading on it.”

Time is significant, he said, because a hundred thousand microseconds is “indistinguishable” to us, but it makes all the difference for day traders.

“The difference between being able to trade while the competing consolidator is sending its data to somebody else before they can trade means they’re going to get there first and they’re going to get the trade,” Hungar said.

He said the rule is basically a “new” version of the already-existing two-tier market that the commission claimed it was trying to eliminate.

But SEC attorney Tracy Hardin insisted that Nasdaq just does not want to change the status quo because it is “enjoying” its position in the market.

“What we’re saying is that competition should dictate who are the winners and losers here, not the regulation,” Hardin said. 

“And the only opponents to this were the ones who are both controlling the monopoly and selling the data products that people are increasingly needing because of the need for information and for speed.”

Hungar insisted, however, that the manner in which the commission implemented the rule, and its proffered justification, “completely undercuts what they’ve done" because it compounds the alleged issue they claim to be fixing.

Friday’s oral arguments stem from a petition for review Nasdaq filed last April.

Arguments were heard by U.S. Circuit Judges Judith Rogers, Neomi Rao and A. Raymond Randolph, who were appointed by Presidents Bill Clinton, Donald Trump, and George H.W. Bush, respectively. It is not clear when a ruling will be made.

Follow @EmilyZantowNews

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