In the first 45 days of 2020,1 the SEC issued two proposals that, together, describe a new frontier of equity market structure that would profoundly change how U.S. equity markets function. The proposals would change nearly every rule of Regulation NMS, touching every quote and trade, every individual and institutional investor, every broker, dealer and market maker, every market data vendor and consumer, and every execution venue.2 The proposals exceed in length, scope, complexity and potential impact any prior proposal from the modern era of equity trading, whether by the SEC itself or by the Equity Market Structure Advisory Committee that the SEC convened, to recommend market structure reforms.
Nasdaq urges every market participant to analyze the proposals and express their views, whether supportive or opposed, in whole or in part, mildly or with intensity. In the interest of promoting awareness and kick-starting discussion, Nasdaq has assembled this high-level summary of nearly 700 pages of documentation. Briefly, the proposals would:
Create Multiple SIPs
The Commission proposes to replace the two Securities Information Processors (SIPs) in operation today (one for the UTP Plan and one for the CTA Plan) with an estimated twelve “competing consolidators” upon full implementation of the proposal.3 These competing consolidators would be supplemented by “self-aggregators,” which would generate consolidated market data for their own accounts or to execute customer transactions, but would not be authorized to distribute data externally.
Eliminate the Unified NBBO
Substitute a National Best Bid and Offer (NBBO) from a single processor with the potential for NBBOs from multiple processors. The NBBO is the best bid and offer for an NMS security that is calculated and disseminated on a current and continuous basis by the two SIPs currently in operation (which each distribute NBBOs for different “tapes”). The proposal is to replace a single NBBO with localized NBBOs, defined as the best bid and offer that is calculated and disseminated on a current and continuing basis by a competing consolidator or calculated by a self-aggregator.