Exchanges Object to Brokers Gaining More Stock-Market Oversight

  • NYSE and Nasdaq don't want brokers to get voting rights
  • Complaint involves key aspects of the U.S. stock market

The New York Stock Exchange, Nasdaq Stock Market and several other exchange operators asked lawmakers not to give brokers and investors greater influence over important aspects of the U.S. stock market.

Only exchanges should be voting members on committees that govern things including market-data feeds and volatility safeguards called limit-up/limit-down, according to a Feb. 10 letter they sent to top members of the U.S. House Financial Services Committee.

Their request stands out for two reasons: market-data feeds are lightning rods of anger for brokers and investors, who argue exchanges are charging too much for them. Also, one of the biggest U.S. stock market operators -- Bats Global Markets Inc. -- is notably absent from the list of firms that signed the letter. Bats has argued that market-data feeds do need oversight from firms other than exchanges.

Representatives from NYSE, Nasdaq, CBOE Holdings Inc., the Chicago Stock Exchange, the International Securities Exchange Inc. and Options Clearing Corp. signed the letter, which was addressed to Jeb Hensarling, a Texas Republican who is chairman of the House committee, and Maxine Waters, a California Democrat who is a ranking member.

NMS Plans

According to the letter, brokers and investors already have a voice in governing “NMS plans,” which include market-data feeds, volatility curbs and the “tick size pilot,” a program mandated by Congress to test ways to spur more trading of small stocks. That’s because all are subject to public-comment periods, giving brokers and investors an opportunity to weigh in on proposed changes, the exchanges argued.

“We oppose any legislation that would give individuals who do not carry the same obligations under the Exchange Act, a role in implementing, operating and enforcing NMS Plans beyond an Advisory Committee capacity,” according to the letter.

“NMS plans are increasingly important,” said Jamie Selway, managing director at Investment Technology Group Inc., a New York-based brokerage. “An exchange board’s own governance contains representation of its members and the public. If the exchanges say that’s OK for the boards themselves, then why not for NMS plans?”

The Securities Industry and Financial Markets Association, a trade group for brokers, has accused exchanges of charging too much for data feeds. Bloomberg LP, the parent company of Bloomberg News, is a Sifma member and is involved in the case.

Before it's here, it's on the Bloomberg Terminal.