08.02.2018 0

Either break up the government-created NYSE market data monopoly or else rein in excessive fees

By Robert Romano

Government-created monopolies are not a new thing, and indeed there are times when Congress has determined that having a government charter for an authoritative, monopoly function can serve a valuable public need.

Sometimes these are agencies. The Federal Reserve is tasked by Congress to control the money supply.

Sometimes they are Government Sponsored Enterprises. Mortgage giants Fannie Mae and Freddie Mac service millions of home mortgages in the U.S.

Ginnie Mae, which handles FHA and VA loans, is actually a bona fide government agency, unlike Fannie and Freddie, which are publicly traded companies.

The Internet Corporation for Assigned Names and Numbers (ICANN) was a non-profit created to handle the U.S. Department of Commerce government contract to manage the domain name system in the late 1990s that links easy to remember domain names with unique IP addresses. That contract was allowed to lapse in 2016, and now ICANN operates an unregulated global monopoly of the DNS system.

Whether these monopolies should have been created in the first place or if the government acts that created them were even constitutional is one matter, one that can be debated and has been debated. But as is often the case, this is not at all debated in Congress. They are simply reauthorized or never sunset at all. As Ronald Reagan once reminded us, the closest thing to eternal life is a government program.

Like it or not, we’re stuck with these agencies, GSEs and other government-created monopolies. And when they behave badly, they need to be regulated, because markets are not permitted to do so via competition thanks to the same government acts that created them.

Such it is with the nation’s stock exchanges, like the New York Stock Exchange (NYSE) and NASDAQ. Back in 1975, Congress passed law, the “Securities Acts Amendments of 1975,” that gave the stock exchanges a monopoly property right over trade data, that is, the bids, offers and last sale information of equities.

Access to that data is quite valuable since there is no other way to get it. Ideally, traders would be able to buy and sell with each other without having to go through an intermediary. But that is not the system Congress, the Securities and Exchange Commission (SEC) and the exchanges themselves created. In this case, the exchanges solely get to set the price for access to this trade data — within the bounds set by the SEC. There is no competition.

In 2017, the exchanges shared almost $400 million of market data, according to industry data.

And now, it looks like the exchanges may be abusing that monopoly power, by attempting to once again ratchet up the fees for access to this market data.

When this happens, as with other government-created monopolies, the regulating agencies should take notice and examine impacts on the market. Basically to follow the law. Regrettably, usually these fee increases are rubberstamped by the SEC.

But this year, when the exchange proposed major increases in the fees to do with market data, in May the Trump administration and the SEC said no. Good for them.

This followed an Oct. 2017, the U.S. Treasury issued a report entitled “A Financial System That Creates Economic Opportunities” on the matter stating, “Treasury recommends that the SEC also recognize that markets for SIP [Securities Information Processor] and proprietary data feeds are not fully competitive. The SEC has the authority under the Exchange Act to determine whether the fees charged by an exclusive processor for market information are ‘fair and reasonable,’ ‘not unreasonably discriminatory,’ and an ‘equitable allocation’ of reasonable fees among persons who use the data. The SEC should consider these factors when determining whether to approve SRO [Self-Regulatory Organization] rule changes that set data fees.”

That is a perfectly reasonable position for an administration committed to lowering the cost of doing business in the U.S., since a fee levied by a government-created monopoly can place the same burden as a tax levied by the government itself. Why not follow the law and ensure that these fees are “fair and reasonable”?

If we are going to be stuck with these government-created and regulated monopolies, that is, if Congress will not end them, then it is up to the government agencies that have oversight, in this case the SEC, to follow the law and ensure that those monopolies do not place onerous burdens on privately owned businesses or individuals that do not have government charters to pad their bottom lines.

Robert Romano is the Vice President of Public Policy at Americans for Limited Government.

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