SEC Commissioner Hester Peirce urged the SEC to (i) more carefully analyze the definitions of the terms "facility" and "exchange" in the Securities Exchange Act, (ii) develop related guidance and (iii) solicit public comment on current guidance.
Ms. Peirce's public statement follows the SEC's approval of an application from the NYSE and four affiliated exchanges as to fees that they may impose for wireless bandwidth connections provided to market participants by an affiliate of the exchanges. As described in the SEC's approval Order, the SEC concluded that it has the authority to review and approve the fees because it determined that the wireless connections are "facilities" under that term's definition in Section 3(a)(2) of the Securities Exchange Act.
In her statement, Ms. Peirce disagreed with the SEC's view that a service provider's affiliation to the exchanges is inherently sufficient for the services provided to be considered as an exchange "facility" as defined in Section 3(a)(2) of the Exchange Act. Ms. Peirce argued that the SEC's approach to applying the definitions of "facility" and "exchange" has been ad hoc, enabling it to maximize its regulatory authority "as it pleases."
Ms. Peirce suggested that the SEC provide comprehensive guidance on:
- the significance of a facility operator's exchange affiliation in the determination of whether it is a "facility";
- the necessary separation required between an exchange and its affiliate to avoid designation of the affiliate as a "facility";
- whether a third-party entity that uses the property or premises of an exchange for transactional purposes is deemed a "facility" of the exchange;
- the criteria for determining something to be the property of an exchange;
- the regulatory implications of a system of communication that (i) occupies a "special position" to an exchange and (i) is "uniquely linked to and endorsed by" the exchange to provide service; and
- the importance of competition in providing the function that is served by a potential facility.
It seems implicit in Commissioner Peirce's remarks that the SEC would do better if it could mandate that exchanges allow non-affiliated service providers to compete on equal terms, rather than setting the prices charged by affiliated service providers.
- SEC Statement, Hester M. Peirce: Order Approving a Wireless Fee Schedule Setting Forth Available Wireless Bandwidth Connections and Wireless Market Data Connections
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