(October 5) – “The Securities and Exchange Commission, in its continuing effort to determine the right prices for stock price quotations and other market data, has formed an outside committee on market data,” writes Judith Burns in today’s Wall Street Journal.

” ‘We’ve created the advisory committee as a way to formally tap private-sector expertise in a complex area where there clearly is a wide range of views,’ said Annette Nazareth, director of the SEC’s market regulation division.”

“The committee will hold its first meeting in Washington on Tuesday to discuss whether to change the decades-old system for how stock information is gathered, distributed and paid for. It includes officials from the New York Stock Exchange, the Nasdaq Stock Market, the American Stock Exchange (both units of the National Association of Securities Dealers), the Chicago Stock Exchange and the Chicago Board Options Exchange. Brokerage firms and trading systems are also represented, along with institutional investors such as Fidelity Investments. The committee’s head is Joel Seligman, dean of the Washington University Law School in St. Louis.”

“Critics say that the SEC’s reliance on a committee of outsiders is a way to postpone a difficult and possibly unpopular decision on pricing. SEC officials dispute such suggestions, and expressed confidence in the advisory panel.”

“The SEC’s involvement in the subject dates from 1975, when Congress adopted legislation requiring the agency to ensure investors pay “fair and reasonable” prices for stock quotes and other market data.”

“Data users, chiefly brokers and resellers, pay exchanges for real-time price quotes, while ‘historical’ quotes more than a few minutes old are provided free of charge. Selling data is an important source of income for U.S. markets, particularly regional exchanges, and helps pay for market oversight and self-regulation.”

“Problems emerged with the rise of online trading, as individual investors insisted on getting up-to-the-minute price quotes, forcing online brokers to incur higher costs than traditional brick-and-mortar firms.”

“Charles Schwab Corp. petitioned the SEC in mid-1999, claiming the market-data fee structure penalizes online firms, resulting in a pricing scheme that is neither fair nor reasonable. The SEC responded by issuing a paper in December that raised a host of questions and proposed that markets set fees to recoup the cost of data collection, consolidation and dissemination, and cover some oversight costs.”