SIFMA v. NASDAQ Litigation

In June 2016, Chief Administrative Law Judge Brenda P. Murray of the Securities and Exchange Commission ruled in favor of Nasdaq Stock Market LLC (“NASDAQ”) and NYSE Arca, Inc. (“NYSE Arca”) on a challenge to the prices charged by NASDAQ and NYSE Arca for their proprietary “depth-of-book data” products. The Securities Industry and Financial Markets Association (“SIFMA”) challenged the prices charged by NASDAQ and NYSE Arca, claiming, in part, that neither exchange “was subject to significant competitive forces in setting the terms” of its fees. This issue has been litigated since 2006 with Compass Lexecon’s Gustavo Bamberger and Compass Lexecon Senior Consultant Professor Janusz Ordover filing statements on behalf of NASDAQ in 2008, 2010 and 2011, in which they proposed proper economic foundations for the assessment of competitive conditions in the provision of proprietary information regarding cash equities transactions. The last round was a response to SIFMA’s challenges to prior rule changes by NASDAQ and NYSE Arca that implemented price changes for these data products. Professor Ordover submitted an expert report and testified at a hearing on behalf of NASDAQ, showing that the existence of alternative sources of depth-of-book data, as well as competition between exchanges for “order flow” constrain NASDAQ’s prices for depth-of-book data. Professor Ordover also explained that marginal-cost pricing is not sustainable in the exchange industry, and that a market-based approach to pricing is likely to lead to greater efficiency and enhanced consumer welfare. SIFMA presented testimony that challenged Professor Ordover’s conclusions as well as the conclusions of witnesses for NYSE Arca. Judge Murray closely analyzed various criticisms levied against Professor Ordover and ultimately concluded that NASDAQ’s pricing satisfied the test laid out by the D.C. Circuit Court in a prior ruling for gauging whether NASDAQ’s pricing was subject to competitive forces. NASDAQ was represented by Daniel G. Swanson, Eugene Scalia, Joshua Lipton, Amir C. Tayrani and Thomas M. Johnson, Jr. of Gibson, Dunn & Crutcher LLP and Stephen D. Susman and Jacob W. Buchdahl of Susman Godfrey LLP. Compass Lexecon also worked closely with NASDAQ’s Jeffrey Davis, Dr. Frank M. Hatheway and John M. Yetter. The Compass Lexecon team included Professor Janusz Ordover, Gustavo Bamberger and Ron Laschever.