The Securities and Exchange Commission (SEC) announced on December 23, 2025, a notice in the Federal Register soliciting public comments on the proposed extension of an existing information collection under Rule 602 of Regulation NMS. This development pertains to the dissemination of quotations in national market system (NMS) securities, a critical aspect of maintaining transparency and efficiency in U.S. equities markets. The notice, published in Volume 90, Number 244 of the Federal Register, outlines the SEC's plan to submit this collection to the Office of Management and Budget (OMB) for approval under the Paperwork Reduction Act of 1995. By seeking input from stakeholders, the SEC aims to assess the necessity, accuracy, and burden of these requirements, which support real-time quote information for investors and market participants. This process underscores the ongoing regulatory efforts to balance market transparency with administrative efficiency in an era of high-speed trading.
Background on Rule 602 and Regulation NMS
Regulation NMS, adopted by the SEC in 2005, establishes a framework for fair and efficient national markets in equities. Rule 602, formally known as the Quote Rule, plays a central role by mandating the dissemination of quotation information. Specifically, Rule 602(a) requires national securities exchanges and associations to provide quotation vendors with the best bid, best offer, and aggregate quotation size for each subject security. Subject securities include NMS stocks, which are equities listed on national exchanges or quoted over-the-counter that meet certain criteria.
Rule 602(b) complements this by obligating responsible brokers or dealers, including exchange members and over-the-counter market makers, to communicate their best bids, offers, and sizes to exchanges or associations. This ensures a consolidated feed of quotation data, which is disseminated publicly through systems like the Consolidated Quotation System. The rule's origins trace back to earlier SEC initiatives in the 1970s and 1980s to promote a national market system, as mandated by the Securities Acts Amendments of 1975. Key precedents include the SEC's 1994 adoption of the Order Handling Rules, which enhanced quote transparency to reduce information asymmetries between market professionals and retail investors.
The current notice arises under the Paperwork Reduction Act (PRA), which requires federal agencies to minimize paperwork burdens on the public while ensuring necessary data collection. The SEC's OMB Control Number for Rule 602 is 3235-0461, and this extension request reflects periodic reviews every three years to justify continued approval.
Key Players and Reporting Obligations
The primary respondents under Rule 602(a) are 29 national securities exchanges, such as the New York Stock Exchange and Nasdaq, along with one national securities association, the Financial Industry Regulatory Authority (FINRA). These entities are responsible for making quotation data available to vendors for public dissemination. The notice estimates that these 30 respondents will handle approximately 1,543,667,886,538 responses annually, each taking about 16.20 microseconds, resulting in a total burden of 208,410 hours per year.
For Rule 602(b), the SEC anticipates no reporting burden, as exchange members typically fulfill obligations through electronic trading systems, and no over-the-counter market makers currently quote outside exchanges. The notice also mentions an optional provision for electronic communications networks (ECNs) under Rule 602(b)(5), but it is not subject to PRA review due to its limited scope affecting fewer than nine entities.
Involved agencies include the SEC, which oversees securities regulation, and the OMB, which approves information collections. Public stakeholders, including market participants, vendors, and investors, are invited to comment on aspects like the necessity of the data, estimate accuracy, and ways to reduce burdens, such as through automated technologies.
Burden Estimates and Methodological Considerations
The SEC's burden calculation highlights the high-volume, low-time nature of modern trading. With over 1.5 trillion annual responses under Rule 602(a), the estimate assumes rapid electronic processing at 16.20 microseconds per response. This methodology draws from industry data on quote traffic, reflecting the shift to algorithmic and high-frequency trading since Regulation NMS's implementation.
Critics, including some industry groups, have previously argued that such estimates understate compliance costs, particularly for smaller exchanges. For instance, in past PRA comment periods, exchanges like Cboe have suggested refinements to account for system upgrades. Conversely, investor advocates, such as those from the CFA Institute, emphasize the practical utility of quote dissemination in promoting fair pricing. The notice invites feedback on enhancing data quality and minimizing burdens, potentially through innovations like cloud-based reporting.
Implications for Market Transparency and Regulation
Short-term implications include potential adjustments to Rule 602 based on comments, which could refine how quotation data is collected and disseminated. This might affect market data fees or vendor operations, areas of ongoing debate in SEC rulemaking. Long-term, the extension supports the broader goals of Regulation NMS, such as protecting investors and maintaining orderly markets amid evolving technologies like decentralized finance.
Different perspectives exist: Proponents view Rule 602 as essential for transparency, reducing the risk of market manipulation. Opponents, often from the trading industry, argue it imposes unnecessary administrative loads in an already digitized environment. Legal precedents, like the 2018 Supreme Court case Lucia v. SEC on administrative proceedings, indirectly influence how such rules are enforced, though not directly applicable here.
In conclusion, this notice represents a routine yet vital step in federal regulatory oversight, ensuring that quotation dissemination remains effective without undue burden. Potential next steps include the SEC's submission to OMB after the comment period ends on February 23, 2026, followed by a 30-day notice for further input. Ongoing debates may center on integrating emerging technologies to streamline compliance, while challenges persist in balancing innovation with investor protection. Stakeholders should monitor for any revisions that could reshape market data practices.
