[00:00:01] Speaker 00:
Keith number 21-1088, Bloomberg LP Petitioner versus Securities and Exchange Commission.

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Mr. Bradley for the petitioner, Mr. Wyman for the respondent.

[00:00:13] Speaker 03:
All right, good morning, Mr. Bradley.

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We'll hear from you.

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Good morning, and may it please the court.

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I'm Keith Bradley representing Bloomberg, the petitioner in this case.

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The SEC has approved a restructuring of the system for getting investors' reference data on corporate bonds.

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That's a major change, and the SEC's assessment of it is troubling.

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We talked about many different problems in our briefs, but here I'd like to focus on just two.

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First, the economic consequences, and second, the lack of evidence of an actual problem.

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First, the economic consequences.

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The SEC's decisions in this area are really about dollars and cents ultimately.

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Underwriters are going to have to submit data to FINRA accurately and in a short timeframe.

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SIFMA, that's an association representing investors and underwriters, told the SEC that compliance would be difficult if not impossible in many circumstances.

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The order doesn't even discuss that concern.

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Instead, the SEC simply asserted that the cost is small enough compared to the benefit because underwriters are already providing their data to data vendors.

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What happens today is an iterative process.

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in which vendors work with underwriters to organize the information, to check it and verify it and prepare it for traders.

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Under the new rule, an underwriter has to do that work for itself.

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It's as though because you hand over a bag of receipts to your accountant every year, the SEC thinks that it takes no more effort to prepare your own tax return.

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Can you explain to me why

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this might be a substantial problem.

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I mean, just looking at this from 200,000 feet, I'm struck by a couple of things.

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One is it's just very hard to believe that in the digital age,

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It is really that hard for people who want to sell bonds to disseminate to the market really basic information.

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I mean, some of these data fields are things like the interest rate, the number of payments per year, the yield date.

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I mean, people make fortunes buying and selling stocks based on information flows literally in microseconds.

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And I mean, the idea that it's just an insupportable burden to disseminate data about when the bond is gonna become due, it just seems hard for me to fathom.

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So a couple of points to your honor.

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First is bonds are different from, you're right about stocks.

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Bonds are different in many different ways.

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And we're not talking about the ongoing flow of bonds where whatever trading might happen in secondary market over the course of four years.

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No, I understand.

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But primary market issue.

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We're talking about the day.

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Yeah.

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Go ahead.

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Sorry.

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I apologize.

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So what SIFMA said is, look, we've got multiple bonds coming out at the same time.

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Things are changing up until the last minute.

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And it's hard to get it out as you have required it.

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like before we do the very first trade.

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This is actually different from what the committee had actually recommended, which was make sure you give it to FINRA before you give it at least no later than you give it to a reference data vendor.

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What FINRA is requiring is a certain degree of speed and obviously what comes with that accuracy.

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Second thing is we're not claiming that it is insuperable.

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Our point is that there is a system in place.

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People are getting data.

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And in fact, I would say that there's a fundamental illogic here because the SEC has found that the underwriters are all giving their data to data vendors already, which makes sense.

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But there is also record evidence that the market is not as efficient in terms of the dissemination of data because

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you don't have a large percentage of people participating on day one.

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And so why isn't the SEC entitled to look at that?

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They convened an entire committee of people from different aspects of this market to address what they think is a problem.

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So I guess I'm a little confused as to your suggestion, both here and in your brief, that there's really nothing to see here in terms of the initial

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concern.

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So one thing that I find really striking here is that in principle, this is all in service of investors and traders and bond issuers to make sure that the investors and traders have access to the data that they need.

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The investor and trader representatives in this case opposed or were dubious of the proposal because their reaction was, we don't see why this would be particularly more effective or efficient than what we have today.

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The record evidence that you're referring to is record that some data vendors have trouble getting access to data or some of them find their process inefficient.

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Everybody agrees that Bloomberg is the largest in this market.

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And there is no evidence that its process is inefficient.

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There's also no evidence about the statistical evidence about the numbers of trades that are actually occurring in this market, not just whether the data vendors themselves feel like the non Bloomberg data vendors feel as though they are getting information from the underwriters, but sort of a bird's eye view of how many people

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are participating in this market from the beginning?

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And what are the impediments to them being able to do so?

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And my understanding, and I'm certainly not an expert in this area, my understanding is that there was data that indicated a fairly low percentage of first day, first hour trades.

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And that at least some information before the committee

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indicated that that was because people felt as though they were not getting access to the necessary reference data to enter and participate at that first stage.

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Am I wrong about that?

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I believe so, Your Honor.

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And I want to talk about the statistics because that's very important.

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OK.

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So far as I know, there is one piece of statistical evidence that purported to support this rule.

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And it is a graph that FINRA has submitted that purports to show, as you said, a certain gap in the timing of trading.

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Bloomberg responded to that to demonstrate that the apparent gap in that data is due primarily to sort of data selection issues, because there are differences in what, and this, first off, FINRA's data is entirely about trading by what are called alternative trading systems.

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This is a certain kind of platform trading market.

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There is and has been a, I don't want to call it a skew, but those trading platforms trade more large bonds than small bonds.

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That is largely what's going on in Finra's data.

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It is an artifact of the data, which Bloomberg demonstrated with its own statistical submission.

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And the SEC responded to this.

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The SEC considered that sole piece of statistical evidence and said, we're throwing them both out.

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None of this is really relevant because the problem here is not about alternative trading systems.

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It's about others.

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So and aside from that, Your Honor, I'm not aware of any statistical evidence that shows a gap in access, shows an inefficiency, shows a lack of availability of data, any statistical evidence that supports this proposal.

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Is it possible under the current system for

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an underwriter to disseminate the information about its bonds to the entire market by giving that data to only one vendor?

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Is there a world in which they can do what they want to do?

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They, the underwriters, meaning control the data and make sure it doesn't get inaccurately reported to a bunch of different people.

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We want to give it out one time.

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Can they give it out one time and reach the entire market under today's rules?

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So I have to be honest, I don't know when the record doesn't say.

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I believe, so there's evidence, for example, of an underwriter that says they give their information only to Bloomberg.

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And they do that because Bloomberg is the most accurate source.

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I suspect that they would do that because they think also they can get to the entire market.

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And there is conversely no evidence that of any investor or trader that has ever lacked access to information about any particular bond.

[00:09:42] Speaker 03:
So I think that what you asked- But they can only get to the entire market if the entire market subscribes to Bloomberg service, right?

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If that were the case, yes, if they only give it to Bloomberg, that's right.

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Now, if they gave it to two or three, maybe they would get.

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That's just how one of the ways Bloomberg makes its money, right?

[00:10:07] Speaker 04:
We are certainly, I acknowledge, we're here because Bloomberg values the revenue.

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That's why it has standing here.

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But ultimately, the court should be concerned about the investors.

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And that's why I'm asking this question.

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I'm asking the question because what I understand the problem of asymmetry and the concerns about inefficiency to be is that on the first day of trading, everyone in the market does not have access to the same information.

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A lot of people have access to the information

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because Bloomberg is such a dominant player in this market and Bloomberg allows for people to have subscriptions.

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And so if you subscribe to Bloomberg, you're gonna get a lot of it, but not everybody subscribes to Bloomberg.

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And I understand the problem to be that that creates an asymmetry in the market in terms of who has the information to be able to participate.

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And so the rule

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was designed to deal with that.

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The rule was designed to set up a system to make sure that everybody gets at least certain basic elements with respect to all of these trades.

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And of course, Bloomberg can still continue to operate and give more and give better and give easier or whatever.

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But sort of, I was thinking about this like in the law, our opinions,

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are up on our website every day all the time.

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But then there's also Westlaw and Lexis, and those services, you subscribe to them.

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And people still do subscribe to them, even though they could just come to my website, our website on the court, and get the opinion.

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So this is essentially the agency putting the data up on the website, letting everybody basic core get it.

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And I don't understand why that's

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not okay under these circumstances where they see those problems access being limited.

[00:12:24] Speaker 04:
I see him out of time but I would love to give you a response to that because there is a response.

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Please, please feel free.

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So, a couple things.

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One is,

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So if Finra has its system, an investor that wants those data will have to go and buy them from Finra.

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That's not different from buying them from Bloomberg.

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It's just replacing one source for another source as far as that goes.

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And the investor representatives in this proceeding were generally concerned that the Finra version will be actually more expensive and less efficient.

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There's no evidence that it will be better.

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Let me just stop you there because don't we see a difference insofar as

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Bloomberg might not have everything.

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I mean, in the world in which underwriters do only give it to one source, most of them, you know, 90 some odd percent of them may give it to Bloomberg, but we do have some who are giving to other vendors.

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That's why a person today would have to cobble it together from Bloomberg and these other vendors.

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So it's not a one-for-one trade between

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paying for it from Fenra versus paying for it from Bloomberg because Fenra is going to have more information, won't it?

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It has the universe.

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Well, respectfully, Your Honor, there actually isn't evidence in the record of bonds for which Bloomberg doesn't have the information.

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So, so this, this is a hypothetical that there would be some set of like there actually is not evidence of that.

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And, but if I could go back to your pacer analogy.

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There's a critical difference pacer.

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Getting your opinions is free to the public.

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And why is it free?

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It is supported by tax dollars.

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It is supported by fees paid by litigants.

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It's not free.

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It's just that there's been a public judgment to support it in that way.

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The FINRA service is also not going to be free.

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It is going to replace a system that already exists, which if that is a cheaper and more efficient way, that would be one thing, but the SEC expressly refused to assess whether it will be.

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Yes, but that argument I find troubling as well because those are the same thing.

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In other words,

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Fenway is a government agency.

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I never understood the argument that you're making that the government agency has to assess the cost to itself of setting up a system.

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That that's not really the way we ordinarily do this.

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Congress has made a determination that the agency needs to take steps to enforce the Exchange Act to promulgate whatever system is necessary to ensure that the State Exchange Act goals are satisfied.

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And the cost of doing that is sort of baked into it, just like the cost of the court setting up a pacer is part of

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being a government entity.

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So I don't really understand that argument.

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in that sense?

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Well, let me explain that as well.

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So one thing is that government agencies, when they do cost benefit analyses, they do assess the costs to themselves.

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Because when they take on a new thing that's going to cost the public more money, and we'll be happy to submit some examples of that.

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Second thing is that FINRA is not the government.

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The SEC's argument is exactly the opposite, that the SEC shouldn't have to think about the cost because FINRA is private.

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Which is true.

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What do we know about how FINRA is funded?

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Is it primarily through government taxes and appropriations, or is it through dues imposed on members?

[00:16:17] Speaker 04:
It is through two purposes.

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Dues on members and fees for services, such as the fee they might charge for this.

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Do you have any authority one way or the other on the extent to which a cost benefit analysis

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has to incorporate costs to the government, just assuming for now that we treat FINRA as a government regulator rather than a private regulated party.

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I didn't see much in the briefs one way or the other on that question.

[00:17:01] Speaker 04:
I think there is not much in the briefs on either side.

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I don't off the top of my head have the cases on that for the government, but we'll submit some.

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It is routine for agencies to think about their own costs though.

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So we'll find something.

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But that's a little bit different from saying that they have to either as a matter of APA law or under, I think it's section three of the 34 act.

[00:17:30] Speaker 04:
Agreed, it is different, but I will say that, especially for FINRA, this is what we just said.

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This cost is coming from somewhere.

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It's coming out of broker dealers who are the members, and basically every broker dealer has to be members.

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So it's going to be dues to members, or it's going to be fees to subscribers.

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It's going back out to the market participants.

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So, so it seems to me that as a matter of, you know, this, this court logic in cases like business round table and chamber of commerce to refuse to think about that cost means that you are just sweeping an important aspect of the rug swept under the rug because once FINRA determines what it's going to charge for this,

[00:18:17] Speaker 03:
There will be an opportunity for FINRA members to object because they could say, you know, you are taking some of our dues to subsidize this activity and we think that that's improper or

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the traders or investors who would have to pay the fee to access the data could say this fee is too high or this fee is much more than what we would charge, than what Bloomberg charges for the data.

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And so this is really inefficient.

[00:19:02] Speaker 03:
I mean, all of those arguments are on the table later, right?

[00:19:07] Speaker 04:
Not quite all of them, Your Honor.

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And this is, in fact, the SEC's interpretation of the Exchange Act.

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It says that that decision is about the allocation of charges.

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The rule under which FINRA undertook that it's going to build the system and operate it, take in the data and disseminate them, is the rule that the SEC approved in this case.

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This was that decision.

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Later on, there can be debate about how the cost gets parceled out amongst, you know, whether it goes in fees to subscribers or it goes.

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But the the fact that they undertook that cost, that has happened.

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And if the SEC decides that really assessing that at this moment is not really right for us to decide, since we don't know what that is.

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I mean, isn't that the better way of dealing with that than saying that what the agency has decided so far is arbitrary and capricious?

[00:20:09] Speaker 03:
And if we say that making that determination right now is not right, then that would necessarily preserve it for you or others to make that argument at the second stage, right?

[00:20:27] Speaker 04:
Well, to be candid, Your Honor, this court might never have the opportunity for it.

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Because as you may know from previous decisions of this court, if the SEC looks at it, gets a fee proposal, and then takes no action on it, that is not reviewable.

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So as far as this court's actually looking at it, this is possibly and in fact likely the only moment.

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But in terms of whether it is right, the court has said again and again.

[00:20:58] Speaker 03:
Just to respond to that, you're telling me that FINRA couldn't petition for revoke the rule or petition for rulemaking or something, and then if the SEC denies that, that that wouldn't be an avenue to get court review?

[00:21:20] Speaker 03:
Or that you're saying that that's not possible?

[00:21:23] Speaker 04:
So as far as a fee rule goes, the process is that FINRA will propose a P rule.

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It is entitled to make that rule immediately effective.

[00:21:32] Speaker 04:
And if the SEC doesn't respond, and then the SEC, you're right, we could petition the SEC to undo the rule that's in place today, but it's easier to review the rule the first go round, which is exactly what we're asking.

[00:21:50] Speaker 04:
In terms of whether it is right,

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This court has said again and again that just because you don't know exactly what the cost will be is no excuse for not looking at it at all.

[00:22:04] Speaker 04:
I think we can all agree that the amount of the cost is part of the economic consequence of this.

[00:22:12] Speaker 00:
Yes.

[00:22:13] Speaker 00:
And so to that extent, the rule is ripe for consideration.

[00:22:16] Speaker 00:
But my question, I think, about this is weren't the broker dealers on the initial committee

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that looked at this weren't the investors a part of it.

[00:22:26] Speaker 00:
You're now suggesting that the SEC has done something inappropriate by not considering the fees and the ultimate costs that will impact those groups of market participants, that they were involved in the process.

[00:22:44] Speaker 00:
Everybody knew there was ultimately going to be a fee and they unanimously agreed to this proposed rule.

[00:22:52] Speaker 00:
So I guess I'm just confused as to why it is that you are suggesting that the SEC did not act adequately in its consideration of the fact that there will ultimately be a fee and its determination that it will control those costs eventually down the line.

[00:23:16] Speaker 04:
So the your point about the committee's consideration is a very interesting one, your honor.

[00:23:21] Speaker 04:
First thing is the recommendation that the committee made is actually different from what the SEC approved in important ways.

[00:23:31] Speaker 04:
For one thing,

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The committee proposed something about the fees that actually wouldn't have been lawful under the SEC's Interpretation of the Exchange Act.

[00:23:40] Speaker 04:
And for another thing, the committee proposed a different timing that would have made things much simpler for underwriters.

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Second thing though is that the

[00:23:52] Speaker 04:
While the committee was universal on that actual proposal, one member of the committee wrote to the SEC during the comment process to say, sorry, the recommendation they were unanimous on, one member wrote into the committee during the SEC and the comment process to say, the actual proposal is a bad idea because you shouldn't put this in Finner's hands.

[00:24:12] Speaker 04:
Another economist that the SEC relies on very heavily says, this is gonna be a good thing so long as the data are free.

[00:24:20] Speaker 04:
which is sort of magic thinking that again, sweeps that cost under the rug.

[00:24:25] Speaker 04:
Investors, then referring to the credit round table, commented to the SEC that, yeah, we would love more data and more transparency, but the initial cost that FINRA has proposed, at that price, it's not worth it.

[00:24:41] Speaker 04:
So all of which are examples of why it's not enough just to say we had a committee and they told us this.

[00:24:48] Speaker 04:
The SEC has an obligation to think about the comment record and the evidence on its own.

[00:24:53] Speaker 03:
But if FINRA comes up with the price and everyone, lots of people object, the SEC at that point can suspend it.

[00:25:08] Speaker 03:
And this program basically, you know, is over.

[00:25:14] Speaker 03:
Right.

[00:25:16] Speaker 03:
Unless it comes up with a better fee structure.

[00:25:22] Speaker 04:
So I think what would happen if the SEC disapproves the fee rule, the fee when it happens, is that the rule that we have today stays in place unless the SEC takes further action.

[00:25:36] Speaker 04:
The SEC is empowered to abrogate one of FINRA's rules.

[00:25:41] Speaker 04:
They could do that, but it would require that active decision by the SEC with all of the appropriate analysis of that

[00:25:49] Speaker 04:
And then again, the market, the underwriters, the issuers, the traders are going to have this out there that there's a system coming, we have to comply with, Sooner is going to build it.

[00:26:01] Speaker 04:
And in the meantime, FINRA will have incurred this cost.

[00:26:04] Speaker 04:
At some point, they're going to have to figure out what it costs to build and run a system.

[00:26:08] Speaker 04:
This was really the time to do it.

[00:26:11] Speaker 03:
Would it make sense for us to hold this case in advance until we get the fee proposal and then we could

[00:26:20] Speaker 03:
If you chose file another petition at that point, or we decided at that point?

[00:26:27] Speaker 04:
Well, I would rather that you vacate the order that's at issue here.

[00:26:33] Speaker 04:
But I want to remind you, Your Honor, that most likely we can't file a petition.

[00:26:37] Speaker 04:
Because if the SEC accepts the few rule, that's something that this Court has said it can't review.

[00:26:44] Speaker 04:
So, which brings me back to this is our shot to get review of the economics here.

[00:26:52] Speaker 00:
I don't, but I still understand, I still don't understand, Mr. Bradley, why this is your shot to get review of the economics.

[00:27:00] Speaker 00:
Because that aspect of this rule, which is totally promulgated, setting up a system, it says there will be fees and the fees will be evaluated at a later date.

[00:27:15] Speaker 00:
Why don't you have the opportunity once the fees come into effect to say something about it at that point?

[00:27:26] Speaker 04:
Yeah, it is.

[00:27:27] Speaker 04:
Under a Dodd-Frank Amendment to the Exchange Act, if the SEC lets the fee rule stand, that is not reviewable.

[00:27:36] Speaker 04:
If the SEC rejects the fee rule, FINRA could challenge that, but nobody can challenge the SEC's decision just to let the fees go into effect.

[00:27:47] Speaker 00:
But there can be a separate, isn't there judicial review of the fees apart from this particular dynamic?

[00:27:54] Speaker 04:
No.

[00:27:55] Speaker 04:
No, there is not.

[00:27:57] Speaker 04:
And we cite some of these cases in our brief.

[00:28:02] Speaker 04:
But this is the Net Coalition line of cases, which have closed off.

[00:28:06] Speaker 04:
And it's not this court's fault.

[00:28:08] Speaker 04:
I mean, Congress made that decision.

[00:28:10] Speaker 04:
But those avenues of review have been closed off.

[00:28:13] Speaker 03:
But just to be clear, it didn't close off, I didn't think.

[00:28:22] Speaker 03:
your client's ability to file a petition for a rulemaking to set aside the fee?

[00:28:33] Speaker 04:
I assume that is correct that we could file a

[00:28:40] Speaker 04:
petition for that.

[00:28:41] Speaker 04:
But I'll point out that the SEC's assessment and this court's review of that is very different.

[00:28:47] Speaker 04:
This court's review of the decision, shall we have this system, is whether it was arbitrary and capricious not to have this system.

[00:28:56] Speaker 04:
If we file a petition, the SEC says, no, because we have the other priorities.

[00:29:00] Speaker 04:
The review of the denial of that petition is a very different animal.

[00:29:06] Speaker 03:
I understand that it's a different type of review.

[00:29:08] Speaker 03:
It's kind of a different standard of review, but that's different from saying that it's unreviewable.

[00:29:16] Speaker 04:
Well, so the SEC's decision to leave the fees in place is unreviewable.

[00:29:20] Speaker 04:
What you're suggesting is that after that happens, we would be able to petition the SEC.

[00:29:26] Speaker 04:
to have it undo that decision.

[00:29:30] Speaker 04:
And that is something that I think this court, it's not clear whether we could do that and get judicial review of it because of what this court said in the Net Coalition cases.

[00:29:41] Speaker 04:
I would like to think that we could get review in that circumstance.

[00:29:46] Speaker 04:
But again,

[00:29:47] Speaker 04:
and you would be reviewing the SEC's decision to allow the fees and allow the system to go forward with that fee structure, that in itself would not be repealable.

[00:30:02] Speaker 03:
Judge Katz, Judge Jackson, any further questions at this time?

[00:30:07] Speaker 02:
Just one more quick practical question.

[00:30:10] Speaker 02:
From the perspective of the broker dealers, they obviously want to get information out to the market.

[00:30:19] Speaker 02:
They collect the information under current arrangements.

[00:30:22] Speaker 02:
They disseminate it through Bloomberg.

[00:30:25] Speaker 02:
Is there any reason to think it would be

[00:30:29] Speaker 02:
more burdensome or unattractive to them if that system were replaced by one in which they do all the same things except then they disseminate it to the market through FINRA?

[00:30:43] Speaker 04:
Yes.

[00:30:44] Speaker 04:
Why?

[00:30:45] Speaker 04:
There are a couple of reasons.

[00:30:46] Speaker 04:
So first thing is with respect to their transmission through Bloomberg, it is voluntary on their part.

[00:30:55] Speaker 04:
They are Bloomberg as they data vendor and every other data vendor who does this.

[00:31:00] Speaker 04:
It's our job.

[00:31:02] Speaker 04:
to do this in the way that is most convenient and efficient for the underwriter.

[00:31:06] Speaker 04:
Bloomberg invests to make sure that it is easy for the underwriter.

[00:31:11] Speaker 04:
The FINRA system, the underwriter is responsible for the accuracy of that and the timing of it.

[00:31:18] Speaker 04:
So there is a compliance and cost and a system building cost to get in the place where you could do that and operate that in an ongoing basis that is getting shifted

[00:31:29] Speaker 04:
from data vendors?

[00:31:30] Speaker 04:
Okay, thanks.

[00:31:35] Speaker 00:
Are the underwriters joining with you in this opposition to the rule?

[00:31:42] Speaker 00:
I would think they would be able to speak for themselves concerning whether or not the shifting of costs is really a problem.

[00:31:49] Speaker 00:
And I'd understood that they were also in agreement, at least as represented on the initial committee, that this proposal was a good idea.

[00:31:57] Speaker 04:
So, the, the committee, you know, the court, neither the court nor I know is how the SEC chose people on the committee and whether they are representative or not what I will tell you is that the trade association that is the largest representative of underwriters opposed the proposal.

[00:32:16] Speaker 04:
They are not petitioners in this case, really only one.

[00:32:19] Speaker 04:
They commented three times, which is kind of a lot for the context.

[00:32:24] Speaker 04:
And the gist of their comments was precisely, this is burden on us.

[00:32:29] Speaker 04:
Please don't do it this way.

[00:32:30] Speaker 04:
So these are the SIFMA comments that are in the joint appendix.

[00:32:41] Speaker 03:
All right.

[00:32:41] Speaker 03:
Any other questions for Petitioners Council?

[00:32:45] Speaker 03:
All right, thank you, Mr. Bradley.

[00:32:47] Speaker 03:
You exceeded your time.

[00:32:49] Speaker 03:
We'll give you some time on rebuttal.

[00:32:51] Speaker 03:
Let's hear from counsel for the SEC, Mr. Wyman.

[00:32:58] Speaker 05:
Thank you, your honor.

[00:32:59] Speaker 05:
May it please the court.

[00:33:00] Speaker 05:
My name is Theodore Wyman and I represent the Securities and Exchange Commission.

[00:33:04] Speaker 05:
FINRA is proposed to collect and consolidate a limited range of data from a subset of its own members for consolidated dissemination to the public.

[00:33:12] Speaker 05:
None of FINRA's members will be subject to the new rule opposed it,

[00:33:15] Speaker 05:
nor did the private subscription services who currently provide their own comprehensive data services to the public, except for petitioner Bloomberg, who seeks to maintain its entrenched superior access to this information.

[00:33:26] Speaker 05:
Yet, Bloomberg points to virtually no evidence in the record that is even arguably at odds with the SEC's findings, nor any relevant evidence that the SEC failed to consider.

[00:33:36] Speaker 05:
In Bloomberg's argument they put almost decisive reliance on the comments of SIFMA, which we're certainly not at this degree of focus in the briefing and I think

[00:33:47] Speaker 05:
this court looks at SIFMA's comments.

[00:33:48] Speaker 05:
They don't support the argument that SIFMA contended this was difficult, if not impossible to achieve.

[00:33:56] Speaker 05:
SIFMA certainly weighed in on the analysis of the rule and the proposal and was hopeful that the system would be more automated.

[00:34:07] Speaker 05:
They said that they were concerned that it would be challenging to do and they hoped that

[00:34:12] Speaker 05:
FINRA would actually invest more in the system to make it easier for them to submit information.

[00:34:16] Speaker 05:
Of course, that's what they want.

[00:34:17] Speaker 05:
But what the commission determined is the cost relative to the current environment, that is what underwriters currently do in providing information to Bloomberg, there will be minimal cost.

[00:34:28] Speaker 05:
That's supported by the advisory committee, who actually contained several CIFMA members, had underwriters, had investors, had traders on it, 23 members from across the industry,

[00:34:41] Speaker 05:
And the advisory committee undertook its own investigation and gave its own views.

[00:34:47] Speaker 05:
And the conclusions that it found were that the underwriters were not concerned, including those on the committee.

[00:34:52] Speaker 05:
And of course they haven't filed anything here or suggested that this would impose significant costs on them to comply.

[00:34:58] Speaker 05:
So that's simply not supported in the record.

[00:35:01] Speaker 05:
I think there's a few points to respond to that Bloomberg just made.

[00:35:08] Speaker 05:
One would be that,

[00:35:11] Speaker 05:
that there's simply no problem in the market, no access problem.

[00:35:17] Speaker 05:
And that's not supported by the record.

[00:35:19] Speaker 05:
Well, that's not the case.

[00:35:20] Speaker 05:
I mean, Bloomberg concedes that vendors have data access problems.

[00:35:24] Speaker 05:
There's no dispute that those vendors have subscribers.

[00:35:28] Speaker 05:
Oh, sorry, there was that going to Zoom.

[00:35:31] Speaker 05:
That vendors currently have subscribers.

[00:35:34] Speaker 05:
Other vendors provide services to customers.

[00:35:36] Speaker 05:
Ergo, those customers are not getting complete access.

[00:35:40] Speaker 05:
The reasons why everybody doesn't subscribe to Bloomberg, we could speculate.

[00:35:44] Speaker 05:
But the fact is, everybody doesn't subscribe to Bloomberg.

[00:35:47] Speaker 05:
Nor would that necessarily be a good thing if there were only one private supplier that monopolized the information.

[00:35:52] Speaker 05:
The fact is, there is a data access problem in the market.

[00:35:56] Speaker 00:
That's because- Can I just clarify, Mr. Wyman?

[00:35:59] Speaker 00:
I'm just trying to understand your argument.

[00:36:00] Speaker 00:
Yes, your honor.

[00:36:01] Speaker 00:
So the data access problem that you are homing in on and that apparently the record supports

[00:36:09] Speaker 00:
is data access by competitors of Bloomberg?

[00:36:15] Speaker 05:
To be clear, Your Honor, the data access problem is ultimately by the market participants.

[00:36:21] Speaker 05:
Bloomberg concedes that the sort of intermediaries have data market problems, have data access problems.

[00:36:26] Speaker 05:
And so that is another piece of evidence that shows why this is occurring.

[00:36:32] Speaker 05:
But ultimately, it's about the data access problems faced by the market participants who get it through trading platforms,

[00:36:38] Speaker 05:
and vendors, ultimately.

[00:36:41] Speaker 00:
But it's just statistical evidence.

[00:36:43] Speaker 00:
Mr. Bradley says there's only one piece of evidence that he identified in the record that speaks to the statistics of people entering the market and that there's that's not something that the SEC could have or should have relied upon.

[00:37:02] Speaker 00:
Can you talk about that?

[00:37:03] Speaker 05:
Sure.

[00:37:04] Speaker 05:
I believe opposing counsel was referring to the

[00:37:08] Speaker 05:
discussion about alternative training systems, a form of e-training venue.

[00:37:13] Speaker 05:
Ultimately, that's a subset.

[00:37:14] Speaker 05:
And there was an argument about whether that subset, there's a data access problem for those platforms.

[00:37:21] Speaker 05:
But the commission ultimately determined that that data was inconclusive.

[00:37:25] Speaker 05:
And even if you accept that Bloomberg's argument that alternative training platforms don't face this issue, there are other e-training platforms that weren't addressed by that statistical information.

[00:37:36] Speaker 05:
Beyond e-trading platforms, the market as a whole, there's other participants in the market that had data access problems.

[00:37:45] Speaker 05:
As to whether there's statistical evidence as a whole, the record doesn't have statistical evidence of that nature on either side.

[00:37:52] Speaker 05:
And, you know, so the Commission conducted a qualitative analysis of the evidence that was before it.

[00:37:57] Speaker 05:
The views of participants in the market, you know, who, the advisor committee, who had three rounds of opportunity to submit comment, the Commission took what was before it.

[00:38:07] Speaker 05:
In Prometheus Radio last year, this court, I mean, the Supreme Court sort of reiterated a view that this court has said since Chamber of Commerce,

[00:38:16] Speaker 05:
at least, which is that an agency is not required to conduct its own empirical analysis, go looking for statistical information.

[00:38:22] Speaker 05:
That's not submitted in the record.

[00:38:24] Speaker 05:
There weren't competing, you know, statistical reports here.

[00:38:28] Speaker 05:
There was one-sided evidence that underwriters, that there is a data access problem among participants.

[00:38:34] Speaker 05:
There was an explanation for that, which is that the intermediaries can't get the information.

[00:38:38] Speaker 05:
That's where the data vendor

[00:38:40] Speaker 05:
access problems come in.

[00:38:42] Speaker 05:
And Bloomberg concedes that the intermediaries for a lot of this information can't get data access.

[00:38:48] Speaker 05:
So, you know, with that wealth of information, that was enough to make the judgment that, in fact... Bloomberg also says, but everybody can have it.

[00:38:56] Speaker 00:
Just subscribe to me.

[00:38:58] Speaker 00:
Why are they wrong about that?

[00:39:00] Speaker 00:
I mean, as long as they're providing adequate, accurate information concerning these trades and the vast majority of underwriters are actually providing their data to Bloomberg through systems that Bloomberg has set up to make it easy for them to do it, what really is the problem here?

[00:39:24] Speaker 05:
Well, there's two points I would say to respond to that.

[00:39:26] Speaker 05:
The first is, if that were true,

[00:39:29] Speaker 05:
that would only support the notion that this rule is justified by the competitive benefits that it would bring because it would increase competition in the data services market simply by Bloomberg's own admission.

[00:39:39] Speaker 05:
But I think fundamentally in terms of what this means about data access, nobody disputes, Bloomberg doesn't dispute that there is a data access problem currently.

[00:39:49] Speaker 05:
That is that vendors can't, they don't dispute that other vendors don't have complete data sets.

[00:39:54] Speaker 05:
They don't dispute that those vendors for whatever reason have subscribers.

[00:39:57] Speaker 05:
and that those suppliers ergo do not get the full tranche of data.

[00:40:02] Speaker 05:
So if Bloomberg alone is a solution to this market problem, it simply hasn't solved it because it is not providing universal access, whether that's because of the prices they charge or allegations of anti-competitive conduct, which had been made, the commission didn't find that.

[00:40:17] Speaker 05:
But the commission didn't go into the reasons why Bloomberg has this dominant advantage, but they found

[00:40:22] Speaker 05:
or that some people are not getting this information by virtue of not subscribing to Bloomberg.

[00:40:28] Speaker 05:
But the fact is, people are not getting the information.

[00:40:31] Speaker 05:
There are people who subscribe to other services for price or whatever reasons, and they are not getting full access.

[00:40:36] Speaker 05:
And of course, people who don't subscribe to anything at all, they're completely shut out because there's just no way for them to access this real core information.

[00:40:45] Speaker 05:
And that's the key here.

[00:40:46] Speaker 05:
There's no evidence.

[00:40:47] Speaker 05:
Bloomberg, I think, aligns the distinction between the core evidence and the comprehensive services that are provided.

[00:40:53] Speaker 05:
The data vendors, they compete by providing comprehensive services with add-ons, analysis, a whole dataset, and much more data beyond the 32 elements here.

[00:41:03] Speaker 05:
These 32 elements are just the gateway to access the market.

[00:41:06] Speaker 05:
It's the core stuff, the name, the interest rate, the maturity date, just this key stuff.

[00:41:11] Speaker 05:
And that stuff is inaccessible for many people.

[00:41:15] Speaker 05:
You have to, I guess, Bloomberg's saying you have to subscribe to Bloomberg, but there's reasons why they don't, apparently, because not everybody does subscribe to Bloomberg.

[00:41:22] Speaker 02:
Can you just help me with the basic conceptual question I asked your friend on the other side, which is, this is extremely basic information.

[00:41:41] Speaker 02:
No rational investor would ever buy a bond not knowing the maturity date or whatever it is.

[00:41:49] Speaker 02:
The people who sell the bonds

[00:41:52] Speaker 02:
the issuer, the underwriter, people in the secondary market, whoever it is, have every incentive in the world to disseminate the information.

[00:42:05] Speaker 02:
And in the computer age, massive amounts of information flow very quickly and at very little cost.

[00:42:14] Speaker 02:
So you put all those things together, it's just a little hard for me to wrap my head around why there's any problem here at all.

[00:42:24] Speaker 05:
Well, I think it comes down to timing, honestly, Your Honor.

[00:42:27] Speaker 05:
I mean, it's both a matter of timing.

[00:42:30] Speaker 05:
But the fact is that there's a very, as the record shows, that there's a limited time between when this stuff is going up, when underwriters, they have to collect the data and manually input it to be able to send it out.

[00:42:40] Speaker 05:
and they have hours maybe before it hits the market.

[00:42:43] Speaker 05:
This information does get out over time, but it's simply too late to make an impact for that really key heavy trading period when this trading first begins.

[00:42:52] Speaker 02:
Who buys the bond without knowing all this stuff?

[00:42:56] Speaker 05:
I think they don't.

[00:42:58] Speaker 05:
What this rule gets at is access to the market.

[00:43:02] Speaker 05:
A lot of people are shut out because they can't get in on that first hour of trading.

[00:43:05] Speaker 05:
They have to wait till later.

[00:43:07] Speaker 05:
By the time they have access, they missed out on that trading period.

[00:43:12] Speaker 02:
Why wouldn't the underwriter want to blast this to everyone in the world to pump up demand and therefore price?

[00:43:24] Speaker 05:
Yes, Your Honor, I think they do.

[00:43:27] Speaker 05:
And this is the way that now they can do it more easily is through their organization, FINRA, which represents them.

[00:43:33] Speaker 05:
But under the current system, it's sort of an entrenched system where you have to put all the data in and you have to send it to different people.

[00:43:40] Speaker 05:
And I guess different vendors might have different systems, so you have to maybe put the data in in different ways.

[00:43:46] Speaker 05:
The records show that there was a risk of, you have to redo it and that created risk of errors by retyping.

[00:43:53] Speaker 02:
Right, but I mean, another explanation of what's going on here is system is very efficient and Bloomberg is just doing this well.

[00:44:03] Speaker 02:
performing the dissemination function well, which is why everyone uses it.

[00:44:08] Speaker 02:
And if it were just, if the economics seemed like debatable question either way, you win, you're the agency, you get a degree of deference.

[00:44:21] Speaker 02:
I'm just struggling to imagine the world in which there are these huge

[00:44:29] Speaker 02:
cost issues or collective action issues, like, you know, advertising what the interest rate on the bond is.

[00:44:37] Speaker 05:
Yeah, your honor, I was surprised on looking into getting into the record in the market that this was an issue, but it's supported by substantial evidence in the record that this is simply something that underwriters, you know, they get it out to one person and they move on to other concerns in the limited time they have that day.

[00:44:50] Speaker 05:
So I think it's about the timing with mostly and what the priorities are

[00:44:54] Speaker 05:
And they're simply diminishing returns and risks of errors by blasting it out, whereas a centralized system like this really resolves that.

[00:45:01] Speaker 05:
And I think it shows why it would be not difficult for them to comply with providing this information.

[00:45:07] Speaker 03:
What's your response to your friend on the other side's statement that the underwriters objected to this proposal and think that it's a bad idea to concentrate this responsibility with FINRA?

[00:45:21] Speaker 05:
Your honor, I don't think that's supported by the record at all.

[00:45:23] Speaker 05:
I believe they're referring to SIFMA's comments, which were far less, you know, decisive and up end to that.

[00:45:31] Speaker 05:
and then they're suggesting.

[00:45:33] Speaker 05:
The underwriters were represented on the advisory committee.

[00:45:36] Speaker 05:
They didn't file.

[00:45:37] Speaker 05:
Individual underwriters certainly could have filed comments on their own.

[00:45:41] Speaker 05:
They could have opposed it in this court.

[00:45:44] Speaker 05:
And they simply haven't.

[00:45:45] Speaker 05:
The SIFMA has simply, obviously they want the best possible system.

[00:45:50] Speaker 05:
But what they've asked actually is FINRA develop more automation, make the system even easier for them to comply.

[00:45:56] Speaker 05:
But that doesn't mean that they oppose

[00:45:59] Speaker 05:
the concept of this and that's simply not supported by the record, that chart.

[00:46:05] Speaker 00:
Does Bloomberg have a reason to be concerned that based on the assumption that underwriters only want to get this out accurately to one person and then move on, consistent with this new proposal, they will give it to FINRA alone and therefore we will have less competition ultimately in the market

[00:46:30] Speaker 00:
reference data vendor stage that Bloomberg will lose, the other vendors may lose because everybody's just gonna go to Fenway.

[00:46:39] Speaker 05:
Right, well, your honor, a couple of points.

[00:46:41] Speaker 05:
There's no evidence in the record that there's a competition in a specific market for 32 pieces of core information.

[00:46:47] Speaker 05:
The competition among vendors is at a much higher level with comprehensive databases, comprehensive products to parse that information.

[00:46:55] Speaker 05:
And so, and I think the Bloomberg argument ignores that

[00:47:00] Speaker 05:
vendors will be able to access the information from FINRA and incorporate it into their own offerings.

[00:47:05] Speaker 05:
This is not something where FINRA market participants are required to go to FINRA and vendors will be allowed under the terms that they will be allowed to take that information and put it into their own system and then provide their own comprehensive system that at least has that gateway key 32 pieces of information that lets sort of everybody get access.

[00:47:25] Speaker 05:
So I think the commission found ultimately that this will

[00:47:29] Speaker 05:
This is very well could increase competition by allowing more vendors decreasing the barriers to entry allowing them to sort of get the bare minimum you need to really compete and.

[00:47:40] Speaker 05:
The commission also found that, you know, even if the information, ultimately, the underwriters don't provide it to Bloomberg, Bloomberg, which it found is possible that it will continue to do that because they're going to be providing other information beyond the 32 pieces of information that are here and also updates over the course of the corporate bond, they're still getting information to Bloomberg, it doesn't make sense really that they would just

[00:48:01] Speaker 05:
cut out 32 pieces of information just because they already provided it to FINRA.

[00:48:05] Speaker 05:
But even assuming that, the commission said even if that happens, it'll be minimal burden because this information will be available from FINRA

[00:48:12] Speaker 05:
they'll pricing it as a utility with a cost basis.

[00:48:15] Speaker 05:
That price will be reviewed for reasonableness later by the commission.

[00:48:18] Speaker 05:
And Bloomberg, contrary to what Bloomberg suggests, there will be an opportunity.

[00:48:21] Speaker 05:
This court in NASDAQ, last year in the NASDAQ case, rejected the claim that there would be no judicial review available.

[00:48:27] Speaker 05:
It'll be, as Judge Wilkins pointed out, any party can petition this for rulemaking, the commission, and if it's rejected to change the fee, then it would go to this court.

[00:48:39] Speaker 00:
And while- So you don't see any problem with V?

[00:48:41] Speaker 00:
deferral of the fee consideration as Bloomberg sets it up.

[00:48:47] Speaker 00:
And I mean, do we have, one could conceive of it as maybe a ripeness problem, but I'm struggling to see why that's so.

[00:48:57] Speaker 00:
And so can you speak to that aspect of this?

[00:49:00] Speaker 05:
Yes, Your Honor, the proposal under review is a reporting requirement.

[00:49:04] Speaker 05:
I mean it's a reporting requirement to get the data from the underwriters with the view of creating a system to distribute the information and charge a fee and the Commission conducted analysis as required by the statute of whether that system

[00:49:16] Speaker 05:
a fee-based system constrained by reasonableness and commission review later would be as consistent with the Exchange Act.

[00:49:24] Speaker 05:
There's no requirement that the future fee to be proposed be included in this initial rule.

[00:49:32] Speaker 05:
There will be a second stage for that.

[00:49:34] Speaker 05:
But even if it were here, nothing would stop FINRA from proposing an amended rule.

[00:49:38] Speaker 05:
FINRA could have made the system free now and in a year come back and said under the same process, 19B3, said now we're going to charge a fee.

[00:49:45] Speaker 05:
This is Congress's system.

[00:49:47] Speaker 05:
It used to be that there would be pre-launch review of fees, but Congress changed that.

[00:49:53] Speaker 05:
The system it created in 1983, it says the establishment of a fee or the amendment of a fee can be proposed through this process that would be later.

[00:50:04] Speaker 05:
There's really nothing for the court to consider now in terms of fees because the current proposal doesn't otherwise affect the fees charged by FINRA.

[00:50:15] Speaker 02:
Don't you have an obligation now to consider economic impact of this agency action?

[00:50:29] Speaker 02:
Absolutely, Your Honor.

[00:50:30] Speaker 02:
And it seems like it's not, you know, if you imagine that FINRA stands up a system that

[00:50:41] Speaker 02:
They're not wasting cost.

[00:50:43] Speaker 02:
It's efficient.

[00:50:44] Speaker 02:
They do it as best they can.

[00:50:47] Speaker 02:
And therefore, under normal utility principles, the costs could appropriately be passed on.

[00:50:55] Speaker 02:
But it turns out to be more expensive than the Bloomberg system.

[00:51:00] Speaker 02:
Under normal cost without compensating benefits or whatever.

[00:51:05] Speaker 02:
Under normal

[00:51:07] Speaker 02:
cost benefit analysis, if those assumptions are right, you should have rejected this proposal now.

[00:51:16] Speaker 02:
And the escape valve possibility that if they build their system wastefully, you won't allow them to pass on all the costs is not fully responsive.

[00:51:31] Speaker 05:
Well, Your Honor, I understand the argument there, but I think it fails in a couple of ways.

[00:51:35] Speaker 05:
I mean, first of all,

[00:51:36] Speaker 05:
Um, the first of all I think you would look to the statute which does not require the commission to consider, you know, the impact on self regulatory organizations budget, right, don't get the economic impact, but it's simply, you know, clear.

[00:51:55] Speaker 05:
Well, Finra doesn't need to come to the Commission to upgrade its computer systems.

[00:51:59] Speaker 05:
I mean, there's a whole budgetary system, I believe, and it's on the record that, you know, some of this is supervised in different ways by exams, or maybe there's different oversight, but they don't have to go by rule for every internal expenditure.

[00:52:11] Speaker 05:
And I think, obviously, in proposing this rule, they're going to be

[00:52:14] Speaker 05:
undertaking this cost.

[00:52:16] Speaker 05:
And I think you would look at what are the ways in which this could potentially impact the market, the economy as a whole.

[00:52:22] Speaker 05:
The commission looked at that, and the commission found that there's simply no evidence in the record that some of these costs will be externalized any other way than will be reviewed by the commission in dues and fees proposals.

[00:52:36] Speaker 05:
I mean, that's what the Exchange Act says under Section 15A.

[00:52:38] Speaker 05:
It says, you look at the way costs, I mean, there's no dispute that costs are relevant

[00:52:43] Speaker 05:
in so far as they are passed on into the market, essentially, through fees and dues, that would be the 15A analysis, and perhaps a broader economic impact.

[00:52:52] Speaker 05:
But there's simply no evidence here in the record.

[00:52:54] Speaker 05:
Bloomberg hasn't put any put forward any.

[00:52:55] Speaker 05:
Bloomberg says, maybe it'll cost a billion dollars, and they'll have to be billed out by the federal government.

[00:52:59] Speaker 05:
But there's no basis for that.

[00:53:00] Speaker 05:
So I think you would look to the record ultimately.

[00:53:02] Speaker 05:
And there's nothing in the record that suggests that this would be some

[00:53:06] Speaker 05:
enormous undue cost that would go beyond the bounds that would impact the market.

[00:53:10] Speaker 05:
It was simply an internal cost, you know, kind of a usual internal cost that you wouldn't, you know, I think would require evidence that, you know, sort of an internal cost would sort of bleed outside of the normal budgetary

[00:53:23] Speaker 05:
process for a self-regulatory agency and kind of create this market impact.

[00:53:27] Speaker 05:
And there's just not evidence in the record to support that challenge.

[00:53:29] Speaker 02:
How is FINRA financed?

[00:53:32] Speaker 02:
I mean, it's got to be through dues or fees, right?

[00:53:35] Speaker 05:
Dues and fees, Your Honor.

[00:53:36] Speaker 05:
And if dues and fees were ultimately increased because of this, that would be all dues and fees reposals are reviewed by the commission.

[00:53:44] Speaker 05:
And so under the theory, I understand what you're getting at.

[00:53:48] Speaker 02:
So the cost, the cost,

[00:53:52] Speaker 02:
working assumption, if you put aside the billion dollar freakish extreme medical, the working assumption is that the costs of building up this government alternative to Bloomberg is going to be borne by the broker dealers who are charged fees by FINRA.

[00:54:15] Speaker 05:
Subject to commission review for reasonableness.

[00:54:17] Speaker 05:
And again, it has to comply with the statute.

[00:54:19] Speaker 05:
It can't be unjust and unfair.

[00:54:20] Speaker 05:
All the requirements of section 15A apply.

[00:54:22] Speaker 05:
So that will ultimately be determined.

[00:54:25] Speaker 05:
And so I guess the case that Bloomberg is saying is suggesting is, what if the commission rejects it, and so it's not passed along to the market, and it's only Finra keeps it internally.

[00:54:35] Speaker 05:
And that's really the like the limited set of situations in which Bloomberg is saying is sort of

[00:54:41] Speaker 05:
specular here.

[00:54:42] Speaker 05:
But the reality is, you know, there's not evidence that FINRA's budget, whether they have surplus, whether they can afford this in the record.

[00:54:47] Speaker 05:
And there's no indication in the record that this would bleed outside of that to impact the economy in any other way.

[00:54:52] Speaker 00:
And there's also the practical catch 22, which is the understanding from at least what people have argued or that that you all have argued that we can't know the cost right now until we've built it out.

[00:55:06] Speaker 00:
So if the statutory requirement is that we take into account these costs upfront, then this will never be done.

[00:55:14] Speaker 00:
Then we can never have a proposal of any sort that might result in costs because we can't know until we've undertaken the project.

[00:55:24] Speaker 05:
That's right, your honor.

[00:55:25] Speaker 05:
And I think Bloomberg might say, well, you know, there could be estimates, but that's not in the record.

[00:55:29] Speaker 05:
You know, the commission has to go with what's put before it.

[00:55:31] Speaker 05:
And Bloomberg had plenty of opportunity to say, buildings, this kind of system costs, you know, they could have submitted studies, anybody opposing the rule could have submitted comments.

[00:55:39] Speaker 05:
And I think that's what Prometheus radio, you know, sort of holds last year, the Supreme Court case, which says, you know, you've got to look at what comes in.

[00:55:46] Speaker 05:
And if the commission doesn't consider

[00:55:48] Speaker 05:
evidence that comes before it, then yeah that that's that's arbitrary and capricious is unreasoned, but if there's multiple opportunities for commenters to supply data to supply comments and evidence and nobody.

[00:56:01] Speaker 05:
puts it forward, then the Commission isn't required to somehow conduct an empirical analysis.

[00:56:06] Speaker 05:
and find its own statistical information.

[00:56:09] Speaker 05:
It judges based on the record before it, and there was enough record evidence to show that this is not going to disrupt the market.

[00:56:15] Speaker 05:
Again, it's a much more global view of the impact on the market, and the commission undertook that here.

[00:56:21] Speaker 03:
I'll ask your friend on the other side this question, but please answer if you know.

[00:56:27] Speaker 03:
Let's suppose someone wanted to

[00:56:33] Speaker 03:
to just purchase the core reference data for new bond issuances from Bloomberg, and that's all they wanted.

[00:56:45] Speaker 03:
Could they buy that today?

[00:56:46] Speaker 05:
Your Honor, I've thought about that internally as well.

[00:56:53] Speaker 05:
There's not record information

[00:56:55] Speaker 05:
I think on whether someone can provide that just provides just that 32 those 32 data fields.

[00:57:03] Speaker 05:
But I think that's sort of the point there's not any evidence in the record that there is a market for just the 32 fields that what the record shows is that the data vendors provide comprehensive services, and this is just a subset that allows.

[00:57:15] Speaker 05:
essentially all vendors to provide comprehensive services with the bare minimum you need to access the market, which means that all subscribers to them will now be able to access this information.

[00:57:26] Speaker 05:
And also people who don't want to subscribe to the services who only want those 32 pieces of information could get it just from FINRA if they wanted to.

[00:57:33] Speaker 02:
When we're thinking about the question of what categories of costs need to be considered,

[00:57:42] Speaker 02:
Should we think of Bloomberg, I'm sorry, should we think of FINRA as a government regulator, or should we think of them as a regulated market entity?

[00:57:58] Speaker 05:
I think a regulated, I mean, they are a regulated market entity, they're closely regulated, but they're a self-regulatory organization.

[00:58:04] Speaker 02:
Because I would think, right, there's an interesting argument, I don't know the answer to this,

[00:58:11] Speaker 02:
in doing a cost-benefit analysis, usually you focus on the costs and burdens imposed on the regulated parties as opposed to the burdens imposed on the government regulator.

[00:58:30] Speaker 02:
But you undercut that potential argument for the SEC by saying in your brief that

[00:58:40] Speaker 02:
we should think about this category of costs, not as costs by the government, but costs voluntarily incurred by the regulated, not regulating, regulated entity proposing the rule.

[00:58:56] Speaker 02:
And then you go on to cite business round table for this concept of self-regulation.

[00:59:02] Speaker 02:
Yes, yes.

[00:59:04] Speaker 02:
I mean, I appreciate the candor, but that seems, you know,

[00:59:08] Speaker 02:
I'm sorry, even if you thought that pure government compliance costs are outside the cost benefit.

[00:59:13] Speaker 02:
I'm not sure these costs would fall category.

[00:59:17] Speaker 05:
Well, I think the distinction is in the posture of the rule.

[00:59:21] Speaker 05:
I mean, in the typical case that I think you're referencing, the commission is doing is a problem getting a rule that says, you know, the SRO has to do this or someone else has to do this here.

[00:59:32] Speaker 05:
When the SRO proposes its own rules, the Commission's review is a little bit different.

[00:59:36] Speaker 05:
Its role is a little different.

[00:59:37] Speaker 05:
You know, we don't have authority to rewrite the rule to make it better.

[00:59:40] Speaker 05:
It simply isn't consistent with the Act.

[00:59:42] Speaker 05:
If so, we approve it.

[00:59:44] Speaker 05:
And in this case, although FINRA is the regulated entity, it is a regulated entity, it is also the one proposing the rule for itself.

[00:59:52] Speaker 05:
And so in this context, I think it is comparable to a government agency taking on the cost, not because it's governmental or whatever, but because it's the one proposing the rule.

[01:00:01] Speaker 05:
It's choosing it voluntarily.

[01:00:03] Speaker 05:
So I think in that context, you would look at the fact that they are choosing to incur it voluntarily.

[01:00:08] Speaker 05:
And so it's not something that's being opposed on them by the government, by the commission, through a commission rule.

[01:00:14] Speaker 02:
If we think of FINRA as the government for these purposes,

[01:00:19] Speaker 02:
What's do you have anything more I thought the briefs were thin on both sides on the question whether the cost benefit analysis has to take account of.

[01:00:30] Speaker 02:
costs of the government in administering the program?

[01:00:34] Speaker 02:
Do you have anything more on that?

[01:00:36] Speaker 05:
No, I'm not aware of that, but I do know that the overall analysis is about the economic impact.

[01:00:41] Speaker 05:
That's really the touchstone.

[01:00:42] Speaker 05:
What is the economic impact as a whole?

[01:00:45] Speaker 05:
That may include cost benefits for regulated parties in cases, but it's really about the market impact.

[01:00:50] Speaker 05:
Here, the commission looked at the market impact, which doesn't really include FINRA's internal budgetary costs.

[01:00:55] Speaker 05:
There's no evidence supporting that as a negative impact.

[01:00:59] Speaker 05:
Thank you.

[01:01:00] Speaker 02:
Thank you.

[01:01:07] Speaker 03:
All right.

[01:01:09] Speaker 03:
Any further questions?

[01:01:10] Speaker 03:
Judge Jackson, Judge Katz?

[01:01:13] Speaker 03:
All right.

[01:01:14] Speaker 03:
Thank you.

[01:01:15] Speaker 03:
All right.

[01:01:16] Speaker 03:
We'll give counsel for the petitioner two minutes on the phone.

[01:01:20] Speaker 04:
Thank you.

[01:01:22] Speaker 04:
There's much to say, but I just want to touch on a couple things, first of which is Judge Jackson, your catch 22.

[01:01:28] Speaker 04:
There's no business in the country that would undertake a project like this before figuring out the cost beforehand.

[01:01:34] Speaker 04:
FINRA certainly can do that as well.

[01:01:36] Speaker 04:
They just didn't tell the SEC, and the SEC was willing to accept that.

[01:01:41] Speaker 04:
Second thing is that this is not like Prometheus Radio Project.

[01:01:44] Speaker 04:
The critical difference is the SEC was reviewing an application.

[01:01:50] Speaker 04:
This is an adjudication, an application from FINRA for approval.

[01:01:54] Speaker 04:
And the SEC's regulations say that FINRA had the burden.

[01:01:57] Speaker 04:
So I want to quote you actually from a decision that the SEC made just a couple of weeks ago, rejecting a rule from a rule proposal

[01:02:05] Speaker 04:
They rejected it from an exchange for a new kind of fund.

[01:02:08] Speaker 04:
Neither the exchange nor the sponsor provides any data or analysis to support its assertions, so we have to reject it.

[01:02:14] Speaker 04:
That was the answer.

[01:02:15] Speaker 04:
It should have been the answer here as well.

[01:02:17] Speaker 04:
There is no data.

[01:02:18] Speaker 04:
I agree.

[01:02:18] Speaker 04:
There's no evidence that this is going to be a particularly expensive system because there is no evidence at all, and that was Finrasburg.

[01:02:25] Speaker 00:
Um, I'm sorry about the under I'm just want to be clear.

[01:02:30] Speaker 04:
It was Fenris to do what you're saying was to provide the evidence to establish that it would not be an exorbitant system, to establish whatever the cost would be and support an analysis of all of the relevant and you know, factors that the commission needed to consider.

[01:02:48] Speaker 00:
And that is so it was been Rizburg and that's because it's a private

[01:02:53] Speaker 00:
entity or because that cost was going to be passed through to its members?

[01:02:57] Speaker 00:
Because I don't see it in the statute.

[01:03:00] Speaker 00:
So the statute has a lot of factors that the SEC is supposed to consider when it's determining whether or not to approve these sorts of things.

[01:03:16] Speaker 00:
And as Mr. Wyman pointed out, and as I had observed earlier, I did not see anything in the statute about how will this impact the budget of the self-regulatory organization?

[01:03:28] Speaker 00:
What are the costs to the self-regulatory organization itself?

[01:03:36] Speaker 00:
And you would think that if Congress intended for that to actually be a consideration, it would be there, just like all the other things.

[01:03:43] Speaker 00:
So what is it now you're saying that the SEC was supposed to require FINRA to say in this regard?

[01:03:51] Speaker 04:
I appreciate the chance to trace this through.

[01:03:54] Speaker 04:
Section 3F of the Exchange Act says that in a decision like this, the SEC was supposed to consider the effect on efficiency, competition, and capital formation, if I'm remembering the language correctly.

[01:04:08] Speaker 04:
The SEC and this court have long interpreted that language to mean the SEC has to think about the costs and benefits of the decision.

[01:04:16] Speaker 04:
In this case, if yes, the FINRA can go off and if it's doing something that doesn't require SEC approval for some internal operation, then of course the SEC doesn't have to think about the FINRA's budget.

[01:04:30] Speaker 04:
This is a case where the FINRA requires SEC approval because it is a rule change requiring underwriters to do something and saying that FINRA is going to provide this service.

[01:04:40] Speaker 04:
So that required.

[01:04:41] Speaker 00:
The 3F is not the section I'm talking about, right?

[01:04:44] Speaker 00:
I mean, I thought we were in 15 A, B, where there are a list of requirements that the SEC needs to take into account in approving the rules of this kind of association.

[01:05:01] Speaker 00:
So first, we have to determine whether 3F is even triggered here.

[01:05:08] Speaker 00:
I understand there's case law that interprets this language to be about costs and benefits, but it seems like quite a leap, even if we say 3F is involved, and even if we say costs and benefits are required, to suddenly say that means that the self-regulatory agency's budget, the cost to the agency itself is what 3F is requiring under these circumstances.

[01:05:35] Speaker 00:
Do we have case law that says that?

[01:05:38] Speaker 04:
I am not aware of cases either direction about the budget of the self-regulatory organization.

[01:05:46] Speaker 04:
I don't think it's controversial that 3F does apply.

[01:05:48] Speaker 04:
It does say review of a rule of a self-regulatory organization.

[01:05:52] Speaker 00:
Yeah, so I'm assuming that.

[01:05:53] Speaker 00:
Let's assume it applies.

[01:05:54] Speaker 00:
Let's assume we have cases that say it means costs and benefits.

[01:06:00] Speaker 00:
The question is why does costs and benefits include budget of organization in this way?

[01:06:06] Speaker 04:
So the neither 15A nor 3F lists out the costs and benefits.

[01:06:14] Speaker 04:
You have to know what the costs and benefits are.

[01:06:16] Speaker 04:
You have to think about what are the practical costs and benefits in any given situation.

[01:06:22] Speaker 04:
Of course, they are not spelled out in statute.

[01:06:25] Speaker 04:
In this case, the practical effect is, I think we all agree, Mr. Wyman and I agree, I think, that the

[01:06:34] Speaker 04:
FINRA is funded from two sources.

[01:06:37] Speaker 04:
Its internal budget does not magically stay internal.

[01:06:43] Speaker 04:
That is going to be a cost to the market one way or the other.

[01:06:47] Speaker 04:
So it is a genuine economic consequence.

[01:06:51] Speaker 04:
So it's not because the statute spells out, here are 15 economic consequences.

[01:06:55] Speaker 04:
Here are 15 costs to consider.

[01:06:57] Speaker 04:
It says consider effectively, assess the cost.

[01:07:01] Speaker 04:
And this is one of the costs.

[01:07:03] Speaker 04:
That's why.

[01:07:05] Speaker 04:
All right.

[01:07:06] Speaker 04:
And my points, yep.

[01:07:08] Speaker 02:
Can you just answer the answer, Judge Jackson, and then I have a different question?

[01:07:14] Speaker 02:
Or were you done?

[01:07:15] Speaker 04:
Oh, I just had one little thing to say, which is just about the burden.

[01:07:18] Speaker 04:
The burden being on the SRO is not, sorry, on FINRA is not from the statute.

[01:07:23] Speaker 04:
It is from Commission Rule 700B3, which says very clearly that FINRA has the burden to provide the evidence needed to support the analysis.

[01:07:32] Speaker 02:
That's what I was going to press you on.

[01:07:36] Speaker 02:
This is an APA case.

[01:07:42] Speaker 02:
It's done on a closed record.

[01:07:44] Speaker 02:
Even if I were to agree with you that this is the kind of cost

[01:07:53] Speaker 02:
the agency should consider is still a pretty big leap to say that the agency has the burden of developing the record on this point.

[01:08:07] Speaker 02:
Usually in a cost benefit situation, agency proposes some burdensome new rule, the regulated parties come in and put before the agency the evidence of all the costs,

[01:08:20] Speaker 02:
And then 3F requires the agency to explain why it should proceed.

[01:08:25] Speaker 02:
Here, you all didn't put in any evidence, unless I'm forgetting, that the cost of this would outweigh the benefits, right?

[01:08:40] Speaker 02:
So there's nothing in the record one way or the other on that point.

[01:08:45] Speaker 02:
So why does the agency not win under, I don't know, I guess I would say just general APA principles.

[01:09:00] Speaker 02:
They don't have to address a problem that is not developed in the record before them.

[01:09:05] Speaker 04:
So, Your Honor, there is a

[01:09:09] Speaker 04:
It comes back to this burden.

[01:09:12] Speaker 04:
I agree, the SEC was not responsible to develop the record.

[01:09:15] Speaker 04:
FINRA was responsible to develop the record.

[01:09:17] Speaker 04:
That is what the SEC's regulations say.

[01:09:19] Speaker 04:
And so what happened in the record was we said,

[01:09:23] Speaker 04:
This could be very expensive, you should make Finra tell you what the cost of it is going to be and you should be worried that it is going to be too expensive.

[01:09:31] Speaker 04:
We were not in fact the only people to say this multiple commenters did.

[01:09:35] Speaker 04:
And the, as I said credit roundtable said at the original guests about the price they're going to charge this is not going to be worth it.

[01:09:42] Speaker 04:
So under the regulations, the organization is supposed to write it.

[01:09:47] Speaker 02:
Just once more, this might be important to me.

[01:09:51] Speaker 02:
So just give me that site.

[01:09:52] Speaker 02:
Where would I find the competition that the burden of developing the evidentiary record on this point is within?

[01:10:01] Speaker 02:
Where would I find that?

[01:10:03] Speaker 04:
That's 17 CFR 201, I believe it is.

[01:10:08] Speaker 04:
Yes, 201.700B3.

[01:10:12] Speaker 04:
Okay.

[01:10:13] Speaker 04:
And that is cited in both of the briefs.

[01:10:16] Speaker 02:
And you made this argument to the agency?

[01:10:19] Speaker 04:
We did.

[01:10:20] Speaker 04:
And so the SEC routinely rejects rule proposals from exchanges and others for lack of evidence.

[01:10:32] Speaker 04:
They just didn't hear.

[01:10:37] Speaker 02:
So you would have to say it was arbitrary and capricious.

[01:10:41] Speaker 02:
Given this rule of law, it was arbitrary and capricious or there was no substantial evidence for them to conclude that FINRA had met its burden to show efficiency.

[01:10:58] Speaker 04:
Yes.

[01:10:58] Speaker 04:
Okay.

[01:10:58] Speaker 04:
Yes.

[01:10:59] Speaker 04:
Well said.

[01:11:00] Speaker 03:
Can you just answer quickly my question as if someone just wants this core reference data and that's all they want from Bloomberg.

[01:11:10] Speaker 03:
Is there a process now where they could just obtain that and that only that from Bloomberg.

[01:11:17] Speaker 04:
I regret to say that I can't answer that question either.

[01:11:20] Speaker 04:
I don't know their products in enough detail to know whether you can buy just that sliver.

[01:11:24] Speaker 04:
What I can say is that the record shows that Bloomberg's product is available on the same terms, whoever wants to buy it.

[01:11:33] Speaker 04:
So we find it somewhat surprising.

[01:11:37] Speaker 04:
You know, the STC says that there are investors and traders that are subscribers to other services and therefore can't get what they want.

[01:11:45] Speaker 04:
There's a fundamental economic illogic to that.

[01:11:49] Speaker 04:
If they want it and there's somebody willing to sell it, I don't know why they can't buy it.

[01:11:54] Speaker 04:
But in answer to your question, Your Honor, I don't know if Bloomberg sells a product that is just the 32.

[01:12:02] Speaker 03:
Well, there's lots of things that I want that people sell that I can't buy.

[01:12:07] Speaker 03:
But at any rate, those problems are my problems and not yours.

[01:12:12] Speaker 04:
Depends on the price.

[01:12:14] Speaker 04:
And of course, we don't know what the price of the FINRA system is either.

[01:12:17] Speaker 03:
So all right.

[01:12:19] Speaker 03:
Well, thank you.

[01:12:19] Speaker 03:
We will take the matter under advisement.